<PAGE>
PROSPECTUS
HOMESTEAD BANCORP, INC.
(Proposed Holding Company for Ponchatoula Homestead Savings, F.A.)
Minimum of 949,908 and Maximum of 1,285,170 Shares of Common Stock,
Consisting of a Minimum of 722,500 and Maximum of 977,500 Shares of Common
Stock and a Minimum of 227,408 and Maximum of 307,670 Exchange Shares
Homestead Bancorp, Inc. (the "Company"), a Louisiana corporation, is
offering shares of its common stock, par value $.01 per share (the "Common
Stock"), in connection with the conversion and reorganization of Ponchatoula
Homestead Savings, F.A. ("Ponchatoula") from the mutual holding company
structure to the stock holding company structure (the "Conversion"). Ponchatoula
is currently a majority-owned subsidiary of Homestead Mutual Holding Company
(the "MHC"), which will be merged out of existence, and Ponchatoula will become
a wholly owned subsidiary of the Company.
The Company is offering a minimum of 722,500 shares and a maximum of
977,500 shares of common stock (the "Conversion Stock") at $10.00 per share to
persons with priority subscription rights in a subscription offering and to
other members of the public in a community offering (the "Offerings"). These
shares represent the MHC's ownership interest in Ponchatoula based on an
independent appraisal, which may be increased by up to 15% without a
resolicitation. The table below sets forth information regarding the sale of
Conversion Stock in the Offerings.
The Company will also issue a minimum of 227,408 shares and a maximum of
307,670 shares of common stock (the "Exchange Shares") to the stockholders of
Ponchatoula (other than the MHC) in exchange for their Ponchatoula common stock
(the "Exchange"). The Company will not pay or receive any cash in the Exchange,
except that cash will be paid in lieu of fractional shares . The number of
Exchange Shares to be issued is dependent upon the amount of Conversion Stock
sold, with an exchange ratio designed to provide Ponchatoula's stockholders
(other than the MHC) with approximately the same percentage ownership interest
in the Company that they have in Ponchatoula.
The sum of the Conversion Stock and the Exchange Shares represents the
total amount of Common Stock to be issued in the Conversion, which sum is a
minimum of 949,908 shares and a maximum of 1,285,170 shares. If the independent
appraisal is increased by 15%, the maximum amount of Conversion Stock , Exchange
Shares and total shares would be increased to 1,124,125 shares, 353,820 shares
and 1,477,945 shares, respectively.
It is unlikely that an active and liquid market for the Common Stock will
develop. See "Risk Factors - Market for Common Stock." FOR A DISCUSSION OF
VARIOUS FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE "RISK
FACTORS" BEGINNING ON PAGE 18.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, OR ANY
OTHER FEDERAL AGENCY OR STATE SECURITIES COMMISSION, NOR HAS
ANY SUCH COMMISSION, OFFICE OR AGENCY PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
<TABLE>
<CAPTION>
Estimated
Underwriting
Subscription Fees and Other Estimated Net
Price(1) Expenses(2) Proceeds(3)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Minimum Per Share $10.00 $ .58 $ 9.42
- --------------------------------------------------------------------------------
Midpoint Per Share $10.00 $ .51 $ 9.49
- --------------------------------------------------------------------------------
Maximum Per Share $10.00 $ .46 $ 9.54
- --------------------------------------------------------------------------------
Maximum Per Share,
as adjusted $10.00 $ .41 $ 9.59
- --------------------------------------------------------------------------------
Total Minimum(1) $7,225,000 $ 421,179 $ 6,803,821
- --------------------------------------------------------------------------------
Total Midpoint(1) $8,500,000 $ 434,375 $ 8,065,625
- --------------------------------------------------------------------------------
Total Maximum(1) $9,775,000 $ 447,571 $ 9,327,429
- --------------------------------------------------------------------------------
Total Maximum, as
adjusted(1) $11,241,250 $ 462,747 $ 10,778,503
================================================================================
</TABLE>
(Footnotes on next page)
TRIDENT SECURITIES, INC.
The date of this Prospectus is May 14, 1998.
<PAGE>
(Footnotes from page 1)
(1) Based upon the minimum, midpoint, maximum and 15% above the maximum ,
respectively, of the portion of the independent appraisal attributable to
the Conversion Stock.
(2) Consists of the estimated costs to be incurred in connection with the
Conversion, including estimated fixed expenses of $350,000 and marketing
fees to be paid to Trident in connection with the Offerings, which fees
are estimated to be a minimum of $71,179 and a maximum of $97,571. See
"The Conversion Marketing Arrangements." The actual fees and expenses may
vary from the estimates. Such fees paid to Trident may be deemed to be
underwriting fees. See "Pro Forma Data."
(3) Actual net proceeds may vary substantially from estimated amounts
depending on the number of shares sold in the Offerings and other factors.
Does not give effect to purchases of shares of Conversion Stock by the
Company's employee stock ownership plan, which initially will be deducted
from the Company's stockholders' equity. For the effects of such
purchases, see "Capitalization" and "Pro Forma Data."
The Company, Ponchatoula and the MHC have engaged Trident Securities, Inc.
("Trident") to consult with and advise them in the Conversion, and Trident has
agreed to use its best efforts to solicit subscriptions and purchase orders for
shares of Conversion Stock in the Offerings. Trident is not obligated to take or
purchase any shares of Conversion Stock in the Offerings. See "The Conversion -
Marketing Arrangements."
The subscription offering will terminate at noon, Central Time, on
June 23, 1998 (the "Expiration Date"), unless extended for a maximum of 90
days at a time with approval of the Office of Thrift Supervision ("OTS"), if
necessary. The community offering is expected to terminate at the same time
as the subscription offering. The community offering must be completed within
45 days after the close of the subscription offering, or August 7, 1998,
unless extended for a maximum of 90 days at a time with the approval of the
OTS, if necessary, except that the extensions may not go beyond July 1, 2000.
Orders submitted are irrevocable until the completion of the Conversion;
provided that, if the Conversion is not completed within the 45-day period
referred to above, unless such period has been extended with the consent of
the OTS, if necessary, all subscribers will have their funds returned
promptly with interest, and all withdrawal authorizations will be cancelled.
If the Offerings are extended beyond August 7, 1998, all subscribers will be
given the opportunity to modify or cancel their orders and subscribers who do
not affirmatively elect to continue with an order will have their funds
returned promptly with interest (and any withdrawal authorizations will be
cancelled) after the end of the extension period. See "The Conversion - The
Offerings - Subscription Offering."
Independent Valuation. RP Financial, Inc. ("RP Financial") has
prepared an independent appraisal, which states that the estimated pro forma
market value of Ponchatoula and the Mutual Holding Company on a combined basis
was $11,175,390 as of March 20, 1998 (the "Appraisal"). The Appraisal was
multiplied by the Mutual Holding Company's adjusted percentage interest in
Ponchatoula to determine a midpoint ($8,500,000), and the minimum and maximum
range were set at 15% below and above the midpoint, respectively, resulting in a
range of $7,225,000 to $9,775,000 for the Conversion Stock (the "Estimated
Valuation Range").
Based upon the Estimated Valuation Range, the Exchange Ratio is expected
to range from 1.51499 Exchange Shares to 2.04970 Exchange Shares for each
share of Ponchatoula common stock outstanding (other than those held by the
MHC, which will be cancelled). Accordingly, the value of the Exchange Shares is
expected to range from $2,274,080 to $3,076,700, or between 227,408 and 307,670
Exchange Shares. The Estimated Valuation Range may be increased or decreased to
reflect changes in market and economic conditions prior to completion of the
Conversion, and under certain circumstances specified herein subscribers will be
resolicited and given the right to modify or cancel their orders. See "The
Conversion - Stock Pricing, Exchange Ratio and Number of Shares to be Issued."
Purchase Limitations. The Plan sets forth various purchase
limitations which are applicable in the Offerings. See "The Conversion - The
Offerings - Subscription Offering," "- Community Offering," "-Syndicated
Community Offering" and "- Limitations on Conversion Stock Purchases."
Required Approvals. The consummation of the Conversion is subject to
the receipt of various regulatory approvals and the approval of the members of
the Mutual Holding Company and the stockholders of Ponchatoula in the manner set
forth herein.
2
<PAGE>
[Map to be inserted which shows the State of Louisiana, with an
enlargement of Tangipahoa Parish showing the towns of Ponchatoula and Amite.]
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY.
3
<PAGE>
SUMMARY
This summary is qualified in its entirety by the more detailed information
regarding Ponchatoula and the Mutual Holding Company and the Financial
Statements of Ponchatoula appearing elsewhere in this Prospectus.
Homestead Bancorp, Inc.
Homestead Bancorp, Inc. is a Louisiana corporation organized in February
1998 by Ponchatoula for the purpose of holding all of the capital stock of
Ponchatoula and in order to facilitate the Conversion. Upon completion of the
Conversion, the only significant assets of the Company will be all of the
outstanding Ponchatoula Common Stock, the note evidencing the Company's loan to
the ESOP and the portion of the net proceeds from the Offerings retained by the
Company. The business of the Company will initially consist of the business of
Ponchatoula. See "Business" and "Regulation - The Company."
Ponchatoula Homestead Savings, F.A.
Ponchatoula Homestead Savings, F.A. is a federally chartered stock savings
institution that was organized on August 31, 1994 as a subsidiary of the Mutual
Holding Company. Prior to that date, Ponchatoula Homestead Association
("Ponchatoula Homestead"), the predecessor to Ponchatoula in its mutual form,
had operated in the market area now served by Ponchatoula. In connection with
the organization of the Mutual Holding Company (the "MHC Reorganization"),
Ponchatoula Homestead transferred substantially all of its assets and
liabilities to Ponchatoula in exchange for 456,240 shares of Ponchatoula Common
Stock and converted its charter to that of a federal mutual holding company
known as Homestead Mutual Holding Company. As part of the MHC Reorganization,
Ponchatoula also sold an additional 143,760 shares of Ponchatoula Common Stock
to certain members of the general public. After taking into account the issuance
of 6,345 shares pursuant to stock benefit plans, Ponchatoula has 150,105
outstanding shares of Ponchatoula Common Stock ("Public Ponchatoula Shares")
that are held by persons other than the Mutual Holding Company ("Public
Stockholders").
Ponchatoula is primarily engaged in attracting deposits from the general
public through its offices and using such funds to originate loans secured by
single-family residences located primarily in Tangipahoa, Livingston and St.
Helena Parishes, Louisiana and to purchase mortgage-backed securities.
Ponchatoula's single-family residential loans amounted to $20.1 million or 63.9%
of Ponchatoula's total loan and lease portfolio (including loans held for sale)
and 33.8% of total assets at December 31, 1997, and mortgage-backed securities
amounted to $24.6 million or 41.2% of total assets at December 31, 1997. To a
much lesser extent, Ponchatoula originates construction loans secured by
single-family residential real estate, which amounted to $3.2 million or 10.3%
of the total loan and lease portfolio (including loans held for sale) at
December 31, 1997, as well as consumer loans, which amounted to $7.2 million or
22.8% of the total loan and lease portfolio (including loans held for sale) at
such date. Ponchatoula also originates commercial real estate loans and land
loans to a limited extent and invests in interest-bearing deposits in other
financial institutions and U.S. Government and federal agency obligations.
Ponchatoula's leases are bond for deed contracts in which Ponchatoula
retains title to the property until all payments are made on the contract, at
which time Ponchatoula transfers the title to the lessee. Total leases amounted
to $301,000 at December 31, 1997. Ponchatoula has not originated any leases
since 1995 and does not anticipate originating any leases in the foreseeable
future.
Ponchatoula is a community-oriented savings institution which emphasizes
customer service and convenience. As part of this strategy, Ponchatoula has
developed a variety of products and services which meet the needs of its retail
customers. Ponchatoula generally has sought to achieve long-term financial
strength and stability by (i) increasing the amount and stability of its net
interest income, (ii) managing its assets and liabilities to reduce its
vulnerability to changes in interest rates, and (iii) maintaining a high level
of regulatory capital. In pursuit of these goals, Ponchatoula has adopted a
number of complementary business strategies which emphasize retail lending and
4
<PAGE>
deposit products and services traditionally offered by savings institutions.
Highlights of Ponchatoula's business strategy include the following:
Emphasis on Traditional Lending and Investment Activities. Management
believes that Ponchatoula is more likely to achieve its goals of long-term
financial strength and profitability by emphasizing retail products and
services, as opposed to wholesale or commercial activities. Ponchatoula's
primary lending emphasis is the origination of loans secured by first liens on
single-family (one-to-four units) residences and, to a lesser extent, consumer
loans, such as second mortgages and home equity and improvement loans. At
December 31, 1997, Ponchatoula's net loans and leases (including loans held for
sale) amounted to $29.5 million or 49.5% of Ponchatoula's total assets. In
addition, $24.6 million or 41.2% of Ponchatoula's total assets at December 31,
1997 consisted of adjustable-rate mortgage-backed securities, which are backed
by single-family residential loans.
Interest Rate Risk Management. Ponchatoula has implemented a strategy
designed to maintain the interest rate maturity of its assets relative to its
liabilities. The primary elements of the strategy include (i) purchasing
adjustable-rate mortgage-backed securities and short-term investment securities,
(ii) emphasizing the origination of 15-year, fixed-rate single-family
residential loans and, to the extent possible, adjustable-rate mortgages
("ARMs"), (iii) selling newly-originated, 30-year, fixed-rate single-family
residential loans in the secondary market, except that commencing February 1998
Ponchatoula began retaining a portion of such loans and matching them with
long-term FHLB advances, and (iv) managing interest rate expense. Based upon
certain repricing assumptions, Ponchatoula's interest-bearing liabilities
repricing or maturing within one year exceeded its interest-earning assets with
similar characteristics by $2.3 million or 3.8% of total assets at December 31,
1997.
Emphasis on Retail Deposits. Ponchatoula's liability strategy emphasizes
retail deposits obtained through its offices. This strategy is facilitated by
Ponchatoula's emphasis on lower-costing passbook savings, negotiable order of
withdrawal ("NOW") and money market accounts, which in the aggregate amounted to
$10.7 million or 25.3% of Ponchatoula's total deposits at December 31, 1997. At
December 31, 1997, the weighted average rate paid on Ponchatoula's passbook
savings, NOW and money market accounts amounted to 2.41%, as compared to a
weighted average rate paid of 5.24% on Ponchatoula's certificates of deposits at
such date.
High Asset Quality. Total non-performing assets have declined from .76% of
total assets at December 31, 1995 to .29% of total assets at December 31, 1997.
Non-accruing single-family residential loans and leases represented 100% of the
total non-performing assets at December 31, 1997 and 1995, and these
non-accruing loans have steadily declined in recent years. Single-family real
estate owned accounted for 27.9% of total non-performing assets at December 31,
1996, but all of such real estate owned was sold in 1997. At December 31, 1997,
Ponchatoula's allowance for loan and lease losses equalled $265,000 or .84% of
total loans and leases outstanding.
Maintain High Levels of Regulatory Capital. Ponchatoula seeks to maintain
high levels of regulatory capital to give it maximum flexibility in the changing
regulatory environment and to respond to changes in market and economic
conditions. At December 31, 1997, Ponchatoula's tangible, core and risk-based
capital ratios amounted to 9.68%, 9.68% and 23.69%, respectively, which exceeded
the minimum requirements of 1.5%, 3.0% and 8.0% by $4.9 million, $4.0 million
and $4.0 million, respectively. The Conversion will further increase
Ponchatoula's regulatory capital, as Ponchatoula's pro forma tangible capital
ratio will increase to 14.01% if Conversion Shares are sold at the midpoint of
the Estimated Valuation Range. The pro forma capital levels may initially result
in the Company's return on equity being below the industry average. See "Risk
Factors - Potential Low Return on Equity Following the Conversion; Uncertainty
as to Future Growth Opportunities." To manage its capital levels, the Company
intends to consider stock repurchases and/or returns of capital as soon as
permissible following the Conversion. See "Use of Proceeds."
Ponchatoula is subject to extensive regulation, supervision and
examination by the Office of Thrift Supervision ("OTS"), its primary federal
regulator, and by the Federal Deposit Insurance Corporation ("FDIC"), which
insures its deposits up to applicable limits. Such regulation and supervision
establishes a comprehensive framework of activities in which an institution may
engage and is intended primarily for the protection of depositors
5
<PAGE>
and the Savings Association Insurance Fund ("SAIF") administered by the FDIC.
Ponchatoula is also a member of the Federal Home Loan Bank ("FHLB") of Dallas,
which is one of the 12 banks which comprise the FHLB System. Ponchatoula is
further subject to regulations of the Board of Governors of the Federal Reserve
System ("Federal Reserve Board") governing reserves required to be maintained
against deposits and certain other matters.
Ponchatoula's executive offices are located at 195 North Sixth Street,
Ponchatoula, Louisiana 70454, and its telephone number is (504) 386-3379.
Homestead Mutual Holding Company
Homestead Mutual Holding Company is a federally chartered mutual holding
company chartered on August 31, 1994 in connection with the MHC Reorganization.
The Mutual Holding Company's primary asset is 456,240 shares of Ponchatoula
Common Stock, which represents 75.2% of the shares of Ponchatoula Common Stock
outstanding as of the date of this Prospectus. The Mutual Holding Company's only
other asset consists of a deposit account in the amount of $101,675 as of
December 31, 1997 (which will become an asset of Ponchatoula upon consummation
of the Conversion). As part of the Conversion, the Mutual Holding Company will
convert from mutual form to a federal interim stock savings institution and
simultaneously merge with and into Ponchatoula, with Ponchatoula being the
surviving entity.
The Conversion
On February 25, 1998, the Boards of Directors of Ponchatoula and the
Mutual Holding Company adopted the Plan, and as of February 27, 1998 Ponchatoula
incorporated the Company under Louisiana law as a first-tier wholly owned
subsidiary of Ponchatoula. Pursuant to the Plan, (i) the Mutual Holding Company
will convert to an interim federal stock savings institution and simultaneously
merge with and into Ponchatoula, pursuant to which the Mutual Holding Company
will cease to exist and the 456,240 shares of Ponchatoula Common Stock held by
the Mutual Holding Company will be cancelled, and (ii) an interim savings
institution ("Interim") to be formed as a wholly owned subsidiary of the Company
solely for such purpose will then merge with and into Ponchatoula. As a result
of the merger of Interim with and into Ponchatoula, Ponchatoula will become a
wholly owned subsidiary of the Company and the 150,105 outstanding Public
Ponchatoula Shares will be converted into Exchange Shares pursuant to the
Exchange Ratio, which will result in the holders of such shares owning in the
aggregate approximately the same percentage of the Common Stock to be
outstanding upon completion of the Conversion (i.e., the Conversion Stock and
the Exchange Shares) as the percentage of Ponchatoula Common Stock owned by them
in the aggregate immediately prior to consummation of the Conversion (as
adjusted to reflect the dividends previously waived by the Mutual Holding
Company), before giving effect to (a) the payment of cash in lieu of issuing
fractional Exchange Shares, (b) any shares of Conversion Stock purchased by
Ponchatoula's stockholders in the Offerings, and (c) any exercise of dissenters'
rights.
Because the Mutual Holding Company has previously waived dividends
declared by Ponchatoula and paid to the Public Stockholders, for purposes of the
Conversion the respective percentage ownership interests of the Mutual Holding
Company and the Public Stockholders were adjusted to reflect the waived
dividends. As a result, the Mutual Holding Company's percentage interest
increased from 75.2% to 76.06%, and the aggregate percentage interest of the
Public Stockholders decreased from 24.8% to 23.94%. These ownership interests
will be adjusted immediately prior to consummation of the Conversion to reflect
additional dividends waived by the Mutual Holding Company.
In addition to the Exchange Shares to be issued to the Public Stockholders
pursuant to the Exchange, the Company is offering shares of Conversion Stock in
the Offerings as part of the Conversion. See "- The Offerings" below and "The
Conversion - The Offerings."
6
<PAGE>
Under OTS regulations, Public Stockholders of Ponchatoula have dissenters'
rights of appraisal in connection with the Conversion. Holders of Ponchatoula
Common Stock who elect to exercise such rights must carefully satisfy certain
requirements as described under "The Conversion - Dissenters' Rights of
Appraisal," in which event the holders of such shares ("Dissenting Shares") will
receive cash for their shares rather than Exchange Shares. Because the Board of
Directors of Ponchatoula recommends that Public Stockholders vote in favor of
the Conversion, the Board of Directors does not recommend that Public
Stockholders exercise dissenters' rights.
The following diagram outlines the current organizational structure of the
parties' ownership interests:
- ----------------------------------- -----------------------------------
Homestead Mutual Holding Company Holders of Public Ponchatoula
Shares
- ----------------------------------- -----------------------------------
| |
| 75.2% | 24.8%
| |
|-----------------------------------------|
Ponchatoula Homestead Savings, F.A.
-----------------------------------------
|
| 100%
|
-----------------------------------------
Homestead Bancorp, Inc.
-----------------------------------------
|
| 100%
|
-----------------------------------------
Interim (to be formed)
-----------------------------------------
7
<PAGE>
The following diagram reflects the resulting structure of the parties upon
consummation of the Conversion, including (i) the merger of the Mutual Holding
Company (following its conversion into an interim federal stock savings
institution) with and into Ponchatoula, (ii) the merger of Interim with and into
Ponchatoula, pursuant to which the Public Ponchatoula Shares will be converted
into Exchange Shares, and (iii) the offering of Conversion Stock. The aggregate
percentage interest of the holders of Public Ponchatoula Shares was decreased
from 24.8% to 23.94% to reflect the dividends that were previously paid to the
Public Stockholders but waived by the Mutual Holding Company. The diagram
assumes that there are no fractional Exchange Shares and does not give effect
to (i) purchases of Conversion Stock by holders of Public Ponchatoula Shares,
(ii) the exercise of outstanding stock options, or (iii) any exercise of
dissenters' rights.
- ------------------------------------- ---------------------------------
Purchasers of Conversion Stock Holders of Public
Ponchatoula Shares
- ------------------------------------- ---------------------------------
| |
76.06% | | 23.94%
--------------------------------------------------------
Homestead Bancorp, Inc.
--------------------------------------------------------
|
| 100%
--------------------------------------------------------
Ponchatoula Homestead Savings, F.A.
--------------------------------------------------------
Pursuant to OTS regulations, consummation of the Conversion is conditioned
upon the approval of the Plan by the OTS, as well as (1) the approval of the
holders of at least a majority of the total number of votes eligible to be cast
by the members of the Mutual Holding Company ("Members") as of the close of
business on May 4, 1998 (the "Voting Record Date") at a special meeting of
Members called for the purpose of submitting the Plan for approval (the
"Members' Meeting"), and (2) the approval of the holders of at least two-thirds
of the outstanding shares of Ponchatoula Common Stock held by the Mutual Holding
Company and the Public Stockholders (collectively, the "Stockholders"), as of
the Voting Record Date at a special meeting of Stockholders called for the
purpose of considering the Plan (the "Stockholders' Meeting"). The Mutual
Holding Company intends to vote its shares of Ponchatoula Common Stock, which
amount to 75.2% of the outstanding shares, in favor of the Plan at the
Stockholders' Meeting. In addition, the Primary Parties have conditioned the
consummation of the Conversion on the approval of the Plan by at least a
majority of the votes cast, in person or by proxy, by the Public Stockholders at
the Stockholders' Meeting.
Purposes of the Conversion
A principal purpose of the Conversion is to structure the Company in a
form used by most other holding companies of savings institutions and commercial
banks and most other business entities, which, with the increased capital
resulting from the Offerings, will support the future expansion of operations of
Ponchatoula, as well as possible diversification into other banking-related
businesses and for other business or investment purposes. Although
8
<PAGE>
there are no current arrangements, understandings or agreements regarding such
opportunities, the Company will be in a position after the Conversion, subject
to regulatory limitations and the Company's financial position, to take
advantage of any additional opportunities for such expansion that may arise in
the future.
The Offerings will also result in more shares of Common Stock outstanding,
which should result in a more active and liquid market for the Common Stock than
currently exists for the Ponchatoula Common Stock, although there can be no
assurances that this will be the case. See "Risk Factors - Market for Common
Stock."
If Ponchatoula had undertaken a standard conversion involving the
formation of a stock holding company in 1994, applicable OTS regulations would
have required a greater amount of common stock to be sold than the $1.2 million
of net proceeds raised in the MHC Reorganization. Management of Ponchatoula
believed that it may have been difficult to prudently invest in a timely manner
the larger amount of capital that would have been raised in a standard
conversion, when compared to the net proceeds raised in connection with the MHC
Reorganization. A standard conversion in 1994 also would have immediately
eliminated all aspects of the mutual form of organization.
The Offerings will further increase the capital of the Company and
Ponchatoula and provide them with additional flexibility to grow and increase
net income.
In light of the foregoing, the Boards of Directors of Ponchatoula and the
Mutual Holding Company believe that the Conversion is in the best interests of
such companies and their respective Stockholders and Members. See "The
Conversion."
The Offerings
Pursuant to the Plan and in connection with the Conversion, the Company is
offering up to 977,500 shares of Conversion Stock in the Offerings, which may be
increased to up to 1,124,125 shares of Conversion Stock if the Estimated
Valuation Range is increased by up to 15%. Conversion Stock is first being
offered in the Subscription Offering with nontransferable subscription rights
being granted, in the following order of priority, to (i) depositors of
Ponchatoula with account balances of $50.00 or more as of the close of business
on December 31, 1996 ("Eligible Account Holders"); (ii) the ESOP; (iii)
depositors of Ponchatoula with account balances of $50.00 or more as of the
close of business on March 31, 1998 ("Supplemental Eligible Account Holders");
(iv) depositors of Ponchatoula as of the Voting Record Date, May 4, 1998
(other than Eligible Account Holders and Supplemental Eligible Account Holders)
("Other Members"); (v) directors, officers and employees of the Mutual Holding
Company and Ponchatoula; and (vi) Public Stockholders. Subscription rights will
expire if not exercised by noon, Central Time, on June 23, 1998, unless
extended.
Subject to the prior rights of holders of subscription rights, Conversion
Stock not subscribed for in the Subscription Offering is being offered in the
Community Offering to certain members of the general public to whom a copy of
this Prospectus is delivered, with preference given to natural persons residing
in Tangipahoa Parish, Louisiana. It is anticipated that shares not subscribed
for in the Subscription and Community Offerings will be offered to certain
members of the general public in a Syndicated Community Offering. The Primary
Parties reserve the absolute right to reject or accept any orders in the
Community Offering or the Syndicated Community Offering, in whole or in part,
either at the time of receipt of an order or as soon as practicable following
the Expiration Date.
The Primary Parties have retained Trident as a consultant and advisor in
connection with the Offerings and to assist in soliciting subscriptions in the
Offerings. See "The Conversion - The Offerings - Subscription Offering," "-
Community Offering," "- Syndicated Community Offering" and "- Marketing
Arrangements."
Restrictions on Transfer of Subscription Rights
Prior to the completion of the Conversion, no person may transfer or enter
into any agreement or understanding to transfer the legal or beneficial
ownership of the subscription rights issued under the Plan or the
9
<PAGE>
shares of Common Stock to be issued upon their exercise. Each person exercising
subscription rights will be required to certify that the purchase of Common
Stock is solely for the purchaser's own account and that there is no agreement
or understanding regarding the sale or transfer of such shares. See "The
Conversion - Restrictions on Transfer of Subscription Rights and Shares."
Subscription rights are nontransferable and persons found to be attempting to
transfer subscription rights will be subject to the forfeiture of such rights
and possible further sanctions and penalties imposed by the OTS. The Company and
Ponchatoula intend to pursue any and all legal and equitable remedies in the
event they become aware of the transfer of subscription rights and will not
honor orders known by them to involve the transfer of such rights.
Purchase Limitations
With the exception of the ESOP, which intends to purchase up to an
aggregate of 8% of the number of shares of Conversion Stock to be issued in the
Offerings, no Eligible Account Holder, Supplemental Eligible Account Holder,
Other Member, director, officer or employee or Public Stockholder may purchase
in their capacity as such in the Subscription Offering more than 1% of the
Conversion Stock sold in the Offerings (9,775 shares of Conversion Stock at the
maximum of the Estimated Valuation Range); no person may purchase in each of the
Community Offering and any Syndicated Community Offering more than 1% of the
Conversion Stock; and no person, together with associates of or persons acting
in concert with such person, may purchase in the Offerings more than the number
of shares of Conversion Stock that when combined with Exchange Shares received
by such person, together with associates of and persons acting in concert with
such person, aggregate more than 3% of the total number of shares of Common
Stock issued in the Conversion (28,497 shares and 38,555 shares at the minimum
and maximum of the Estimated Valuation Range, respectively). At any time during
the Offerings, and without further approval by the Members or the Stockholders,
the Primary Parties may in their sole discretion decrease or increase any of the
purchase limitations up to 5% of the Common Stock issued in the Conversion.
Under certain circumstances, certain subscribers may be resolicited in the event
of such an increase. The minimum purchase is 25 shares. See "The Conversion -
Limitations on Conversion Stock Purchases." In the event of an oversubscription,
shares will be allocated in accordance with the Plan, as described under "The
Conversion - The Offerings - Subscription Offering" and "- Community Offering."
Because the overall purchase limitation contained in the Plan of Conversion
includes Exchange Shares to be issued to Public Stockholders for their Public
Ponchatoula Shares, certain holders of Public Ponchatoula Shares may be limited
in their ability to purchase Conversion Stock in the Offerings.
The term "acting in concert" means (i) knowing participation in a joint
activity or interdependent conscious parallel action towards a common goal
whether or not pursuant to an express agreement; or (ii) a combination or
pooling of voting or other interests in the securities of an issuer for a common
purpose pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise. The Company and Ponchatoula may
presume that certain persons are acting in concert based upon, among other
things, joint account relationships and the fact that such persons have filed
joint Schedule 13Ds with the Securities and Exchange Commission ("SEC") with
respect to other companies. The term "associate" of a person is defined in the
Plan of Conversion to mean (i) any corporation or organization (other than the
Mutual Holding Company, Ponchatoula or a majority-owned subsidiary of
Ponchatoula or the Company) of which such person is a director, officer or
partner or is, directly or indirectly, the beneficial owner of 10% or more of
any class of equity securities; (ii) any trust or other estate in which such
person has a substantial beneficial interest or as to which such person serves
as trustee or in a similar fiduciary capacity (excluding tax-qualified employee
benefit plans of the Company or Ponchatoula); and (iii) any relative or spouse
of such person, or any relative of such spouse, who either has the same home as
such person or who is a director or officer of the Company or Ponchatoula or any
of their subsidiaries. In addition, joint account relationships and common
addresses will be taken into account in applying the maximum purchase
limitations.
Stock Pricing, Exchange Ratio and Number of Shares to be Issued in the
Conversion
Federal regulations require the aggregate purchase price of the Conversion
Stock to be consistent with RP Financial's pro forma appraisal of Ponchatoula
and the Mutual Holding Company, which was $11,175,390 as of
10
<PAGE>
March 20, 1998. The holders of the Public Ponchatoula Shares will continue to
hold the same aggregate percentage ownership interest in the Company as they
held in Ponchatoula as adjusted to reflect the dividends waived by the Mutual
Holding Company and before giving effect to any shares of Common Stock purchased
by Ponchatoula's stockholders in the Offerings, the payment of cash in lieu of
issuing fractional Exchange Shares and any Dissenting Shares . As a result,
the Appraisal was multiplied by the Mutual Holding Company's adjusted percentage
interest in Ponchatoula, which corresponds with the amount of Conversion Stock
to be sold in the Offerings (i.e., 76.06%), to determine the midpoint of the
Estimated Valuation Range, which was $8,500,000. In accordance with OTS
regulations, the minimum and maximum of the Estimated Valuation Range were set
at 15% below and above the midpoint, respectively, resulting in an offering
range for the Conversion Stock of $7,225,000 to $9,775,000. The full text of the
appraisal report of RP Financial describes the procedures followed, the
assumptions made, limitations on the review undertaken and matters considered.
The appraisal report has been filed as an exhibit to the Registration Statement
and Application for Conversion of which this Prospectus is a part, and is
available in the manner set forth under "Additional Information." This appraisal
of the Conversion Stock is not intended and should not be construed as a
recommendation of any kind as to the advisability of purchasing such stock.
All shares of Conversion Stock will be sold at the Purchase Price of
$10.00 per share, which was established by the Boards of Directors of the
Primary Parties. The actual number of shares to be issued in the Offerings will
be determined by the Primary Parties based upon the final updated valuation of
the estimated pro forma market value of the Conversion Stock at the completion
of the Offerings. The number of shares of Conversion Stock to be issued is
expected to range from a minimum of 722,500 shares to a maximum of 977,500
shares. Subject to approval of the OTS, the Estimated Valuation Range may be
increased or decreased to reflect market and economic conditions prior to the
completion of the Offerings, and under such circumstances the Primary Parties
may increase or decrease the number of shares of Conversion Stock. No
resolicitation of subscribers will be made and subscribers will not be permitted
to modify or cancel their subscriptions unless (i) the gross proceeds from the
sale of the Conversion Stock are less than the minimum or more than 15% above
the maximum of the current Estimated Valuation Range or (ii) the Offerings are
extended beyond August 7, 1998. Any increase or decrease in the number of shares
of Conversion Stock will result in a corresponding change in the number of
Exchange Shares, so that upon consummation of the Conversion, the Conversion
Stock and the Exchange Shares will represent approximately 76.06% and 23.94%,
respectively, of the Company's total outstanding shares (excluding cash in lieu
of fractional Exchange Shares as well as any Dissenting Shares). See "Pro Forma
Data," "Risk Factors - Possible Dilutive Effect of Issuance of Additional
Shares" and "The Conversion - Stock Pricing, Exchange Ratio and Number of Shares
to be Issued."
Based on the 150,105 Public Ponchatoula Shares outstanding at March 31,
1998, and assuming a minimum of 722,500 and a maximum of 977,500 shares of
Conversion Stock are issued in the Offerings, the Exchange Ratio is expected to
range from approximately 1.51499 Exchange Shares to 2.04970 Exchange Shares for
each Public Ponchatoula Share outstanding immediately prior to the consummation
of the Conversion. The Exchange Ratio will be affected if any stock options to
purchase shares of Ponchatoula Common Stock are exercised after March 31, 1998
and prior to consummation of the Conversion. If any of such stock options are
outstanding immediately prior to consummation of the Conversion, they will be
converted into options to purchase shares of Common Stock, with the number of
shares subject to the option and the exercise price per share to be adjusted
based upon the Exchange Ratio so that the aggregate exercise price remains
unchanged, and with the duration of the option remaining unchanged. At March 31,
1998, there were options to purchase 13,643 shares of Ponchatoula Common Stock
outstanding, all of which had an exercise price of $10.00 per share, and
Ponchatoula has no plans to grant additional stock options prior to the
consummation of the Conversion.
The following table sets forth, based upon the minimum, midpoint, maximum
and 15% above the maximum of the Estimated Valuation Range, the following: (i)
the total number of shares of Conversion Stock and Exchange Shares to be issued
in the Conversion, (ii) the percentage of the total Common Stock represented by
the Conversion Stock and the Exchange Shares, and (iii) the Exchange Ratio. The
table assumes that there are no Dissenting Shares or fractional Exchange Shares.
11
<PAGE>
<TABLE>
<CAPTION>
Conversion Stock to Be Exchange Shares
Issued(1) to be Issued(1) Total Shares of
----------------------- ------------------ Common Stock to Exchange
Amount Percent Amount Percent be Outstanding(1) Ratio(1)
--------- -------- ------- ------- ----------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Minimum 722,500 76.06% 227,408 23.94% 949,908 1.51499
Midpoint 850,000 76.06 267,539 23.94 1,117,539 1.78235
Maximum 977,500 76.06 307,670 23.94 1,285,170 2.04970
15% above maximum 1,124,125 76.06 353,820 23.94 1,477,945 2.35715
</TABLE>
- ----------
(1) Assumes that outstanding options to purchase 13,643 shares of Ponchatoula
Common Stock at March 31, 1998 are not exercised prior to consummation of
the Conversion. Ponchatoula's directors and executive officers currently
do not expect to exercise their stock options prior to consummation of the
Conversion .
The final Exchange Ratio will be determined based upon the number of
shares issued in the Offerings in order to maintain the Public Stockholders'
adjusted 23.94% ownership interest in Ponchatoula and will not be based upon the
market value of the Public Ponchatoula Shares. As an example of the Exchange
Ratio, at the minimum, midpoint and maximum of the Estimated Valuation Range,
1,000 Public Ponchatoula Shares will be exchanged for 1,514, 1,782 and 2,049
whole shares of Common Stock, respectively, plus cash in lieu of any fractional
share at the rate of $10.00 per whole share (which shares and cash have a
calculated equivalent estimated value of $15,149.90, $17,823.50 and $20,497.70
based on the $10.00 Purchase Price of a share of Common Stock in the Offerings
and the aforementioned Exchange Ratios). However, there can be no assurance as
to the actual market value of a share of Common Stock after the Conversion or
that such shares could be sold at or above the $10.00 Purchase Price.
Benefits of Conversion to Directors and Officers
Stock Option and Recognition Plans. The Company intends to adopt certain
stock benefit plans for the benefit of directors, officers and employees of the
Company and Ponchatoula and to submit such plans to stockholders for approval at
an annual or special meeting of stockholders of the Company to be held at least
six months following the consummation of the Conversion. The proposed benefit
plans are as follows: (i) a 1998 Stock Option Plan, pursuant to which a number
of authorized but unissued shares of Common Stock equal to 10% of the Conversion
Stock to be sold in the Offerings (97,750 shares at the maximum of the Estimated
Valuation Range) will be reserved for issuance pursuant to stock options and
stock appreciation rights to directors, officers and employees; and (ii) a 1998
Management Recognition Plan and Trust Agreement (the "1998 Recognition Plan"),
which will, following the receipt of stockholder approval, purchase a number of
shares of Common Stock, with funds contributed by the Company, either from the
Company or in the open market equal to 4% of the Conversion Stock to be sold in
the Offerings (39,100 shares at the maximum of the Estimated Valuation Range)
for distribution to directors, officers and employees. For stock option and
restricted stock plans implemented within one year following the Conversion,
current OTS regulations provide that individual members of management may
receive a maximum of 25% of the shares granted pursuant to any stock option or
non-tax qualified stock benefit plan and directors who are not employees may
receive a maximum of 5% of such stock (or stock options) individually and a
maximum of 30% in the aggregate under any such plan. In the event that the 1998
Recognition Plan purchases shares of Common Stock in the open market with funds
contributed by the Company, the cost of such shares initially will be deducted
from the Company's stockholders' equity, but the number of outstanding shares of
Common Stock will not increase and stockholders accordingly will not experience
dilution of their ownership interest. In the event that the 1998 Recognition
Plan purchases shares of Common Stock from the Company with funds contributed by
the Company,
12
<PAGE>
total shareholders' equity would neither increase nor decrease, but under such
circumstances stockholders would experience dilution of their ownership
interests (by 3.0% at the maximum of the Estimated Valuation Range) and per
share stockholders' equity and per share net earnings would decrease as a result
of an increase in the number of outstanding shares of Common Stock. In either
case, the Company will incur operating expense and increases in stockholders'
equity as the shares held by the 1998 Recognition Plan are granted and issued in
accordance with the terms thereof. For a presentation of the effects of
anticipated purchases of Common Stock by the 1998 Recognition Plan, see "Pro
Forma Data."
Although no specific award determinations have been made, upon receipt of
stockholder approval of the 1998 Stock Option Plan, the Company anticipates
granting stock options for shares of Common Stock to directors, executive
officers and other key personnel. A total of 70% of the Common Stock to be
reserved for issuance pursuant to the 1998 Stock Option Plan will be available
for the grant of stock options to executive officers and key employees of
Ponchatoula. The 1998 Stock Option Plan will be administered by a committee of
two or more non-employee members of the Board of Directors of the Company within
the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended
("Exchange Act"). In addition, pursuant to the 1998 Stock Option Plan, 30% of
the shares of Common Stock to be reserved for issuance pursuant to the 1998
Stock Option Plan will be available for the grant of compensatory stock options
to outside directors of the Company. All of the stock options will be granted at
no cost to the recipients, although the recipients will be required to pay the
applicable exercise price at the time of exercise in order to receive the
underlying shares of Common Stock. Following receipt of stockholder approval of
the 1998 Recognition Plan, the Company intends to award shares of Common Stock
pursuant to such plan to certain directors, officers and employees at no cost to
the recipients. See "Management - New Stock Benefit Plans" and "Risk Factors -
Possible Dilutive Effect of Issuance of Additional Shares."
The foregoing plans are in addition to a 1996 Stock Option Plan and a
1996 Management Recognition Plan which were adopted by Ponchatoula following the
MHC Reorganization and subsequently approved by the stockholders of Ponchatoula.
These plans will continue in existence after the Conversion as plans of the
Company, with appropriate changes to reflect the Exchange Ratio. See "Management
- - Existing Stock Options" and "The Conversion - Effects of the Conversion -
Effect on Existing Compensation Plans."
ESOP. The Company's ESOP intends to purchase 8% of the Conversion Stock to
be sold in the Offerings (78,200 shares or $782,000 of Conversion Stock at the
maximum of the Estimated Valuation Range) with a loan funded by the Company. See
"Use of Proceeds." In the event that the total number of shares of Conversion
Stock sold in the Offerings is increased to an amount greater than the number of
shares representing the maximum of the Estimated Valuation Range, the ESOP will
have a priority right to purchase such increased number up to an aggregate of 8%
of the Conversion Stock. See "Management - New Stock Benefit Plans - Employee
Stock Ownership Plan" and "The Conversion - The Offerings - Subscription
Offering."
Pro Forma Effects. For presentations of the pro forma effects of the 1998
Recognition Plan and the ESOP on the net income of the Company (which was
estimated to aggregate $.08 per share during the year ended December 31, 1997 at
the midpoint of the Estimated Valuation Range) and its stockholders' equity, see
"Capitalization" and "Pro Forma Data."
Employment Agreements. Upon consummation of the Conversion, the Company and
Ponchatoula intend to enter into three-year employment agreements with Mr.
Caldwell and Ms. Theriot, and each of the officers are presently expected to
have an initial annual salary of less than $100,000. If the employment of such
officers is terminated as a result of a change in control of the Company, Mr.
Caldwell and Ms. Theriot would each be entitled to a cash severance amount equal
to three times his or her average annual compensation over the most recent five
taxable years. At least 30 days prior to each annual anniversary date of the
employment agreement, the Boards of Directors of the Company and Ponchatoula
shall determine whether or not to extend the term of the agreements for an
additional one year. See "Management - Employment Agreements."
13
<PAGE>
Prospectus Delivery and Procedure for Purchasing Shares
To ensure that each purchaser receives a Prospectus at least 48 hours
prior to the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act,
no Prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the order
form will confirm receipt or delivery of the Prospectus in accordance with Rule
15c2-8. Order forms will only be distributed with a Prospectus.
The Primary Parties will accept for processing only orders submitted on
original order forms. Copies of order forms , order forms unaccompanied by an
executed certification form, payments from other private third parties and wire
transfers will not be accepted. Payment by check, money order, cash or debit
authorization to an existing account at Ponchatoula must accompany the order
form.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the close of business on the Eligibility
Record Date (December 31, 1996) or the Supplemental Eligibility Record Date
(March 31, 1998), and/or depositors as of the close of business on the Voting
Record Date, May 4, 1998, must list all accounts on the stock order form giving
all names on each account and the account numbers. See "The Conversion -
Procedure for Purchasing Shares in the Offerings."
Use of Proceeds
Net proceeds from the sale of the Conversion Stock are estimated to be
between $6.8 million and $9.3 million ($10.8 million assuming an increase in the
Estimated Valuation Range by 15%). See "Pro Forma Data." The Company plans to
contribute to Ponchatoula 50% of the net proceeds from the Offerings and retain
the remainder of the net proceeds. The Company intends to use a portion of the
net proceeds retained by it to make a loan directly to the ESOP to enable the
ESOP to purchase 8% of the Conversion Stock. The amount of the loan is expected
to be between $578,000 and $782,000 at the minimum and maximum of the Estimated
Valuation Range, respectively. It is anticipated that the loan to the ESOP will
have a term of not less than ten years and a fixed interest rate at the prime
rate as of the date of the loan. See "Management - New Stock Benefit Plans -
Employee Stock Ownership Plan." Funds retained by the Company may be used to
support the future expansion of operations or diversification into other
banking-related businesses and for other business or investment purposes,
including the opening or acquisition of other branch offices. There are no
current plans, arrangements, understandings or agreements regarding such
diversification or acquisitions. Subject to applicable limitations and
then-existing circumstances, such funds also may be used in the future to
repurchase shares of Common Stock. See "The Conversion - Certain Restrictions on
Purchases or Transfer of Shares after the Conversion." Funds contributed to
Ponchatoula from the Company will be used for general business purposes. The
proceeds will be used to support Ponchatoula's lending and investment activities
and thereby enhance Ponchatoula's capabilities to serve the borrowing and other
financial needs of the communities it serves. See "Use of Proceeds."
Dividend Policy
Following consummation of the Conversion, the Board of Directors of the
Company intends to declare cash dividends on the Common Stock at an initial
quarterly rate equal to $.05 per share, commencing with the first full quarter
following consummation of the Conversion. Declarations of dividends by the
Company's Board of Directors will depend upon a number of factors, including the
amount of the net proceeds from the Offerings retained by the Company,
investment opportunities available to the Company or Ponchatoula, capital
requirements, regulatory limitations, the Company's and Ponchatoula's financial
condition and results of operations, tax considerations and general economic
conditions. Consequently, there can be no assurance that dividends will in fact
be paid on the Common Stock or that, if paid, such dividends will not be reduced
or eliminated in future periods. Ponchatoula intends to continue to pay regular
quarterly dividends through either the date of consummation of the Conversion
14
<PAGE>
(on a pro rata basis) or the end of the fiscal quarter during which the
consummation of the Conversion occurs. See "Dividend Policy."
Risk Factors
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective investors.
15
<PAGE>
SELECTED FINANCIAL DATA
(Dollars in Thousands, except per share data)
The following selected financial and other data of Ponchatoula does not
purport to be complete and is qualified in its entirety by reference to the more
detailed financial information contained elsewhere herein.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
Selected Financial 1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Condition and Other Data:
Total assets $59,580 $60,691 $56,876 $50,146 $49,740
Cash and cash equivalents(1) 1,254 1,298 2,244 920 3,388
Securities available for sale 16,866 18,871 19,207 17,671 --
Securities held to maturity 10,301 10,254 6,259 3,114 15,048
Loans held for sale 1,414 2,290 1,766 1,275 2,588
Loans and leases receivable, net 28,069 26,150 25,860 25,471 27,427
Real estate owned, net -- 141 -- 63 299
Deposits 42,111 44,427 44,889 41,961 45,913
Stockholders' equity 5,735 5,443 5,484 4,779 3,697
Full service offices 2 2 2 2 2
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Selected Operating Data:
Total interest income $ 4,247 $ 4,276 $ 3,988 $ 3,147 $ 3,343
Total interest expense 2,515 2,591 2,342 1,518 1,799
------- ------- ------- ------- -------
Net interest income 1,732 1,685 1,646 1,629 1,544
Provision for (recovery of)
loan and lease losses (16) 3 (6) (7) (4)
------- ------- ------- ------- -------
Net interest income after provision for
(recovery of) losses 1,748 1,682 1,652 1,636 1,548
Noninterest income 373 434 378 417 695
Noninterest expenses 1,620 1,910 1,571 1,423 1,567
------- ------- ------- ------- -------
Income before provision for income taxes 501 206 459 630 676
Income taxes 185 60 150 184 218
------- ------- ------- ------- -------
Net income $ 316 $ 146 $ 309 $ 446 $ 458
======= ======= ======= ======= =======
Fully diluted earnings per share $ .51 $ .23 $ .51 $ .74 N/A
======= ======= ======= ======= =======
Cash dividends declared per share $ .70 $ .51 $ .40 $ .10 N/A
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31,
---------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Selected Ratios (3):
Return on average assets .53% .25% .57% .92% .91%
Return on average equity 5.67 2.63 5.85 11.04 13.28
Average equity to average assets 9.40 9.50 9.78 8.29 6.82
Equity to assets at end of period 9.63 8.97 9.64 9.53 7.43
Interest rate spread(4) 2.65 2.54 2.73 3.20 2.92
Net interest margin(4) 3.00 2.95 3.12 3.43 3.12
Non-performing loans and leases to total
loans and leases at end of period(5) .55 1.38 1.66 2.60 4.12
Non-performing assets to total assets at
end of period(5) .29 .83 .76 1.53 3.09
Average interest-earning assets to
average interest-bearing liabilities 108.26 109.01 108.75 107.02 105.38
Net interest income after provision for
(recovery of) loan and lease losses to
total noninterest expenses 107.90 88.06 105.16 114.97 98.79
Noninterest expenses to average total
assets 2.73 3.27 2.91 2.92 3.10
Dividend payout ratio(6) 134.49 211.64 77.67 13.45 N/A
</TABLE>
- -------------
(1) Includes cash and due from banks as well as interest-bearing deposits in
other institutions.
(2) The per share amounts do not reflect the Conversion or the Exchange Ratio.
(3) With the exception of end of period ratios, all ratios are based on
average monthly balances during 1997, 1996 and 1995 and average quarterly
balances during the prior years.
(4) Interest rate spread represents the difference between the average yield
on interest-earning assets and the average rate on interest-bearing
liabilities. Net interest margin represents net interest income as a
percentage of average interest-earning assets.
(5) Non-performing loans and leases consist of non-accrual loans and leases,
and non-performing assets consist of non-performing loans and leases and
real estate acquired by foreclosure or deed-in lieu thereof.
(6) Ratio based upon total dividends declared, including dividends waived by
the Mutual Holding Company.
16
<PAGE>
SUMMARY OF RECENT DEVELOPMENTS
(Dollars in Thousands, except per share data)
The following selected financial and other data of Ponchatoula does not
purport to be complete and is qualified in its entirety by reference to the more
detailed financial information contained elsewhere herein.
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1998(1) 1997 1997(1)
------- ------------ ---------
<S> <C> <C> <C>
Selected Financial
Condition and Other Data:
Total assets $61,487 $59,580 $59,757
Cash and cash equivalents(2) 579 1,254 218
Securities available for sale 16,368 16,866 18,409
Securities held to maturity 9,977 10,301 9,659
Loans held for sale 2,186 1,414 1,182
Loans and leases receivable, net 29,637 28,069 26,634
Real estate owned, net -- -- 201
Deposits 41,382 42,111 44,687
Stockholders' equity 5,884 5,735 5,487
Full service offices 2 2 2
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1998(1) 1997(1)
------- -------
<S> <C> <C>
Selected Operating Data:
Total interest income $ 1,092 $ 1,033
Total interest expense 624 641
------- -------
Net interest income 468 392
Provision for (recovery of) loan
and lease losses 1 (16)
------- -------
Net interest income after provision
for (recovery of) losses 467 408
Noninterest income 130 99
Noninterest expenses 403 350
------- -------
Income before provision for income taxes 194 157
Income taxes 66 54
------- -------
Net income $ 128 $ 103
======= =======
Fully diluted earnings per share $ .21 $ .17
======= =======
Cash dividends declared per share $ .20 $ .16
======= =======
<CAPTION>
After for the Three
Months Ended March 31,
------------------------
1998(1) 1997(1)
------- -------
<S> <C> <C>
Selected Ratios (3):
Return on average assets .87% .68%
Return on average equity 8.45 7.19
Average equity to average assets 10.25 9.49
Equity to assets at end of period 9.57 9.18
Interest rate spread(4) 2.81 2.35
Net interest margin(4) 3.24 2.68
Non-performing loans and leases to total
loans and leases at end of period(5) .57 .89
Non-performing assets to total assets
at end of period(5) .27 .40
Average interest-earning assets to average
interest-bearing liabilities 109.90 107.69
Net interest income after provision for
(recovery of) loan and lease losses to
total noninterest expenses 115.84 116.50
Noninterest expenses to average total assets 2.73 2.44
Dividend payout ratio(6) 94.53 94.18
</TABLE>
- ----------
(1) In the opinion of management, financial information at March 31, 1998 and
1997 and for the three months ended March 31, 1998 and 1997 reflect all
adjustments (consisting only of normal recurring accruals) which are
necessary for a fair presentation of the information as of such dates and
for such periods.
(2) Includes cash and due from banks as well as interest-bearing deposits in
other institutions.
(3) With the exception of end of period ratios, all ratios are based on
average monthly balances during the periods and are annualized where
appropriate.
(4) Interest rate spread represents the difference between the average yield
on interest-earning assets and the average rate on interest-bearing
liabilities. Net interest margin represents net interest income as a
percentage of average interest-earning assets.
(5) Non-performing loans and leases consist of non-accrual loans and leases,
and non-performing assets consist of non-performing loans and leases and
real estate acquired by foreclosure or deed-in lieu thereof.
(6) Ratio based upon total dividends declared, including dividends waived by
the Mutual Holding Company.
17
<PAGE>
Changes in Financial Condition
At March 31, 1998, Ponchatoula's total assets, deposits and stockholders'
equity amounted to $61.5 million, $41.4 million, and $5.9 million, respectively,
compared to $59.8 million, $44.7 million and $5.5 million, respectively, at
March 31, 1997. The increase in total assets of $1.7 million or 2.8% was due
primarily to an increase of $3.0 million in the net loan and lease portfolio,
combined with an increase of $1.0 million in loans held for sale, offset by a
decrease of $2.0 million in securities available for sale. The increase of $1.0
million or 84.9% in loans held for sale was due to new loan originations
exceeding new loan sales. The increase of $3.0 million or 11.3% in the net loan
and lease portfolio was due to new loan originations exceeding loan payments and
prepayments. Mortgage-backed securities available for sale decreased by $2.0
million or 11.1%, which is mainly due to the Association investing excess
liquidity into loans which Ponchatoula has retained in its portfolio. The
decrease in deposits of $3.3 million or 7.4% between March 31, 1997 and March
31, 1998 was due to a normal outflow of such liabilities into competing
instruments, while the increase of $397,000 or 7.2% in stockholders' equity
during such period was partially due to continued profitable operations, as well
as an increase of $151,000 in the unrealized gain on securities available for
sale.
Results of Operations
Ponchatoula's net income increased by $25,000 or 24.3% in the first
quarter of 1998 from the comparable 1997 quarter. This increase was due to
increases of $76,000 or 19.4% in net interest income and $31,000 or 31.3% in
noninterest income. These increases were partially offset by increases of
$53,000 or 15.1% in noninterest expense and $12,000 or 22.2% in income tax
expense, as well as the absence in 1998 of the $16,000 recovery of loan and
lease losses in the 1997 quarter.
The increase in net interest income resulted from a $59,000 or 5.7%
increase in total interest income and a $17,000 or 2.7% decrease in total
interest expense. The increased net interest income was due to an increase in
the average interest rate spread to 2.81% for the March 31, 1998 quarter from
2.35% for the first quarter of 1997. The average yield on interest-earning
assets increased to 7.55% in the 1998 quarter from 7.06% in the 1997 quarter
primarily due to an increase in the average yield on Ponchatoula's
adjustable-rate mortgage loans and mortgage-backed securities, which was
partially offset by a lower yield on investment securities. The average rate on
deposits decreased to 4.43% in the first quarter of 1998 from 4.57% in the
comparable 1997 quarter.
The increase in noninterest income in the first quarter of 1998 was
primarily due to an increase in the volume of loans closed during the quarter.
The increase in noninterest expense was attributable to increases of $28,000 in
other noninterest expense, primarily due to the increased loan volume, and
$18,000 in compensation expense.
At March 31, 1998, Ponchatoula's tangible and core capital both
amounted to $5.9 million or 9.53% of adjusted total assets of $61.5 million,
and its risk-based capital amounted to $6.1 million or 22.97% of adjusted
risk-weighted assets of $26.6 million. Ponchatoula was deemed to be a
well-capitalized institution at March 31, 1998.
18
<PAGE>
RISK FACTORS
The following risk factors, in addition to those discussed elsewhere in
this Prospectus, should be carefully considered by investors in deciding whether
to purchase the Common Stock offered hereby.
Potential Low Return on Equity Following the Conversion; Uncertainty as to
Future Growth Opportunities
At December 31, 1997, Ponchatoula's ratio of equity to assets was 9.6%.
The Company's equity position will be significantly increased as a result of the
Conversion. On a pro forma basis as of December 31, 1997, assuming the sale of
Common Stock at the midpoint of the Estimated Valuation Range, the Company's
ratio of equity to assets would be 20.3%. The Company's ability to leverage this
capital will be significantly affected by industry competition for loans and
deposits. The Company currently anticipates that it will take time to prudently
deploy such capital. As a result, the Company's return on equity initially is
expected to be below the industry average after the Conversion.
In an effort to fully deploy post-Conversion capital, in addition to
attempting to increase its loan and deposit growth, the Company may seek to
expand its banking franchise by opening new branches. The Company's ability to
expand by establishing new branch offices will be dependent on its ability to
identify advantageous branch office locations and generate new deposits and
loans from those locations that will create an acceptable level of return to the
Company. There can be no assurance the Company will be able to generate internal
growth or successfully integrate any new or acquired branches into the Company.
Neither the Company nor Ponchatoula has any specific plans, arrangements or
understandings regarding any such expansions or acquisitions at this time.
Absence of Market for the Common Stock
The Company has never issued capital stock (other than 100 shares
issued to Ponchatoula, which will be cancelled upon consummation of the
Conversion), and to date an active and liquid trading market has not developed
for the 150,105 Public Ponchatoula Shares outstanding prior to the Offerings.
The Company has applied to have its Common Stock quoted on the Nasdaq SmallCap
System under the symbol "HSTD" upon completion of the Conversion and will seek
to encourage and assist at least three market makers to make a market in its
Common Stock. Trident has advised the Company that it intends to make a market
in the Company's Common Stock. While the Company intends to seek commitments
from broker-dealers to act as market makers, and anticipates that prior to the
completion of the Conversion it will be able to obtain the commitment from at
least two other broker-dealers to act as market makers for the Common Stock,
there can be no assurance there will be three or more market makers for the
Common Stock.
Making a market in securities involves maintaining bid and ask
quotations and being able, as principal, to effect transactions in reasonable
quantities at those quoted prices, subject to various securities laws and other
regulatory requirements. The development of a public trading market depends upon
the existence of willing buyers and sellers, the presence of which is not within
the control of the Company, Ponchatoula, or any market maker. There can be no
assurance that purchasers of the Common Stock will be able to sell their shares
at or above the Purchase Price. The absence of a liquid and active trading
market, or the discontinuance thereof, may have an adverse effect on both the
price and the liquidity of the Common Stock. See "Market for Common Stock."
Potential Effects of Changes in Interest Rates and the Current Interest Rate
Environment
The operations of Ponchatoula are substantially dependent on its net
interest income, which is the difference between the interest income earned on
its interest-earning assets and the interest expense paid on its
interest-bearing liabilities. Like most savings institutions, Ponchatoula's
earnings are affected by changes in market interest rates, and other economic
factors beyond its control. While Ponchatoula's average interest rate spread
increased from 2.54% for 1996 to 2.65% for 1997, no assurance can be given that
Ponchatoula's average interest rate spread will not decrease in future periods.
The average interest rate decreased in 1996 from 2.73% in 1995, resulting in
only
19
<PAGE>
a 2.4% increase in net interest income in 1996. Any future decrease in
Ponchatoula's average interest rate spread could adversely affect Ponchatoula's
net interest income. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Market Risk Analysis."
If an institution's interest-earning assets have longer effective
maturities than its interest-bearing liabilities, the yield on the institution's
interest-earning assets generally will adjust more slowly than the cost of its
interest-bearing liabilities and, as a result, the institution's net interest
income generally would be adversely affected by material and prolonged increases
in interest rates and positively affected by comparable declines in interest
rates. Ponchatoula attempts to reduce the vulnerability of its operations to
changes in interest rates by maintaining significant amounts of assets with
relatively short terms and/or adjustable rates of interest. Based upon certain
repricing assumptions, Ponchatoula's interest-bearing liabilities repricing or
maturing within one year exceeded its interest-earning assets with similar
characteristics by $2.3 million or 3.8% of total assets. Accordingly, an
increase in interest rates generally would result in a decrease in Ponchatoula's
average interest rate spread and net interest income. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Market Risk Analysis."
In addition to affecting interest income and expense, changes in interest
rates also can affect the value of Ponchatoula's interest-earning assets, which
are comprised of fixed and adjustable-rate instruments, and the ability to
realize gains from the sale of such assets. Generally, the value of fixed-rate
instruments fluctuates inversely with changes in interest rates. At December 31,
1997, Ponchatoula had $16.9 million of investment and mortgage-backed securities
available for sale ($2.6 million of which had fixed-rates of interest).
Ponchatoula had $53,000 of net unrealized losses with respect to such
securities, which were included as a separate component in Ponchatoula's total
net worth, net of tax benefit, as of such date.
The OTS has implemented an interest rate risk component into its
risk-based capital rules, which is designed to calculate on a quarterly basis
the extent to which the value of an institution's assets and liabilities would
change if interest rates increase or decrease. If the net portfolio value of an
institution would decline by more than 2% of the estimated market value of the
institution's assets in the event of a 200 basis point increase or decrease in
interest rates, then the institution is deemed to be subject to a greater than
"normal" interest rate risk and must deduct from its capital 50% of the amount
by which the decline in net portfolio value exceeds 2% of the estimated market
value of the institution's assets, as of an effective date to be determined. As
of December 31, 1997, if interest rates increased by 200 basis points,
Ponchatoula's net portfolio value would decrease by $692,000, or 1.1% of the
estimated portfolio value of Ponchatoula's assets, as calculated by the OTS. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Market Risk Analysis."
Changes in interest rates also can affect the average life of loans and
mortgage-related securities. Decreases in interest rates in recent periods have
resulted in increased prepayments of loans and mortgage-backed securities, as
borrowers refinanced to reduce borrowing costs. Under these circumstances,
Ponchatoula is subject to reinvestment risk to the extent that it is not able to
reinvest such prepayments at rates which are comparable to the rates on the
maturing loans or securities. See "Business - Lending Activities."
In addition, at December 31, 1997, Ponchatoula had $42.1 million of
deposits, of which $28.6 million or 67.9% consisted of certificates of deposit
maturing in one year or less. An increase in interest rates could result in a
decline in deposits, a higher average cost of deposits, or both.
High Percentage of Assets in Mortgage-Backed Securities
At December 31, 1997, Ponchatoula had $24.6 million of adjustable-rate
mortgage-backed securities, representing 41.2% of its assets. Mortgage-backed
securities generally yield less than the loans which underlie such securities.
In 1997, the average yield on Ponchatoula's mortgage-backed securities was
6.24%, compared to an average yield of 8.55% on its loan and lease portfolio.
The high percentage of assets in mortgage-backed securities adversely affects
the average yield on Ponchatoula's total interest-earning assets.
20
<PAGE>
Despite the lower yields, Ponchatoula intends to maintain a high
percentage of its assets in mortgage-backed securities. These securities offer
nominal credit risk due to payment guarantees or credit enhancements, are an
integral part of Ponchatoula's strategy of reducing its risk exposure to
increases in interest rates, are more liquid than individual loans and may be
used to collateralize Ponchatoula's FHLB advances.
Reduced Gains on Sales of Loans
In 1997, 1996 and 1995, Ponchatoula's gain on sale of loans was $167,000,
$240,000 and $210,000, respectively. During this period, Ponchatoula sold all of
its newly-originated, 30-year fixed-rate mortgages into the secondary market.
Commencing February 1998, Ponchatoula began retaining a portion of such
originations, with the 30-year mortgages being matched with long-term FHLB
advances. As a result of this recent change in policy, the amount of loans sold
and the related gains on sales are expected to decline. It is anticipated that
the average yield earned on the 30-year mortgages will exceed the average rate
paid on the long-term FHLB advances, thus generating additional net interest
income that will offset the lower gains on sales. However, there can be no
assurance that additional net interest income will be generated or that it will
be sufficient to offset the lower gains on sales of loans.
Risks Related to Consumer Loans
At December 31, 1997, Ponchatoula had $7.2 million or 22.8% of its total
loan and lease portfolio in consumer loans. These loans generally involve more
risk than mortgage loans because of the type and nature of the collateral and,
in certain cases, the absence of collateral. The consumer loan portfolio
includes $1.1 million of unsecured loans and loans secured by personal property
at December 31, 1997. For a further discussion of the risks associated with
consumer loans, see "Business - Lending Activities - Consumer Loans." A total of
$41,000 of consumer loans were delinquent 30 or more days at December 31, 1997.
See "Business - Asset Quality - Delinquent Loans and Leases."
Risks Related to Commercial Real Estate Loans, Construction and Land Loans
Commercial real estate, construction and land lending generally is
considered to involve a higher degree of risk than single-family residential
lending due to a variety of factors, including generally larger loan balances,
the dependency on successful operation of the project for repayment, loan terms
which often do not require full amortization of the loan over its term, and the
need to successfully develop and/or sell the property. In addition, risk of loss
on a construction loan is dependent largely upon the accuracy of the initial
estimate of the property's value at completion of construction or development
and the estimated cost (including interest) of construction. During the
construction phase, a number of factors could result in delays and cost
overruns. If the estimate of value proves to be inaccurate, Ponchatoula may be
confronted, at or prior to the maturity of the loan, with a project, when
completed, having a value which is insufficient to assure full repayment.
Commercial real estate loans may involve large loan balances to single borrowers
or groups of related borrowers, with the repayment of such loans typically
dependent on the successful operations and income stream of the borrower. Such
risks can be significantly affected by economic conditions. In addition,
commercial real estate lending generally requires substantially greater
oversight efforts compared to residential real estate lending. See "Business -
Lending Activities - Commercial Real Estate and Land Loans." As of December 31,
1997, Ponchatoula had $3.2 million of construction loans, $521,000 of commercial
real estate loans, and $126,000 of land loans, none of which were non-performing
at December 31, 1997. These loans aggregated $3.9 million or 12.3% of
Ponchatoula's total loan and lease portfolio at December 31, 1997. See "Business
- - Asset Quality - Non-Performing Assets." For information on Ponchatoula's five
largest loans or groups of loans to one borrower, all of which were performing
in accordance with their terms at December 31, 1997, see "Business - Lending
Activities - General."
Strong Competition Within Ponchatoula's Market Area
Competition in the banking and financial services industry is intense. In
its market area, Ponchatoula competes with commercial banks, savings
institutions, mortgage brokerage firms, credit unions, finance companies, mutual
21
<PAGE>
funds, insurance companies, and brokerage and investment banking firms operating
locally and elsewhere. Many of these competitors have substantially greater
resources and lending limits than Ponchatoula and may offer certain services
that Ponchatoula does not or cannot provide. The profitability of Ponchatoula
depends upon its continued ability to successfully compete in its market area.
Geographic Concentration of Loans
Ponchatoula's market area consists primarily of Tangipahoa and Livingston
Parishes and, to a lesser extent, St. Helena Parish. Ponchatoula's real estate
loans are primarily secured by properties located in its market area, and all of
Ponchatoula's loans are primarily made to residents of its market area.
Accordingly, the asset quality of Ponchatoula's loan portfolio is highly
dependent upon the economy and the unemployment rate in its market area. No
assurance can be given that downturns in the economy in Ponchatoula's market
area may not adversely affect Ponchatoula's operations in the future.
Reliance on Key Officers
Ponchatoula's executive officers consist of Lawrence C. Caldwell, Jr.,
President and Chief Executive Officer, and Barbara B. Theriot, Secretary and
Treasury. These officers each have 14 years of experience with Ponchatoula. The
loss of one or both of the executive officers could have an adverse effect on
Ponchatoula, particularly the loss of the President and Chief Executive Officer.
While the Company and Ponchatoula intend to enter into three-year employment
agreements with Mr. Caldwell and Ms. Theriot upon consummation of the
Conversion, the Company and Ponchatoula do not have and currently do not intend
to obtain key-man life insurance policies on these officers.
Certain Anti-Takeover Provisions
Provisions in the Company's Governing Instruments and Louisiana Law.
Certain provisions of the Company's Articles of Incorporation and Bylaws, as
well as certain provisions in Louisiana law, will assist the Company in
maintaining its status as an independent publicly owned corporation. Provisions
in the Company's Articles of Incorporation and Bylaws provide, among other
things, (i) that the Board of Directors of the Company shall be divided into
three classes; (ii) that special meetings of stockholders may only be called by
the Board of Directors or the President of the Company or by holders of at least
50% of the outstanding Common Stock; (iii) that stockholders generally must
provide the Company advance notice of stockholder proposals and nominations for
director and provide certain specified related information; (iv) noncumulative
voting for the election of directors; (v) for a period of five years following
the Conversion, that no person may acquire more than 10% of the issued and
outstanding shares of any class of equity security of the Company except under
certain circumstances; (vi) the authority to issue shares of authorized but
unissued Common Stock and preferred stock and to establish the terms of any one
or more series of Preferred Stock, including voting rights; and (vii)
supermajority voting requirements to remove directors without cause or to amend
various provisions in the Articles of Incorporation or Bylaws. Provisions under
Louisiana law applicable to the Company, among other things, establish certain
uniform price provisions for certain business combinations and provide that
persons who acquire more than 20% of the outstanding voting stock may not vote
such shares unless the disinterested stockholders approve such shares having
voting rights. The above provisions may discourage potential proxy contests and
other potential takeover attempts, particularly those which have not been
negotiated with the Board of Directors, and thus generally may serve to
perpetuate current management. Based on the proposed purchases of directors and
executive officers in the Conversion, the shares to be acquired by the ESOP, and
the proposed purchase of shares by the Recognition Plan assuming stockholder
approval is received, the directors and officers may be in a position to block
certain transactions requiring a supermajority vote, even if a majority of the
stockholders believe such transactions are in their best interest. See "Proposed
Management Purchases" and "Restrictions on Acquisition of the Company and
Ponchatoula."
Voting Control of Officers and Directors. Directors and executive officers
of the Company expect to purchase approximately 8.2% or 7.3% of the shares of
Common Stock outstanding based upon the issuance of (i) the Exchange Shares and
(ii) shares of Conversion Stock at the minimum and the maximum of the Estimated
Valuation
22
<PAGE>
Range, respectively. See "Proposed Management Purchases." The directors who act
as trustees of the ESOP are also expected to immediately control the voting of
8% of the shares of Conversion Stock issued in the Conversion through the ESOP,
at least until an allocation has been made under the ESOP. Under the terms of
the ESOP, after an allocation has been made, the unallocated shares will
generally be voted by the trustees in the same proportion as the allocated
shares are voted by the ESOP participants.
The Company intends to seek stockholder approval of the Company's proposed
1998 Recognition Plan, which is a non-tax-qualified restricted stock plan for
the benefit of directors, officers and employees of the Company and Ponchatoula.
Assuming the receipt of stockholder approval, which stockholder approval cannot
be obtained earlier than six months following the Conversion pursuant to OTS
regulations, the Company expects to acquire Common Stock on behalf of the 1998
Recognition Plan in an amount equal to 4% of the Conversion Stock sold in the
Offerings, or 28,900 shares and 39,100 shares at the minimum and maximum of the
Estimated Valuation Range, respectively. These shares will be acquired either
through open market purchases, if permissible, or from authorized but unissued
Common Stock. Under the terms of the 1998 Recognition Plan, recipients of awards
will be entitled to instruct the trustees of the 1998 Recognition Plan as to how
the underlying shares should be voted, and the trustees will be entitled to vote
all unallocated shares in their discretion. If the shares are purchased in the
open market, directors and executive officers would have effective control over
11.3% or 10.4% of the Common Stock outstanding at such time based upon the
issuance of the (i) Exchange Shares and (ii) shares of Conversion Stock at the
minimum and the maximum of the Estimated Valuation Range, respectively, before
giving effect to the potential exercise of any stock options by directors and
officers of the Company and Ponchatoula, and shares held by the ESOP. If
approved by stockholders at a meeting held no earlier than six months following
the Conversion, the Company intends to reserve for future issuance pursuant to
the 1998 Stock Option Plan a number of authorized shares of Common Stock equal
to an aggregate of 10% of the Conversion Stock sold in the Offerings (97,750
shares, based on the issuance of the maximum 977,500 shares). See "Management -
New Stock Benefit Plans." Management's potential voting control could, together
with additional stockholder support, preclude or make more difficult takeover
attempts that certain stockholders deem to be in their best interest and may
tend to perpetuate existing management.
Provisions of Stock Benefit Plans and Employment Agreements. The ESOP
provides for accelerated vesting in the event of a change in control. In
addition, upon consummation of the Conversion, the Company and Ponchatoula will
enter into employment agreements with Ponchatoula's President and Chief
Executive Officer and its Secretary and Treasurer, which agreements will provide
for severance pay in the event of a change in control. These provisions may have
the effect of increasing the cost of acquiring the Company, thereby discouraging
future attempts to take over the Company or Ponchatoula. In addition, it is
possible that the 1998 Stock Option Plan and the 1998 Recognition Plan may not
be implemented until more than one year following completion of the Conversion,
and, in such event, such plans could provide for accelerated vesting in the
event of a change in control of the Company. See "Restrictions on Acquisition of
the Company and Ponchatoula - Restrictions in the Company's Articles of
Incorporation and Bylaws," "Management - New Stock Benefit Plans" and
"Management - Employment Agreements."
Legislation Limiting Deduction of Bad Debt Reserves
Under Section 593 of the Internal Revenue Code of 1986, as amended (the
"Code"), until the first tax year beginning on or after January 1, 1996, savings
institutions such as Ponchatoula generally were permitted to establish a tax
reserve for bad debts and to make annual additions thereto, which additions,
within specified limitations, could be deducted in arriving at their taxable
income. Ponchatoula's deduction with respect to "qualifying loans" was computed
using an amount based on Ponchatoula's actual loss experience (the "Experience
Method") or a percentage equal to 8% of Ponchatoula's taxable income (the "PTI
Method"). Under recently enacted legislation, the PTI Method was repealed. As a
result, Ponchatoula is permitted to deduct only actual bad debts as they occur
and cannot utilize the percentage of taxable income method to make additions to
its bad debt reserves in the future to reduce its effective tax rate. In
addition, Ponchatoula is required to recapture for tax purposes (i.e., take into
income) over a six-year period commencing January 1, 1996, the excess of the
balance of its bad debt reserves as of December 31,
23
<PAGE>
1995 over the balance of such reserves as of December 31, 1987. Ponchatoula's
excess amounted to $68,000 (for which deferred taxes have been provided). See
"Taxation - Federal Taxation."
Regulatory Oversight and Legislation
Ponchatoula is subject to extensive regulation, supervision and
examination by the OTS, as its chartering authority, and by the FDIC as insurer
of its deposits up to applicable limits. Ponchatoula is a member of the FHLB
System and is subject to certain limited regulations promulgated by the Federal
Reserve Board. As the holding company of Ponchatoula, the Company also will be
subject to regulation and oversight by the OTS. Such regulation and supervision
govern the activities in which an institution can engage and are intended
primarily for the protection of the insurance fund and depositors. Regulatory
authorities have been granted extensive discretion in connection with their
supervisory and enforcement activities which are intended to strengthen the
financial condition of the banking and thrift industries, including the
imposition of restrictions on the operation of an institution, the
classification of assets by the institution and the adequacy of an institution's
allowance for loan losses. Any change in such regulation and oversight, whether
by the OTS, the FDIC or Congress, could have a material impact on the Company,
Ponchatoula and their respective operations. See "Regulation."
On September 30, 1996, the Deposit Insurance Funds ("DIF") Act of 1996 was
enacted into law. The DIF Act contemplates the development of a common charter
for all federally chartered depository institutions and the abolition of
separate charters for national banks and federal savings institutions. It is not
known what form the common charter may take and what effect, if any, the
adoption of a new charter would have on the financial condition or results of
operations of Ponchatoula. See "Regulation - The Association."
Legislation is proposed periodically providing for a comprehensive reform
of the banking and thrift industries, and has included provisions that would (i)
require federal savings institutions to convert to a national bank or a
state-chartered bank or thrift, (ii) require all savings and loan holding
companies to become bank holding companies, and (iii) abolish the OTS. It is
uncertain when or if any of this type of legislation will be passed, and, if
passed, in what form the legislation would be passed. As a result, management
cannot accurately predict the possible impact of such legislation on
Ponchatoula.
Possible Increase in Number of Shares Issued in the Conversion
The number of shares to be sold in the Conversion may be increased as a
result of an increase in the Estimated Valuation Range of up to 15% to reflect
changes in market and financial conditions prior to completion of the Conversion
or to fill the order of the ESOP. In the event that the Estimated Valuation
Range is so increased, it is expected that the Company will issue up to
1,124,125 shares of Conversion Stock at the Purchase Price for an aggregate
price of up to $11,241,250. An increase in the number of shares will decrease
net income per share and stockholders' equity per share on a pro forma basis and
will increase the Company's consolidated stockholders' equity and net income.
Such an increase will also increase the Purchase Price as a percentage of pro
forma stockholders' equity per share and net income per share.
The ESOP currently intends to purchase 8% of the Conversion Stock sold in
the Offerings. In the event that the number of shares to be sold in the
Conversion are increased as a result of an increase in the Estimated Valuation
Range, the ESOP shall have a first priority to purchase all shares of Conversion
Stock sold in the Offerings in excess of 977,500 shares, up to a maximum of 8%
of the total number of shares of Conversion Stock sold in the Offerings. See
"Pro Forma Data" and "The Conversion - Stock Pricing, Exchange Ratio and Number
of Shares to be Issued."
24
<PAGE>
Possible Dilutive Effect of Issuance of Additional Shares
If the 1998 Recognition Plan is approved by stockholders of the Company,
the 1998 Recognition Plan intends to acquire an amount of Conversion Stock equal
to 4% of the shares of Conversion Stock sold in the Offerings. If such shares
are acquired at a per share price equal to the Purchase Price, the cost of such
shares would be $391,000, assuming the Conversion Stock sold in the Offerings is
equal to the maximum of the Estimated Valuation Range. Such shares of Common
Stock may be acquired in the open market with funds provided by the Company, if
permissible, or from authorized but unissued shares of Common Stock. In the
event that the 1998 Recognition Plan acquires authorized but unissued shares of
Common Stock from the Company, the interests of existing stockholders will be
diluted. The issuance of authorized but unissued shares of Common Stock to such
plan in an amount equal to 4% of the Conversion Stock sold in the Offerings
would dilute the voting interests of existing stockholders by approximately
3.0%, and net income per share and stockholders' equity per share would be
decreased by a corresponding amount. See "Pro Forma Data" and "Management - New
Stock Benefit Plans - Recognition Plan."
If the 1998 Stock Option Plan is approved by stockholders of the Company,
the Company intends to reserve for future issuance pursuant to such plan a
number of shares of Common Stock equal to an aggregate of 10% of the Conversion
Stock sold in the Offerings (97,750 shares, based on the issuance of the maximum
977,500 shares). Such shares may be authorized but previously unissued shares,
treasury shares or shares purchased by the Company in the open market or from
private sources. If only authorized but previously unissued shares are used
under such plan, the issuance of the total number of shares available under such
plan would dilute the voting interests of existing stockholders by approximately
7.1%, and net income per share and stockholders' equity per share would be
decreased by a corresponding amount. See "Pro Forma Data" and "Management - New
Stock Benefit Plans - Stock Option Plan."
Increased Compensation Expense After the Conversion
In November 1993, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 93-6 entitled "Employers' Accounting for
Employee Stock Ownership Plans" ("SOP 93-6"). SOP 93-6 requires an employer to
record compensation expense in an amount equal to the fair value of shares
committed to be released to employees from an employee stock ownership plan
instead of an amount equal to the cost basis of such shares. If the shares of
Common Stock appreciate in value over time, SOP 93-6 will result in increased
compensation expense with respect to the ESOP as compared with prior guidance
which required the recognition of compensation expense based on the cost of
shares acquired by the ESOP. It is impossible to determine at this time the
extent of such impact on future net income. See "Pro Forma Data." In addition,
after consummation of the Conversion, the Company intends to implement, subject
to stockholder approval (which approval cannot be obtained earlier than six
months subsequent to the Conversion), the 1998 Recognition Plan. Upon
implementation, the release of shares of Common Stock from the 1998 Recognition
Plan will result in additional compensation expense. See "Pro Forma Data" and
"Management - New Stock Benefit Plans - Recognition Plan."
Possible Adverse Income Tax Consequences of the Distribution of Subscription
Rights
The Company and Ponchatoula have received a letter from RP Financial
advising them of its belief that subscription rights granted to Eligible Account
Holders, Supplemental Eligible Account Holders, Other Members and Public
Stockholders have no value. However, this letter is not binding on the Internal
Revenue Service ("IRS"). If the subscription rights granted to Eligible Account
Holders, Supplemental Eligible Account Holders, Other Members and Public
Stockholders are deemed to have an ascertainable value, receipt of such rights
would be taxable probably only to those Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members who exercise the subscription rights
(either as capital gain or ordinary income) in an amount equal to such value.
Based upon the letter from RP Financial, the Company does not believe that the
receipt of subscription rights should be
25
<PAGE>
a taxable event. However, whether subscription rights are considered to have
ascertainable value is an inherently factual determination. See "The Conversion
- - Effects of Conversion" and "- Tax Aspects."
Irrevocability of Orders; Potential Delay in Completion of Offerings
Orders submitted in the Subscription Offering, Community Offering and/or
any Syndicated Community Offering are irrevocable. Funds submitted in connection
with any purchase of Conversion Stock in the Offerings will be held by the
Company until the completion or termination of the Conversion, including any
extension of the Expiration Date. Because, among other factors, completion of
the Conversion will be subject to an update of the independent appraisal
prepared by RP Financial, there may be one or more delays in the completion of
the Conversion. Subscribers will have no access to subscription funds and/or
shares of Conversion Stock until the Conversion is completed or terminated.
PROPOSED MANAGEMENT PURCHASES
The following table sets forth, for each of the Company's directors and
for all of the directors and executive officers as a group, (1) the number of
Exchange Shares to be held upon consummation of the Conversion, based upon their
beneficial ownership of Ponchatoula Common Stock as of March 31, 1998, (2) the
proposed purchases of Conversion Stock, assuming sufficient shares are available
to satisfy their subscriptions, and (3) the total amount of Common Stock to be
held upon consummation of the Conversion, in each case assuming that 850,000
shares of Conversion Stock are sold, which is the midpoint of the Estimated
Valuation Range.
<TABLE>
<CAPTION>
Proposed Purchase of Total Common Stock
Conversion Stock to be Held
-------------------- -------------------
Number of
Exchange Shares to Number Number Percentage
Name be Held(1)(2)(3) Amount of Shares of Shares of Total
- -------------------- ------------------ -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
John C. Bohning 4,881 $ 25,000 2,500 7,381 .7%
Lawrence C. Caldwell, Jr. 13,317 150,000 15,000(4) 28,317 2.5
Robert H. Gabriel 1,778 25,000 2,500 4,278 .4
Dennis E. James 987 20,000 2,000 2,987 .3
Allen B. Pierson, Jr. 15,196 20,000 2,000 17,196 1.5
Milton J. Schanzbach 5,773 20,000 2,000 7,773 .7
Barbara B. Theriot 12,232 60,000 6,000 18,232 1.6
All directors and
executive officers
as a group (7 persons) 54,164 320,000 32,000 86,164 7.7
</TABLE>
- ---------------
(1) Excludes shares which may be received upon the exercise of outstanding
stock options. Based upon the Exchange Ratio of 1.78235 Exchange Shares
for each Public Ponchatoula Share at the midpoint of the Estimated
Valuation Range, the persons named in the table would have options to
purchase Common Stock as follows: for each of Messrs. Bohning, Gabriel,
James and Schanzbach, 1,067 shares, for Mr. Caldwell, 1,345 shares; for
Ms. Theriot, 768 shares; and for all directors and executive officers as a
group 6,381 shares.
(2) Includes unvested shares awarded under the 1996 Recognition Plan, based
upon the above Exchange Ratio, in the following amounts: for each of
Messrs Bohning, James, Pierson and Schanzbach, 349 shares; for Mr.
26
<PAGE>
Caldwell, 2,153 shares; for Mr. Gabriel, 85 shares; for Ms. Theriot, 1,231
shares; and for all directors and executive officers as a group, 4,865
shares.
(3) Excludes stock options and awards to be granted under the Company's 1998
Stock Option Plan and 1998 Recognition Plan if such plans are approved by
stockholders at an annual or special meeting of stockholders at least six
months following the Conversion and Reorganization. See "Management - New
Stock Benefit Plans."
(4) Assumes that Mr. Caldwell is able to purchase shares in more than one
priority category in the Subscription Offering.
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock cannot
be determined until the Conversion is completed, it is presently anticipated
that the net proceeds from the sale of the Conversion Stock will be between $6.8
million and $9.3 million ($10.8 million assuming an increase in the Estimated
Valuation Range by 15%). See "Pro Forma Data" and "The Conversion - Stock
Pricing, Exchange Ratio and Number of Shares to be Issued" as to the assumptions
used to arrive at such amounts.
The Company plans to contribute to Ponchatoula 50% of the net Conversion
proceeds and retain the remaining 50% of the net proceeds. The Company intends
to use a portion of the net proceeds to make a loan directly to the ESOP to
enable the ESOP to purchase up to 8% of the Conversion Stock sold in the
Offerings. Based upon the issuance of 722,500 shares or 977,500 shares at the
minimum and maximum of the Estimated Valuation Range, respectively, the loan to
the ESOP would be $578,000 and $782,000, respectively. See "Management - New
Stock Benefit Plans - Employee Stock Ownership Plan." The remaining net proceeds
retained by the Company initially may be used to invest in investment
securities, mortgage-backed securities, U.S. Government and federal agency
securities of various maturities, deposits in either Ponchatoula or other
financial institutions, or a combination thereof. The portion of the net
proceeds retained by the Company may ultimately be used to support Ponchatoula's
lending activities, to support the future expansion of operations, and for other
business and investment purposes, including the payment of regular or special
cash dividends, possible repurchases of the Common Stock or returns of capital
(the Company and Ponchatoula have committed that no return of capital will be
made on the Common Stock during the one-year period subsequent to consummation
of the Conversion). Neither Ponchatoula nor the Company has any specific plans,
arrangements, or understandings regarding any branch acquisitions or
diversification of activities at this time.
Following the completion of the Conversion (to the extent permitted by the
OTS), and based upon then existing facts and circumstances, the Company's Board
of Directors may determine to repurchase some shares of Common Stock, subject to
any applicable statutory and regulatory requirements. Such facts and
circumstances may include but not be limited to (i) market and economic factors
such as the price at which the stock is trading in the market, the volume of
trading, the attractiveness of other investment alternatives in terms of the
rate of return and risk involved in the investment, the ability to increase the
book value and/or earnings per share of the remaining outstanding shares, and an
improvement in the Company's return on equity; (ii) the avoidance of dilution to
stockholders by not having to issue additional shares to cover the exercise of
stock options or to fund employee stock benefit plans; and (iii) any other
circumstances in which repurchases would be in the best interests of the Company
and its stockholders. Any stock repurchases will be subject to the determination
of the Company's Board of Directors that Ponchatoula will be capitalized in
excess of all applicable regulatory requirements after any such repurchases. The
payment of dividends or repurchase of stock, however, would be prohibited if
Ponchatoula's net worth would be reduced below the amount required for the
liquidation account to be established for the benefit of Eligible Account
Holders and Supplemental Eligible Account Holders. As of the date of this
Prospectus, the initial balance of the liquidation account would be
approximately $5.3 million. See "Dividend Policy," "The Conversion - Liquidation
Rights" and "The Conversion - Certain Restrictions on Purchase or Transfer of
Shares After the Conversion."
27
<PAGE>
The Company will be a unitary savings and loan holding company which,
under existing laws, would generally not be restricted as to the types of
business activities in which it may engage, provided that Ponchatoula continues
to be a qualified thrift lender ("QTL"). See "Regulation - The Company" for a
description of certain regulations applicable to the Company.
The portion of the net proceeds contributed by the Company to Ponchatoula
will be added to Ponchatoula's general funds to be used for general corporate
purposes, including increased lending activities and purchases of securities.
While the amount of net proceeds received by Ponchatoula will further strengthen
Ponchatoula's capital position, which already substantially exceeds all
regulatory requirements, it should be noted that Ponchatoula is not converting
primarily to raise capital. After the Conversion, Ponchatoula's tangible capital
ratio will be 14.01% (based upon the midpoint of the Estimated Valuation Range).
As a result, Ponchatoula will continue to be a well-capitalized institution.
After the Conversion, Ponchatoula intends to emphasize capital strength and
growth in assets and earnings.
The net proceeds may vary because total expenses of the Conversion may be
more or less than those estimated. The net proceeds will also vary if the number
of shares to be issued in the Conversion is adjusted to reflect a change in the
estimated pro forma market value of Ponchatoula. Payments for shares made
through withdrawals from existing deposit accounts at Ponchatoula will not
result in the receipt of new funds for investment by Ponchatoula but will result
in a reduction of Ponchatoula's interest expense and liabilities as funds are
transferred from interest-bearing certificates or other deposit accounts.
DIVIDEND POLICY
Upon completion of the Conversion, the Board of Directors of the Company
will have the authority to declare dividends on the Common Stock, subject to
statutory and regulatory requirements. The Board of Directors intends to pay
quarterly cash dividends on the Common Stock at an initial rate of 2% of the
Purchase Price per annum. Declarations of dividends by the Board of Directors
will depend upon a number of factors, including the amount of net proceeds
retained by the Company in the Conversion, investment opportunities available to
the Company or Ponchatoula, capital requirements, the Company's and
Ponchatoula's financial condition and results of operations, tax considerations,
statutory and regulatory limitations, and general economic conditions. No
assurances can be given that any dividends will be paid or that, if paid, will
not be reduced or eliminated in future periods. Special cash dividends, stock
dividends or returns of capital may be paid in addition to, or in lieu of,
regular cash dividends (however, the Company and Ponchatoula have committed to
the OTS that they will take no action with respect to any return of capital
during the one-year period following consummation of the Conversion).
Dividends from the Company may eventually depend, in part, upon receipt of
dividends from Ponchatoula, because the Company initially will have no source of
income other than dividends from Ponchatoula, earnings from the investment of
proceeds from the sale of Conversion Stock retained by the Company, and interest
payments with respect to the Company's loan to the ESOP. A regulation of the OTS
imposes limitations on "capital distributions" by savings institutions,
including cash dividends, payments by a savings institution to repurchase or
otherwise acquire its stock, payments to stockholders of another savings
institution in a cash-out merger and other distributions charged against
capital. As of December 31, 1997, Ponchatoula was a Tier 1 savings institution
and is expected to continue to so qualify immediately following the consummation
of the Conversion. Based on the regulatory capital level of Ponchatoula at
December 31, 1997, Ponchatoula would have been permitted to make a capital
distribution to the Company of up to $2.0 million as of January 1, 1998. See
"Regulation - The Association - Capital Distribution Regulation." However,
because the accumulated earnings and profits tax attribute was retained by the
Mutual Holding Company in the MHC Reorganization, Ponchatoula's accumulated
earnings and profits at December 31, 1997 was only approximately $36,000. Any
dividends or other distributions paid in excess of Ponchatoula's accumulated
earnings and profits would require a recapture of a portion of Ponchatoula's bad
debt reserves, resulting in a tax liability as discussed below. The Conversion
will re-unite the tax attribute retained by the Mutual Holding Company with
Ponchatoula's retained earnings and thus increase Ponchatoula's ability to pay
dividends.
28
<PAGE>
Any payment of dividends by Ponchatoula to the Company which would be
deemed to be drawn out of Ponchatoula's bad debt reserves would require a
payment of taxes at the then-current tax rate by Ponchatoula on the amount of
earnings deemed to be removed from the reserves for such distribution.
Ponchatoula does not intend to make any distribution to the Company that would
create such a federal tax liability. See "Taxation."
Unlike Ponchatoula, the Company is not subject to the aforementioned
regulatory restrictions on the payment of dividends to its stockholders,
although the source of such dividends may eventually be dependent, in part, upon
dividends from Ponchatoula in addition to the net proceeds retained by the
Company and earnings thereon. The Company is subject, however, to the
requirements of Louisiana law, which generally permits the payment of dividends
out of surplus, except when (1) the corporation is insolvent or would thereby be
made insolvent, or (2) the declaration or payment thereof would be contrary to
any restrictions contained in the articles of incorporation. If there is no
surplus available for dividends, a Louisiana corporation may pay dividends out
of its net profits for the then current or the preceding fiscal year or both,
except that no dividend may be paid if the corporation's assets are exceeded by
its liabilities or if its net assets are less than the amount which would be
needed, under certain circumstances, to satisfy any preferential rights of
stockholders.
MARKET FOR COMMON STOCK
The Company has never issued capital stock (other than 100 shares issued
to Ponchatoula, which will be cancelled upon consummation of the Conversion),
and to date an active and liquid trading market has not developed for the
150,105 Public Ponchatoula Shares outstanding prior to the Offerings.
Consequently, there is no established market for the Common Stock at this time.
The Company has applied to have its Common Stock quoted on the Nasdaq
SmallCap System under the symbol "HSTD." Making a market involves maintaining
bid and ask quotations and being able, as principal, to effect transactions in
reasonable quantities at those quoted prices, subject to various securities laws
and other regulatory requirements. Additionally, the development of a liquid
public market depends on the existence of willing buyers and sellers, the
presence of which is not within the control of the Company, Ponchatoula or any
market maker. Accordingly, there can be no assurance that an active and liquid
trading market for the Common Stock will develop or that, if developed, it will
continue, nor is there any assurance that persons purchasing shares of Common
Stock will be able to sell them at or above the Purchase Price. Therefore,
investors in the Common Stock could have difficulty disposing of their shares
and should not view the Common Stock as a short-term investment. The absence of
an active and liquid trading market for the Common Stock could adversely affect
the price and liquidity of the Common Stock.
Quotation on the Nasdaq SmallCap System is dependent upon the Company
having at least three market makers for the Common Stock and at least 300
stockholders of record. Based upon the minimum of 722,500 shares of Conversion
Stock being offered, the minimum of 227,408 Exchange Shares to be issued, and
the anticipated pro forma ownership of officers, directors and the ESOP, the
Company expects to have more than 300 stockholders of record. Trident has
advised the Company that it intends to make a market in the Common Stock. While
the Company intends to seek with the assistance of Trident commitments from
other broker-dealers to act as market makers, and anticipates that prior to the
completion of the Conversion it will be able to obtain commitments from at least
two other broker-dealers to act as market makers for the Common Stock, there can
be no assurance there will be three or more market makers for the Common Stock.
In addition, there can be no assurance that an active and liquid trading market
for the Common Stock will develop or that, if developed, it will continue.
The Ponchatoula Common Stock is not currently traded on any exchange or
quoted on the Nasdaq SmallCap System. Since Ponchatoula's initial public
offering was consummated on August 31, 1994, Ponchatoula is aware of only a
limited number of trades with respect to the Ponchatoula Common Stock. At May 4,
1998, Ponchatoula had approximately 142 stockholders of record.
29
<PAGE>
Upon consummation of the Conversion, all Public Ponchatoula Shares will be
automatically converted into Exchange Shares based upon the Exchange Ratio.
REGULATORY CAPITAL
At December 31, 1997, Ponchatoula exceeded all of the regulatory capital
requirements applicable to it. The table on the following page sets forth
Ponchatoula's historical regulatory capital at December 31, 1997 and the pro
forma regulatory capital of Ponchatoula after giving effect to the Conversion,
based upon the sale of the number of shares shown in the table. The pro forma
regulatory capital amounts reflect the receipt by Ponchatoula of 50% of the net
Conversion proceeds, minus the amounts to be loaned to the ESOP and contributed
to the RRP. The pro forma risk-based capital amounts assume the investment of
the net proceeds received by Ponchatoula in assets which have a risk-weight of
50% under applicable regulations, as if such net proceeds had been received and
so applied at December 31, 1997.
30
<PAGE>
<TABLE>
<CAPTION>
Pro Forma at December 31, 1997 Based on
------------------------------------------------------------------------------------------
722,500 850,000 977,500 1,124,125
Shares Sold Shares Sold Shares Sold Shares Sold
Historical at at $10.00 at $10.00 at $10.00 at $10.00
December 31, 1997 Per Share Per Share Per Share Per Share
----------------- ----------------- ------------------- ----------------- --------------------
Percent of Percent of Percent of Percent of Percent of
Amount Assets(1) Amount Assets(1) Amount Assets(1) Amount Assets(1) Amount Assets(1)
------- -------- ------ --------- -------- --------- ------- -------- ------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP capital .... $ 5,735 9.63% $ 8,372 13.33% $ 8,850 13.96% $ 9,328 14.58% $ 9,877 15.28%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Tangible capital:
Actual ........ $ 5,770 9.68% $ 8,407 13.38% $ 8,885 14.01% $ 9,363 14.63% $ 9,912 15.33%
Requirement ... 894 1.50 942 1.50 951 1.50 959 1.50 970 1.50
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Excess ........ $ 4,876 8.18% $ 7,465 11.88% $ 7,934 12.51% $ 8,404 13.13% $ 8,942 13.83%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Core capital(2):
Actual ........ $ 5,770 9.68% $ 8,407 13.38% $ 8,885 14.01% $ 9,363 14.63% $ 9,912 15.33%
Requirement ... 1,788 3.00 1,885 3.00 1,902 3.00 1,918 3.00 1,940 3.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Excess ........ $ 3,982 6.68% $ 6,522 10.38% $ 6,983 11.01% $ 7,445 11.63% $ 7,972 12.33%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Risk-based
capital(2):
Actual ........ $ 6,020 23.69% $ 8,657 33.23% $ 9,135 34.91% $ 9,613 36.58% $10,162 38.47%
Requirement ... 2,033 8.00 2,084 8.00 2,093 8.00 2,103 8.00 2,113 8.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Excess ........ $ 3,987 15.69% $ 6,573 25.23% $ 7,042 26.91% $ 7,510 28.58% $ 8,049 30.47%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- ------------
(1) Adjusted total or adjusted risk-weighted assets, as appropriate, except
that the ratios regarding GAAP capital are based on total assets.
(2) Does not reflect the interest rate risk component to be added to the
risk-based capital requirements or, in the case of the core capital
requirement, the 4.0% requirement to be met in order for an institution to
be "adequately capitalized" under applicable laws and regulations. See
"Regulation - The Association - Regulatory Capital Requirements."
31
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of Ponchatoula at
December 31, 1997, and the pro forma consolidated capitalization of the Company
after giving effect to the Conversion, based upon the sale of the number of
shares shown below and the other assumptions set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
The Company - Pro Forma
Based Upon Sale at $10.00 Per Share
-------------------------------------------------------------------
1,124,125
Ponchatoula- 722,500 Shares 850,000 Shares 977,500 Shares Shares(1)
Historical (Minimum of (Midpoint of (Maximum of (15% above
Capitalization Range) Range) Range) Maximum of Range)
-------------- ------------- -------------- ------------- -----------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(2) ..................................... $ 42,111 $ 42,111 $ 42,111 $ 42,111 $ 42,111
Borrowings ...................................... 11,500 11,500 11,500 11,500 11,500
-------- -------- -------- -------- --------
Total deposits and borrowings ................... $ 53,611 $ 53,611 $ 53,611 $ 53,611 $ 53,611
======== ======== ======== ======== ========
Stockholders' equity:
Preferred Stock, par value $.01, 5,000,000
shares authorized; none to be issued ....... $ -- $ -- $ -- $ -- $ --
Common Stock, par value $.01,
10,000,000 shares authorized; shares to
be issued as reflected(3) ................. 61 9 11 13 15
Additional paid-in capital(4) ................ 2,017 8,975 10,235 11,494 12,943
Retained earnings(5) ......................... 3,734 3,734 3,734 3,734 3,734
Net unrealized loss on securities available
for sale ................................. (35) (35) (35) (35) (35)
Less:
Common Stock to be acquired by the
ESOP(6) .................................. -- (578) (680) (782) (899)
Common Stock acquired or to be acquired
by Recognition Plans(7) .................. (42) (331) (382) (433) (492)
-------- -------- -------- -------- --------
Total stockholders' equity ...................... $ 5,735 $ 11,774 $ 12,883 $ 13,991 $ 15,266
======== ======== ======== ======== ========
</TABLE>
(Footnotes on following page)
32
<PAGE>
- ----------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to
15% to reflect changes in market and financial conditions following the
commencement of the Offerings.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Conversion Stock in the Offerings. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) Assumes that (i) the 150,105 Public Ponchatoula Shares currently
outstanding are converted into 227,408, 267,539, 307,670 and 353,820
Exchange Shares at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively, (ii) there are no
fractional Exchange Shares or Dissenting Shares, and (iii) the number of
shares of Conversion Stock shown are sold in the Offerings. No effect has
been given to the issuance of additional shares of Common Stock pursuant
to the proposed 1998 Option Plan. See "Pro Forma Data" and "Management -
New Stock Benefit Plans - Stock Option Plan."
(4) The pro forma additional paid-in capital includes the $101,675 to be
acquired by Ponchatoula upon the merger of the Mutual Holding Company into
Ponchatoula.
(5) The retained earnings of Ponchatoula will be substantially restricted
after the Conversion by virtue of the liquidation account to be
established in connection with the Conversion. See "The Conversion -
Liquidation Rights." In addition, certain distributions from Ponchatoula's
retained earnings may be treated as being from its accumulated bad debt
reserve for tax purposes, which would cause Ponchatoula to have additional
taxable income. See "Taxation."
(6) Assumes that 8% of the Conversion Stock sold in the Offerings will be
purchased by the ESOP, which is reflected as a reduction of stockholders'
equity. The ESOP shares will be purchased with funds loaned to the ESOP by
the Company. See "Pro Forma Data" and "Management - New Stock Benefit
Plans Employee Stock Ownership Plan."
(7) The Company intends to adopt the 1998 Recognition Plan and to submit such
plan to stockholders at an annual or special meeting of stockholders held
at least six months following the consummation of the Conversion. If the
plan is approved by stockholders, the Company intends to contribute
sufficient funds to the trust created under the 1998 Recognition Plan to
enable the trust to purchase a number of shares of Common Stock equal to
4% of the Conversion Stock sold in the Offerings. Assumes that stockholder
approval has been obtained and that the shares have been purchased in the
open market at the Purchase Price. However, in the event the Company
issues authorized but unissued shares of Common Stock to the 1998
Recognition Plan in the amount of 4% of the Conversion Stock sold in the
Offerings, the voting interests of existing stockholders would be diluted
by approximately 3.0%. The shares are reflected as a reduction of
stockholders' equity. See "Pro Forma Data" and "Management - New Stock
Benefit Plans - Recognition Plan."
33
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Conversion Stock cannot be
determined until the Conversion is completed. However, net proceeds are
currently estimated to be between $6.8 million and $9.3 million (or $10.8
million in the event the Estimated Valuation Range is increased by 15%) based
upon the following assumptions: (i) all shares of Conversion Stock will be sold
in the Subscription Offering; (ii) no fees will be paid to Trident on shares
purchased by (x) the ESOP and any other employee benefit plan of the Company or
Ponchatoula or (y) officers, directors, employees and members of their immediate
families, which purchases are estimated to aggregate 32,000 shares of Conversion
Stock at the midpoint of the Estimated Valuation Range; (iii) Trident will
receive a fee equal to 1.125% of the aggregate Purchase Price for sales in the
Subscription Offering (excluding the sale of shares to the ESOP, employee
benefit plans, and officers, directors, employees and their immediate families),
with such fee estimated to be $71,179 and $97,571 at the minimum and maximum of
the Estimated Valuation Range (or $112,747 in the event the Estimated Valuation
Range is increased by 15%); and (iv) total other expenses, excluding the
marketing fees paid to Trident, will be $350,000. Actual expenses may vary from
those estimated.
Pro forma consolidated net income and stockholders' equity of the Company
have been calculated for the year ended December 31, 1997 as if the Conversion
Stock to be issued in the Offerings had been sold at the beginning of the period
and the net proceeds had been invested at 5.48%, which represents the yield on
one-year U.S. Government securities at December 31, 1997 (which, in light of
changes in interest rates in recent periods, are deemed by the Company and
Ponchatoula to more accurately reflect pro forma reinvestment rates than the
arithmetic average method). The effect of withdrawals from deposit accounts for
the purchase of Conversion Stock has not been reflected. A marginal tax rate of
34% has been assumed for the period, resulting in an after-tax yield of 3.62%
for the year ended December 31, 1997. Historical and pro forma per share amounts
have been calculated by dividing historical and pro forma amounts by the
indicated number of shares of Common Stock. See Note 4 to the tables below. No
effect has been given in the pro forma stockholders' equity calculations for the
assumed earnings on the net proceeds. As discussed under "Use of Proceeds," the
Company intends to make a loan to fund the purchase of 8% of the Conversion
Stock by the ESOP and retain 50% of the net proceeds from the Offerings.
No effect has been given in the tables to the issuance of additional
shares of Common Stock equal to 10% of the Conversion Stock pursuant to the
proposed 1998 Option Plan. See "Management - New Stock Benefit Plans - Stock
Option Plan." The table below gives effect to the 1998 Recognition Plan, which
is expected to be adopted by the Company following the Conversion and presented
(together with the 1998 Stock Option Plan) to stockholders for approval at an
annual or special meeting of stockholders to be held at least six months
following the consummation of the Conversion. If the 1998 Recognition Plan is
approved by stockholders, the 1998 Recognition Plan intends to acquire an amount
of Common Stock equal to 4% of the shares of Conversion Stock sold in the
Offerings, either through open market purchases or from authorized but unissued
shares of Common Stock. The table below assumes that stockholder approval has
been obtained, as to which there can be no assurance, and that the shares
acquired by the 1998 Recognition Plan are purchased in the open market at the
Purchase Price. No effect has been given to (i) the Company's results of
operations after the Conversion, (ii) the market price of the Common Stock after
the Conversion, or (iii) a less than 4% purchase by the 1998 Recognition Plan.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma stockholders' equity represents the difference
between the stated amount of assets and liabilities of the Company computed in
accordance with GAAP.
The pro forma stockholders' equity is not intended to represent the fair
market value of the Common Stock and may be different than amounts that would be
available for distribution to stockholders in the event of liquidation.
34
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1997
----------------------------------------------------------------------
722,500 850,000 977,500 1,124,125
Shares Sold Shares Sold Shares Sold Shares Sold
at $10.00 at $10.00 at $10.00 at $10.00 Per
Per Share Per Share Per Share Share (15%
(Minimum of (Midpoint (Maximum of above Maximum
Range) of Range) Range) of Range)(9)
-------------- ------------- ------------- --------------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds ......................................... $ 7,225 $ 8,500 $ 9,775 $ 11,241
Less offering expenses and commissions ................. (421) (434) (448) (463)
-------- -------- -------- --------
Estimated net proceeds ............................... 6,804 8,066 9,327 10,778
Less: Shares purchased by the ESOP ..................... (578) (680) (782) (899)
Shares to be purchased by the
1998 Recognition Plan .......................... (289) (340) (391) (450)
Plus assets from MHC ................................... 102 102 102 102
-------- -------- -------- --------
Total estimated net proceeds,
as adjusted(1) ....................................... $ 6,039 $ 7,148 $ 8,256 $ 9,531
======== ======== ======== ========
Net income:
Historical ........................................... $ 316 $ 316 $ 316 $ 316
Pro forma income on net proceeds,
as adjusted(2) ..................................... 164 200 234 275
Pro forma ESOP adjustment(3) ......................... (38) (45) (52) (59)
Pro forma 1998 Recognition Plan
adjustment(4) ...................................... (38) (45) (52) (59)
-------- -------- -------- --------
Pro forma net income ................................. $ 404 $ 426 $ 446 $ 473
======== ======== ======== ========
Net income per share(5)(6):
Historical ........................................... $ .35 $ .30 $ .26 $ .23
Pro forma income on net proceeds,
as adjusted ........................................ .18 .18 .19 .19
Pro forma ESOP adjustment(3) ......................... (.04) (.04) (.04) (.04)
Pro forma 1998 Recognition Plan
adjustment(4) ...................................... (.04) (.04) (.04) (.04)
-------- -------- -------- --------
Pro forma net income per share(5)(6) ................. $ .45 $ .40 $ .37 $ .34
======== ======== ======== ========
Offering price to pro forma net
income per share (5) ................................. 22.2x 25.0x 27.0x 29.4x
======== ======== ======== ========
Stockholders' equity:
Historical(7) ........................................ $ 5,837 $ 5,837 $ 5,837 $ 5,837
Estimated net proceeds ............................... 6,804 8,066 9,327 10,778
Less: Common Stock acquired
by the ESOP(3) ............................... (578) (680) (782) (899)
Common Stock to be acquired by
the 1998 Recognition Plan(4) ................. (289) (340) (391) (450)
-------- -------- -------- --------
Pro forma stockholders' equity(6)(7)(8) .............. $ 11,774 $ 12,883 $ 13,991 $ 15,266
======== ======== ======== ========
Stockholders' equity per share(5):
Historical ........................................... $ 6.14 $ 5.22 $ 4.54 $ 3.95
Estimated net proceeds ............................... 7.16 7.22 7.26 7.29
Less: Common Stock acquired
by the ESOP(3) ............................... (.61) (.61) (.61) (.61)
Common Stock to be acquired by
the 1998 Recognition Plan(4) ................. (.30) (.30) (.30) (.30)
-------- -------- -------- --------
Pro forma stockholders' equity
per share(6)(7)(8) ................................. $ 12.39 $ 11.53 $ 10.89 $ 10.33
======== ======== ======== ========
Offering price as a percentage of pro
forma stockholders' equity per share(5) .............. 80.7% 86.7% 91.8% 96.8%
======== ======== ======== ========
</TABLE>
(Footnotes on following page)
35
<PAGE>
- ---------------
(1) Estimated net proceeds, as adjusted, consist of the estimated net proceeds
from the Offerings minus (i) the proceeds attributable to the purchase by
the ESOP and (ii) the value of the shares to be purchased by the 1998
Recognition Plan, subject to stockholder approval, after the Conversion at
an assumed purchase price of $10.00 per share.
(2) Net of the impact of state franchise/share taxes, which are estimated to
be $54,000, $59,000, $65,000 and $70,000 at the minimum, midpoint, maximum
and 15% above the maximum of the Estimated Valuation Range, respectively.
(3) It is assumed that 8% of the shares of Conversion Stock sold in the
Offerings will be purchased by the ESOP with funds loaned by the Company.
The Company and Ponchatoula intend to make annual contributions to the
ESOP in an amount at least equal to the principal and interest requirement
of the debt. The pro forma net income assumes (i) that the loan to the
ESOP is payable over 10 years, with the ESOP shares having an average fair
value of $10.00 per share in accordance with SOP 93-6, entitled
"Employers' Accounting for Employee Stock Ownership Plans," of the AICPA,
(ii) that the loan to the ESOP bears a fixed interest rate of 8.5%, and
(iii) the effective tax rate was 34% for the period. See "Management - New
Stock Benefit Plans - Employee Stock Ownership Plan."
(4) It is assumed that the 1998 Recognition Plan will purchase, following
stockholder approval of such plan, a number of shares of Common Stock
equal to 4% of the shares of Conversion Stock sold in the Offerings for
issuance to directors, officers and employees. Funds used by the 1998
Recognition Plan to purchase the shares initially will be contributed to
the 1998 Recognition Plan by the Company. It is further assumed that the
shares were acquired by the 1998 Recognition Plan at the beginning of the
period presented in open market purchases at the Purchase Price and that
20% of the amount contributed, net of taxes, was an amortized expense
during the year ended December 31, 1997. The issuance of authorized but
unissued shares of Common Stock pursuant to the 1998 Recognition Plan in
the amount of 4% of the Conversion Stock sold in the Offerings would
dilute the voting interests of existing stockholders by approximately 3.0%
and under such circumstances pro forma net income per share for the year
ended December 31, 1997 would be $.45 $.40, $.37 and $.34 at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range, respectively, and pro forma stockholders' equity per share at
December 31, 1997 would be $12.32, $11.48, $10.86 and $10.32 at the
minimum, midpoint, maximum and 15% above the maximum of such range,
respectively. There can be no assurance that the actual purchase price of
shares purchased by or issued to the 1998 Recognition Plan will be equal
to the Purchase Price. See "Management - New Stock Benefit Plans -
Recognition Plan."
(5) The net income per share calculations are based upon 894,998, 1,052,939,
1,210,880 and 1,392,512 shares of Common Stock at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range,
respectively, which amounts include 227,408, 267,539, 307,670 and 353,820
Exchange Shares, respectively, and exclude, in accordance with SOP 93-6,
54,910, 64,600, 74,290 and 85,434 shares, respectively, representing the
ESOP shares which have not been committed for release during the year
ended December 31, 1997. Assuming the uncommitted ESOP shares were not
subtracted from the number of shares of Common Stock outstanding at
December 31, 1997, the offering price as a multiple of pro forma net
income per share would be 23.5x, 26.2x, 28.8x and 31.3x at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range, respectively. The historical net income per share and historical
stockholders' equity per share figures represent Ponchatoula's historical
per share amounts divided by the Exchange Ratio. For a description of the
Exchange Ratio, see "The Conversion - Stock Pricing, Exchange Ratio and
Number of Shares to be Issued in the Conversion." For purposes of
calculating pro forma stockholders' equity per share, it is assumed that
the number of shares of Common Stock outstanding total 949,908, 1,117,539,
1,285,170 and 1,477,945 shares at the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Valuation Range.
36
<PAGE>
(6) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the 1998 Option Plan, which will be adopted by the
Company following the Conversion and presented for approval by
stockholders at an annual or special meeting of stockholders of the
Company held at least six months following the consummation of the
Conversion. If the 1998 Option Plan is approved by stockholders, an amount
equal to 10% of the Conversion Stock sold in the Offerings, or 72,250,
85,000, 97,750 and 112,412 shares at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range, respectively, will
be reserved for future issuance upon the exercise of options to be granted
under the 1998 Option Plan. The issuance of Common Stock pursuant to the
exercise of options under the 1998 Option Plan will result in the dilution
of existing stockholders' interests. Assuming stockholder approval of the
1998 Option Plan, that all these options were exercised at the beginning
of the period at an exercise price of $10.00 per share and that the shares
to fund the 1998 Recognition Plan are acquired through open market
purchases at the Purchase Price, pro forma net income per share for the
year ended December 31, 1997 would be $.44, $.40, $.37 and $.34 at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range, respectively, and pro forma stockholders' equity per
share at December 31, 1997 would be $12.22, $11.42, $10.82 and $10.31 at
the minimum, midpoint, maximum and 15% above the maximum of such range,
respectively. See "Management - New Stock Benefit Plans - Stock Option
Plan."
(7) Includes the $101,675 to be acquired by Ponchatoula upon the merger of the
Mutual Holding Company into Ponchatoula.
(8) The retained earnings of Ponchatoula will be substantially restricted
after the Conversion by virtue of the liquidation account to be
established in connection with the Conversion. See "Dividend Policy" and
"The Conversion - Liquidation Rights." In addition, certain distributions
from Ponchatoula's retained earnings may be treated as being from its
accumulated bad debt reserve for tax purposes, which would cause
Ponchatoula to have additional taxable income. See "Taxation - Federal
Taxation." Pro forma stockholders' equity and pro forma stockholders'
equity per share do not give effect to the liquidation account or the bad
debt reserves established by Ponchatoula for federal income tax purposes
in the event of a liquidation of Ponchatoula.
(9) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to
15% to reflect changes in market and financial conditions following the
commencement of the Offerings.
37
<PAGE>
PONCHATOULA HOMESTEAD SAVINGS, F.A.
STATEMENTS OF INCOME
The following Statements of Income of Ponchatoula for each of the three
years in the period ended December 31, 1997 have been audited by Hannis T.
Bourgeois, L.L.P., independent certified public accountants, whose report
thereon appears elsewhere herein. The Statements of Income should be read in
conjunction with the Financial Statements and related Notes included elsewhere
herein.
Year Ended December 31,
---------------------------------
1997 1996 1995
------- ------- -------
(In Thousands, except per share data)
Interest income:
Loan and leases $ 2,429 $ 2,384 $ 2,348
Mortgage-backed securities 1,576 1,621 1,353
Investment securities 145 155 138
Other 97 116 149
------- ------- -------
Total interest income 4,247 4,276 3,988
------- ------- -------
Interest expense:
Deposits 1,971 2,158 2,007
Borrowings 544 433 335
------- ------- -------
Total interest expense 2,515 2,591 2,342
------- ------- -------
Net interest income 1,732 1,685 1,646
Provision for (recovery of)
loan and lease losses (16) 3 (6)
------- ------- -------
Net interest income after
provision for (recovery of)
loan and lease losses 1,748 1,682 1,652
------- ------- -------
Noninterest income:
Gain on sale of loans 167 240 210
Loan fees and service charges 189 186 157
Other income 17 8 11
------- ------- -------
Total noninterest income 373 434 378
------- ------- -------
Noninterest expenses:
Compensation and benefits 869 818 793
Occupancy and equipment expense 140 151 152
Federal insurance premium 23 92 97
Special SAIF assessment -- 284 --
Net real estate owned
expense (income) 27 (3) (11)
Other expenses 561 568 540
------- ------- -------
Total noninterest expenses 1,620 1,910 1,571
------- ------- -------
Income before provision
for income taxes 501 206 459
Income taxes 185 60 150
------- ------- -------
Net income $ 316 $ 146 $ 309
======= ======= =======
Per share:
Earnings per common share $ .52 $ .24 $ .51
======= ======= =======
Earnings per common share -
assuming dilution $ .51 $ .23 $ .51
======= ======= =======
Cash dividends declared $ .70 $ .51 $ .40
======= ======= =======
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Ponchatoula's results of operations depend primarily on its net interest
income, which is the difference between interest and dividend income on
interest-earning assets, which principally consist of loans, mortgage-backed
securities and investment securities, and interest expense on interest-bearing
deposits and borrowings. Ponchatoula's results of operations also are affected
by the provision for losses on loans and leases (or recoveries of prior
provisions for losses); the level of its noninterest income, including gain on
sale of loans; its general, administrative and other expenses, including
compensation and benefits, occupancy and equipment expense, federal insurance
premiums, net real estate owned expense and miscellaneous other expenses; and
its income tax expense.
Market Risk Analysis
Qualitative Analysis
In order to minimize the potential for adverse effects of material
fluctuations in interest rates on Ponchatoula's results of operations,
Ponchatoula has implemented and continues to monitor its asset and liability
management policies to better match the maturities and repricing terms of
Ponchatoula's interest-earning assets and interest-bearing liabilities. Such
policies have consisted primarily of (i) purchasing adjustable-rate
mortgage-backed securities and short-term investment securities; (ii)
emphasizing the origination of 15-year, fixed-rate single-family residential
loans and, to the extent possible, ARMs; (iii) selling newly-originated,
30-year, fixed-rate single-family residential loans in the secondary market,
except that commencing February 1998 Ponchatoula began retaining a portion of
such loans and matching them with long-term FHLB advances; and (iv) managing
interest rate expense.
Currently, Ponchatoula only purchases mortgage-backed securities with
adjustable interest rates and investment securities with terms of two years or
less. In 1995 and 1996, Ponchatoula purchased approximately $10 million of
adjustable-rate mortgage-backed securities (which reprice either monthly,
semi-annually or annually) and funded the purchases with FHLB advances with
interest rates that adjust monthly. These mortgage-backed securities were
purchased in order to earn a positive spread above the average rate on the FHLB
advances, and the average interest rate spread on these linked mortgage-backed
securities and FHLB advances was 1.31% for 1997. The maturities of the
investment securities are staggered so that a portion matures every quarter.
From 1982 to 1994, Ponchatoula originated fixed-rate single-family
residential mortgage loans to meet the needs of its customers and to generate
fee income when the loans were sold. Upon origination, the fixed-rate loans were
mainly sold to institutional investors in the secondary market in order to
eliminate the interest rate risk associated with such loans, as well as to
generate additional funds for lending and other purposes. These loans are
accounted for as held for sale and are carried at the lower of cost or estimated
market value in the aggregate. Loans held for sale were $1.4 million and $2.3
million at December 31, 1997 and 1996, respectively.
Beginning in 1995, Ponchatoula began offering 15-year, fixed-rate
residential mortgage loans for retention in its portfolio. These fixed-rate
loans retained in the portfolio have interest rates of 8% or above as of
December 31, 1997 and a loan-to-value ratio of 70% or below. Commencing February
1998, Ponchatoula amended its policy to provide for the retention of 30-year,
fixed-rate residential mortgage loans, with such loans to be funded with
long-term advances from the FHLB of Dallas. While loan sales are expected to
continue, the amount of loans sold is expected to decline.
From 1982 through 1994, the only single-family residential loans which
Ponchatoula had originated for retention in its portfolio had been ARMs. All of
the ARMs currently offered by Ponchatoula have interest rates which adjust
annually, although the portfolio contains some ARMs which were originated in the
mid 1980s with interest rates adjusting every three years. Ponchatoula's
origination of ARMs has decreased due to the preference of Ponchatoula's
customers for fixed-rate residential mortgage loans. Ponchatoula's portfolio of
adjustable-rate,
39
<PAGE>
single-family residential mortgage loans and leases amounted to $9.5 million or
90.5% of all ARMs at December 31, 1997.
In order to match the maturity of its interest-bearing liabilities with
the maturity of its interest-earning assets, Ponchatoula offers certificates of
deposit with terms in excess of one year; however, the rates paid are the same
as the one-year certificate. At December 31, 1997, $28.6 million or 91.0% of
Ponchatoula's certificates of deposit mature in one year or less.
Ponchatoula considers its passbook accounts to be core deposits that are
less likely to be withdrawn if interest rates rise, although the amount of
passbook accounts has been steadily declining in recent years. The passbook
accounts have variable interest rates, and Ponchatoula believes that it can
adjust the interest rate on the accounts to retain a substantial portion of
these deposits. Passbook accounts amounted to $8.3 million or 19.6% of total
deposits at December 31, 1997, compared to $10.2 million or 22.7% of total
deposits at December 31, 1995.
Finally, in order to manage its interest expense more effectively,
Ponchatoula has elected to offer rates on its deposit accounts that are
moderately lower than certain of its competitors' rates, and as a result has
occasionally experienced deposit outflows. Pursuant to this policy, Ponchatoula
has generally neither engaged in sporadic increases or decreases in interest
rates paid nor offered the highest rates available in its deposit market. This
policy has assisted Ponchatoula in controlling its cost of funds.
40
<PAGE>
Quantitative Analysis. The following table presents the difference
between Ponchatoula's interest-earning assets and interest-bearing
liabilities within specified maturities at December 31, 1997. This table does
not necessarily indicate the impact of general interest rate movements on
Ponchatoula's net interest income, because the repricing of certain assets
and liabilities is subject to competitive and other limitations. As a result,
certain assets and liabilities indicated as maturing or otherwise repricing
within a stated period may in fact mature or reprice at different times and
at different volumes.
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------------------------------------------------------------
0 Months Over Three Over One Over Three Over Five
Through Through Through Through Through Over Ten
Three Months 12 Months Three Years Five Years Ten Years Years Total
----------- --------- ----------- ---------- ----------- ---------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1)(2):
One- to four-family residential:
Adjustable-rate $ 2,478 $ 6,368 $ 101 $ 637 $ -- $ -- $ 9,584
Fixed-rate 318 55 132 86 434 9,628 10,653
Construction 1,801 1,427 -- -- -- -- 3,228
Commercial real estate -- -- 255 -- 266 -- 521
Consumer 824 372 962 1,095 576 3,346 7,175
Leases receivable -- 4 3 7 93 194 301
Adjustable-rate mortgage-backed
securities 8,978 15,584 -- -- -- -- 24,562
Investment securities 300 900 1,405 -- -- -- 2,605
FHLB stock 584 -- -- -- -- -- 584
-------- -------- ------- ------- ------- ------- -------
Total interest-earning assets 15,283 24,710 2,858 1,825 1,369 13,168 59,213
-------- -------- ------- ------- ------- ------- -------
Interest-bearing liabilities:
Passbook, money market and NOW
accounts (3) 534 1,602 4,271 4,271 -- -- 10,678
Certificates of deposit (4) 10,530 18,078 2,421 404 -- -- 31,433
FHLB advances 11,500 -- -- -- -- -- 11,500
-------- -------- ------- ------- ------- ------- -------
Total interest-bearing liabilities 22,564 19,680 6,692 4,675 -- -- 53,611
-------- -------- ------- ------- ------- ------- -------
Interest rate sensitivity gap $ (7,281) $ 5,030 $(3,834) $(2,850) $ 1,369 $13,168 $ 5,602
======== ======== ======= ======= ======= ======= =======
Cumulative interest rate sensitivity gap $ (7,281) $ (2,251) $(6,085) $(8,935) $(7,566) $ 5,602
======== ======== ======= ======= ======= =======
Percentage of cumulative gap
to total assets (12.2)% (3.8)% (10.2)% (15.0)% (12.7)% 9.4%
======== ======== ======= ======= ======= =======
Cumulative ratio of interest-
earning assets to interest-
bearing liabilities 67.73% 94.67% 87.57% 83.33% 85.89% 110.45%
======== ======== ======= ======= ======= =======
</TABLE>
(Footnotes are on following page)
41
<PAGE>
- --------------
(1) Loans receivable are gross of loans in process, deferred fees, unearned
discounts, and allowance for loan losses.
(2) Adjustable-rate assets are included in the period in which interest rates
are next scheduled to adjust rather than in the period in which they are
due, and fixed-rate assets are included in the periods in which they are
scheduled to mature, without reflecting scheduled amortization or any
estimated prepayments.
(3) Although Ponchatoula's passbook, money market and NOW accounts are
generally subject to immediate withdrawal, management considers a
substantial amount of these accounts to be core deposits having
significantly longer effective maturities based on Ponchatoula's retention
of such deposits in changing interest rate environments. The decay rate
used on these accounts was 20% per year over the first five years, which
is faster than the actual withdrawals experienced by Ponchatoula in the
last two years. If all of Ponchatoula's passbook, money market and NOW
accounts had been assumed to be subject to repricing within one year,
interest-bearing liabilities which were estimated to mature or reprice
within one year would have exceeded interest-earning assets with
comparable characteristics by $10.8 million or 18.1% of total assets.
(4) It is assumed that certificates of deposit will not be withdrawn prior to
maturity.
Management also presently monitors and evaluates the potential impact of
interest rate changes upon the market value of Ponchatoula's portfolio equity on
a quarterly basis, in an attempt to ensure that interest rate risk is maintained
within limits established by the Board of Directors. The OTS adopted a final
rule in August 1993 incorporating an interest rate risk component into the
risk-based capital rules. Under the rule, an institution with a greater than
"normal" level of interest rate risk will be subject to a deduction of its
interest rate risk component from total capital for purposes of calculating the
risk-based capital requirement, although the OTS has indicated that no
institution will be required to deduct capital for interest rate risk until
further notice. An institution with a greater than "normal" interest rate risk
is defined as an institution that would suffer a loss of net portfolio value
("NPV") exceeding 2.0% of the estimated market value of its assets in the event
of a 200 basis point increase or decrease in interest rates. NPV is the
difference between incoming and outgoing discounted cash flows from assets,
liabilities, and off-balance sheet contracts. A resulting change in NPV of more
than 2% of the estimated market value of an institution's assets will require
the institution to deduct from its risk-based capital 50% of that excess change.
The rule provides that the OTS will calculate the interest rate risk component
quarterly for each institution. Because a 200 basis point increase in interest
rates would have resulted in less than a 2% decrease in Ponchatoula's NPV as a
percentage of the estimated market value of its assets as of December 31, 1997,
Ponchatoula would not have been subject to any capital deduction as of December
31, 1997 if the regulation had been effective as of such date. The following
table presents Ponchatoula's NPV as of December 31, 1997, as calculated by the
OTS, based on information provided to the OTS by Ponchatoula.
42
<PAGE>
Change in Change in
Interest Rates Net Portfolio Value NPV as % of NPV as % of
in Basis Points --------------------------- Portfolio Value Portfolio Value
(Rate Shock) Amount $ Change % Change of Assets of Assets(1)
-------------- ------ -------- -------- ----------- ---------------
(Dollars in Thousands)
400 $4,591 $(2,047) (30.8)% 8.0% (3.4)%
300 5,345 (1,293) (19.5) 9.1 (2.1)
200 5,946 (692) (10.4) 10.0 (1.1)
100 6,385 (253) (3.8) 10.6 (.4)
Static 6,638 -- -- 11.0 --
(100) 6,764 126 1.9 11.1 .2
(200) 6,854 216 3.3 11.2 .4
(300) 7,039 401 6.0 11.5 .7
(400) 7,368 730 11.0 11.9 1.2
- ----------
(1) Based on the portfolio value of Ponchatoula's assets assuming no change in
interest rates.
As shown by the table above, increases in interest rates will result in
declines in Ponchatoula's net portfolio value, while decreases in interest rates
will result in increases in Ponchatoula's net portfolio value.
Changes in Financial Condition
Ponchatoula's total assets decreased by 1.8% to $59.6 million at December
31, 1997 from $60.7 million at December 31, 1996, primarily due to a $2.2
million or 13.4% decline in mortgage-backed securities available for sale.
At December 31, 1997, net loans and leases receivable (including loans
held for sale) were $29.5 million or 49.5% of total assets. Of the total loan
and lease portfolio, $23.6 million or 74.9% consisted of single-family
residential loans or leases (including construction of single-family
residences). Consumer loans accounted for $7.2 million or 22.9% of the total
loan and lease portfolio at December 31, 1997, while the remainder of the
portfolio consisted of $598,000 of commercial real estate loans and leases and
$126,000 of unimproved land loans.
Mortgage-backed securities and investment securities represented 41.2% and
4.4% of total assets, respectively, at December 31, 1997, and cash and cash
equivalents amounted to 2.1% of total assets at such date.
Non-performing assets have decreased from .83% of total assets at December
31, 1996 to .29% of total assets at December 31, 1997. Non-accruing
single-family residential loans and leases represented 97.7% of the total
non-performing assets at December 31, 1997. At December 31, 1997, Ponchatoula's
allowance for loan and lease losses equaled $265,000, representing .84% of total
loans and leases outstanding and 153.2% of total non-performing assets.
Ponchatoula's total deposits decreased during 1997 to $42.1 million at
December 31, 1997 from $44.4 million at December 31, 1996. Certificate accounts
decreased by $728,000 or 2.3% during 1997, while transaction accounts decreased
by $1.6 million or 12.9% during 1997. The decrease in total deposits is
attributable to the increased competition which offers higher interest rates.
43
<PAGE>
Total stockholders' equity was $5.7 million at December 31, 1997, an
increase of $292,000 from December 31, 1996. The increase was due to net income
of $316,000 in 1997, less dividends of $105,000 combined with the change in
unrealized gain (loss) on securities available for sale during 1997 of $66,000.
The Mutual Holding Company waived the receipt of $320,000 in dividends during
1997 on the shares owned by it. As of December 31, 1997, the aggregate amount of
dividends waived by the Mutual Holding Company was $783,000, which amount will
be included as part of the liquidation account to be established for the benefit
of Eligible Account Holders and Supplemental Eligible Account Holders upon
consummation of the Conversion. See "The Conversion -Liquidation Rights."
Results of Operations
Ponchatoula's net income increased by $170,000 or 116.4% in 1997 and
decreased by $163,000 or 52.8% in 1996 over the respective prior periods. The
fluctuation is primarily due to the $284,000 special SAIF assessment paid by
Ponchatoula on September 30, 1996, which amounted to $187,000 on an after-tax
basis. Excluding the after-tax effects of the special SAIF assessment in 1996,
net income decreased by $17,000 or 5.1% in 1997 and increased by $24,000 or 7.8%
in 1996 over the respective prior periods. The adjusted decrease for 1997 was
primarily due to a $73,000 or 30.4% decline in the gain on sale of loans,
partially offset by a $47,000 or 2.8% increase in net interest income. The
adjusted increase for 1996 was primarily due to increases in net interest
income, gain on sale of loans, and loan fees and service charges, partially
offset by a $55,000 or 3.5% increase in total noninterest expenses (excluding
the special SAIF assessment).
Because the Company currently anticipates that it will take time to
prudently deploy the new capital raised in the Conversion, the Company's return
on equity initially is expected to be below the industry average after the
Conversion. See "Risk Factors - Potential Low Return on Equity Following the
Conversion; Uncertainty as to Future Growth Opportunities." The increase in net
income shown under "Pro Forma Data" as a result of the investment of the net
Conversion proceeds is not necessarily indicative of future results of
operations.
Net Interest Income
Ponchatoula's net interest income is determined by its average interest
rate spread (i.e., the difference between the average yields earned on its
interest-earning assets and the average rates paid on its interest-bearing
liabilities), the relative amounts of interest-earning assets and
interest-bearing liabilities and the degree of mismatch in the maturity and
repricing characteristics of its interest-earning assets and interest-bearing
liabilities.
With the decrease in market interest rates in 1997, Ponchatoula's average
interest rate spread increased to 2.65% for 1997 from 2.54% for 1996, as the
average yield on total interest-earning assets declined by 13 basis points
compared to a decline of 24 basis points in the average rate paid on total
interest-bearing liabilities. The benefit of this increased spread was partially
offset by a decrease in the ratio of average interest-earning assets to average
interest-bearing liabilities to 108.20% for 1997 from 109.01% for 1996.
In 1996, the average interest rate spread declined to 2.54% from 2.73% in
1995, as the average yield on total interest-earning assets decreased by six
basis points and the average rate paid on total interest-bearing liabilities
increased by 13 basis points. The higher rate on interest-bearing liabilities in
1996 was due to an increase in the average balance of certificates of deposit.
The lower spread in 1996 was more than offset by an increase in the ratio of
average interest-earning assets to average interest-bearing liabilities to
109.01% from 108.75% for 1995.
Net interest income increased by $47,000 or 2.8% in 1997 and by $39,000 or
2.4% in 1996, over the respective prior periods. The increases were due to
increases in the average interest rate spread for 1997 and in the ratio of
average interest-earning assets to average interest-bearing liabilities for
1996.
44
<PAGE>
Average Balances, Net Interest Income and Yields Earned and Rates Paid.
The following table presents for the periods indicated the total dollar amount
of interest income from Ponchatoula's average interest-earning assets and the
resultant yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and rates, and the net interest margin.
All average balances are based on monthly balances as daily balances are
unavailable. Ponchatoula does not believe that the monthly averages differ
significantly from what the daily averages would be.
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------ ----------------------------- ------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate(1) Balance Interest Rate Balance Interest Rate
-------- -------- -------- -------- -------- ------- -------- -------- --------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans and leases receivable(2) $ 28,403 $ 2,429 8.55% $ 27,597 $ 2,384 8.64% $ 27,129 $ 2,348 8.65%
Mortgage-backed securities 25,246 1,576 6.24 24,861 1,621 6.52 20,986 1,353 6.45
Investment securities 2,469 145 5.87 2,293 155 6.76 2,356 138 5.86
Other interest-earning assets 1,621 97 5.98 2,328 116 4.98 2,319 149 6.43
-------- -------- ------- -------- -------- ------- -------- -------- -------
Total interest-earning assets 57,739 4,247 7.36 57,079 4,276 7.49 52,790 3,988 7.55
-------- ------- -------- ------- -------- -------
Noninterest-earning assets 1,591 1,278 1,279
-------- -------- --------
Total assets $ 59,330 $ 58,357 $ 54,069
======== ======== ========
Interest-bearing liabilities:
Deposits $ 43,607 1,971 4.52 $ 44,733 2,158 4.82 $ 42,980 2,007 4.67
FHLB advances 9,755 544 5.58 7,630 433 5.67 5,562 335 6.02
-------- -------- ------- -------- -------- ------- -------- -------- -------
Total interest-bearing
liabilities 53,362 2,515 4.71 52,363 2,591 4.95 48,542 2,342 4.82
-------- ------- -------- ------- -------- -------
Noninterest-bearing liabilities 391 452 241
-------- -------- --------
Total liabilities 53,753 52,815 48,783
Stockholders' equity 5,577 5,542 5,286
-------- -------- --------
Total liabilities and
stockholders' equity $ 59,330 $ 58,357 $ 54,069
======== ======== ========
Net interest income; average
interest rate spread $ 1,732 2.65% $ 1,685 2.54% $ 1,646 2.73%
======== ======= ======== ======= ======== =======
Net interest margin(3) 3.00% 2.95% 3.12%
======= ======= =======
Average interest-earning assets
to average interest-bearing
liabilities 108.20% 109.01% 108.75%
======= ======= =======
</TABLE>
- ----------
(1) At December 31, 1997, the weighted average yields earned and rates paid
were as follows: loans and leases receivable, 7.99%; mortgage-backed
securities, 6.40%; investment securities, 6.02%; other interest-earning
assets, 5.68%, total interest-earning assets, 7.55%; deposits, 4.52%; FHLB
advances, 5.85; total interest-bearing liabilities, 4.90%; and average
interest rate spread, 2.65%.
(2) Includes non-accruing loans and loans classified as held for sale.
(3) Equals net interest income divided by average interest-earning assets.
45
<PAGE>
Rate/Volume Analysis
The following table describes the extent to which changes in interest
rates and changes in volume of interest-related assets and liabilities have
affected Ponchatoula'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), and (ii) changes in rate (change in
rate multiplied by prior year volume). The combined effect of changes in both
rate and volume has been allocated proportionately to the change due to rate and
the change due to volume.
<TABLE>
<CAPTION>
1997 vs. 1996 1996 vs. 1995
-------------------------------------- -----------------------------------
Increase(Decrease) Increase(Decrease)
Due to Total Due to Total
---------------------- Increase -------------------- Increase
Rate Volume (Decrease) Rate Volume (Decrease)
------- -------- ---------- ------ ------ ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans and leases receivable(1) $ (23) $ 68 $ 45 $ (3) $ 39 $ 36
Mortgage-backed securities (69) 24 (45) 15 253 268
Investment securities (21) 11 (10) 21 (4) 17
Other interest-earning assets 21 (40) (19) (34) 1 (33)
----- ----- ----- ---- ----- -----
Total interest-earning assets (92) 63 (29) (1) 289 288
----- ----- ----- ---- ----- -----
Interest-bearing liabilities:
Deposits (134) (53) (187) 66 85 151
FHLB advances (8) 119 111 (20) 118 98
----- ----- ----- ---- ----- -----
Total interest-bearing liabilities (142) 66 (76) 46 203 249
----- ----- ----- ---- ----- -----
Increase (decrease) in net interest income $ 50 $ (3) $ 47 $(47) $ 86 $ 39
===== ===== ===== ==== ===== =====
</TABLE>
- ----------
(1) Includes loans classified as held for sale.
Interest Income
Interest on loans and leases increased by $45,000 or 1.9% in 1997 and by
$36,000 or 1.5% in 1996 from the respective prior periods. The increases in 1997
and 1996 were due to increases of 2.9% and 1.7%, respectively, in the average
balance of loans and leases receivable. The increase in the average balance in
1997 was the result of an increase in single-family residential loans and
consumer loans, offset by a decrease in construction loans and single-family
residential leases. The increase in the average balance in 1996 was due to
increases in single-family residential loans, construction loans and consumer
loans, offset by a significant decrease in single-family residential leases as
Ponchatoula offered most of its lessees the option of converting their leases to
loans in 1996. The increased average balances were partially offset by decreases
in the average yield to 8.55% in 1997 from 8.64% in 1996 and 8.65% in 1997.
Interest on mortgage-backed securities decreased by $45,000 or 2.8% in
1997 and increased by $268,000 or 19.8% in 1996 from the respective prior
periods. The decrease in 1997 was due to a decrease in the average yield to
6.24% from 6.52% in 1996, partially offset by an increase of $385,000 or 1.5% in
the average balance. The
46
<PAGE>
increase in 1996 is a result of a $3.9 million or 18.5% increase in the average
balance of mortgage-backed securities over 1995 and, to a lesser extent, an
increase of seven basis points in the average yield. In 1996 and 1995, the
amount of mortgage-backed securities purchased exceeded the amount called or
matured by $3.9 million and $4.0 million, respectively. However, in 1997 the
amount of mortgage-backed securities purchased substantially declined, resulting
in a decrease in the average balance. Because Ponchatoula implemented its
strategy of having $10 million of mortgage-backed securities linked to FHLB
advances in 1996, fewer mortgage-backed securities were purchased in 1997.
Interest on investment securities decreased by $10,000 or 6.4% in 1997 and
increased by $17,000 or 12.3% in 1996, from the respective prior periods. The
decrease in 1997 was due to a decrease in the average yield to 5.87% from 6.76%
in 1996, offset by an increase in the average balance of $176,000 or 7.7%. The
increase in 1996 was due to an increase in the average yield to 6.76% from 5.86%
in 1995, partially offset by a decrease in the average balance of investment
securities of $63,000 or 2.7%. The fluctuation in the average yields was
primarily due to the maturity in 1996 of higher yielding, two-year U.S.
government agency securities, with the proceeds invested in similar securities
with lower yields.
Other interest income, which consists of interest on interest-bearing
deposits in other institutions and dividends on FHLB stock, decreased by $19,000
or 16.4% in 1997 and by $33,000 or 22.1% in 1996 from the respective prior
periods. The decrease in 1997 is the result of a $707,000 or 30.4% decrease in
the average balance, partially offset by an increase in the average yield to
5.98% from 4.98% in 1996. The decrease in 1996 was due to a significant decrease
in the average yield to 4.98% from 6.43% in 1995. The fluctuation in the average
yields was due to changes in the yields on FHLB stock and interest-bearing
deposits in other institutions.
Total interest income decreased by $29,000 or .7% in 1997 and increased by
$288,000 or 7.2% in 1996 from the respective prior periods. The decrease in 1997
was primarily attributable to the overall decrease of 13 basis points in the
average yield, offset by an increase of $660,000 or 1.2% in the average balance.
The increase in 1996 was the result of an increase of $4.3 million or 8.1% in
the average balance of interest-earning assets, partially offset by a decrease
in the average yield of six basis points.
Interest Expense
Interest on deposits decreased by $187,000 or 8.7% in 1997 and increased
by $151,000 or 7.5% in 1996 from the respective prior periods. The decrease in
1997 was due to a decrease in the average balance of deposits of $1.1 million or
2.5% and a decrease in the average yield to 4.52% from 4.82% for 1996. The
increase in 1996 was due to an increase in the average balance of $1.8 million
or 4.1%, as well as an increase in the average rate paid of 15 basis points.
Interest on FHLB advances increased by $111,000 or 25.6% in 1997 and by
$98,000 or 29.3% in 1996. The increases in 1997 and 1996 were due to increases
in the average balance of FHLB advances of $2.1 million for both years with the
increases being slightly offset by decreases in the average yield to 5.58% in
1997 from 5.67% in 1996 and 6.02% in 1995. Specific mortgage-backed securities,
with a fair value of $11.7 million, were pledged to the FHLB as collateral
securing the advances at December 31, 1997.
Provision for (Recovery of) Loan and Lease Losses
Provision for (recovery of) loan and lease losses was $(16,000), $3,000
and $(6,000) for 1997, 1996 and 1995, respectively. These provisions were based
upon, among other variables, non-accruing loans totaling $173,000, $365,000 and
$434,000 at December 31, 1997, 1996 and 1995, respectively. The recovery in 1997
was primarily due to the $192,000 or 52.6% decline in non-accruing loans during
1997.
47
<PAGE>
Noninterest Income
Gains on sales of loans decreased by $73,000 or 30.4% in 1997 and
increased by $30,000 or 14.3% in 1996, over the respective prior periods. The
fluctuations are based primarily upon changes in the amount of loans sold. The
decrease in the amount of loans sold in 1997 was primarily due to decreased loan
demand. The amounts of loans sold were $8.7 million in 1997, $9.9 million in
1996 and $6.5 million in 1995. At the time the loan is sold, income is
recognized in the amount of loan fees that were deferred at the time of
origination. Because Ponchatoula has decided to retain at least a portion of
newly originated, 30-year fixed-rate mortgages commencing February 1998, it is
expected that the amount of loans sold and the related gains on sales will
decline.
Loan fees and service charges increased by $3,000 or 1.6% in 1997 and by
$29,000 or 18.5% during 1996. These increases are attributable to more in-house
loans being originated and an increase in late charges on mortgage and consumer
loans.
Other income, which primarily consists of service fees on deposit accounts
and withdrawal penalties on certificates of deposit, increased by $9,000 or
112.5% in 1997 and decreased by $3,000 or 27.3% in 1996 from the respective
prior periods.
Noninterest Expenses
Compensation and benefits increased by $51,000 or 6.2% in 1997 and by
$25,000 or 3.2% in 1996 over the respective prior periods. The increase in 1997
is primarily attributable to an increase in salaries of $27,000 or 4.7% and an
increase in health insurance of $13,000 or 24.8%. The increase in 1996 was due
primarily to an increase in salaries and officers compensation, the result of
annual raises during 1996, as well as the addition of one full-time employee. At
December 31, 1997 and 1996, Ponchatoula had 21 full-time employees and one
part-time employee. For periods subsequent to the Conversion, the shares of
Common Stock to be purchased by the ESOP and the 1998 Recognition Plan will
result in additional compensation expense being recognized over periods of 10
and five years, respectively. Based on the assumptions set forth under "Pro
Forma Data," the increased compensation expense before taxes is estimated to be
$52,000 per year for each of the ESOP and the 1998 Recognition Plan at the
maximum of the Estimated Valuation Range. However, the amount for the ESP may
vary significantly depending upon the impact of SOP 93-6. See "Risk Factors -
Increased Compensation Expense After the Conversion." In addition, the exercise
of compensatory or non-qualified stock options in the future would result in
additional compensation expense for federal income tax purposes (but not for
financial statement purposes) equal to the difference between the aggregate
market value of the Common Stock received and the aggregate exercise price.
Occupancy and equipment expense decreased by $11,000 or 7.3% in 1997 and
by $1,000 or .7% in 1996, compared to the respective prior periods. As of 1997,
all new assets purchased are being depreciated using the straight-line method
instead of accelerated methods. As a result, depreciation expense decreased by
$13,000 or 31.6% in 1997. During 1996, depreciation expense decreased by $9,000
or 17.3% as a result of certain assets becoming fully depreciated in 1995 and
less assets acquired during 1996.
Federal insurance premiums decreased by $353,000 or 93.9% in 1997 and
increased by $279,000 or 287.6% in 1996, compared to the respective prior
periods. These fluctuations were primarily due to the special SAIF assessment
imposed on all SAIF-insured institutions as of September 30, 1996, which
amounted to $284,000 on a pre-tax basis for Ponchatoula. Excluding this special
SAIF assessment, federal insurance premiums decreased by $69,000 or 75.0% in
1997 and by $5,000 or 5.2% in 1996 over the respective prior periods. The
decrease in 1997 reflects a decrease in the deposit insurance assessment rates
as of January 1, 1997. In addition, average outstanding deposits decreased by
2.5% in 1997 and increased by 4.1% in 1996.
Ponchatoula incurred $27,000 of net real estate owned expense in 1997
after recognizing net income from its real estate owned of $3,000 in 1996 and
$11,000 in 1995. Net (gains) losses on the sale of real estate owned which are
included in such expense amounted to $23,000, $(7,000) and $(17,000) in 1997,
1996, and 1995, respectively.
48
<PAGE>
Other expenses, which consist of professional fees, data processing fees,
postage and supplies and other miscellaneous items, decreased by $7,000 or 1.2%
in 1997 and increased by $28,000 or 5.2% in 1996. The decrease in 1997 was a
result of a decrease in professional fees and data processing fees, offset by an
increase in postage and supplies and other expenses. The increase in 1996 was a
result of an increase in professional fees and other expenses, offset by a
reduction in the data processing fees.
Total noninterest expenses decreased by $290,000 or 15.2% in 1997 and
increased by $339,000 or 21.6% in 1996 over the respective prior periods. These
fluctuations were primarily due to the $284,000 special SAIF assessment in 1996.
Excluding the special SAIF assessment, total noninterest expenses decreased by
$6,000 or .4% in 1997 and increased by $55,000 or 3.5% in 1996 over the
respective prior periods.
Federal Income Taxes
Federal income taxes increased by $125,000 or 208.3% in 1997 and decreased
by $90,000 or 60.0% in 1996, compared to the respective prior periods. The
increase in 1997 resulted from a 143.2% increase in pre-tax income and an
increase in the effective tax rate to 36.9% in 1997 from 29.1% in 1996. See Note
10 of Notes to Financial Statements. The decrease in 1996 resulted primarily
from a 55.1% decrease in pre-tax income.
Liquidity and Capital Resources
Ponchatoula is required under applicable federal regulations to maintain
specified levels of "liquid" investments in qualifying types of U.S. Government,
federal agency and other investments having maturities of five years or less.
Current OTS regulations require that a savings institution maintain liquid
assets of not less than 4% of its average daily balance of net withdrawable
deposit accounts and borrowings payable in one year or less. Ponchatoula's
liquidity amounted to 7.5% and 7.3% at December 31, 1997 and 1996, respectively.
In 1997, cash was provided by Ponchatoula's operating activities by net
income and the sale of loans in excess of the amount of loans originated for
sale. In 1996, cash was used by Ponchatoula's operating activities as the loans
originated for sale exceeded the amount of loans sold. Other adjustments to
reconcile net income to net cash provided by operations during 1997 and 1996
consisted primarily of net amortization of premiums on securities, depreciation,
and increases or decreases in various receivable and payable accounts. The
primary investing activities of Ponchatoula are the origination of loans and the
purchase of mortgage-backed securities and investment securities. In 1997,
investing activities provided $184,000 of cash, as the amount of mortgage-backed
securities maturing or called exceeded the amount purchased by $2.2 million,
offset by a $1.8 million increase in loans and leases. In 1996, investing
activities used $4.3 million of cash, as the amount of mortgage-backed
securities purchased exceeded the amount maturing by $3.9 million and loans and
leases increased by $432,000. The primary financing activities in 1997 and 1996
consisted of deposits and FHLB advances. Financing activities used $1.6 million
of cash in 1997 and provided $3.9 million of cash in 1996. Overall, cash and
cash equivalents declined by $44,000 and $946,000 in 1997 and 1996,
respectively. See the Statements of Cash Flows in the Financial Statements.
At December 31, 1997, Ponchatoula had unfunded loan commitments and lines
of credit aggregating $463,000. At the same date, scheduled maturities of
certificates of deposit during the succeeding 12 months amounted to $28.6
million. Management of Ponchatoula believes that Ponchatoula has adequate
resources to fund all of its commitments and that it can adjust the rates on
certificates of deposit to retain deposits in changed interest rate
environments. If Ponchatoula requires funds beyond its internal funding
capacities, advances from the FHLB of Dallas are available as an additional
source of funds.
Under applicable OTS regulations, Ponchatoula is required to maintain
regulatory capital sufficient to meet tangible, core and risk-based capital
ratios of at least 1.5%, 3.0% and 8.0%, respectively. At December 31, 1997,
Ponchatoula had tangible, core and risk-based capital ratios of 9.68%, 9.68% and
23.69%, respectively. See Note 14 of Notes to Financial Statements.
49
<PAGE>
Assuming the sale of Common Stock at the midpoint of the Estimated
Valuation Range, the Company's ratio of equity to assets would be 20.3% on a pro
forma basis at December 31, 1997. Both the Company and Ponchatoula will be
well-capitalized upon consummation of the Conversion. The Company anticipates
that the net Conversion proceeds contributed to Ponchatoula will initially
increase Ponchatoula's liquidity.
Impact of Inflation and Changing Prices
The financial statements and related financial data presented herein have
been prepared in accordance with generally accepted accounting principles, which
generally require the measurement of financial position and operating results in
terms of historical dollars, without considering changes in relative purchasing
power over time due to inflation. Unlike most industrial companies, virtually
all of Ponchatoula's assets and liabilities are monetary in nature. As a result,
interest rates generally have a more significant impact on Ponchatoula's
performance than does the effect of inflation.
The Year 2000
Ponchatoula has reviewed its computer and data processing issues relating
to the Year 2000. Management believes that most of Ponchatoula's hardware and
terminals will not need to be replaced but that the software will need to be
upgraded. Ponchatoula's data processing is handled by an independent third party
data center, and management is monitoring the data center's progress and
timetable to resolving issues relating to the Year 2000. If the data center is
able to become Year 2000 compliant in a timely manner, then management believes
that issues related to the Year 2000 will not have a material adverse effect on
the Company's liquidity, capital resources or consolidated results of
operations. Ponchatoula currently expects to be Year 2000 compliant by the end
of 1998.
In the event the third party data center is unable to become Year 2000
compliant in a timely manner, Ponchatoula is in the process of establishing a
contingency plan to switch to another data center. While the costs of switching
to another data center have not yet been quantified, management currently does
not believe that such costs would have a material adverse effect on the
Company's liquidity, capital resources or consolidated results of operations.
BUSINESS
Lending Activities
General. At December 31, 1997, Ponchatoula's net loans and leases
receivable (including loans classified as held for sale) totalled $29.5 million,
which represented 49.5% of Ponchatoula's $59.6 million of total assets at that
date. The principal lending activity of Ponchatoula is the origination of
single-family residential loans, consumer loans and, to a lesser extent,
construction loans. At December 31, 1997, $20.1 million or 63.9% of
Ponchatoula's total loans and leases (including loans held for sale) consisted
of single-family residential loans. Consumer loans totalled $7.2 million at such
date, representing 22.8% of the total loan and lease portfolio and 12.8% of
total assets. Commercial real estate loans and unimproved land loans aggregated
$647,000 at December 31, 1997.
The types of loans that Ponchatoula may originate are subject to federal
and state laws and regulations. Interest rates charged by Ponchatoula on loans
are affected principally by the demand for such loans and the supply of money
available for lending purposes and the rates offered by its competitors. These
factors are, in turn, affected by general and economic conditions, the monetary
policy of the federal government, including the Federal Reserve Board,
legislative and tax policies, and governmental budgetary matters.
A federal savings institution generally may not make loans to one borrower
and related entities in an amount which exceeds 15% of its unimpaired capital
and surplus, although loans in an amount equal to an additional 10% of
unimpaired capital and surplus may be made to a borrower if the loans are fully
secured by readily marketable
50
<PAGE>
securities. At December 31, 1997, Ponchatoula's limit on loans-to-one borrower
was $860,000 and its five largest loans or groups of loans-to-one borrower,
including related entities, aggregated $522,000, $265,000, $220,000, $184,000
and $179,000. All of Ponchatoula's five largest loans or groups of loans were
performing in accordance with their terms at December 31, 1997. The $522,000
borrowing relationship consists of 14 loans, including a $168,000 loan secured
by the borrower's personal residence and $354,000 of loans secured by 13
single-family rental properties.
51
<PAGE>
Loan and Lease Portfolio Composition. The following table sets forth the
composition of Ponchatoula's loan and lease portfolio by type of loan at the
dates indicated.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
Amount % Amount % Amount %
------- ------- ------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Single-family residential(1) $20,111 63.9% $19,159 62.9% $17,666 60.1%
Construction(2) 3,228 10.3 3,820 12.5 3,041 10.3
Commercial real estate 521 1.6 52 .2 56 .2
Land 126 .4 158 .5 197 .7
------- ------- ------- ------- ------- -------
Total real estate loans 23,986 76.2 23,189 76.1 20,960 71.3
------- ------- ------- ------- ------- -------
Consumer loans:
Home equity and improvement 4,411 14.0 4,275 14.0 3,517 12.0
Loans secured by savings accounts 824 2.6 841 2.8 870 3.0
Automobile 611 2.0 414 1.4 419 1.4
Mobile home 257 .8 182 .6 87 .3
Other 1,072 3.4 1,100 3.6 1,157 3.9
------- ------- ------- ------- ------- -------
Total consumer loans 7,175 22.8 6,812 22.4 6,050 20.6
------- ------- ------- ------- ------- -------
Total loans 31,161 99.1 30,001 98.5 27,010 91.9
------- ------- ------- ------- ------- -------
Leases receivable(3):
Single-family residential leases 224 .7 380 1.2 2,285 7.8
Commercial real estate leases 77 .3 79 .3 78 .3
------- ------- ------- ------- ------- -------
Total leases 301 1.0 459 1.5 2,363 8.1
------- ------- ------- ------- ------- -------
Total loans and leases 31,462 100.0% 30,460 100.0% 29,373 100.0%
======= ======= =======
Less:
Loans in process 1,706 1,721 1,450
Deferred loan origination fees 8 17 17
Allowance for loan and lease losses 265 282 280
------- ------- -------
Net loans and leases $29,483 $28,440 $27,626
======= ======= =======
</TABLE>
- ----------
(1) At December 31, 1997, 1996 and 1995, includes $318,000, $699,000 and
$440,000 of loans classified as held for sale, respectively, and second
mortgages of $164,000, $317,000 and $398,000, respectively.
(2) At December 31, 1997, 1996 and 1995, includes $1.1 million, $1.6 million
and $1.3 million of loans classified as held for sale, respectively.
Consists solely of single-family residential construction loans.
(3) Consists of bond for deed contracts in which Ponchatoula retains title to
the property until all payments are made on the contract.
52
<PAGE>
Contractual Terms to Final Maturities. The following table sets forth
certain information at December 31, 1997 regarding the dollar amount of loans
and leases maturing in Ponchatoula's portfolio, based on the contractual date of
the loan's or lease's final maturity, before giving effect to net items. Demand
loans, loans having no stated schedule of repayments and no stated maturity, and
overdrafts are reported as due in one year or less. Amounts shown below do not
reflect normal principal amortization; rather, the balance of each loan or lease
outstanding at December 31, 1997 is shown in the appropriate year of the loan's
or lease's final maturity.
<TABLE>
<CAPTION>
Due More
Due 3-5 Due 5-10 Due 10-15 Than 15
Years After Years After Years After Years After
1998 1999 2000 12/31/97 12/31/97 12/31/97 12/31/97 Total
---- ---- ---- -------- -------- -------- -------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Single-family residential
loans $ 67 $ 42 $145 $ 340 $2,401 $14,403 $2,713 $20,111
Single-family residential
leases 1 3 -- 7 97 81 35 224
Commercial real estate
loans and leases -- 255 -- -- 47 219 77 598
Construction loans 3,228 -- -- -- -- -- -- 3,228
Land loans 2 5 6 3 110 -- -- 126
Consumer loans 1,305 324 641 1,097 797 3,011 -- 7,175
------ ---- ---- ------ ------ ------- ------ -------
Total(1) $4,603 $629 $792 $1,447 $3,452 $17,714 $2,825 $31,462
====== ==== ==== ====== ====== ======= ====== =======
</TABLE>
- ----------
(1) Gross of loans in process, deferred loan origination fees and the
allowance for loan and lease losses.
53
<PAGE>
The following table sets forth the dollar amount of all loans and leases,
before net items, due after one year from December 31, 1997 as shown in the
preceding table, which have fixed interest rates or which have floating or
adjustable interest rates.
Fixed Floating or
Rates Adjustable Rates Total
----- ---------------- -----
(In Thousands)
Single-family residential
loans $10,596 $9,448 $20,044
Single-family residential
leases 142 81 223
Commercial real estate
loans and leases 521 77 598
Land loans -- 124 124
Consumer loans 5,755 115 5,870
------- ------ -------
Total $17,014 $9,845 $26,859
======= ====== =======
Scheduled contractual maturities of loans do not reflect the actual
expected term of Ponchatoula's loan and lease portfolio. The average life of
loans and leases is substantially less than their average contractual terms
because of prepayments and due-on-sale clauses, which give Ponchatoula the right
to declare a conventional loan immediately due and payable in the event, among
other things, that the borrower sells the real property subject to the mortgage
and the loan is not repaid. The average life of mortgage loans tends to increase
when current mortgage loans rates are higher than rates on existing mortgage
loans and, conversely, decrease when rates on existing mortgage loans are lower
than current mortgage loan rates (due to refinancing of adjustable-rate and
fixed-rate loans at lower rates). Under the latter circumstance, the weighted
average yield on loans decreases as higher yielding loans are repaid or
refinanced at lower rates.
Origination, Purchase and Sale of Loans. The lending activities of
Ponchatoula are subject to the written, non-discriminatory, underwriting
standards and loan origination procedures established by Ponchatoula's Board of
Directors and management. Loan originations are obtained by a variety of
sources, including referrals from real estate brokers, developers, builders,
existing customers, newspaper, radio and walk-in customers. Loan applications
are taken by lending personnel, and the loan department supervises the
procurement of credit reports, appraisals and other documentation involved with
a loan. Property valuations are generally performed by independent outside
appraisers approved by Ponchatoula's Board of Directors. Title and hazard
insurance are required on all security property.
Ponchatoula's loan approval process is intended to assess the borrower's
ability to repay the loan, the viability of the loan and the adequacy of the
value of the property that will secure the loan. A loan application file is
first reviewed by a loan officer. If the mortgage loan is to be retained in
Ponchatoula's portfolio, it must be approved by either the Board of Directors or
the Executive Committee. If the mortgage loan is being originated for sale into
the secondary market, the manager of the mortgage loan department may approve
the loan after obtaining a written commitment from an investor in the secondary
market to purchase the loan upon origination. With respect to consumer loans,
the consumer loan manager has the authority to approve unsecured loans up to
$10,000 and secured loans up to $50,000. Consumer loans in excess of these
amounts must be approved by either the Board of Directors or the Executive
Committee.
Historically, prior to 1990, Ponchatoula had originated substantially all
of the loans in its portfolio and held them until maturity. However, beginning
in October 1990, Ponchatoula began selling all of its newly-originated
fixed-rate residential mortgage loans in the secondary market in order to manage
its interest rate risk. The residential loans are generally made on terms,
conditions and documentation which permit the sale to the Federal Home Loan
54
<PAGE>
Mortgage Corporation ("FHLMC"), the Federal National Mortgage Association
("FNMA"), the Government National Mortgage Association ("GNMA") and other
institutional investors in the secondary market. Loans originated with the
intention of being sold are accounted for as "loans held for sale" and are
carried on the statement of financial condition at the lower of cost or
estimated market value in the aggregate. The amount of loans sold totalled $8.7
million, $9.9 million and $6.5 million in 1997, 1996 and 1995, respectively. At
December 31, 1997, the amount of loans held for sale was $1.4 million. Because
Ponchatoula has decided to retain at least a portion of newly originated,
30-year fixed-rate mortgages commencing February 1998, it is expected that the
amount of loans sold or held for sale will decline.
Ponchatoula has entered into agreements with outside third parties to sell
loans that it originates on a servicing released basis. The origination of the
loans are not approved by Ponchatoula until it has obtained a written commitment
from a third party to purchase the loan when it is originated. Ponchatoula may
be required to repurchase a loan if it becomes 60 days or more delinquent within
four to six months following the date of sale, as specified in the agreement, or
if any representations and warranties regarding the loans are not accurate. The
total amount of loans sold with recourse to Ponchatoula pursuant to these
agreements totalled $2.4 million at December 31, 1997. As of December 31, 1997,
Ponchatoula has not been required to repurchase any of the loans sold with
recourse, and as a result no allowance for losses has been established with
respect to these loans.
Ponchatoula has not sold loans on a servicing retained basis since 1984,
when it sold loans to the FHLMC. At December 31, 1997, Ponchatoula was servicing
$91,000 of loans for others.
Historically, Ponchatoula has not purchased loans or participation
interests in loans (excluding mortgage-backed securities), and Ponchatoula does
not currently intend to become an active purchaser of loans in the foreseeable
future.
55
<PAGE>
The following table shows total loans and leases originated, sold and
repaid during the periods indicated. No loans have been purchased during the
periods shown.
Year Ended December 31,
-------------------------------
1997 1996 1995
-------- ------- -------
(In Thousands)
Loan and lease originations:
Single-family residential:
Loans for portfolio $ 4,348 $ 4,393 $ 3,678
Loans for sale 7,835 10,464 7,018
Leases -- -- 100
Construction(1) 941 1,450 927
Commercial real estate 474 -- --
Consumer 4,007 4,106 3,478
-------- ------- -------
Total loans and leases originated 17,605 20,413 15,201
-------- ------- -------
Sales and principal reductions:
Loans sold 8,711 9,940 6,527
Loan principal reductions 7,652 9,747 8,758
Lease principal reductions 158 185 322
-------- ------- -------
Total loans sold and principal reductions 16,521 19,872 15,607
-------- ------- -------
Increase (decrease) due to other items, net(2) (41) 273 1,286
-------- ------- -------
Net increase in loan portfolio $ 1,043 $ 814 $ 880
======== ======= =======
- ----------
(1) Consists solely of single-family residential construction loans.
(2) Other items, net include the increase relating to loans in process,
deferred loan origination fees and the allowance for loan and lease
losses.
Single-Family Residential Real Estate Loans. Historically, Ponchatoula has
concentrated its lending activities on the origination of loans secured
primarily by first mortgage liens on existing single-family residences. At
December 31, 1997, $19.9 million or 63.4% of Ponchatoula's total loan and lease
portfolio consisted of such loans (including loans held for sale but excluding
leases receivable and construction loans). In addition, single-family
residential loans included $164,000 of second mortgages at December 31, 1997,
representing .5% of the total loan and lease portfolio at such date.
Ponchatoula originates long-term, fixed-rate single-family residential
loans in order to provide a full range of products to its customers, but
generally only under terms, conditions and documentation which permit the sale
thereof in the secondary market. From 1982 to 1994, all of the newly-originated,
fixed-rate single-family residential loans were classified as held for sale. The
amount of such originations totalled $7.8 million, $10.5 million and $7.0
million in 1997, 1996 and 1995, respectively, and the amount of such loans sold
totalled $8.7 million, $9.9 million and $6.5 million in 1997, 1996 and 1995,
respectively. At December 31, 1997, approximately $10.6 million or 52.7% of the
permanent single-family residential loans in Ponchatoula's loan portfolio
(including loans held for sale) consisted of loans which provide for fixed rates
of interest. Although these loans provide for repayments of principal over a
fixed period of up to 30 years, it is Ponchatoula's experience that such loans
remain outstanding for a substantially shorter period of time.
56
<PAGE>
In 1995, Ponchatoula began offering 15-year fixed-rate residential
mortgage loans for retention in its portfolio. These fixed-rate loans retained
in the portfolio have interest rates of 8% or above as of December 31, 1997 and
a loan-to-value ("LTV") ratio of 70% or below. Commencing February 1998,
Ponchatoula amended its policy to provide for the retention of 30-year,
fixed-rate residential mortgage loans, with such loans to be funded with
long-term FHLB advances.
From 1982 to 1994, Ponchatoula emphasized for its portfolio single-family
residential mortgage loans which provide for periodic adjustments to the
interest rate. The loans emphasized by Ponchatoula during this period had 15- to
30-year terms and an interest rate which adjusts every year in accordance with a
designated index (currently the weekly average yield on U.S. Treasury securities
adjusted to a constant comparable maturity of one year, as made available by the
Federal Reserve Board). Ponchatoula generally does not offer discounted interest
rates on its ARMs. There is a cap on the amount of any increase or decrease in
the interest rate per year, and various caps, depending on when the loan was
originated, on the amount which the interest rate can increase or decrease over
the life of the loan. Ponchatoula's adjustable-rate loans currently being
originated are not assumable and do not contain prepayment penalties.
Ponchatoula has not engaged in the practice of using a cap on the payments that
could allow the loan balance to increase rather than decrease, resulting in
negative amortization, although it has on a limited basis extended the maturity
of the loan. Approximately $9.5 million or 47.3% of the permanent single-family
residential loans in Ponchatoula's loan and lease portfolio at December 31, 1997
(including loans held for sale) had adjustable interest rates.
The demand for adjustable-rate loans in Ponchatoula's primary market area
has been a function of several factors, including the level of interest rates,
the expectations of changes in the level of interest rates and the difference
between the interest rates and loan fees offered for fixed-rate loans and
adjustable-rate loans. The relative amount of fixed-rate and adjustable-rate
residential loans that can be originated at any time is largely determined by
the demand for each in a competitive environment. Due to the generally lower
rates of interest prevailing in recent periods, Ponchatoula's originations of
adjustable-rate, single-family residential loans decreased as consumer
preference for fixed-rate loans increased.
Adjustable-rate loans decrease the risks associated with changes in
interest rates but involve other risks, primarily because as interest rates
rise, the payment by the borrower rises to the extent permitted by the terms of
the loan, thereby increasing the potential for default. At the same time, the
marketability of the underlying property may be adversely affected by higher
interest rates. Ponchatoula believes that these risks, which have not had a
material adverse effect on Ponchatoula to date, generally are less than the
risks associated with holding fixed-rate loans in an increasing interest rate
environment. In addition, Ponchatoula minimizes the credit risks associated with
ARMs by (i) imposing a maximum LTV ratio of 75% on such loans and (ii) requiring
that the borrower's payments based on the initial interest rate not exceed 20%
of the borrower's income.
Ponchatoula is permitted to lend up to 100% of the appraised value of the
real property securing a residential loan; however, if the amount of a
residential loan originated or refinanced exceeds 90% of the appraised value,
Ponchatoula is required by federal regulations to obtain private mortgage
insurance on the portion of the principal amount that exceeds 80% of the
appraised value of the security property. Pursuant to underwriting guidelines
adopted by the Board of Directors, Ponchatoula will lend up to 95% of the
appraised value of the property securing a fixed-rate, single-family residential
loan which is being originated for sale, and generally requires borrowers to
obtain private mortgage insurance on the portion of the principal amount of the
loan that exceeds 80% of the appraised value of the security property. The
maximum LTV ratio for ARMs is 75% of the appraised value of the property.
Ponchatoula generally requires title insurance insuring the priority and
validity of its mortgage lien, as well as fire and extended coverage casualty
insurance in order to protect the properties securing its residential and other
mortgage loans. Borrowers may be required to advance funds, with each monthly
payment of principal and interest, to a loan escrow account from which
Ponchatoula makes disbursements for items such as real estate taxes, hazard
57
<PAGE>
insurance premiums and mortgage insurance premiums as they become due. The
properties securing all of Ponchatoula's mortgage loans are appraised by
independent appraisers approved by the Board of Directors.
Construction Loans. Ponchatoula makes construction loans to individuals
for the construction of their residences, provided that the borrower has also
been approved for permanent financing in accordance with Ponchatoula's
underwriting policies for single-family residential loans. The funds are
disbursed as various phases of the construction are completed, subject to
written approval of on-site inspections by building inspectors. Upon completion
of the construction, the loan is transferred to permanent financing status. If
the permanent financing is at a fixed interest rate, the loan is generally sold
into the secondary market upon completion of the construction pursuant to a
written commitment obtained prior to origination of the construction loan. At
December 31, 1997, construction loans amounted to $3.2 million or 10.3% of
Ponchatoula's total loan and lease portfolio (including loans held for sale).
Construction lending is generally limited to Ponchatoula's primary lending
area. Construction loans are structured to be converted to permanent loans at
the end of the construction phase, which typically does not exceed six months.
Construction loans have rates and terms which generally match the
non-construction loans then offered by Ponchatoula, except that during the
construction phase the borrower only pays interest on the loan. Advances are
made on a percentage of completion basis. Construction loans are underwritten
pursuant to the same general guidelines used for originating permanent loans.
Construction financing is generally considered to involve a higher degree of
risk of loss than long-term financing on improved, owner-occupied real estate
because of the uncertainties of construction, including the possibility of costs
exceeding the initial estimates and the need to obtain a tenant or purchaser if
the property will not be owner-occupied. Ponchatoula generally attempts to
mitigate the risks associated with construction lending by, among other things,
lending primarily in its market area and using low loan-to-value ratios in the
underwriting process.
Consumer Loans. Subject to restrictions contained in applicable federal
laws and regulations, Ponchatoula is authorized to make loans for a wide variety
of personal or consumer purposes. At December 31, 1997, $7.2 million or 22.8% of
Ponchatoula's total loan and lease portfolio (including loans held for sale)
consisted of consumer loans.
Ponchatoula originates consumer loans in order to provide a full range of
financial services to its customers and because such loans generally have
shorter terms and higher interest rates than residential mortgage loans. The
consumer loans offered by Ponchatoula include home equity and improvement loans,
loans secured by deposit accounts in Ponchatoula, automobile loans, mobile home
loans and other miscellaneous loans. In addition, Ponchatoula began offering
home equity lines of credit in November 1995.
Home equity and improvement loans are originated by Ponchatoula for up to
80% of the appraised value, less the amount of any existing prior liens on the
property. Ponchatoula secures the loan with a mortgage on the property
(generally a second mortgage) and will originate the loan even if another
institution holds the first mortgage. Second mortgages originated through the
consumer loan department generally have fixed interest rates and shorter terms
than the second mortgages originated through the mortgage loan department, which
are included in single-family residential loans. The loans have a maximum term
of 12 years. Ponchatoula has increased its emphasis on these loans in recent
years. The home equity lines of credit have a 10-year term and an interest rate
equal to the prime rate published in the Wall Street Journal plus 1%, adjustable
monthly. At December 31, 1997, home equity and improvement loans totalled $4.4
million or 14.1% of Ponchatoula's total loan and lease portfolio (including
loans held for sale).
Ponchatoula offers loans secured by deposit accounts in Ponchatoula, which
amounted to $824,000 or 2.6% of Ponchatoula's total loan and lease portfolio
(including loans held for sale) at December 31, 1997. Such loans are originated
for up to 100% of the account balance, with a hold placed on the account
restricting the withdrawal of the account balance. The interest rate on the loan
is equal to the interest rate paid on the account plus 2.5%.
58
<PAGE>
Ponchatoula offers automobile loans on both new and used vehicles, with
most of the loans secured by used vehicles. The automobile loans have terms of
up to five years and have fixed interest rates. Automobile loans amounted to
$611,000 or 2.0% of the total loan and lease portfolio (including loans held for
sale) at December 31, 1997, compared to $414,000 at December 31, 1996.
Ponchatoula originates mobile home loans, which have increased in recent
years to $257,000 or .8% of the total loan and lease portfolio (including loans
classified as held for sale) at December 31, 1997 from $87,000 or .3% of the
total loan and lease portfolio (including loans held for sale) at December 31,
1995.
Other consumer loans primarily consist of unsecured loans and loans
secured by personal property. These loans amounted to $1.1 million or 3.4% of
the total loan and lease portfolio (including loans held for sale) at December
31, 1997.
Consumer loans generally have shorter terms and higher interest rates than
mortgage loans but generally involve more credit risk than mortgage loans
because of the type and nature of the collateral and, in certain cases, the
absence of collateral. In addition, consumer lending collections are dependent
on the borrower's continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness and personal bankruptcy. In
most cases, any repossessed collateral for a defaulted consumer loan will not
provide an adequate source of repayment of the outstanding loan balance because
of improper repair and maintenance of the underlying security. The remaining
deficiency often does not warrant further substantial collection efforts against
the borrower. Ponchatoula believes that the generally higher yields earned on
consumer loans compensate for the increased credit risk associated with such
loans and that consumer loans are important to its efforts to increase rate
sensitivity, shorten the average maturity of its loan portfolio and provide a
full range of services to its customers.
Commercial Real Estate and Land Loans. At December 31, 1997, $521,000 or
1.6% and $126,000 or .4% of Ponchatoula's total loan and lease portfolio
(including loans held for sale) consisted of commercial real estate loans and
land loans, respectively. At December 31, 1997, Ponchatoula's commercial real
estate loan portfolio consisted of three loan secured by real estate located
within Ponchatoula's market area, consisting of a health club, a church and a
retail establishment. The loans secured by the health club and church are
fixed-rate loans, and the loan secured by the retail establishment has an
interest rate which adjusts annually. At December 31, 1997, Ponchatoula had 14
land loans secured by unimproved property located within Ponchatoula's market
area. The average balance of Ponchatoula's land loans was approximately $9,000
at December 31, 1997.
Commercial real estate lending is generally considered to involve a higher
degree of risk than single-family residential lending. Such lending typically
involves large loan balances concentrated in a single borrower 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 related real estate project and thus may be subject to a greater extent
to adverse conditions in the real estate market or in the economy generally.
Leases Receivable. At December 31, 1997, Ponchatoula had leases totalling
$301,000 or .9% of the total loan and lease portfolio (including loans held for
sale), a decrease of $158,000 from December 31, 1996. The leases receivable are
bond for deed contracts in which Ponchatoula retains title to the property until
all payments are made on the contract, at which time Ponchatoula transfers the
title to the lessee. The lease terms range from 15 to 30 years, and the leases
are classified as sales-type leases. During 1996, with respect to bond for deed
contracts which met Ponchatoula's lending requirements, Ponchatoula offered the
lessees the option of converting their leases to contract deed loans at which
time title passed to the mortgagee. Ponchatoula has not originated any leases
since 1995.
All of Ponchatoula's leases receivable were originated in connection with
the sale of real estate owned by Ponchatoula. Of the $301,000 of leases at
December 31, 1997, $224,000 74.4% of the total leases were on single-family
residences. The remaining amount consisted of one commercial real estate lease
totalling $77,000 at December 31, 1997, which was originated more than 10 years
ago. In order to facilitate the sale of the real estate
59
<PAGE>
owned, Ponchatoula offers up to 100% financing on the leases to qualified
borrowers. At December 31, 1997, no leases were delinquent 90 days or more.
From the lessee's standpoint, the lease receivable is very similar to a
mortgage on the property, except that the title to the property is retained by
Ponchatoula during the term of the lease. The lessee is responsible for the
payment of property taxes and insurance on the property. The advantage of a
lease receivable to Ponchatoula is that if the lessee defaults on the payments,
Ponchatoula does not have to institute foreclosure proceedings to obtain title
to the property.
Loan Origination and Other Fees. In addition to interest earned on loans,
Ponchatoula receives loan origination fees or "points" for originating loans.
Loan points are a percentage of the principal amount of the mortgage loan and
are charged to the borrower in connection with the origination of the loan.
In accordance with SFAS No. 91, which deals with the accounting for
non-refundable fees and costs associated with originating or acquiring loans,
Ponchatoula's loan origination fees and certain related direct loan origination
costs are offset, and the resulting net amount is deferred and amortized as
interest income over the contractual life of the related loans as an adjustment
to the yield of such loans. At December 31, 1997, Ponchatoula had $8,000 of loan
fees which had been deferred and are being recognized as income over the
contractual maturities of the related loans.
Asset Quality
General. When a borrower fails to make a required payment on a loan,
Ponchatoula attempts to cure the deficiency by contacting the borrower and
seeking payment. Late charges are generally imposed following the tenth day
after a payment is due. In most cases, deficiencies are cured promptly. If a
delinquency extends beyond 30 days, the loan and payment history is reviewed and
efforts are made to collect the loan. While Ponchatoula generally prefers to
work with borrowers to resolve such problems, when the account becomes 90 days
delinquent, Ponchatoula institutes foreclosure or other proceedings, as
necessary, to minimize any potential loss.
Loans are placed on non-accrual status when, in the judgment of
management, the probability of collection of interest is deemed to be
insufficient to warrant further accrual. When a loan is placed on non-accrual
status, previously accrued but unpaid interest is deducted from interest income.
As a matter of policy, Ponchatoula discontinues the accrual of interest income
when the loan becomes 90 days past due as to principal or interest.
Real estate acquired by Ponchatoula as a result of foreclosure or by
deed-in-lieu of foreclosure and loans deemed to be in-substance foreclosed under
generally accepted accounting principles are classified as real estate owned
until sold. Pursuant to a statement of position ("SOP 92-3") issued by the AICPA
in April 1992, which provides guidance on determining the balance sheet
treatment of foreclosed assets in annual financial statements for periods ending
on or after December 15, 1992, there is a rebuttable presumption that foreclosed
assets are held for sale and such assets are recommended to be carried at the
lower of fair value minus estimated costs to sell the property, or cost
(generally the balance of the loan on the property at the date of acquisition).
After the date of acquisition, all costs incurred in maintaining the property
are expensed and costs incurred for the improvement or development of such
property are capitalized up to the extent of their net realizable value.
Ponchatoula's accounting for its real estate owned complies with the guidance
set forth in SOP 92-3.
Delinquent Loans and Leases. The following table sets forth information
concerning delinquent loans and leases at December 31, 1997, in dollar amount
and as a percentage of Ponchatoula's total loan and lease portfolio. The amounts
presented represent the total outstanding principal balances of the related
loans and leases, rather than the actual payment amounts which are past due. At
December 31, 1997, Ponchatoula had no commercial real estate loans, construction
loans or land loans which were delinquent 30 or more days.
60
<PAGE>
Single-Family
Residential Consumer Total
---------------- -------------- --------------
Amount % Amount % Amount %
------ ------ ------ ------ ------ ------
(Dollars in Thousands)
Loans and leases
delinquent for:
30 - 59 days $ 879 2.8% $ 32 .1% $ 911 2.9%
60 - 89 days 192 .6 5 -- 197 .6
90 days and over 169 .5 4 -- 173 .5
------ ------ ------ ------ ------ ------
Total delinquent
loans and leases $1,240(1) 3.9% $ 41 .1% $1,281 4.0%
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
- ----------
(1) Includes $13,000 of single-family residential leases.
Non-Performing Assets. The following table sets forth the amounts and
categories of Ponchatoula's non-performing assets at the dates indicated.
Ponchatoula did not have any accruing loans 90 days or more delinquent or
troubled debt restructurings at any of the dates presented.
December 31,
----------------------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
Non-accruing loans and leases:
Single-family residential(1) $169 $350 $434
Consumer 4 15 --
---- ---- ----
Total non-accruing loans
and leases 173 365 434
Real estate owned -- 141 --
---- ---- ----
Total non-performing assets $173 $506 $434
---- ---- ----
---- ---- ----
Total non-performing loans and
leases as a percentage of total
loans and leases .55% 1.38% 1.66%
---- ---- ----
---- ---- ----
Total non-performing assets as a
percentage of total assets .29% .83% .76%
---- ---- ----
---- ---- ----
- ----------
(1) Includes $0, $62,000, and $104,000 of single-family residential leases at
December 31, 1997, 1996 and 1995, respectively.
If the non-accruing loans and leases at December 31, 1997 had been current
in accordance with their terms during 1997, the gross interest income on such
loans and leases would have been $15,200. No interest income on these
non-accruing loans and leases was recorded in 1997.
61
<PAGE>
Classified Assets. Federal regulations require that each insured savings
institution classify its assets on a regular basis. In addition, in connection
with examinations of insured institutions, federal examiners have authority to
identify problem assets and, if appropriate, classify them. There are three
classifications for problem assets: "substandard," "doubtful" and "loss."
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Doubtful assets have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset classified loss is considered uncollectible and of such little value that
continuance as an asset of the institution is not warranted. Another category
designated "special mention" also must be established and maintained for assets
which do not currently expose an insured institution to a sufficient degree of
risk to warrant classification as substandard, doubtful or loss. Assets
classified as substandard or doubtful require the institution to establish
general allowances for loan and lease losses. If an asset or portion thereof is
classified loss, the insured institution must either establish specific
allowances for loan losses in the amount of 100% of the portion of the asset
classified loss, or charge-off such amount. General loss allowances established
to cover possible losses related to assets classified substandard or doubtful
may be included in determining an institution's regulatory capital, while
specific valuation allowances for loan and lease losses do not qualify as
regulatory capital. Federal examiners may disagree with an insured institution's
classifications and amounts reserved.
Exclusive of assets classified loss which have been fully reserved or
charged-off, Ponchatoula's classified assets at December 31, 1997 consisted of
$173,000 of assets classified as substandard, which represented .3% of total
assets.
Allowance for Loan and Lease Losses. Ponchatoula's loan and lease
portfolio consists primarily of one-to-four family residential loans and, to a
lesser extent, consumer loans, construction loans, and commercial real estate
loans. Ponchatoula believes that there are no material elements of risk in its
loan portfolio, and total nonperforming assets are closely monitored. The
classification of assets policy is reviewed periodically by the Board of
Directors. The loan loss allowance is maintained by management at a level
considered adequate to cover possible losses that are currently anticipated
based on the past three-year 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, general economic
conditions, and other factors and estimates which are subject to change over
time. Although management believes that it uses the best information available
to make such determinations, future adjustments to allowances may be necessary,
and net income could be significantly affected, if circumstances differ
substantially from the assumptions used in making the initial determinations.
62
<PAGE>
The following table sets forth an analysis of Ponchatoula's allowance for
loan and lease losses during the periods indicated.
Year Ended December 31,
----------------------------------
1997 1996 1995
-------- ------- --------
(Dollars in Thousands)
Total loans and leases
outstanding at end of period(1) $ 31,462 $30,460 $ 29,373
-------- ------- --------
-------- ------- --------
Average loans and leases
outstanding(1) $ 28,403 $27,597 $ 27,129
-------- ------- --------
-------- ------- --------
Balance at beginning of period 282 280 288
Charge-offs 1 1 2
Recoveries -- -- --
-------- ------- --------
Net charge-offs 1 1 2
Recovery of allowance for losses (16) 3 (6)
-------- ------- --------
Balance at end of period $ 265 $ 282 $ 280
-------- ------- --------
-------- ------- --------
Allowance for loan and lease
losses as a percent of total loans
and leases outstanding .84% .93% .95%
-------- ------- --------
-------- ------- --------
Ratio of net charge-offs to
average loans and leases
outstanding .00% .00% .01%
-------- ------- --------
-------- ------- --------
- ----------
(1) Total and average loans outstanding include loans classified as held for
sale at or during the respective dates or periods.
63
<PAGE>
The following table presents the allocation of Ponchatoula's allowance for
loan losses by type of loan at each of the dates indicated.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
1997 1996 1995
---------------------- --------------------- ----------------------
Loan Loan Loan
Category Category Category
Amount as a % Amount as a % Amount as a %
of of Total of of Total of of Total
Allowance Loans Allowance Loans Allowance Loans
--------- -------- --------- -------- ---------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family residential $ 262 63.9% $ 279 62.9% $ 277 60.1%
Construction -- 10.3 -- 12.5 -- 10.3
Commercial real estate -- 1.6 -- .2 -- .2
Land -- .4 -- .5 -- .7
Consumer 3 22.8 3 22.4 3 20.6
Lease -- 1.0 -- 1.5 -- 8.1
----- ----- ----- ----- ----- -----
Total $ 265 100.0% $ 282 100.0% $ 280 100.0%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</TABLE>
Mortgage-Backed Securities
Mortgage-backed securities represent a participation interest in a pool of
single-family or multi-family mortgages, the principal and interest payments on
which are passed from the mortgage originators, through intermediaries
(generally U.S. Government agencies and government-sponsored enterprises) that
pool and repackage the participation interests in the form of securities, to
investors such as Ponchatoula. Such U.S. Government agencies and
government-sponsored enterprises, which guarantee the payment of principal and
interest to investors, primarily include the FHLMC, the FNMA and the GNMA.
The FHLMC, which is a corporation chartered by the U.S. Government, issues
participation certificates backed principally by conventional mortgage loans.
The FHLMC guarantees the timely payment of interest and the ultimate return of
principal on participation certificates. The FNMA is a private corporation
chartered by the U.S. Congress with a mandate to establish a secondary market
for mortgage loans. The FNMA guarantees the timely payment of principal and
interest on FNMA securities. The GNMA is a government agency within the
Department of Housing and Urban Development which is intended to help finance
government-assisted housing programs. GNMA securities are backed by FHA-insured
and VA-guaranteed loans, and the timely payment of principal and interest on
GNMA securities are guaranteed by the GNMA and backed by the full faith and
credit of the U.S. Government. Because the FHLMC, the FNMA and the GNMA were
established to provide support for low- and middle-income housing, there are
limits to the maximum size of loans that qualify for these programs. For
example, the FNMA and the FHLMC currently limit their loans secured by a
single-family, owner-occupied residence to $227,000. To accommodate larger-sized
loans, and loans that, for other reasons, do not conform to the agency programs,
a number of private institutions have established their own home-loan
origination and securitization programs.
Mortgage-backed securities typically are issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and have varying maturities. The
underlying pool of mortgages, i.e., fixed-rate or adjustable-rate, as well as
prepayment risk, are passed on to the
64
<PAGE>
certificate holder. The life of a mortgage-backed pass-through security thus
approximates the life of the underlying mortgages.
At December 31, 1997, the carrying value of Ponchatoula's mortgage-backed
securities amounted to $24.6 million, which represented 41.3% of Ponchatoula's
$59.6 million of total assets at that date. All of Ponchatoula's $24.6 million
of mortgage-backed securities at December 31, 1997 were insured or guaranteed by
the GNMA, the FHLMC or the FNMA, and all of the mortgage-backed securities had
adjustable rates of interest at December 31, 1997. The amortized cost of
mortgage-backed securities being held to maturity at December 31, 1997 was $10.3
million with a fair value of $10.4 million. The amortized cost of
mortgage-backed securities available for sale at December 31, 1997 was $14.3
million with a fair value of $14.3 million.
Mortgage-backed securities generally yield less than the loans which
underlie such securities because of their payment guarantees or credit
enhancements which offer nominal credit risk. In addition, mortgage-backed
securities are more liquid than individual mortgage loans and may be used to
collateralize borrowings or other obligations of Ponchatoula.
The following table sets forth the composition of Ponchatoula's
mortgage-backed securities portfolio at each of the dates indicated.
December 31,
-----------------------------------
1997 1996 1995
-------- -------- --------
(In Thousands)
Mortgage-backed securities
held to maturity:
FNMA $ 6,712 $ 6,931 $ 5,201
FHLMC 2,543 3,323 1,058
GNMA 1,046 -- --
------- ------- -------
Subtotal 10,301 10,254 6,259
------- ------- -------
Mortgage-backed securities
available for sale:
FNMA 7,115 7,908 6,885
FHLMC 6,911 8,278 9,565
GNMA 235 286 342
------- ------- -------
Subtotal 14,261 16,472 16,792
------- ------- -------
Total $24,562 $26,726 $23,051
-------- -------- --------
-------- -------- --------
The following table sets forth the activity in Ponchatoula's
mortgage-backed securities portfolio during the periods indicated.
At or For the Year Ended
December 31,
--------------------------------------
1997 1996 1995
-------- -------- --------
(Dollars in Thousands)
Mortgage-backed securities at
beginning of period (cost) $ 26,883 $ 23,038 $ 19,056
Purchases 2,244 7,884 7,720
Repayments (4,444) (3,999) (3,719)
Premium amortization (58) (40) (19)
-------- -------- --------
Mortgage-backed securities at end
of period (cost) $ 24,625 $ 26,883 $ 23,038
-------- -------- --------
-------- -------- --------
Mortgaged-backed securities at end
of period (fair value) $ 24,676 $ 26,824 $ 23,093
-------- -------- --------
-------- -------- --------
Weighted average yield at end of
period 6.40% 6.03% 5.87%
-------- -------- --------
-------- -------- --------
65
<PAGE>
Investment Securities
Ponchatoula has authority to invest in various types of liquid assets,
including United States Treasury obligations, securities of various federal
agencies and of state and municipal governments, certificates of deposit at
federally-insured banks and savings institutions, certain bankers' acceptances
and federal funds. Each purchase of an investment security is approved by the
Board of Directors. Ponchatoula's investment securities are carried in
accordance with generally accepted accounting principles. All of Ponchatoula's
investment securities were available for sale at December 31, 1997.
The following table sets forth certain information relating to
Ponchatoula's investment securities portfolio at the dates indicated.
December 31,
-----------------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
--------- ------- --------- ------- --------- ------
(In Thousands)
U.S. agency
securities $2,595 $2,605 $2,396 $2,399 $2,403 $2,415
The following table sets forth the amount of Ponchatoula's investment
securities which mature during each of the periods indicated and the weighted
average yields for each range of maturities at December 31, 1997. None of the
investments mature after five years.
At December 31, 1997
--------------------------------------------------------
Weighted Over One Weighted
One Year or Average Year Through Average
Less Yield Five Years Yield
------------ ---------- ------------- -----------
(Dollars in Thousands)
U.S. agency
securities $1,196 6.04% $1,399 5.95 %
Sources of Funds
General. Deposits are the primary source of Ponchatoula's funds for
lending and other investment purposes. In addition to deposits, Ponchatoula
derives funds from principal and interest payments on loans and mortgage-backed
securities. Loan repayments are a relatively stable source of funds, while
deposits inflows and outflows are significantly influenced by general interest
rates and money market conditions. Borrowings may be used on a short-term basis
to compensate for reductions in the availability of funds from other sources.
They may also be used on a longer term basis for general business purposes.
66
<PAGE>
Deposits. Ponchatoula's deposit products include a broad selection of
deposit instruments, including NOW accounts, money market accounts, passbook
accounts and term certificate accounts. Deposit account terms vary, with the
principal differences being the minimum balance required, the time periods the
funds must remain on deposit and the interest rate.
Ponchatoula's deposits are obtained primarily from residents of Tangipahoa
and Livingston Parishes and, to a lesser extent, St. Helena Parish. Management
of Ponchatoula estimates that less than 1% of Ponchatoula's deposits are
obtained from customers residing outside of Louisiana. Ponchatoula does not pay
fees to brokers to solicit funds for deposit with Ponchatoula or actively
solicit negotiable-rate certificates of deposit with balances of $100,000 or
more.
Interest rates paid, maturity terms, service fees and withdrawal penalties
are established by Ponchatoula on a periodic basis. Determination of rates and
terms are predicated on funds acquisition and liquidity requirements, rates paid
by competitors, growth goals and federal and state regulations.
The following table sets forth the dollar amount of deposits in the
various types of deposit programs offered by Ponchatoula at the dates indicated.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1997 1996 1995
------------------ ------------------- -------------------
Amount % Amount % Amount %
------- ------- ------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Certificate accounts:
2.00% - 3.99% $ 285 .7% $ 551 1.2% $ 845 1.9%
4.00% - 5.99% 30,031 71.4 30,686 69.1 10,519 23.3
6.00% - 7.99% 1,117 2.6 882 2.0 20,211 45.1
8.00% - 9.99% -- -- 42 .1 363 .8
------- ------- ------- ------- ------- -------
Total certificate
accounts 31,433 74.7 32,161 72.4 31,938 71.1
------- ------- ------- ------- ------- -------
Transaction accounts:
Passbook accounts 8,253 19.6 9,592 21.6 10,170 22.7
Money market
accounts 934 2.2 1,032 2.3 1,197 2.7
NOW accounts 1,491 3.5 1,642 3.7 1,584 3.5
------- ------- ------- ------- ------- -------
Total transaction
accounts 10,678 25.3 12,266 27.6 12,951 28.9
------- ------- ------- ------- ------- -------
Total deposits $42,111 100.0% $44,427 100.0% $44,889 100.0%
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
67
<PAGE>
The following table presents the average balance of each type of deposit
and the average rate paid on each type of deposit for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1997 1996 1995
--------------------- --------------------- ---------------------
Average Average Average
Average Rate Average Rate Average Rate
Balance Paid Balance Paid Balance Paid
--------- -------- --------- -------- --------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Passbook savings accounts $ 8,866 2.67% $ 9,931 3.00% $11,578 3.00%
Demand and NOW accounts 1,741 2.34 1,585 3.00 1,403 2.84
MMDAs 979 2.34 1,137 3.00 1,341 2.84
Certificates of deposit 32,021 5.24 32,080 5.50 28,658 5.40
--------- -------- --------- -------- --------- -------
Total interest-bearing
deposits $43,607 4.52% $44,733 4.82% $42,980 4.67%
--------- -------- --------- -------- --------- -------
--------- -------- --------- -------- --------- -------
</TABLE>
The following table sets forth the activity in Ponchatoula's deposits
during the periods indicated.
Year Ended December 31,
-------------------------------------------
1997 1996 1995
-------- -------- -------
(In Thousands)
Net increase (decrease) before
interest credited(1) $ (4,287) $(2,620) $ 921
Interest credited 1,971 2,158 2,007
-------- ------- -------
Net increase (decrease) in
deposits $ (2,316) $ (462) $ 2,928
-------- ------- -------
-------- ------- -------
- ----------
(1) The information provided is net of deposits and withdrawals because the
gross amount of deposits and withdrawals is not readily available.
68
<PAGE>
The following table shows the interest rate and maturity information for
Ponchatoula's certificates of deposit at December 31, 1997.
Maturity Date
----------------------------------------------------
One Year Over 1 Over 2 Over
or Less to 2 Years to 3 Years 3 Years Total
------- ---------- ---------- ------- -----
(In Thousands)
2.00% - 3.99% $ 226 $ 30 $ 3 $ 26 $ 285
4.00% - 5.99% 28,282 1,502 125 122 30,031
6.00% - 7.99% 100 530 231 256 1,117
------- ------ ---- ------- -------
Total $28,608 $2,062 $359 $ 404 $31,433
------- ------ ---- ------- -------
------- ------ ---- ------- -------
The following table sets forth the maturities of Ponchatoula's
certificates of deposit having principal amounts of $100,000 or more at December
31, 1997.
Certificates of deposit maturing
in quarter ending: Amount
--------------------------------- -------
(In Thousands)
March 31, 1998 $2,386
June 30, 1998 514
September 30, 1998 1,382
December 31, 1998 529
After December 31, 1998 --
------
Total certificates of deposit with
balances of $100,000 or more $4,811
------
------
Borrowings. Ponchatoula may obtain advances from the FHLB of Dallas upon
the security of the common stock it owns in that bank, certain of its
residential mortgage loans and mortgage-backed securities, provided certain
standards related to creditworthiness have been met. Such advances are made
pursuant to several credit programs, each of which has its own interest rate and
range of maturities. Such advances are generally available to meet seasonal and
other withdrawals of deposit accounts and to permit increased lending. See
"Regulation - The Association - Federal Home Loan Bank System."
Ponchatoula had $11.5 million of FHLB advances outstanding at December 31,
1997, compared to $10.7 million and $6.3 million at December 31, 1996 and 1995,
respectively. Specific mortgage-backed securities, with a fair value of
approximately $11.7 million and a carrying value of $11.6 million at December
31, 1997, were pledged to the FHLB as collateral for the advances.
69
<PAGE>
The following table sets forth certain information regarding short-term
borrowings at or for the dates indicated:
At or for the Year Ended December 31,
-------------------------------------
1997 1996 1995
------- ------- ------
(Dollars in Thousands)
FHLB advances:
Average balance outstanding $ 9,755 $ 7,630 $5,562
Maximum amount outstanding
at any month-end during
the period $11,500 $10,700 $7,000
Balance outstanding at end
of period $11,500 $10,700 $6,300
Average interest rate
during the period 5.58% 5.67% 6.02%
Weighted average interest rate
at end of period 5.85% 5.48% 5.81%
Employees
Ponchatoula had 21 full-time employees and one part-time employee at
December 31, 1997. None of these employees is represented by a collective
bargaining agent, and Ponchatoula believes that it enjoys good relations with
its personnel.
Market Area
Ponchatoula's primary market area for lending and deposits is Tangipahoa
Parish, which is located in southeast Louisiana. To a lesser extent, Ponchatoula
serves customers in the adjacent parishes of St. Helena and Livingston.
Ponchatoula's market area can be characterized as a combination of rural and
suburban areas. Tangipahoa Parish maintains a large commuter population with
residents commuting to jobs in the New Orleans and Baton Rouge metropolitan
areas. The parish's population increased from approximately 86,000 in 1990 to
96,000 in 1997, representing an annual growth rate of 1.6%. The increased demand
for housing resulting from the population growth has had a positive impact on
real estate values in Tangipahoa Parish in recent years.
Educational facilities, including Southeastern Louisiana University, are
three of the four largest employers in Tangipahoa Parish. The second largest
employer is North Oaks Medical Center. Median household and per capita income
levels in Tangipahoa Parish ($20,276 and $10,108, respectively, in 1997) are
lower than the comparative medians for Louisiana and the United States, which is
indicative of the market area's more rural nature that provides for a lower cost
of living than the more heavily populated markets within the state. The
unemployment rate in Tangipahoa Parish declined from 8.7% in December 1996 to
7.7% in 1997. These rates are higher than the comparative measures for Louisiana
and the United States, which tends to be a characteristic of rural markets in
general as the result of seasonal agricultural employment fluctuations.
70
<PAGE>
Competition
Ponchatoula faces strong competition both in attracting deposits and in
making real estate loans. Its most direct competition for deposits has
historically come from other savings institutions, credit unions and commercial
banks located in Tangipahoa Parish, Louisiana, including many large financial
institutions which have greater financial and marketing resources available to
them. In addition, Ponchatoula has faced additional significant competition for
investors' funds from short-term money market securities, mutual funds and other
corporate and government securities. The ability of Ponchatoula to attract and
retain savings deposits depends on its ability to generally provide a rate of
return, liquidity and risk comparable to that offered by competing investment
opportunities.
Ponchatoula experiences strong competition for loans principally from
other savings institutions, commercial banks, credit unions and mortgage banking
companies. Ponchatoula competes for loans principally through the interest rates
and loan fees it charges and the efficiency and quality of services it provides
borrowers. Competition may increase as a result of the continuing reduction of
restrictions on the interstate operations of financial institutions and the
anticipated slowing of the refinancing activity.
Properties
At December 31, 1997, Ponchatoula conducted its business from its
headquarters at 195 North Sixth Street, Ponchatoula, Louisiana 70454 and one
branch office. The estimated net book value of the electronic data processing
and other office equipment owned by Ponchatoula was $50,000 at December 31,
1997. The following table sets forth certain information with respect to the
offices of Ponchatoula at December 31, 1997.
Net Book Value
Description/Address Leased/Owned of Property Deposits
- ------------------------ ------------ --------------- --------
(In Thousands)
Home Office:
195 North Sixth Street
Ponchatoula, LA 70454 Owned $393,000 $35,494
Branch Office:
111 North Bay Street
Amite, LA 70422 Owned $101,000 $ 6,616
Legal Proceedings
Ponchatoula is involved in routine legal proceedings occurring in the
ordinary course of business which, in the aggregate, are believed by management
to be immaterial to the financial condition of Ponchatoula.
REGULATION
Set forth below is a brief description of certain laws and regulations
which are applicable to the Company and Ponchatoula. The description of these
laws and regulations, as well as descriptions of laws and regulations contained
elsewhere herein, does not purport to be complete and is qualified in its
entirety by reference to the applicable laws and regulations.
71
<PAGE>
General
Ponchatoula, as a federally-chartered savings institution, is subject to
federal regulation and oversight by the OTS extending to all aspects of its
operations. Ponchatoula also is subject to regulation and examination by the
FDIC, which insures the deposits of Ponchatoula to the maximum extent permitted
by law, and requirements established by the Federal Reserve Board.
Federally-chartered savings institutions are required to file periodic reports
with the OTS and are subject to periodic examinations by the OTS and the FDIC.
The investment and lending authority of savings institutions are prescribed by
federal laws and regulations, and such institutions are prohibited from engaging
in any activities not permitted by such laws and regulations. Such regulation
and supervision is primarily intended for the protection of depositors and not
for the purpose of protecting stockholders.
The OTS' enforcement authority over all savings institutions and their
holding companies includes, among other things, the ability to assess civil
money penalties, to issue cease and desist or removal orders and to initiate
injunctive actions. In general, these enforcement actions may be initiated for
violations of laws and regulations and unsafe or unsound practices. Other
actions or inactions may provide the basis for enforcement action, including
misleading or untimely reports filed with the OTS.
The Company
Holding Company Acquisitions. Upon consummation of the Conversion, the
Company will become a savings and loan holding company within the meaning of the
Home Owners' Loan Act, as amended ("HOLA"), and will be required to register
with the OTS. The HOLA and OTS regulations generally prohibit a savings and loan
holding company, without prior OTS approval, from acquiring, directly or
indirectly, the ownership or control of any other savings institution or savings
and loan holding company, or all, or substantially all, of the assets or more
than 5% of the voting shares thereof. These provisions also prohibit, among
other things, any director or officer of a savings and loan holding company, or
any individual who owns or controls more than 25% of the voting shares of such
holding company, from acquiring control of any savings institution not a
subsidiary of such savings and loan holding company, unless the acquisition is
approved by the OTS.
Holding Company Activities. The Company will operate as a unitary savings
and loan holding company. Generally, there are limited restrictions on the
activities of a unitary savings and loan holding company and its non- savings
institution subsidiaries. However, if the Director of the OTS determines that
there is reasonable cause to believe that the continuation by a savings and loan
holding company of an activity constitutes a serious risk to the financial
safety, soundness or stability of its subsidiary savings institution, the
Director may impose such restrictions as deemed necessary to address such risk,
including limiting (i) payment of dividends by the savings institution; (ii)
transactions between the savings institution and its affiliates; and (iii) any
activities of the savings institution that might create a serious risk that the
liabilities of the holding company and its affiliates may be imposed on the
savings institution. Notwithstanding the above rules as to permissible business
activities of unitary savings and loan holding companies, if the savings
institution subsidiary of such a holding company fails to meet the QTL test, as
discussed under "-The Association - Qualified Thrift Lender Test," then such
unitary holding company also shall become subject to the activities restrictions
applicable to multiple savings and loan holding companies and, unless the
savings institution requalifies as a QTL within one year thereafter, shall
register as, and become subject to the restrictions applicable to, a bank
holding company. See "- The Association - Qualified Thrift Lender Test."
The HOLA requires every savings institution subsidiary of a savings and
loan holding company to give the OTS at least 30 days' advance notice of any
proposed dividends to be made on its guarantee, permanent or other
non-withdrawable stock, or else such dividend will be invalid. See "- The
Association - Capital Distribution Regulation."
Affiliate Restrictions. Transactions between a savings institution and its
"affiliates" are subject to quantitative and qualitative restrictions under
Sections 23A and 23B of the Federal Reserve Act and OTS regulations.
72
<PAGE>
Affiliates of a savings institution include, among other entities, the savings
institution's holding company and companies that are controlled by or under
common control with the savings institution.
In general, Sections 23A and 23B and OTS regulations issued in connection
therewith limit the extent to which a savings institution or its subsidiaries
may engage in certain "covered transactions" with affiliates to an amount equal
to 10% of the institution's capital and surplus, in the case of covered
transactions with any one affiliate, and to an amount equal to 20% of such
capital and surplus, in the case of covered transactions with all affiliates. In
addition, a savings institution and its subsidiaries may engage in covered
transactions and certain other transactions only on terms and under
circumstances that are substantially the same, or at least as favorable to the
savings institution or its subsidiary, as those prevailing at the time for
comparable transactions with nonaffiliated companies. A "covered transaction" is
defined to include a loan or extension of credit to an affiliate; a purchase of
investment securities issued by an affiliate; a purchase of assets from an
affiliate, with certain exceptions; the acceptance of securities issued by an
affiliate as collateral for a loan or extension of credit to any party; or the
issuance of a guarantee, acceptance or letter of credit on behalf of an
affiliate.
In addition, under the OTS regulations, a savings institution may not make
a loan or extension of credit to an affiliate unless the affiliate is engaged
only in activities permissible for bank holding companies; a savings institution
may not purchase or invest in securities of an affiliate other than shares of a
subsidiary; a savings institution and its subsidiaries may not purchase a
low-quality asset from an affiliate; and covered transactions and certain other
transactions between a savings institution or its subsidiaries and an affiliate
must be on terms and conditions that are consistent with safe and sound banking
practices. With certain exceptions, each loan or extension of credit by a
savings institution to an affiliate must be secured by collateral with a market
value ranging from 100% to 130% (depending on the type of collateral) of the
amount of the loan or extension of credit.
The OTS regulation generally excludes all non-bank and non-savings
institution subsidiaries of savings institutions from treatment as affiliates,
except to the extent that the OTS or the Federal Reserve Board decides to treat
such subsidiaries as affiliates. The regulation also requires savings
institutions to make and retain records that reflect affiliate transactions in
reasonable detail, and provides that certain classes of savings institutions may
be required to give the OTS prior notice of affiliate transactions.
The Association
Insurance of Accounts. The deposits of Ponchatoula are insured to the
maximum extent permitted by the SAIF, which is administered by the FDIC, and are
backed by the full faith and credit of the U.S. Government. As insurer, the FDIC
is authorized to conduct examinations of, and to require reporting by,
FDIC-insured institutions. It also may prohibit any FDIC-insured institution
from engaging in any activity the FDIC determines by regulation or order to pose
a serious threat to the FDIC. The FDIC also has the authority to initiate
enforcement actions against savings institutions, after giving the OTS an
opportunity to take such action.
Under current FDIC regulations, SAIF-insured institutions are assigned to
one of three capital groups which are based solely on the level of an
institution's capital--"well capitalized," "adequately capitalized," and
"undercapitalized"--which are defined in the same manner as the regulations
establishing the prompt corrective action system discussed below. These three
groups are then divided into three subgroups which reflect varying levels of
supervisory concern, from those which are considered to be healthy to those
which are considered to be of substantial supervisory concern. The matrix so
created results in nine assessment risk classifications, with rates ranging
prior to September 30, 1996 from .23% for well capitalized, healthy institutions
to .31% for undercapitalized institutions with substantial supervisory concerns.
The insurance premiums for Ponchatoula for 1994, 1995 and the first nine months
of 1996 were .23% (per annum) of insured deposits.
The deposits of Ponchatoula are currently insured by the SAIF. Both the
SAIF and the BIF are required by law to attain and thereafter maintain a reserve
ratio of 1.25% of insured deposits. The BIF achieved a fully funded status
first, and therefore as discussed below, effective January 1, 1996 the FDIC
substantially reduced the
73
<PAGE>
average deposit insurance premium paid by BIF-insured banks. On November 14,
1995, the FDIC approved a final rule regarding deposit insurance premiums. The
final rule reduced deposit insurance premiums for BIF member institutions to
zero basis points (subject to a $2,000 minimum) for institutions in the lowest
risk category, while holding deposit insurance premiums for SAIF members at
their then current levels (23 basis points for institutions in the lowest risk
category). The reduction was effective with respect to the semiannual premium
assessment beginning January 1, 1996.
On September 30, 1996, President Clinton signed into law legislation which
eliminated the premium differential between SAIF-insured institutions and
BIF-insured institutions by recapitalizing the SAIF's reserves to the required
ratio. The legislation required all SAIF member institutions to pay a one-time
special assessment to recapitalize the SAIF, with the aggregate amount to be
sufficient to bring the reserve ratio to 1.25% of insured deposits. The
legislation also provides for the merger of the BIF and the SAIF, with such
merger being conditioned upon the prior elimination of the thrift charter.
Implementing FDIC regulations imposed a one-time special assessment equal
to 65.7 basis points for all SAIF-assessable deposits as of March 31, 1995,
which was accrued as an expense on September 30, 1996. Ponchatoula's one-time
special assessment amounted to $284,000. Net of related tax benefits, the
one-time special assessment amounted to $187,000. The payment of the special
assessment had the effect of immediately reducing Ponchatoula's capital by such
amount. However, management does not believe that this one-time special
assessment had a material adverse effect on Ponchatoula's financial condition.
In the fourth quarter of 1996, the FDIC lowered the assessment rates for
SAIF members to reduce the disparity in the assessment rates paid by BIF and
SAIF members. Beginning October 1, 1996, effective SAIF rates generally range
from zero basis points to 27 basis points, except that during the fourth quarter
of 1996, the rates for SAIF members ranged from 18 to 27 basis points in order
to include assessments paid to the Financing Corporation ("FICO"). From 1997
through 1999, SAIF members will pay 6.4 basis points to fund the FICO, while BIF
member institutions will pay approximately 1.3 basis points. Ponchatoula's
insurance premiums, which had amounted to 23 basis points, were thus reduced to
6.4 basis points effective January 1, 1997. Based on Ponchatoula's $44.4 million
of assessable deposits at December 31, 1996, the premium reduction resulted in a
pre-tax cost savings of approximately $74,000 in 1997 for Ponchatoula.
The FDIC may terminate the deposit insurance of any insured depository
institution, including Ponchatoula, if it determines after a hearing that the
institution has engaged or is engaging in unsafe or unsound practices, is in an
unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance temporarily during the hearing
process for the permanent termination of insurance, if the institution has no
tangible capital. If insurance of accounts is terminated, the accounts at the
institution at the time of the termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined by
the FDIC. Management is aware of no existing circumstances which would result in
termination of Ponchatoula's deposit insurance.
Regulatory Capital Requirements. Federally insured savings institutions
are required to maintain minimum levels of regulatory capital. The OTS has
established capital standards applicable to all savings institutions. These
standards generally must be as stringent as the comparable capital requirements
imposed on national banks. The OTS also is authorized to impose capital
requirements in excess of these standards on individual institutions on a
case-by-case basis.
Current OTS capital standards require savings institutions to satisfy
three different capital requirements. Under these standards, savings
institutions must maintain "tangible" capital equal to at least 1.5% of adjusted
total assets, "core" capital equal to at least 3.0% of adjusted total assets and
"total" capital (a combination of core and "supplementary" capital) equal to at
least 8.0% of "risk-weighted" assets. For purposes of the regulation, core
capital generally consists of common stockholders' equity (including retained
earnings). Tangible capital is given the same definition as core capital but is
reduced by the amount of all the savings institution's intangible assets, with
only a
74
<PAGE>
limited exception for purchased mortgage servicing rights. Ponchatoula had no
intangible assets at December 31, 1997 which are required to be considered in
computing regulatory capital. Both core and tangible capital are further reduced
by an amount equal to a savings institution's debt and equity investments in
subsidiaries engaged in activities not permissible to national banks (other than
subsidiaries engaged in activities undertaken as agent for customers or in
mortgage banking activities and subsidiary depository institutions or their
holding companies). These adjustments do not affect Ponchatoula's regulatory
capital.
In determining compliance with the risk-based capital requirement, a
savings institution is allowed to include both core capital and supplementary
capital in its total capital, provided that the amount of supplementary capital
included does not exceed the savings institution's core capital. Supplementary
capital generally consists of general allowances for loan and lease losses up to
a maximum of 1.25% of risk-weighted assets, together with certain other items.
In determining the required amount of risk-based capital, total assets,
including certain off-balance sheet items, are multiplied by a risk weight based
on the risks inherent in the type of assets. The risk weights assigned by the
OTS for principal categories of assets are (i) 0% for cash and securities issued
by the U.S. Government or unconditionally backed by the full faith and credit of
the U.S. Government; (ii) 20% for securities (other than equity securities)
issued by U.S. Government-sponsored agencies and mortgage-backed securities
issued by, or fully guaranteed as to principal and interest by, the FNMA or the
FHLMC, except for those classes with residual characteristics or stripped
mortgage-related securities; (iii) 50% for prudently underwritten permanent one-
to four-family first lien mortgage loans not more than 90 days delinquent and
having a loan-to-value ratio of not more than 80% at origination unless insured
to such ratio by an insurer approved by the FNMA or the FHLMC, qualifying
residential bridge loans made directly for the construction of one- to
four-family residences and qualifying multi-family residential loans; and (iv)
100% for all other loans and investments, including consumer loans, commercial
loans, and one- to four-family residential real estate loans more than 90 days
delinquent, and for repossessed assets.
In August 1993, the OTS adopted a final rule incorporating an
interest-rate risk component into the risk- based capital regulation. Under the
rule, an institution with a greater than "normal" level of interest rate risk
will be subject to a deduction of its interest rate risk component from total
capital for purposes of calculating its risk- based capital. As a result, such
an institution will be required to maintain additional capital in order to
comply with the risk-based capital requirement. An institution with a greater
than "normal" interest rate risk is defined as an institution that would suffer
a loss of net portfolio value exceeding 2.0% of the estimated economic value of
its assets in the event of a 200 basis point increase or decrease (with certain
minor exceptions) in interest rates. The interest rate risk component will be
calculated, on a quarterly basis, as one-half of the difference between an
institution's measured interest rate risk and 2.0% multiplied by the economic
value of its assets. The rule also authorizes the Director of the OTS, or his
designee, to waive or defer an institution's interest rate risk component on a
case-by-case basis. The final rule was originally effective as of January 1,
1994, subject however to a two quarter "lag" time between the reporting date of
the data used to calculate an institution's interest rate risk and the effective
date of each quarter's interest rate risk component. However, in October 1994
the Director of the OTS indicated that it would waive the capital deductions for
institutions with a greater than "normal" risk until the OTS published an
appeals process. On August 21, 1995, the OTS released Thrift Bulletin 67 which
established (i) an appeals process to handle "requests for adjustments" to the
interest rate risk component and (ii) a process by which "well-capitalized"
institutions may obtain authorization to use their own interest rate risk model
to determine their interest rate risk component. The Director of the OTS
indicated, concurrent with the release of Thrift Bulletin 67, that the OTS will
continue to delay the implementation of the capital deduction for interest rate
risk pending the testing of the appeals process set forth in Thrift Bulletin 67.
Effective November 28, 1994, the OTS revised its interim policy issued in
August 1993 under which savings institutions computed their regulatory capital
in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Under the revised OTS policy, savings institutions must
value securities available for sale at amortized cost for regulatory capital
purposes. This means that in computing regulatory capital, savings institutions
should add back any unrealized losses and deduct any unrealized gains, net of
income taxes, on debt securities reported as a separate component of GAAP
capital.
75
<PAGE>
At December 31, 1997, Ponchatoula exceeded all of its regulatory capital
requirements, with tangible, core and risk-based capital ratios of 9.68%, 9.68%
and 23.69%, respectively. The following table sets forth Ponchatoula's
compliance with each of the above-described capital requirements as of December
31, 1997.
Tangible Core Risk-Based
Capital Capital(1) Capital (2)
------- ---------- -----------
(Dollars in Thousands)
Capital under GAAP $5,735 $5,735 $5,735
Additional capital items:
Unrealized (gain) loss on
securities available
for sale, net of taxes 35 35 35
General valuation allowances(3) -- -- 250
------ ------ ------
Regulatory capital 5,770 5,770 6,020
Minimum required regulatory capital(4) 894 1,788 2,033
------ ------ ------
Excess regulatory capital $4,876 $3,982 $3,987
------ ------ ------
------ ------ ------
Regulatory capital as a percentage 9.68% 9.68% 23.69%
Minimum capital required as a
percentage(4) 1.50% 3.00% 8.00%
------ ------ ------
Regulatory capital as a percentage
in excess of requirements 8.18% 6.68% 15.69%
------ ------ ------
------ ------ ------
- ----------
(1) Does not reflect the 4.0% requirement to be met in order for an
institution to be "adequately capitalized." See "- Prompt Corrective
Action."
(2) Does not reflect the interest-rate risk component in the risk-based
capital requirement, the effective date of which has been postponed as
discussed above.
(3) General valuation allowances are only used in the calculation of
risk-based capital. Such allowances are limited to 1.25% of risk-weighted
assets.
(4) Tangible and core capital are computed as a percentage of adjusted total
assets of $59.6 million. Risk-based capital is computed as a percentage of
adjusted risk-weighted assets of $25.4 million.
Any savings institution that fails any of the capital requirements is
subject to possible enforcement actions by the OTS or the FDIC. Such actions
could include a capital directive, a cease and desist order, civil money
penalties, the establishment of restrictions on the institution's operations,
termination of federal deposit insurance and the appointment of a conservator or
receiver. The OTS' capital regulation provides that such actions, through
enforcement proceedings or otherwise, could require one or more of a variety of
corrective actions.
76
<PAGE>
Prompt Corrective Action. Under the prompt corrective action regulations
of the OTS, an institution is deemed to be (i) "well capitalized" if it has
total risk-based capital of 10.0% or more, has a Tier 1 risk-based capital ratio
of 6.0% or more, has a Tier 1 leverage capital ratio of 5.0% or more and is not
subject to any order or final capital directive to meet and maintain a specific
capital level for any capital measure, (ii) "adequately capitalized" if it has a
total risk-based capital ratio of 8.0% or more, a Tier 1 risk-based capital
ratio of 4.0% or more and a Tier 1 leverage capital ratio of 4.0% or more (3.0%
under certain circumstances) and does not meet the definition of "well
capitalized," (iii) "undercapitalized" if it has a total risk-based capital
ratio that is less than 8.0%, a Tier 1 risk-based capital ratio that is less
than 4.0% or a Tier 1 leverage capital ratio that is less than 4.0% (3.0% under
certain circumstances), (iv) "significantly undercapitalized" if it has a total
risk-based capital ratio that is less than 6.0%, a Tier 1 risk-based capital
ratio that is less than 3.0% or a Tier 1 leverage capital ratio that is less
than 3.0%, and (v) "critically undercapitalized" if it has a ratio of tangible
equity to total assets that is equal to or less than 2.0%. Under specified
circumstances, a federal banking agency may reclassify a well capitalized
institution as adequately capitalized and may require an adequately capitalized
institution or an undercapitalized institution to comply with supervisory
actions as if it were in the next lower category (except that the FDIC may not
reclassify a significantly undercapitalized institution as critically
undercapitalized).
An institution generally must file a written capital restoration plan
which meets specified requirements with its appropriate federal banking agency
within 45 days of the date that the institution receives notice or is deemed to
have notice that it is undercapitalized, significantly undercapitalized or
critically undercapitalized. A federal banking agency must provide the
institution with written notice of approval or disapproval within 60 days after
receiving a capital restoration plan, subject to extensions by the agency. An
institution which is required to submit a capital restoration plan must
concurrently submit a performance guaranty by each company that controls the
institution. In addition, undercapitalized institutions are subject to various
regulatory restrictions, and the appropriate federal banking agency also may
take any number of discretionary supervisory actions.
At December 31, 1997, Ponchatoula was deemed a well capitalized
institution for purposes of the above regulations and as such is not subject to
the above mentioned restrictions.
Safety and Soundness Guidelines. The OTS and the other federal banking
agencies have established guidelines for safety and soundness, addressing
operational and managerial standards, as well as compensation matters for
insured financial institutions. Institutions failing to meet these standards are
required to submit compliance plans to their appropriate federal regulators. The
OTS and the other agencies have also established guidelines regarding asset
quality and earnings standards for insured institutions. Ponchatoula believes
that it is in compliance with these guidelines and standards.
Liquidity Requirements. All savings institutions are required to maintain
an average daily balance of liquid assets equal to a certain percentage of the
sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings institutions. At the present time, the required minimum
liquid asset ratio is 4%. At December 31, 1997, Ponchatoula's liquidity ratio
was 7.5%.
Capital Distributions. OTS regulations govern capital distributions by
savings institutions, which include cash dividends, stock redemptions or
repurchases, cash-out mergers, interest payments on certain convertible debt and
other transactions charged to the capital account of a savings institution to
make capital distributions. Generally, the regulation creates a safe harbor for
specified levels of capital distributions from institutions meeting at least
their minimum capital requirements, so long as such institutions notify the OTS
and receive no objection to the distribution from the OTS. Savings institutions
and distributions that do not qualify for the safe harbor are required to obtain
prior OTS approval before making any capital distributions.
Generally, a savings institution that before and after the proposed
distribution meets or exceeds its fully phased-in capital requirements (Tier 1
institutions) may make capital distributions during any calendar year equal
77
<PAGE>
to the higher of (i) 100% of net income for the calendar year-to-date plus 50%
of its "surplus capital ratio" at the beginning of the calendar year or (ii) 75%
of net income over the most recent four-quarter period. The "surplus capital
ratio" is defined to mean the percentage by which the institution's tangible,
core or risk-based capital ratio exceeds its tangible, core or risk-based
capital requirement. Failure to meet minimum capital requirements will result in
further restrictions on capital distributions, including possible prohibition
without explicit OTS approval. See "Regulatory Capital Requirements."
In order to make distributions under these safe harbors, Tier 1 and Tier 2
institutions must submit 30 days written notice to the OTS prior to making the
distribution. The OTS may object to the distribution during that 30- day period
based on safety and soundness concerns. In addition, a Tier 1 institution deemed
to be in need of more than normal supervision by the OTS may be downgraded to a
Tier 2 or Tier 3 institution as a result of such a determination. At December
31, 1997, Ponchatoula was a Tier 1 institution for purposes of this regulation.
On December 5, 1994, the OTS published a notice of proposed rulemaking to
amend its capital distribution regulation. Under the proposal, institutions
would be permitted to only make capital distributions that would not result in
their capital being reduced below the level required to remain "adequately
capitalized," as defined above under "-Prompt Corrective Action." Because
Ponchatoula will become a subsidiary of a holding company, the proposal would
require Ponchatoula to provide notice to the OTS of its intent to make a capital
distribution. Ponchatoula does not believe that the proposal will adversely
affect its ability to make capital distributions if it is adopted substantially
as proposed.
Branching by Federal Savings Institutions. OTS policy permits interstate
branching to the full extent permitted by statute (which is essentially
unlimited). Generally, federal law prohibits federal savings institutions from
establishing, retaining or operating a branch outside the state in which the
federal institution has its home office unless the institution meets the IRS'
domestic building and loan test (generally, 60% of a thrift's assets must be
housing-related) ("IRS Test"). The IRS Test requirement does not apply if: (i)
the branch(es) result(s) from an emergency acquisition of a troubled savings
institution (however, if the troubled savings institution is acquired by a bank
holding company, does not have its home office in the state of the bank holding
company bank subsidiary and does not qualify under the IRS Test, its branching
is limited to the branching laws for state-chartered banks in the state where
the savings institution is located); (ii) the law of the state where the branch
would be located would permit the branch to be established if the federal
savings institution were chartered by the state in which its home office is
located; or (iii) the branch was operated lawfully as a branch under state law
prior to the savings institution's conversion to a federal charter.
Furthermore, the OTS will evaluate a branching applicant's record of
compliance with the Community Reinvestment Act of 1977 ("CRA"). An
unsatisfactory CRA record may be the basis for denial of a branching
application.
Community Reinvestment Act and the Fair Lending Laws. Savings institutions
have a responsibility under the CRA and related regulations of the OTS to help
meet the credit needs of their communities, including low-and moderate-income
neighborhoods. In addition, the Equal Credit Opportunity Act and the Fair
Housing Act (together, the "Fair Lending Laws") prohibit lenders from
discriminating in their lending practices on the basis of characteristics
specified in those statutes. An institution's failure to comply with the
provisions of CRA could, at a minimum, result in regulatory restrictions on its
activities, and failure to comply with the Fair Lending Laws could result in
enforcement actions by the OTS, as well as other federal regulatory agencies and
the Department of Justice.
Qualified Thrift Lender Test. All savings institutions are required to
meet a QTL test to avoid certain restrictions on their operations. Under Section
2303 of the Economic Growth and Regulatory Paperwork Reduction Act of 1996, a
savings institution can comply with the QTL test by either qualifying as a
domestic building and loan association as defined in Section 7701(a)(19) of the
Code or meeting the second prong of the QTL test set forth in Section 10(m) of
the HOLA. A savings institution that does not meet the QTL test must either
convert to a bank charter or comply with the following restrictions on its
operations: (i) the institution may not engage in any new
78
<PAGE>
activity or make any new investment, directly or indirectly, unless such
activity or investment is permissible for a national bank; (ii) the branching
powers of the institution shall be restricted to those of a national bank; (iii)
the institution shall not be eligible to obtain any new advances from its FHLB,
other than special liquidity advances with the approval of the OTS; and (iv)
payment of dividends by the institution shall be subject to the rules regarding
payment of dividends by a national bank. Upon the expiration of three years from
the date the savings institution ceases to be a QTL, it must cease any activity
and not retain any investment not permissible for a national bank and
immediately repay any outstanding FHLB advances (subject to safety and soundness
considerations).
Currently, the prong of the QTL test that is not based on the Code
requires that 65% of an institution's "portfolio assets" (as defined) consist of
certain housing and consumer-related assets on a monthly average basis in nine
out of every 12 months. Assets that qualify without limit for inclusion as part
of the 65% requirement are loans made to purchase, refinance, construct, improve
or repair domestic residential housing and manufactured housing; home equity
loans; mortgage-backed securities (where the mortgages are secured by domestic
residential housing or manufactured housing); stock issued by the FHLB of
Dallas; and direct or indirect obligations of the FDIC. In addition, the
following assets, among others, may be included in meeting the test subject to
an overall limit of 20% of the savings institution's portfolio assets: 50% of
residential mortgage loans originated and sold within 90 days of origination;
100% of consumer and educational loans (limited to 10% of total portfolio
assets); and stock issued by the FHLMC or the FNMA. Portfolio assets consist of
total assets minus the sum of (i) goodwill and other intangible assets, (ii)
property used by the savings institution to conduct its business, and (iii)
liquid assets up to 20% of the institution's total assets. At December 31, 1997,
the qualified thrift investments of Ponchatoula were approximately 88.9% of its
portfolio assets.
Federal Home Loan Bank System. Ponchatoula is a member of the FHLB of
Dallas, which is one of 12 regional FHLBs that administers the home financing
credit function of savings institutions. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from proceeds derived from the sale of consolidated obligations of the FHLB
System. It makes loans to members (i.e., advances) in accordance with policies
and procedures established by the Board of Directors of the FHLB. At December
31, 1997, Ponchatoula had $11.5 million of FHLB advances. See Note 9 to the
Financial Statements.
As a member, Ponchatoula is required to purchase and maintain stock in the
FHLB of Dallas in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year. At December 31, 1997, Ponchatoula had $584,000 in
FHLB stock, which was in compliance with this requirement.
The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future. These contributions also could have an adverse effect on the
value of FHLB stock in the future. The dividend yield on Ponchatoula's FHLB
stock was 5.66% in 1997 compared to 5.40% in 1996 and 6.22% in 1995.
Federal Reserve System. The Federal Reserve Board requires all depository
institutions to maintain reserves against their transaction accounts (primarily
NOW and Super NOW checking accounts) and non-personal time deposits. As of
December 31, 1997, no reserves were required to be maintained on the first $4.4
million of transaction accounts, reserves of 3% were required to be maintained
against the next $46.3 million of net transaction accounts (with such dollar
amounts subject to adjustment by the Federal Reserve Board), and a reserve of
10% (which is subject to adjustment by the Federal Reserve Board to a level
between 8% and 14%) against all remaining net transaction accounts. Because
required reserves must be maintained in the form of vault cash or a noninterest-
bearing account at a Federal Reserve Bank, the effect of this reserve
requirement is to reduce an institution's earning assets.
79
<PAGE>
Thrift Charter. Congress has been considering legislation in various forms
that would require federal thrifts, such as Ponchatoula, to convert their
charters to national or state bank charters. Recent legislation required the
Treasury Department to prepare for Congress a comprehensive study on the
development of a common charter for federal savings institutions and commercial
banks; and, in the event that the thrift charter was eliminated by January 1,
1999, would require the merger of the BIF and the SAIF into a single Deposit
Insurance Fund on that date. Ponchatoula cannot determine whether, or in what
form, such legislation may eventually be enacted and there can be no assurance
that any legislation that is enacted would not adversely affect Ponchatoula and
its parent holding company.
TAXATION
Federal Taxation
General. The Company and Ponchatoula are subject to the generally
applicable corporate tax provisions of the Code, and Ponchatoula is subject to
certain additional provisions of the Code which apply to thrifts and other types
of financial institutions. The following discussion of federal taxation is
intended only to summarize certain pertinent federal income tax matters and is
not a comprehensive discussion of the tax rules applicable to the Company and
Ponchatoula.
Fiscal Year. The Company and Ponchatoula will file federal income tax
returns on the basis of a calendar year ending on December 31, and it is
expected that separate returns will be filed for 1998 and 1999.
Bad Debt Reserves. In August 1996, legislation was enacted that repealed
the reserve method of accounting (including the percentage of taxable income
method) previously used by many savings institutions to calculate their bad debt
reserve for federal income tax purposes. Savings institutions with $500 million
or less in assets may, however, continue to use the experience method. As a
result, Ponchatoula must recapture that portion of its reserve which exceeds the
amount that could have been taken under the experience method for post-1987 tax
years. At December 31, 1995, Ponchatoula's post-1987 excess reserves amounted to
approximately $68,000. The recapture will occur over a six-year period, the
commencement of which was January 1, 1996. The legislation also requires savings
institutions to account for bad debts for federal income tax purposes on the
same basis as commercial banks for tax years beginning after December 31, 1995.
This change in accounting method and reversal and excess bad debt reserves is
adequately provided for in Ponchatoula's deferred tax liability.
At December 31, 1997, the federal income tax reserves of Ponchatoula
included $1.0 million for which no federal income tax has been provided. Because
of these federal income tax reserves and the liquidation account to be
established for the benefit of certain depositors of Ponchatoula in connection
with the Conversion, the retained earnings of Ponchatoula are substantially
restricted.
Distributions. If Ponchatoula were to distribute cash or property to its
stockholders, and the distribution was treated as being from its accumulated bad
debt reserves, the distribution would cause Ponchatoula to have additional
taxable income. A distribution is deemed to have been made from accumulated bad
debt reserves to the extent that (a) the reserves exceed the amount that would
have been accumulated on the basis of actual loss experience, and (b) the
distribution is a "non-qualified distribution." A distribution with respect to
stock is a non-qualified distribution to the extent that, for federal income tax
purposes, (i) it is in redemption of shares, (ii) it is pursuant to a
liquidation of the institution, or (iii) in the case of a current distribution,
together with all other such distributions during the taxable year, it exceeds
the institution's current and post-1951 accumulated earnings and profits. The
amount of additional taxable income created by a non-qualified distribution is
an amount that when reduced by the tax attributable to it is equal to the amount
of the distribution.
Minimum Tax. The Code imposes an alternative minimum tax at a rate of 20%.
The alternative minimum tax generally applies to a base of regular taxable
income plus certain tax preferences ("alternative minimum taxable income" or
"AMTI") and is payable to the extent such AMTI is in excess of an exemption
amount. The Code
80
<PAGE>
provides that an item of tax preference is the excess of the bad debt deduction
allowable for a taxable year pursuant to the percentage of taxable income method
over the amount allowable under the experience method. Other items of tax
preference that constitute AMTI include (a) depreciation and (b) 75% of the
excess (if any) of (i) adjusted current earnings as defined in the Code, over
(ii) AMTI (determined without regard to this preference and prior to reduction
by net operating losses).
Net Operating Loss Carryovers. A financial institution may carry back net
operating losses ("NOLs") to the preceding three taxable years and forward to
the succeeding 15 taxable years. This provision applies to losses incurred in
taxable years beginning after 1986. At December 31, 1997, Ponchatoula had no NOL
carryforwards for federal income tax purposes.
Capital Gains and Corporate Dividends-Received Deduction. Corporate net
capital gains are taxed at a maximum rate of 35%. Corporations which own 20% or
more of the stock of a corporation distributing a dividend may deduct 80% of the
dividends received. Corporations which own less than 20% of the stock of a
corporation distributing a dividend may deduct 70% of the dividends received.
However, a corporation that receives dividends from a member of the same
affiliated group of corporations may deduct 100% of the dividends received.
Other Matters. Federal legislation is introduced from time to time that
would limit the ability of individuals to deduct interest paid on mortgage
loans. Individuals are currently not permitted to deduct interest on consumer
loans. Significant increases in tax rates or further restrictions on the
deductibility of mortgage interest could adversely affect Ponchatoula.
Ponchatoula's federal income tax returns for the tax years ended 1994,
1995 and 1996 are open under the statute of limitations and are subject to
review by the IRS. Ponchatoula's tax returns have not been audited by the IRS in
the last five years.
State Taxation
The Company is subject to the Louisiana Corporation Income Tax based on
its Louisiana taxable income. The Corporation Income Tax applies at graduated
rates from 4% upon the first $25,000 of Louisiana taxable income to 8% on all
Louisiana taxable income in excess of $200,000. For these purposes, "Louisiana
taxable income" means net income which is earned within or derived from sources
within the State of Louisiana, after adjustments permitted under Louisiana law,
including a federal income tax deduction. In addition, Ponchatoula is subject to
the Louisiana Shares Tax which is imposed on the assessed value of a company's
stock. The formula for deriving the assessed value is to calculate 15% of the
sum of (a) 20% of a company's capitalized earnings, plus (b) 80% of the
company's taxable stockholders' equity, and to subtract from that figure 50% of
the company's real and personal property assessment. Various items may also be
subtracted in calculating a company's capitalized earnings. Ponchatoula believes
that the Louisiana Shares Tax, which applies at rates up to 16% on the assessed
value of its stock, will not result in a material tax liability following the
Conversion.
81
<PAGE>
MANAGEMENT
Management of the Company
The Board of Directors of the Company is divided into three classes, each
of which contains approximately one-third of the Board. The directors shall be
elected by the stockholders of the Company for staggered three year terms, or
until their successors are elected and qualified. The following table sets forth
certain information regarding the directors of the Company, all of whom are also
directors of Ponchatoula.
<TABLE>
<CAPTION>
Position with
Ponchatoula and
Principal Occupation Director of Year
During the Ponchatoula Term
Name Age(1) Past Five Years Since Expires
- ---------------------------- -------- -------------------------------- ------------- -----------
<S> <C> <C> <C> <C>
John C. Bohning 56 Director; President and manager 1974 2001
of Bohning's Supermarket,
Ponchatoula, Louisiana, since
1961.
Lawrence C. Caldwell, Jr. 50 Director; President and Chief 1984 2000
Executive Officer of
Ponchatoula since January 1994.
From 1984 until January 1994,
served as Executive Vice
President and Chief Executive
Officer of Ponchatoula. Present
Chairman of Louisiana League of
Savings Institutions and
Commissioner on the Louisiana
Housing Finance Agency.
Robert H. Gabriel 42 Director; President of Gabriel 1996 1999
Bldg. Supply Co., Inc.,
Ponchatoula, Louisiana, since
1982.
Dennis E. James 38 Director; Audit Partner with 1996 2000
Durnin & James, CPA, Amite,
Louisiana, since 1987.
Allen B. Pierson, Jr. 61 Director, Attorney and, from 1989(2) 2000
1991 to May 1996, a Partner
with the law firm of Matheny
and Pierson, Ponchatoula,
Louisiana.
Milton J. Schanzbach 71 Chairman of the Board; Retired 1978 2001
optometrist.
Barbara B. Theriot 53 Director; Secretary and 1994 1999
Treasurer of Ponchatoula since
1984.
</TABLE>
- -------------------
(1) Age as of December 31, 1997.
(2) In addition, Mr. Pierson served as a director of Ponchatoula from 1969 to
1983.
82
<PAGE>
Directors of the Company initially will not be compensated by the Company
but will serve with and be compensated by Ponchatoula. It is not anticipated
that separate compensation will be paid to directors of the Company until such
time as such persons devote significant time to the separate management of the
Company's affairs, which is not expected to occur until the Company becomes
actively engaged in additional businesses other than holding the stock of
Ponchatoula. The Company may determine that such compensation is appropriate in
the future.
The executive officers of the Company are elected annually and hold office
until their respective successors have been elected and qualified or until
death, resignation or removal by the Board of Directors.
Management of Ponchatoula
The directors and executive officers of Ponchatoula are the same as the
directors and executive officers of the Company. Information concerning the
names, ages, principal occupations during the past five years and term of office
of the directors and executive officers of Ponchatoula is set forth under "-
Management of the Company."
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires Ponchatoula's officers and
directors, and persons who own more than 10% of the Ponchatoula Common Stock, to
file reports of ownership and changes in ownership with the OTS. Officers,
directors and greater than 10% stockholders are required by regulation to
furnish Ponchatoula with copies of all Section 16(a) forms they file. Based
solely on review of the copies of such forms furnished to Ponchatoula,
Ponchatoula believes that during 1997, all Section 16(a) filing requirements
applicable to its officers and directors were complied with.
Beneficial Ownership of Ponchatoula Common Stock
The following table sets forth information as to the Ponchatoula Common
Stock beneficially owned as of March 31, 1998 by (i) the only persons or
entities known to Ponchatoula to be the beneficial owners of more than 5% of the
Ponchatoula Common Stock, (ii) each director of Ponchatoula, and (iii) all
directors and executive officers of Ponchatoula as a group.
Amount and Nature Percent
of Beneficial of
Name Ownership(1)(2)(3) Class
---- ------------------ -----
Homestead Mutual Holding Company
195 North Sixth Street
Ponchatoula, Louisiana 70454 456,240 75.2%
Directors:
John C. Bohning 3,338 *
Lawrence C. Caldwell, Jr. 8,227(4) 1.4%
Robert H. Gabriel 1,597 *
Dennis E. James 1,153 *
Allen B. Pierson, Jr. 8,526(5) 1.4%
Milton J. Schanzbach 3,838(6) *
Barbara B. Theriot 7,294(7) 1.2%
All directors and executive officers
of Ponchatoula as a group (7 persons) 33,973 5.6%
(Footnotes on following page)
83
<PAGE>
- ----------
* Represents less than 1% of the outstanding Ponchatoula Common Stock.
(1) Based on information furnished by the respective individuals. Under
application regulations, shares are deemed to be beneficially owned by a
person if he directly or indirectly has or shares the power to vote or
dispose of the shares, whether or not he has any economic interest in the
shares. Unless otherwise indicated, the named beneficial owner has sole
voting and dispositive power with respect to the shares.
(2) Under applicable regulations, a person is deemed to have beneficial
ownership of any shares of Ponchatoula Common Stock which may be acquired
within 60 days of the date shown pursuant to the exercise of outstanding
stock options. Shares of Ponchatoula Common Stock which are subject to stock
options are deemed to be outstanding for the purpose of computing the
percentage of outstanding Ponchatoula Common Stock owned by such person or
group but not deemed outstanding for the purpose of computing the percentage
of Ponchatoula Common Stock owned by any other person or group. The amounts
set forth in the table include shares which may be received upon the
exercise of stock options within 60 days of the date shown as follows: for
each of Messrs. Bohning, Gabriel, Schanzbach and James, 599 shares; for Mrs.
Theriot, 431 shares; for Mr. Caldwell, 755 shares; and for all directors and
executive officers as a group, 3,582 shares.
(3) Includes unvested restricted shares granted pursuant to Ponchatoula's
Management Recognition Plans ("MRPs") as follows: for each of Messrs.
Bohning, Schanzbach, James and Pierson, 196 shares; for Mr. Gabriel, 48
shares; for Mrs. Theriot, 691 shares; for Mr. Caldwell, 1,208 shares; and
for all directors and executive officers as a group, 2,731 shares. While
these restricted shares have not yet vested or been distributed to the
recipient of the grant, the grant recipients are entitled to vote the
restricted shares.
(4) Includes 1,500 shares which are owned jointly with Mr. Caldwell's spouse and
4,463 shares held by Ponchatoula's Profit Sharing Plan for the account of
Mr. Caldwell.
(5) Excludes 1,000 shares held in trust for a client of Mr. Pierson as to which
Mr. Pierson serves as trustee and as to which he disclaims beneficial
ownership.
(6) Includes 3,000 shares which are owned jointly with Mr. Schanzbach's spouse.
(7) Includes 2,000 shares which are owned jointly with Mrs. Theriot's spouse and
4,000 shares held by Ponchatoula's Profit Sharing Plan for the account of
Mrs. Theriot.
For information regarding the proposed purchases of Conversion Stock by
Ponchatoula's directors and executive officers and their pro forma ownership,
see "Proposed Management Purchases."
The Board of Directors and Its Committees
Regular meetings of the Board of Directors of Ponchatoula are held once a
month and special meetings of the Board of Directors of Ponchatoula are held
from time-to-time as needed. There were 12 meetings of the Board of Directors of
Ponchatoula held during 1997. No director attended fewer than 75% of the total
number of meetings of the Board of Directors of Ponchatoula held during 1997 and
the total number of meetings held by all committees of the Board on which the
director served during such year.
The Board of Directors of Ponchatoula has established an Executive
Committee, which is authorized to act with the same authority as the Board of
Directors between meetings of the Board. Currently, the entire Board of
Directors serves as members of this Committee. The Executive Committee met 35
times during 1997.
84
<PAGE>
The Board of Directors has established a Compensation Committee to
administer employee benefit plans and to review existing compensation. The
Compensation Committee consists of the five non-employee directors of
Ponchatoula and met once during 1997.
The entire Board of Directors performs the functions of an audit committee
and of a nominating committee. Article II, Section 14 of the Bylaws of
Ponchatoula provides that the Board of Directors shall act as a nominating
committee for selecting the nominees for election as directors. The Board of
Directors, acting in its capacity as the nominating committee, met once during
1997.
Directors' Compensation
Each director of Ponchatoula receives $400 per month (paid semi-annually)
for service on the Board of Directors and $450 per month (paid semi-annually)
for service on Ponchatoula's Executive Committee. Mr. Schanzbach receives an
additional $300 per month (paid monthly) as Chairman of the Board of
Ponchatoula.
Summary Compensation Table
The following table sets forth certain information with respect to the
compensation of the President and Chief Executive Officer of Ponchatoula during
the periods presented. No executive officer of Ponchatoula received total
compensation in excess of $100,000 during 1997.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
------------------------------------------------------------------------------
Awards Payouts
Other
Name and Fiscal Annual All Other
Principal Position Year Salary(1) Bonus Compensation(2) ompensation(5)
--------------------------------------
Securities
Restricted Underlying LTIP
Stock Award(3) Options(4) Payouts
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lawrence C. Caldwell, Jr. 1997 $82,200 $5,016 -- $ -- -- -- $10,764
President and Chief 1996 81,000 3,540 -- 15,090 3,774 -- 10,624
Executive Officer 1995 75,600 5,088 -- -- -- -- 10,620
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) Includes Board fees of $10,200, $10,200 and $4,800 in 1997, 1996 and 1995,
respectively. See "- Directors' Compensation."
(2) Does not include amounts attributable to miscellaneous benefits received by
the named executive officer. In the opinion of management of Ponchatoula,
the costs to Ponchatoula of providing such benefits to the named executive
officer during the year ended December 31, 1997 did not exceed the lesser of
$50,000 or 10% of the total of annual salary and bonus reported for such
individual.
(3) Represents the grant of 1,509 shares of restricted Ponchatoula Common Stock
pursuant to Ponchatoula's 1996 Management Recognition Plan for Officers,
which shares were deemed to have had the indicated value at the date of
grant. The remaining unvested shares of restricted stock had a fair market
value of $13,288 at December 31, 1997, based on the $11.00 per share closing
market price on such date. The award vests at the rate of 20% a year over a
five-year period commencing on the first anniversary of the date of grant,
and dividends are paid on the restricted shares.
85
<PAGE>
(4) Consists of stock options granted pursuant to Ponchatoula's 1996 Stock
Incentive Plan, which options vest and are exercisable at the rate of 20% a
year over a five-year period commencing on the first anniversary of the date
of grant.
(5) Consists of amounts allocated, accrued or paid by Ponchatoula on behalf of
Mr. Caldwell pursuant to Ponchatoula's Profit Sharing Plan.
Employment Agreements
In connection with the Conversion, the Company and Ponchatoula (the
"Employers") intend to enter into employment agreements with each of Mr.
Caldwell and Ms. Theriot. The Employers have agreed to employ the executives for
a term of three years, in each case in their current respective positions. The
agreements provide that Mr. Caldwell and Ms. Theriot will initially be paid
their current salary levels of $79,560 and $57,120, respectively. The
executives' compensation and expenses shall be paid by the Company and
Ponchatoula in the same proportion as the time and services actually expended by
the executives on behalf of each respective Employer. The employment
agreements will be reviewed annually, and the term of the executives' employment
agreements shall be extended each year for a successive additional one-year
period upon the approval of the Employers' Boards of Directors, unless either
party elects, not less than 30 days prior to the annual anniversary date, not to
extend the employment term.
Each of the employment agreements shall be terminable with or without
cause by the Employers. The executives shall have no right to compensation or
other benefits pursuant to the employment agreements for any period after
voluntary termination or termination by the Employers for cause, disability or
retirement. The agreements provide for certain benefits in the event of the
executive's death. In the event that (i) either executive terminates his or
her employment because of failure to comply with any material provision of the
employment agreement or the Employers change the executive's title or duties or
(ii) the employment agreement is terminated by the Employers other than for
cause, disability, retirement or death or by the executive as a result of
certain adverse actions which are taken with respect to the executive's
employment following a change in control of the Company, as defined, then the
executives will be entitled to a cash severance amount equal to three times
his or her average annual compensation for the last five calendar years, plus
the continuation of certain miscellaneous fringe benefits, subject to reduction
pursuant to Section 280G of the Code as set forth below in the event of a change
in control.
A change in control is generally defined in the employment agreements to
include any change in control of the Company required to be reported under the
federal securities laws, as well as (i) the acquisition by any person of 20% or
more of the Company's outstanding voting securities and (ii) a change in a
majority of the directors of the Company during any three-year period without
the approval of at least two-thirds of the persons who were directors of the
Company at the beginning of such period.
Each employment agreement provides that, in the event that any of the
payments to be made thereunder or otherwise upon termination of employment are
deemed to constitute "parachute payments" within the meaning Section 280G of the
Code, then such payments and benefits received thereunder shall be reduced by
the amount which is the minimum necessary to result in the payments not
exceeding three times the recipient's average annual compensation from the
employer which was includable in the recipient's gross income during the most
recent five taxable years (the "Section 280G Limit"). As a result, none of the
severance payments will be subject to a 20% excise tax, and the Employers
will be able to deduct such payments as compensation expense for federal
income tax purposes. If a change in control was to occur in 1998 subsequent to
consummation of the Conversion, the Section 280G Limit for Mr. Caldwell and Ms.
Theriot would be approximately $223,000 and $147,000, respectively.
Although the above-described employment agreements could increase the cost
of any acquisition of control of the Company, management of the Company does not
believe that the terms thereof would have a significant anti-
86
<PAGE>
takeover effect. The Company and/or Ponchatoula may determine to enter into
similar employment agreements with other officers in the future.
Existing Stock Options
Stock options for 10,782 shares of Ponchatoula Common Stock were granted
to all employees of Ponchatoula on July 10, 1996 at $10.00 per share pursuant to
Ponchatoula's 1996 Stock Incentive Plan, which plan was approved by stockholders
at the 1996 Annual Meeting. No stock options were granted in 1997.
No options were exercised by executive officers during 1997. Mr. Pierson,
a non-employee director of Ponchatoula, exercised his stock option for 60 shares
during 1997. The following table sets forth, with respect to the executive
officer named in the Summary Compensation Table, information with respect to the
number of shares of Ponchatoula Common Stock covered by options held at the end
of the fiscal year and the value with respect thereto.
<TABLE>
<CAPTION>
Shares Number of Value of Unexercised
Acquired Unexercised Options in the Money Options
on Value at Fiscal Year End at Fiscal Year End(1)
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence C. Caldwell, Jr. -- -- 755 3,019 $ 755 $3,019
</TABLE>
- ----------
(1) Based on a per share market price of the Ponchatoula Common Stock of $11.00
at December 31, 1997, minus the applicable exercise price per share.
Profit Sharing Plan
Ponchatoula maintains an Employee Profit Sharing Trust (the "Profit
Sharing Plan"), which is a tax-qualified defined contribution plan. Full-time
employees who have been credited with at least six consecutive months of service
and who have attained age 20 are eligible to participate in the Profit Sharing
Plan. Under the Profit Sharing Plan, a separate account is established for each
participating employee, and Ponchatoula may make discretionary contributions to
the Profit Sharing Plan which are allocated to the participants' accounts.
Distributions from the Profit Sharing Plan are made upon termination of service
either in a lump sum or in installments over a period not to exceed the greater
of the life expectancy of the participant or the joint survivor life expectancy
of the participant and his or her designated beneficiary, or upon application in
case of specified financial hardship.
The Profit Sharing Plan was amended in 1994 to permit each participant to
direct the trustee of the plan with respect to the investment of his or her
vested account balances within the plan into four alternative investment funds,
including a Fixed Income Fund, which shall be invested by the trustee in
interest-bearing accounts, money market accounts or certificates of deposit at a
federally insured financial institution; the Vanguard Wellington Fund; an
Employer Stock Fund, which shall be invested by the trustee in shares of
Ponchatoula Common Stock; and the Vanguard Windsor II Fund. The Profit Sharing
Plan purchased 14,376 shares of Ponchatoula Common Stock on August 31, 1994 in
connection with the MHC Reorganization. Such shares were purchased in accordance
with instructions from participants who authorized their vested account balances
to be used to purchase Ponchatoula Common Stock. Each participant has the right
to direct the trustee as to the manner in which whole and partial shares of
Ponchatoula Common Stock allocated to his or her account are to be voted. The
trustee shall vote allocated
87
<PAGE>
shares of Ponchatoula Common Stock for which it has not received directions from
a participant, and any unallocated shares, in the same proportion for and
against proposals to stockholders of Ponchatoula as participants and their
beneficiaries actually vote shares of Ponchatoula Common Stock which have been
allocated to their individual participant's accounts.
Prior to April 1, 1998, participants were not permitted to make
contributions to their accounts within the Profit Sharing Plan. The plan was
amended effective April 1, 1998 to incorporate a 401(k) feature, pursuant to
which employees are permitted to contribute up to 7.5% of their annual base
salary (excluding incentive bonuses, stock benefit plans and any other form of
compensation), with the annual contribution not to exceed $10,000 in 1998.
Ponchatoula will make matching contributions equal to 100% of each employee's
contribution up to 7.5% of the employee's annual base salary. As of April 1,
1998, the investment alternatives available to participants were expanded to
include nine different mutual funds (equity funds, bond funds and money market
funds), the Ponchatoula Common Stock, deposit accounts and whole life insurance.
An independent third party administrator administers the amended plan.
New Stock Benefit Plans
Employee Stock Ownership Plan. The Company has established the ESOP for
employees of the Company and Ponchatoula to become effective upon the
Conversion. Full-time employees of the Company and Ponchatoula who have been
credited with at least 1,000 hours of service during a twelve-month period are
eligible to participate in the ESOP.
As part of the Conversion, in order to fund the purchase of up to 8% of
the Conversion Stock sold in the Offerings, it is anticipated that the ESOP
will borrow funds from the Company. It is anticipated that such loan will equal
100% of the aggregate purchase price of the Conversion Stock acquired by the
ESOP. The loan to the ESOP will be repaid principally from the Company's and
Ponchatoula's contributions to the ESOP over a period of not less than 10 years,
and the collateral for the loan will be the Common Stock purchased by the ESOP.
The interest rate for the ESOP loan is expected to be a fixed rate of 8.5%.
The Company may, in any plan year, make additional discretionary contributions
for the benefit of plan participants in either cash or shares of Common Stock,
which may be acquired through the purchase of outstanding shares in the market
or from individual stockholders, upon the original issuance of additional shares
by the Company or upon the sale of treasury shares by the Company. Such
purchases, if made, would be funded through additional borrowings by the ESOP or
additional contributions from the Company. The timing, amount and manner of
future contributions to the ESOP will be affected by various factors, including
prevailing regulatory policies, the requirements of applicable laws and
regulations and market conditions.
Shares purchased by the ESOP with the proceeds of the loan will be held in
a suspense account and released to participants on a pro rata basis as debt
service payments are made. Shares released from the ESOP will be allocated to
each eligible participant's ESOP account based on the ratio of each such
participant's base compensation to the total base compensation of all eligible
ESOP participants. Forfeitures will be reallocated among remaining participating
employees and may reduce any amount the Company might otherwise have contributed
to the ESOP. Upon the completion of three years of service, the account balances
of participants within the ESOP will become 20% vested and will continue to vest
at the rate of 20% for each additional year of service completed by the
participant, such that a participant will become 100% vested upon the completion
of seven years of service. Credit is given for years of service with Ponchatoula
prior to adoption of the ESOP. In the case of a "change in control," as defined,
however, participants will become immediately fully vested in their account
balances. Benefits may be payable upon retirement or separation from service.
The Company's contributions to the ESOP are not fixed, so benefits payable under
the ESOP cannot be estimated.
Messrs. Caldwell, James and Kelly Morse (an officer of Ponchatoula) will
serve as trustees of the ESOP. Under the ESOP, the trustees must generally vote
all allocated shares held in the ESOP in accordance with the instructions of the
participating employees, and unallocated shares will generally be voted in the
same ratio on any
88
<PAGE>
matter as those allocated shares for which instructions are given, in each case
subject to the requirements of applicable law and the fiduciary duties of the
trustees.
See "Risk Factors - Potential Increased Compensation Expense After the
Conversion" for a discussion of SOP 93-6, which requires that the compensation
expense recorded by employers for leveraged ESOPs be based on the fair value of
the ESOP shares.
GAAP requires that any third party borrowing by the ESOP be reflected as a
liability on the Company's statement of financial condition. Since the ESOP is
borrowing from the Company, such obligation is not treated as a liability, but
will instead be excluded from stockholders' equity. If the ESOP purchases newly
issued shares from the Company, total stockholders' equity would neither
increase nor decrease, but per share stockholders' equity and per share net
earnings would decrease as the newly issued shares are allocated to the ESOP
participants.
The ESOP will be subject to the requirements of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and the regulations of the
IRS and the Department of Labor thereunder.
Stock Option Plan. Following consummation of the Conversion, the Board of
Directors of the Company intends to adopt a 1998 Stock Option Plan, which will
be designed to attract and retain qualified personnel in key positions, provide
directors, officers and key employees with a proprietary interest in the Company
as an incentive to contribute to the success of the Company and reward key
employees for outstanding performance. The Stock Option Plan will provide for
the grant of incentive stock options intended to comply with the requirements of
Section 422 of the Code ("incentive stock options"), non-incentive or
compensatory stock options, stock appreciation rights and limited rights which
will be exercisable only upon a change in control of the Company (collectively
"Awards"). Awards may be granted to directors and key employees of the Company
and any subsidiaries. The Stock Option Plan will be administered and interpreted
by a committee of the Board of Directors ("Committee"). Unless sooner
terminated, the Stock Option Plan shall continue in effect for a period of 10
years from the date the Stock Option Plan is adopted by the Board of Directors.
Subject to any applicable OTS regulations, upon exercise of "Limited Rights" in
the event of a change in control, the employee will be entitled to receive a
lump sum cash payment equal to the difference between the exercise price of the
related option and the fair market value of the shares of Common Stock subject
to the option on the date of exercise of the right in lieu of purchasing the
stock underlying the option.
Under the Stock Option Plan, the Committee will determine which directors,
officers and key employees will be granted Awards, whether options will be
incentive or compensatory options, the number of shares subject to each Award,
the exercise price of each option, whether options may be exercised by
delivering other shares of Common Stock and when such options become
exercisable. The per share exercise price of an incentive stock option must at
least equal the fair market value of a share of Common Stock on the date the
option is granted (110% of fair market value in the case of incentive stock
options granted to employees who are 5% stockholders).
At a meeting of stockholders of the Company following the Conversion,
which under applicable OTS regulations may be held no earlier than six months
after the completion of the Conversion, the Board of Directors intends to
present the 1998 Stock Option Plan to stockholders for approval and to reserve
an amount equal to 10% of the shares of Conversion Stock sold in the Offerings
(or 112,412 shares based upon the issuance of 1,124,125 shares of Conversion
Stock at the maximum of the Estimated Valuation Range), for issuance under the
1998 Stock Option Plan. OTS regulations provide that, in the event such plan is
implemented within one year following the Conversion, no individual officer or
employee of Ponchatoula may receive more than 25% of the options granted under
the 1998 Stock Option Plan and non-employee directors may not receive more than
5% individually, or 30% in the aggregate of the options granted under the 1998
Stock Option Plan. OTS regulations also provide that the exercise price of any
options granted under any such plan must be at least equal to the fair market
value of the Common Stock as of the date of grant. Each stock option or portion
thereof will be exercisable at any time on or after it vests and will be
exercisable until 10 years after its date of grant or for periods of up to one
year following the death, disability or other termination of the optionee's
employment or service as a director. However, failure
89
<PAGE>
to exercise incentive stock options within three months after the date on which
the optionee's employment terminates may result in the loss of incentive stock
option treatment.
At the time an Award is granted pursuant to the 1998 Stock Option Plan,
the recipient will not be required to make any payment in consideration for such
grant. With respect to incentive or compensatory stock options, the optionee
will be required to pay the applicable exercise price at the time of exercise in
order to receive the underlying shares of Common Stock. The shares reserved for
issuance under the 1998 Stock Option Plan may be authorized but previously
unissued shares, treasury shares, or shares purchased by the Company on the open
market or from private sources. In the event of a stock split, reverse stock
split or stock dividend, the number of shares of Common Stock under the 1998
Stock Option Plan, the number of shares to which any Award relates and the
exercise price per share under any option or stock appreciation right shall be
adjusted to reflect such increase or decrease in the total number of shares of
Common Stock outstanding. In the event the Company declares a special cash
dividend or return of capital following the implementation of the 1998 Stock
Option Plan in an amount per share which exceeds 10% of the fair market value of
a share of Common Stock as of the date of declaration, the per share exercise
price of all previously granted options which remain unexercised as of the date
of such declaration shall, subject to certain limitations, be proportionately
adjusted to give effect to such special cash dividend or return of capital as of
the date of payment of such special cash dividend or return of capital.
Under current provisions of the Code, the federal income tax treatment of
incentive stock options and compensatory stock options is different. As regards
incentive stock options, an optionee who meets certain holding period
requirements will not recognize income at the time the option is granted or at
the time the option is exercised, and a federal income tax deduction generally
will not be available to the Company at any time as a result of such grant or
exercise. With respect to compensatory stock options, the difference between the
fair market value on the date of exercise and the option exercise price
generally will be treated as compensation income upon exercise, and the Company
will be entitled to a deduction in the amount of income so recognized by the
optionee. Upon the exercise of a stock appreciation right, the holder will
realize income for federal income tax purposes equal to the amount received by
him, whether in cash, shares of stock or both, and the Company will be entitled
to a deduction for federal income tax purposes in the same amount.
It is currently expected that the 1998 Stock Option Plan will provide that
no individual officer will be able to receive stock options for more than 25% of
the shares available under the 1998 Stock Option Plan, or 28,103 shares if the
amount of Conversion Stock sold in the Offerings is equal to the maximum of the
Estimated Valuation Range, vesting over a five-year period (or 5,620 shares per
year based upon the maximum of the Estimated Valuation Range).
Recognition Plan. Following consummation of the Conversion, the Board of
Directors of the Company intends to adopt a 1998 Recognition Plan for directors,
officers and employees. The objective of the 1998 Recognition Plan will be to
enable the Company to provide directors, officers and employees with a
proprietary interest in the Company as an incentive to contribute to its
success. The Company intends to present the 1998 Recognition Plan to
stockholders for their approval at a meeting of stockholders which, pursuant to
applicable OTS regulations, may be held no earlier than six months subsequent to
completion of the Conversion.
The 1998 Recognition Plan will be administered by a committee of the Board
of Directors, which will have the responsibility to invest all funds contributed
to the trust created for the 1998 Recognition Plan (the "Trust"). The Company
will contribute sufficient funds to the Trust so that the Trust can purchase,
following the receipt of stockholder approval, a number of shares equal to an
aggregate of 4% of the Conversion Stock sold in the Offerings (44,965 shares,
based on the sale of 1,124,125 shares at the maximum of the Estimated Valuation
Range). Shares of Common Stock granted pursuant to the 1998 Recognition Plan
generally will be in the form of restricted stock vesting at the rate of 20% per
year over the five years following the date of grant. For accounting purposes,
compensation expense in the amount of the fair market value of the Common Stock
at the date of the grant to the recipient will be recognized pro rata over the
period during which the shares are payable. A recipient will be entitled to all
voting and other stockholder rights, except that the shares, while restricted,
may not be sold, pledged or
90
<PAGE>
otherwise disposed of and are required to be held in the Trust. Under the terms
of the 1998 Recognition Plan, recipients of awards will be entitled to instruct
the trustees of the 1998 Recognition Plan as to how the underlying shares should
be voted, and the trustees will be entitled to vote all unallocated shares in
their discretion. If a recipient's employment is terminated as a result of death
or disability, all restrictions will expire and all allocated shares will become
unrestricted. The Board of Directors of the Company can terminate the 1998
Recognition Plan at any time, and if it does so, any shares not allocated will
revert to the Company. Recipients of grants under the 1998 Recognition Plan will
not be required to make any payment at the time of grant or when the underlying
shares of Common Stock become vested, other than payment of withholding taxes.
It is currently expected that the 1998 Recognition Plan will provide that
no individual officer will be able to receive an award for more than 25% of the
shares available under the 1998 Recognition Plan, or 9,775 shares if the amount
of Conversion Stock sold in the Offerings is equal to the maximum of the
Estimated Valuation Range, vesting over a five-year period (or 1,955 shares per
year based upon the maximum of the Estimated Valuation Range).
Indebtedness of Management
Ponchatoula offers mortgage loans to its directors, officers and full-time
employees for the financing of their primary residences and certain other loans
in accordance with applicable federal laws and regulations. Since August 1989,
all loans made by Ponchatoula to its executive officers, directors and, to the
extent otherwise permitted, principal stockholder(s), or any related interest of
the foregoing, must be (i) on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions by the savings institution with non-affiliated parties, and (ii)
not involve more than the normal risk of repayment or present other unfavorable
features.
The following table sets forth information as to all directors and
executive officers, including members of their immediate families and affiliated
entities, who had loans with Ponchatoula aggregating $60,000 or more during the
year ended December 31, 1997. These loans generally were made on substantially
the same terms as those prevailing at the time for comparable transactions with
non-affiliated persons. It is the belief by management that these loans neither
involve more than the normal risk of collectibility nor present other
unfavorable features.
<TABLE>
<CAPTION>
Highest
Balance Interest
Year 1/1/97 Principal Rate
Name and Position Nature of Loan to Balance at as of
or Relationship Indebtedness Made 12/31/97 12/31/97 12/31/97
- -------------------------- ----------------- ---- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
John C. Bohning, First mortgage 1978 $ 8,643 $ 0 9.000%
Director Second mortgage 1986 71,341 64,963 8.000
Lawrence C. Caldwell, Jr., First mortgage(1) 1986 67,182 65,134 8.125
President and Signature loan 1992 4,299 0 8.500
Chief Executive Officer Signature loan 1996 15,000 0 8.500
First mortgage 1996 75,000 73,147 8.000
Signature loan 1997 6,000 6,000 8.500
Allen B. Pierson, Jr., First mortgage(2) 1985 43,069 39,992 8.125
Director First mortgage(2) 1986 30,413 28,571 9.000
</TABLE>
- ----------
(1) The mortgage was assumed by another borrower, but Mr. Caldwell has secondary
liability on the mortgage.
(2) The mortgage is secured by rental property.
91
<PAGE>
Certain Transactions
Allen B. Pierson, Jr., a director of Ponchatoula, is an attorney and
receives a retainer from Ponchatoula of $350 per month. In addition, during the
year ended December 31, 1997, the fees paid by Ponchatoula to Mr. Pierson
(exclusive of the above described retainer) amounted to approximately $36,529 in
connection with loan closings.
THE CONVERSION
The Boards of Directors of the Mutual Holding Company, Ponchatoula and the
Company have approved the Plan of Conversion, as has the OTS, subject to
approval by the Members of the Mutual Holding Company and the Stockholders of
Ponchatoula entitled to vote on the matter and the satisfaction of certain other
conditions. Such OTS approval, however, does not constitute a recommendation or
endorsement of the Plan by such agency.
General
The Boards of Directors of the Mutual Holding Company and Ponchatoula
unanimously adopted the Plan on February 25, 1998. Following the incorporation
of the Company, the Board of Directors of the Company unanimously adopted the
Plan on March 25, 1998. The parties amended the Plan on May 4, 1998. The Plan
has been approved by the OTS, subject to, among other things, approval of the
Plan by the Members of the Mutual Holding Company and the Stockholders of
Ponchatoula. The Members' Meeting and the Stockholders' Meeting have been called
for this purpose on July 1, 1998.
The following is a summary of the material aspects of the Plan and the
Conversion. The summary is qualified in its entirety by reference to the
provisions of the Plan, which is available for inspection at each branch office
of Ponchatoula and at the offices of the OTS. The Plan also is filed as an
exhibit to the Registration Statement of which this Prospectus is a part, copies
of which may be obtained from the SEC. See "Additional Information."
Purposes of the Conversion
The Mutual Holding Company, as a federally chartered mutual holding
company, does not have stockholders and has no authority to issue capital stock.
As a result of the Conversion, the Company will be structured in the form used
by holding companies of commercial banks, most business entities and a growing
number of savings institutions. The Conversion will be important to the future
growth and performance of the holding company organization by providing a larger
capital base to support the operations of Ponchatoula and Company and by
enhancing their future access to capital markets, ability to diversify into
other financial services related activities, and ability to provide services to
the public. Although Ponchatoula currently has the ability to raise additional
capital through the sale of additional shares of Ponchatoula Common Stock, that
ability is limited by the mutual holding company structure which, among other
things, requires that the Mutual Holding Company hold a majority of the
outstanding shares of Ponchatoula Common Stock.
The Conversion also will result in an increase in the number of
outstanding shares of Common Stock following the Conversion, as compared to the
number of outstanding shares of Public Ponchatoula Shares prior to the
Conversion, which will increase the likelihood of the development of an active
and liquid trading market for the Common Stock. See "Market for Common Stock."
If Ponchatoula had undertaken a standard conversion involving the
formation of a stock holding company in 1994, applicable OTS regulations would
have required a greater amount of common stock to be sold than the $1.2 million
of net proceeds raised in the MHC Reorganization. Management of Ponchatoula
believed that it may have been difficult in 1994 to prudently invest in a timely
manner the larger amount of capital that would have been raised
92
<PAGE>
in a standard conversion, when compared to the net proceeds raised in the MHC
Reorganization. A standard conversion in 1994 also would have immediately
eliminated all aspects of the mutual form of organization.
The Offerings will further increase the capital of the Company and
Ponchatoula and provide them with additional flexibility to grow and increase
net income.
In light of the foregoing, the Boards of Directors of Ponchatoula and the
Mutual Holding Company believe that the Conversion is in the best interests of
such companies and their respective Stockholders and Members.
Description of the Conversion
On February 25, 1998, the Boards of Directors of Ponchatoula and the
Mutual Holding Company adopted the Plan, and as of February 27, 1998 Ponchatoula
incorporated the Company under Louisiana law as a first-tier wholly owned
subsidiary of Ponchatoula. Pursuant to the Plan, (i) the Mutual Holding Company
will convert from mutual form to a federal interim stock savings institution and
simultaneously merge with and into Ponchatoula, pursuant to which the Mutual
Holding Company will cease to exist and the shares of Ponchatoula Common Stock
held by the Mutual Holding Company will be cancelled, and (ii) an interim
savings institution ("Interim") to be formed as a wholly owned subsidiary of the
Company will then merge with and into Ponchatoula. As a result of the merger of
Interim with and into Ponchatoula, Ponchatoula will become a wholly-owned
subsidiary of the Company and the Public Ponchatoula Shares (other than
Dissenting Shares, if any) will be converted into the Exchange Shares pursuant
to the Exchange Ratio, which will result in the holders of such shares owning in
the aggregate approximately the same percentage of the Common Stock to be
outstanding upon the completion of the Conversion (i.e., the Conversion Stock
and the Exchange Shares) as the percentage of Ponchatoula Common Stock owned by
them in the aggregate immediately prior to consummation of the Conversion (as
adjusted from 24.8% to 23.94% to reflect the amount of dividends previously
waived by the MHC), before giving effect to (a) the payment of cash in lieu of
issuing fractional Exchange Shares, (b) any shares of Conversion Stock purchased
by Ponchatoula's stockholders in the Offerings, and (c) any Dissenting Shares.
Pursuant to OTS regulations, consummation of the Conversion (including the
offering of Conversion Stock in the Offerings, as described below) is
conditioned upon the approval of the Plan by (1) the OTS, (2) at least a
majority of the total number of votes eligible to be cast by Members of the
Mutual Holding Company at the Members' Meeting, and (3) holders of at least
two-thirds of the shares of the outstanding Ponchatoula Common Stock at the
Stockholders' Meeting. In addition, the Primary Parties have conditioned the
consummation of the Conversion on the approval of the Plan by at least a
majority of the votes cast, in person or by proxy, by the Public Stockholders at
the Stockholders' Meeting.
Effects of the Conversion
General. Prior to the Conversion, each depositor in Ponchatoula has both a
deposit account in the institution and a pro rata ownership interest in the net
worth of the Mutual Holding Company based upon the balance in his account, which
interest may only be realized in the event of a liquidation of the Mutual
Holding Company. However, this ownership interest is tied to the depositor's
account and has no tangible market value separate from such deposit account. A
depositor who reduces or closes his account receives a portion or all of the
balance in the account but nothing for his ownership interest in the net worth
of the Mutual Holding Company, which is lost to the extent that the balance in
the account is reduced.
Consequently, the depositors of Ponchatoula normally have no way to
realize the value of their ownership interest in the Mutual Holding Company,
which has realizable value only in the unlikely event that the Mutual Holding
Company is liquidated. In such event, the depositors of record at that time, as
owners, would share pro rata in any residual surplus and reserves of the Mutual
Holding Company after other claims are paid.
93
<PAGE>
Upon consummation of the Conversion, permanent nonwithdrawable capital
stock will be created to represent the ownership of the net worth of the
Company. The Common Stock of the Company is separate and apart from deposit
accounts and cannot be and is not insured by the FDIC or any other governmental
agency. Certificates are issued to evidence ownership of the permanent stock.
The stock certificates are transferable, and therefore the stock may be sold or
traded if a purchaser is available with no effect on any account the seller may
hold in Ponchatoula.
Continuity. While the Conversion is being accomplished, the normal
business of Ponchatoula of accepting deposits and making loans will continue
without interruption. Ponchatoula will continue to be subject to regulation by
the OTS and the FDIC. After the Conversion, Ponchatoula will continue to provide
services for depositors and borrowers under current policies by its present
management and staff.
The directors and officers of Ponchatoula at the time of the Conversion
will continue to serve as directors and officers of Ponchatoula after the
Conversion. The directors and officers of the Company consist of individuals
currently serving as directors and officers of the Mutual Holding Company and
Ponchatoula, and they generally will retain their positions in the Company after
the Conversion.
Effect on Public Ponchatoula Shares. Under the Plan, upon consummation of
the Conversion, the Public Ponchatoula Shares (other than any Dissenting Shares)
shall be converted into Common Stock based upon the Exchange Ratio without any
further action on the part of the holder thereof. Upon surrender of the Public
Ponchatoula Shares, Common Stock will be issued in exchange for such shares. See
"- Delivery and Exchange of Certificates."
Upon consummation of the Conversion, the Public Stockholders of
Ponchatoula, a federally chartered savings institution, will become stockholders
of the Company, a Louisiana corporation. For a description of certain changes in
the rights of stockholders as a result of the Conversion, see "The Conversion -
Comparison of Stockholders' Rights" in Ponchatoula's Proxy Statement for the
Stockholders' Meeting.
Under OTS regulations, Public Stockholders of Ponchatoula will have
dissenters' rights in connection with the Conversion. See " - Dissenters' Rights
of Appraisal."
Effect on Deposit Accounts. Under the Plan, each depositor in Ponchatoula
at the time of the Conversion will automatically continue as a depositor after
the Conversion, and each such deposit account will remain the same with respect
to deposit balance, interest rate and other terms, except to the extent that
funds in the account are withdrawn to purchase Conversion Stock to be issued in
the Offerings. Each such account will be insured by the FDIC to the same extent
as before the Conversion. Depositors will continue to hold their existing
certificates, passbooks and other evidences of their accounts.
Effect on Loans. No loan outstanding from Ponchatoula will be affected by
the Conversion, and the amount, interest rate, maturity and security for each
loan will remain as they were contractually fixed prior to the Conversion.
Effect on Voting Rights of Members. At present, all depositors of
Ponchatoula are members of, and have voting rights in, the Mutual Holding
Company as to all matters requiring membership action. Upon completion of the
Conversion, depositors will cease to be members and will no longer be entitled
to vote at meetings of the Mutual Holding Company (which will cease to exist).
Upon completion of the Conversion, all voting rights in Ponchatoula will be
vested in the Company as the sole stockholder of Ponchatoula. Exclusive voting
rights with respect to the Company will be vested in the holders of Common
Stock. Depositors of Ponchatoula will not have voting rights in the Company
after the Conversion, except to the extent that they become stockholders of the
Company.
Tax Effects. Consummation of the Conversion is conditioned on prior
receipt by the Primary Parties of rulings or opinions with regard to federal and
Louisiana income taxation which indicate that the adoption and implementation of
the Plan of Conversion set forth herein will not be taxable for federal or
Louisiana income tax
94
<PAGE>
purposes to the Primary Parties or Ponchatoula's Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members, except as discussed
below. See "- Tax Aspects" below.
Effect on Liquidation Rights. Were the Mutual Holding Company to
liquidate, all claims of the Mutual Holding Company's creditors would be paid
first. Thereafter, if there were any assets remaining, Members of the Mutual
Holding Company would receive such remaining assets, pro rata, based upon the
deposit balances in their deposit accounts at Ponchatoula immediately prior to
liquidation. In the unlikely event that Ponchatoula were to liquidate after the
Conversion, all claims of creditors (including those of depositors, to the
extent of their deposit balances) also would be paid first, followed by
distribution of the "liquidation account" to certain depositors (see
"Liquidation Rights" below), with any assets remaining thereafter distributed to
the Company as the holder of Ponchatoula's capital stock. Pursuant to the rules
and regulations of the OTS, a merger, consolidation, sale of bulk assets or
similar combination or transaction with another insured institution would not be
considered a liquidation for this purpose and, in such a transaction, the
liquidation account would be required to be assumed by the surviving
institution.
Effect on Existing Compensation Plans. Under the Plan, the 1996 Stock
Incentive Plan and the 1996 Management Recognition Plan will become stock
benefit plans of the Company and shares of Common Stock will be issued (or
reserved for issuance) pursuant to such benefit plans and not shares of
Ponchatoula Common Stock. Upon consummation of the Conversion, the Public
Ponchatoula Shares held by such benefit plans shall be converted into Common
Stock based upon the Exchange Ratio. Also upon consummation of the Conversion,
(i) all rights to purchase, sell or receive Public Ponchatoula Shares under any
agreement between Ponchatoula and any director, officer or employee of
Ponchatoula or under any plan or program of Ponchatoula (including, without
limitation, Ponchatoula's profit sharing plan and the 1996 Management
Recognition Plan), shall automatically, by operation of law, be converted into
and shall become an identical right to purchase, sell or receive Common Stock
and an identical right to make payment in Common Stock under any such agreement
between Ponchatoula and any director, officer or employee of Ponchatoula or
under such plan or program of Ponchatoula, and (ii) rights outstanding under the
1996 Stock Incentive Plan shall be assumed by the Company and thereafter shall
be rights only for shares of Common Stock, with each such right being for a
number of shares of Common Stock based upon the Exchange Ratio and the number of
shares of Public Ponchatoula Shares that were available thereunder immediately
prior to consummation of the Conversion, with the price adjusted to reflect the
Exchange Ratio but with no change in any other term or condition of such right.
See "Management - Existing Stock Options."
The Offerings
Subscription Offering. In accordance with the Plan of Conversion, rights
to subscribe for the purchase of Conversion Stock have been granted under the
Plan of Conversion to the following persons in the following order of descending
priority: (1) Eligible Account Holders, (2) the ESOP, (3) Supplemental Eligible
Account Holders, (4) Other Members, (5) directors, officers and employees of the
Mutual Holding Company and Ponchatoula, and (6) Public Stockholders. All
subscriptions received will be subject to the availability of Conversion Stock
after satisfaction of all subscriptions of all persons having prior rights in
the Subscription Offering and to the maximum and minimum purchase limitations
set forth in the Plan of Conversion and as described below under "- Limitations
on Conversion Stock Purchases."
Priority 1: Eligible Account Holders. Each Eligible Account Holder will
receive, without payment therefor, first priority, nontransferable subscription
rights to subscribe for in the Subscription Offering up to the greater of (i)
one percent (1%) of the total offering of shares of Conversion Stock in the
Subscription Offering and (ii) 15 times the product (rounded down to the next
whole number) obtained by multiplying the total number of shares of Conversion
Stock offered in the Subscription Offering by a fraction, of which the numerator
is the amount of the Eligible Account Holder's qualifying deposit and the
denominator of which is the total amount of qualifying deposits of all Eligible
Account Holders, in each case as of the close of business on December 31, 1996
(the "Eligibility
95
<PAGE>
Record Date"), subject to the overall purchase limitations and excluding the
issuance of any Contingent Shares. See "- Limitations on Conversion Stock
Purchases."
If there are not sufficient shares available to satisfy all subscriptions,
shares first will be allocated so as to permit each subscribing Eligible Account
Holder to purchase a number of shares sufficient to make his total allocation
equal to the lesser of the number of shares subscribed for or 100 shares.
Thereafter, unallocated shares will be allocated to subscribing Eligible Account
Holders whose subscriptions remain unfilled in the proportion that the amounts
of their respective eligible deposits bear to the total amount of eligible
deposits of all subscribing Eligible Account Holders whose subscriptions remain
unfilled, provided that no fractional shares shall be issued. The subscription
rights of Eligible Account Holders who are also directors or officers of the
Mutual Holding Company or Ponchatoula and their associates will be subordinated
to the subscription rights of other Eligible Account Holders to the extent
attributable to increased deposits in the year preceding December 31, 1996.
Priority 2: ESOP. The ESOP will receive, without payment therefor, second
priority, nontransferable subscription rights to purchase, in the aggregate, up
to 8% of the Conversion Stock, including any increase in the number of shares
of Conversion Stock after the date hereof as a result of an increase of up to
15% in the maximum of the Estimated Valuation. The ESOP intends to purchase 8%
of the shares of Conversion Stock, or 78,200 shares based on the maximum of the
Estimated Valuation Range. Subscriptions by the ESOP will not be aggregated with
shares of Conversion Stock purchased directly by or which are otherwise
attributable to any other participants in the Subscription and Community
Offerings, including subscriptions of any of Ponchatoula's directors, officers,
employees or associates thereof. See "Management - New Stock Benefit Plans -
Employee Stock Ownership Plan." In the event that the total number of shares of
Conversion Stock sold in the Offerings is increased to an amount greater than
the number of shares representing the maximum of the Estimated Valuation Range
("Maximum Shares"), the ESOP will have a priority right to purchase any such
shares exceeding the Maximum Shares up to an aggregate of 8% of the Conversion
Stock. See "- Limitations on Conversion Stock Purchases" and "Risk Factors -
Possible Dilutive Effect of Issuance of Additional Shares."
Priority 3: Supplemental Eligible Account Holders. Each Supplemental
Eligible Account Holder will receive, without payment therefor, third priority,
nontransferable subscription rights to subscribe for in the Subscription
Offering up to the greater of (i) one percent (1%) of the total offering of
shares of Conversion Stock in the Subscription Offering and (ii) 15 times the
product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Conversion Stock offered in the Subscription Offering
by a fraction, of which the numerator is the amount of the Supplemental Eligible
Account Holder's qualifying deposit and the denominator of which is the total
amount of qualifying deposits of all Supplemental Eligible Account Holders, in
each case as of the close of business on March 31, 1998 (the "Supplemental
Eligibility Record Date"), subject to the overall purchase limitations and
excluding the issuance of any Contingent Shares. See "- Limitations on
Conversion Stock Purchases."
If there are not sufficient shares available to satisfy all subscriptions,
shares first will be allocated so as to permit each subscribing Supplemental
Eligible Account Holder to purchase a number of shares sufficient to make his
total allocation equal to the lesser of the number of shares subscribed for or
100 shares. Thereafter, unallocated shares will be allocated to subscribing
Supplemental Eligible Account Holders whose subscriptions remain unfilled in the
proportion that the amounts of their respective eligible deposits bear to the
total amount of eligible deposits of all such subscribing Supplemental Eligible
Account Holders whose subscriptions remain unfilled, provided that no fractional
shares shall be issued.
Priority 4: Other Members. To the extent that there are shares remaining
after satisfaction of subscriptions by Eligible Account Holders, the ESOP and
Supplemental Eligible Account Holders, each Other Member will receive, without
payment therefor, fourth priority, nontransferable subscription rights to
subscribe for Conversion Stock in the Subscription Offering up to one percent
(1%) of the total offering of shares of Conversion Stock in the
96
<PAGE>
Subscription Offering, subject to the overall purchase limitations. See "-
Limitations on Conversion Stock Purchases."
In the event the Other Members subscribe for a number of shares which,
when added to the shares subscribed for by Eligible Account Holders, the ESOP
and Supplemental Eligible Account Holders, is in excess of the total number of
shares of Conversion Stock offered in the Subscription Offering, shares first
will be allocated so as to permit each subscribing Other Member to purchase a
number of shares sufficient to make his total allocation equal to the lesser of
the number of shares subscribed for or 100 shares. Thereafter, any remaining
shares will be allocated among subscribing Other Members on a pro rata basis in
the same proportion as each Other Member's subscription bears to the total
subscriptions of all subscribing Other Members, provided that no fractional
shares shall be issued.
Priority 5: Directors, Officers and Employees. To the extent that there
are shares remaining after satisfaction of all subscriptions by Eligible Account
Holders, the ESOP, Supplemental Eligible Account Holders and Other Members, then
directors, officers and employees of the Mutual Holding Company and Ponchatoula
will receive, without payment therefor, fifth priority, nontransferable
subscription rights to subscribe for, in this category, up to an aggregate of
24.7% of the shares of Conversion Stock offered in the Subscription Offering.
The ability of directors, officers and employees to purchase Conversion Stock
under this category is in addition to rights which are otherwise available to
them under the Plan, which generally allows such persons to purchase in the
aggregate up to 34.7% of the total number of shares of Conversion Stock sold in
the Offerings. See "- Limitations on Conversion Stock Purchases."
In the event of an oversubscription in this category, subscription rights
will be allocated among the individual directors, officers and employees on a
point system basis, whereby such individuals will receive subscription rights in
the proportion that the number of points assigned to each of them bears to the
total points assigned to all directors, officers and employees, provided that no
fractional shares shall be issued. One point will be assigned for each year of
service with the Mutual Holding Company and Ponchatoula, one point for each
salary increment of $5,000 per annum and five points for each office presently
held in the Mutual Holding Company and Ponchatoula, including directorships. For
information as to the number of shares proposed to be purchased by certain of
the directors and officers, see "Proposed Management Purchases."
Priority 6: Public Stockholders. To the extent that there are shares
remaining after satisfaction of subscriptions by Eligible Account Holders, the
ESOP, Supplemental Eligible Account Holders, Other Members and directors,
officers and employees, each Public Stockholder as of the Voting Record Date
will receive, without payment therefor, sixth priority, nontransferable
subscription rights to subscribe for Conversion Stock in the Subscription
Offering up to one percent (1%) of the total offering of shares of Conversion
Stock in the Subscription Offering, subject to the overall purchase
limitations. See "- Limitations on Conversion Stock Purchases."
In the event the Public Stockholders as of the Voting Record Date
subscribe for a number of shares which, when added to the shares subscribed for
by Eligible Account Holders, the ESOP, Supplemental Eligible Account Holders,
Other Members and directors, officers and employees, is in excess of the total
number of shares of Conversion Stock offered in the Subscription Offering,
available shares will be allocated among subscribing Public Stockholders as of
the Voting Record Date on a pro rata basis in the same proportion as each Public
Stockholder's subscription bears to the total subscriptions of all subscribing
Public Stockholders, provided that no fractional shares shall be issued.
Expiration Date for the Subscription Offering. The Subscription Offering
will expire at noon, Central Time, on June 23, 1998, unless extended for up to
45 days or such additional periods by the Primary Parties with the approval of
the OTS. Such extensions may not be extended beyond July 1, 2000. Subscription
rights which have not been exercised prior to the Expiration Date will become
void.
97
<PAGE>
The Primary Parties will not execute orders until at least the minimum
number of shares of Conversion Stock (722,500 shares) have been subscribed for
or otherwise sold. If all shares have not been subscribed for or sold within 45
days after the Expiration Date, unless such period is extended with the consent
of the OTS, all funds delivered to Ponchatoula pursuant to the Subscription
Offering will be returned promptly to the subscribers with interest and all
withdrawal authorizations will be cancelled. If an extension beyond the 45-day
period following the Expiration Date is granted, the Primary Parties will notify
subscribers of the extension of time and of any rights of subscribers to modify
or rescind their subscriptions.
Community Offering. To the extent that shares remain available for
purchase after satisfaction of all subscriptions of Eligible Account Holders,
the ESOP, Supplemental Eligible Account Holders, Other Members, directors,
officers and employees of the Mutual Holding Company and Ponchatoula and Public
Stockholders, the Primary Parties have determined to offer shares pursuant to
the Plan to certain members of the general public, with preference given to
natural persons residing in parishes in Louisiana in which Ponchatoula has
branch offices (such natural persons referred to as "Preferred Subscribers").
Such persons may purchase up to one percent (1%) of the total offering of shares
of Conversion Stock in the Subscription Offering, subject to the maximum
purchase limitations. See "- Limitations on Conversion Stock Purchases." This
amount may be increased at the sole discretion of the Primary Parties. The
opportunity to subscribe for shares of Conversion Stock in the Community
Offering category is subject to the right of the Primary Parties, in their sole
discretion, to accept or reject any such orders in whole or in part either at
the time of receipt of an order or as soon as practicable following the
Expiration Date.
If there are not sufficient shares available to fill the orders of
Preferred Subscribers after completion of the Subscription and Community
Offerings, such stock will be allocated first to each Preferred Subscriber whose
order is accepted by the Primary Parties, in an amount equal to the lesser of
100 shares or the number of shares subscribed for by each such Preferred
Subscriber, if possible. Thereafter, unallocated shares will be allocated among
the Preferred Subscribers whose orders remain unsatisfied in the same proportion
that the unfilled subscription of each bears to the total unfilled subscriptions
of all Preferred Subscribers whose subscription remains unsatisfied. If there
are any shares remaining, shares will be allocated to other members of the
general public who subscribe in the Community Offering applying the same
allocation described above for Preferred Subscribers.
Syndicated Community Offering. The Plan provides that, if feasible, all
shares of Conversion Stock not purchased in the Subscription and Community
Offerings may be offered for sale to the general public in a Syndicated
Community Offering through a syndicate of registered broker-dealers to be
formed. No person will be permitted to subscribe in the Syndicated Community
Offering for more than one percent (1%) of the total offering of shares of
Conversion Stock in the Subscription Offering, subject to the maximum purchase
limitations. The Primary Parties have the right to reject orders in whole or
part in their sole discretion in the Syndicated Community Offering. Neither
Trident nor any registered broker-dealer shall have any obligation to take or
purchase any shares of Conversion Stock in the Syndicated Community Offering;
however, Trident has agreed to use its best efforts in the sale of shares in the
Syndicated Community Offering.
In addition to the foregoing, if a syndicate of broker-dealers ("selected
dealers") is formed to assist in the Syndicated Community Offering, a purchaser
may pay for his shares with funds held by or deposited with a selected dealer.
If an order form is executed and forwarded to the selected dealer or if the
selected dealer is authorized to execute the order form on behalf of a
purchaser, the selected dealer is required to forward the order form and funds
to Ponchatoula for deposit in a segregated account on or before noon of the
business day following receipt of the order form or execution of the order form
by the selected dealer. Alternatively, selected dealers may solicit indications
of interest from their customers to place orders for shares. Such selected
dealers shall subsequently contact their customers who indicated an interest and
seek their confirmation as to their intent to purchase. The selected dealer will
acknowledge receipt of the order to its customer in writing on the following
business day and will debit such customer's account on the third business day
after the customer has confirmed his intent to purchase (the "debit date") and
on or before noon of the next business day following the debit date will send
funds to
98
<PAGE>
Ponchatoula for deposit in a segregated account. If such alternative procedure
is employed, purchasers' funds are not required to be in their accounts with
selected dealers until the debit date.
The Syndicated Community Offering will terminate no more than 45 days
following the Expiration Date, unless extended by the Primary Parties with the
approval of the OTS. See "- Stock Pricing, Exchange Ratio and Number of Shares
to be Issued" below for a discussion of rights of subscribers, if any, in the
event an extension is granted.
Stock Pricing, Exchange Ratio and Number of Shares to be Issued
The Plan of Conversion requires that the purchase price of the Conversion
Stock must be based on the appraised pro forma market value of the Conversion
Stock, as determined on the basis of an independent valuation. The Primary
Parties have retained RP Financial to make such valuation. For its services in
making such appraisal and any expenses incurred in connection therewith, RP
Financial will receive a fixed fee of $20,000, plus out-of-pocket expenses which
are not expected to exceed $7,500. Ponchatoula has also retained RP Financial to
assist in the preparation of a business plan for a fixed fee of $7,500. The
Primary Parties have agreed to indemnify RP Financial and its employees and
affiliates against certain losses (including any losses in connection with
claims under the federal securities laws) arising out of its services as
appraiser, except where RP Financial's liability results from its negligence or
bad faith.
The Appraisal has been prepared by RP Financial in reliance upon the
information contained in this Prospectus, including the Financial Statements. RP
Financial also considered the following factors, among others: the present and
projected operating results and financial condition of the Primary Parties and
the economic and demographic conditions in Ponchatoula's existing market area;
certain historical, financial and other information relating to Ponchatoula; a
comparative evaluation of the operating and financial statistics of Ponchatoula
with those of other similarly situated publicly-traded companies located in
Louisiana and other regions of the United States; the aggregate size of the
offering of the Conversion Stock; the impact of the Conversion on Ponchatoula's
net worth and earnings potential; the proposed dividend policy of the Company
and Ponchatoula; and the trading market for the Ponchatoula Common Stock and
securities of comparable companies and general conditions in the market for such
securities. The projected operating results reviewed by RP Financial covered
periods through September 30, 2001. The financial projections assume (i) a flat
interest rate environment based on interest rates prevailing in mid-March 1998,
(ii) Ponchatoula's lending and investment activities continue to emphasize
single-family loan originations and purchases of mortgage-backed securities,
(iii) gradual asset growth funded primarily by interest-bearing deposits and
borrowings, and (iv) the net Conversion proceeds retained by the Company are
primarily invested in short-term investment securities.
In determining the amount of the Appraisal, RP Financial reviewed
Ponchatoula's price/earnings ("P/E"), price/book ("P/B") and price/assets
("P/A") ratios on a pro forma basis giving effect to the net Conversion
proceeds to the comparable ratios for a peer group consisting of 10 savings
institution holding companies. The peer group included (i) three holding
companies in Louisiana with assets of $500 million or less, equity-to-assets
ratios of at least 8%, and positive earnings, and (ii) seven holding
companies in the southeastern or southwestern United States with assets of
less than $300 million, equity-to-assets ratios of at least 8%, positive core
return on average assets of less than 1%, and non-performing assets-to-total
assets ratios of less than 2%. At the midpoint of the Appraisal,
Ponchatoula's pro forma P/E, P/B and P/A ratios as of December 31, 1997 were
24.98x, 86.75% and 16.75%, respectively, compared to ratios for the peer
group of 21.55x, 133.32% and 23.4%, respectively. The discount implied by
Ponchatoula's pro forma P/B ratio was deemed reasonable by RP Financial in
light of the resulting premium implied by Ponchatoula's pro forma P/E ratio
and the downward valuation adjustments made by RP Financial with respect to
Ponchatoula's (i) lower profitability, growth and viability of earnings, (ii)
lower asset growth, (iii) higher dividend payout ratio, and (iv) anticipated
less liquidity in the Company's Common Stock compared to the peer group, as
well as the effect of adjusting the MHC's percentage ownership interest in
Ponchatoula upward to reflect the dividends waived by the MHC. RP Financial
also considered the pro forma P/B ratio of recently completed stock
conversions of other institutions. RP Financial placed greater weight on the
pro forma P/E and P/B ratios than the P/A ratio, which was viewed as a less
reliable indicator of market value. RP Financial also deemed the trading
prices for the Ponchatoula Common Stock to be less relevant due in part to
the absence of an active and liquid market for such stock.
On the basis of the foregoing, RP Financial has advised the Primary
Parties that in its opinion the estimated pro forma market value of Ponchatoula
and the Mutual Holding Company on a combined basis was $11,175,390 as of March
20, 1998. The holders of the Public Ponchatoula Shares will continue to hold the
same aggregate percentage ownership interest in the Company as they currently
hold in Ponchatoula, as adjusted from 24.8% to 23.94% to reflect the amount of
dividends previously waived by the MHC and before giving effect to the payment
of cash in lieu of issuing fractional Exchange Shares, any shares of Conversion
Stock purchased by Ponchatoula's stockholders in the Offerings and any
Dissenting Shares. As a result, the Appraisal was multiplied by the Mutual
Holding Company's adjusted percentage interest in Ponchatoula (i.e., 76.06%), to
determine the midpoint of the valuation ($8,500,000), and the minimum and
maximum of the valuation were set at 15% below and above the midpoint,
respectively, resulting in a range of $7,225,000 to $9,775,000. The Boards of
Directors of the Primary Parties determined that the Conversion Stock would be
sold at $10.00 per share, resulting in a range of 722,500 to 977,500 shares of
Conversion Stock being offered. Upon consummation of the Conversion, the
Conversion Stock and the Exchange Shares will represent approximately 76.06% and
23.94%, respectively, of the Company's total outstanding shares, before giving
effect to the items set forth above.
The Boards of Directors of the Primary Parties reviewed RP Financial's
appraisal report, including the methodology and the assumptions used by RP
Financial, and determined that the Estimated Valuation Range was
99
<PAGE>
reasonable and adequate. The Boards of Directors of the Primary Parties also
established the formula for determining the Exchange Ratio. Based upon such
formula and the Estimated Valuation Range, the Exchange Ratio ranged from a
minimum of 1.51499 to a maximum of 2.04970 Exchange Shares for each Public
Ponchatoula Share, with a midpoint of 1.78235. Based upon these Exchange Ratios,
the Company expects to issue between 227,408 and 307,670 shares of Exchange
Shares to the holders of Public Ponchatoula Shares outstanding immediately prior
to the consummation of the Conversion. The Estimated Valuation Range and the
Exchange Ratio may be amended with the approval of the OTS, if required, or if
necessitated by subsequent developments in the financial condition of any of the
Primary Parties or market conditions generally. In the event the Appraisal is
updated so that the Conversion Stock is below $7,225,000 or above $11,241,250
(the maximum of the Estimated Valuation Range, as adjusted by 15%), such
Appraisal will be filed with the SEC by post-effective amendment.
Based upon current market and financial conditions and recent practices
and policies of the OTS, in the event the Company receives orders for Conversion
Stock in excess of $9,775,000 (the maximum of the Estimated Valuation) and up to
$11,241,250 (the maximum of the Estimated Valuation, as adjusted by 15%), the
Company may be required by the OTS to accept all such orders. No assurances,
however, can be made that the Company will receive orders for Conversion Stock
in excess of the maximum of the Estimated Valuation Range or that, if such
orders are received, that all such orders will be accepted because the Company's
final valuation and number of shares to be issued are subject to the receipt of
an updated appraisal from RP Financial which reflects such an increase in the
valuation and the approval of such increase by the OTS. There is no obligation
or understanding on the part of management to take and/or pay for any shares of
Conversion Stock in order to complete the Offerings.
The following table sets forth, based upon the minimum, midpoint, maximum
and 15% above the maximum of the Estimated Valuation Range, the following: (i)
the total number of shares of Conversion Stock and Exchange Shares to be issued
in the Conversion, (ii) the percentage of the total Common Stock represented by
the Conversion Stock and the Exchange Shares, and (iii) the Exchange Ratio. The
table assumes that there are no Dissenting Shares or fractional Exchange
Shares.
<TABLE>
<CAPTION>
Conversion Stock to Be
Issued Exchange Shares to be Issued Total Shares of
---------------------- ---------------------------- Common Stock to Exchange
Amount Percent Amount Percent be Outstanding Ratio
--------- --------- -------- --------- ---------------- --------
<S> <C> <C> <C> <C> <C> <C>
Minimum 722,500 76.06% 227,408 23.94% 949,908 1.51499
Midpoint 850,000 76.06 267,539 23.94 1,117,539 1.78235
Maximum 977,500 76.06 307,670 23.94 1,285,170 2.04970
15% above maximum 1,124,125 76.06 353,820 23.94 1,477,945 2.35715
</TABLE>
RP Financial's valuation is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing such shares. RP
Financial did not independently verify the Financial Statements and other
information provided by Ponchatoula and the Mutual Holding Company, nor did RP
Financial value independently the assets or liabilities of Ponchatoula. The
valuation considers Ponchatoula and the Mutual Holding Company as going concerns
and should not be considered as an indication of the liquidation value of
Ponchatoula and the Mutual Holding Company. Moreover, because such valuation is
necessarily based upon estimates and projections of a number of matters, all of
which are subject to change from time to time, no assurance can be given that
persons purchasing Conversion Stock or receiving Exchange Shares in the
Conversion will thereafter be able to sell such shares at prices at or above the
Purchase Price or in the range of the foregoing valuation of the pro forma
market value thereof.
No sale of shares of Conversion Stock or issuance of Exchange Shares may
be consummated unless prior to such consummation RP Financial confirms that
nothing of a material nature has occurred which, taking into account all
relevant factors, would cause it to conclude that the Purchase Price is
materially incompatible with the estimate
100
<PAGE>
of the pro forma market value of a share of Common Stock upon consummation of
the Conversion. If such is not the case, a new Estimated Valuation Range may be
set, a new Exchange Ratio may be determined based upon the new Estimated
Valuation Range, a new Subscription and Community Offering and/or Syndicated
Community Offering may be held or such other action may be taken as the Primary
Parties shall determine and the OTS may permit or require.
Depending upon market or financial conditions following the commencement
of the Subscription Offering, the total number of shares of Conversion Stock to
be issued in the Offerings may be increased or decreased without a
resolicitation of subscribers, provided that the product of the total number of
shares times the Purchase Price is not below the minimum or more than 15% above
the maximum of the Estimated Valuation Range. In the event market or financial
conditions change so as to cause the aggregate Purchase Price of the shares to
be below the minimum of the Estimated Valuation Range or more than 15% above the
maximum of such range, purchasers will be resolicited (i.e., permitted to
continue their orders, in which case they will need to affirmatively reconfirm
their subscriptions prior to the expiration of the resolicitation offering or
their subscription funds will be promptly refunded with interest at
Ponchatoula's passbook rate of interest, or be permitted to modify or rescind
their subscriptions). Any increase or decrease in the number of shares of
Conversion Stock will result in a corresponding change in the number of
Exchange Shares, so that upon consummation of the Conversion the Conversion
Stock and the Exchange Shares will represent approximately 76.06% and 23.94%,
respectively, of the Company's total outstanding shares of Common Stock
(exclusive of the effects of the exercise of outstanding stock options).
An increase in the number of shares of Conversion Stock as a result of an
increase in the Estimated Valuation Range would decrease both a subscriber's
ownership interest and the Company's pro forma net earnings and shareholders'
equity on a per share basis while increasing pro forma net earnings and
shareholders' equity on an aggregate basis. A decrease in the number of shares
of Conversion Stock would increase both a subscriber's ownership interest and
the Company's pro forma net earnings and shareholders' equity on a per share
basis while decreasing pro forma net earnings and shareholders' equity on an
aggregate basis. See "Risk Factors - Possible Dilutive Effect of Issuance of
Additional Shares" and "Pro Forma Data."
The appraisal report of RP Financial has been filed as an exhibit to the
Company's Registration Statement and the Mutual Holding Company's Application
for Conversion, of which this Prospectus is a part, and is available for
inspection in the manner set forth under "Additional Information."
Persons in Nonqualified States or Foreign Countries
The Primary Parties will make reasonable efforts to comply with the
securities laws of all states in the United States in which persons entitled to
subscribe for stock pursuant to the Plan reside. However, the Primary Parties
are not required to offer stock in the Subscription Offering to any person who
resides in a foreign country or resides in a state of the United States with
respect to which all of the following apply: (a) the number of persons otherwise
eligible to subscribe for shares under the Plan who reside in such jurisdiction
is small; (b) the granting of subscription rights or the offer or sale of shares
of Conversion Stock to such persons would require any of the Primary Parties or
their officers, directors or employees, under the laws of such jurisdiction, to
register as a broker, dealer, salesman or selling agent or to register or
otherwise qualify its securities for sale in such jurisdiction or to qualify as
a foreign corporation or file a consent to service of process in such
jurisdiction; and (c) such registration, qualification or filing in the judgment
of the Primary Parties would be impracticable or unduly burdensome for reasons
of costs or otherwise. Where the number of persons eligible to subscribe for
shares in one state is small, the Primary Parties will base their decision as to
whether or not to offer the Conversion Stock in such state on a number of
factors, including but not limited to the size of accounts held by account
holders in the state, the cost of registering or qualifying the shares or the
need to register the Company, its officers, directors or employees as brokers,
dealers or salesmen.
101
<PAGE>
Limitations on Conversion Stock Purchases
The Plan includes the following limitations on the number of shares of
Conversion Stock which may be purchased:
(1) No less than 25 shares of Conversion Stock may be purchased, to
the extent such shares are available;
(2) Each Eligible Account Holder may subscribe for and purchase in
the Subscription Offering up to the greater of (i) one percent (1%) of the
total offering of shares of Conversion Stock in the Subscription Offering
and (ii) 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of Conversion Stock to
be issued by a fraction, of which the numerator is the amount of the
qualifying deposit of the Eligible Account Holder and the denominator is
the total amount of qualifying deposits of all Eligible Account Holders,
in each case as of the close of business on the Eligibility Record Date,
subject to the overall limitation in clause (6) below;
(3) The ESOP may purchase in the aggregate up to 8% of the shares of
Conversion Stock to be issued in the Offerings, including any additional
shares issued in the event of an increase in the Estimated Valuation
Range;
(4) Each Supplemental Eligible Account Holder may subscribe for and
purchase in the Subscription Offering up to the greater of (i) one percent
(1%) of the total offering of shares of Conversion Stock in the
Subscription Offering and (ii) 15 times the product (rounded down to the
next whole number) obtained by multiplying the total number of shares of
Conversion Stock to be issued by a fraction, of which the numerator is the
amount of the qualifying deposit of the Supplemental Eligible Account
Holder and the denominator is the total amount of qualifying deposits of
all Supplemental Eligible Account Holders, in each case as of the close of
business on the Supplemental Eligibility Record Date, subject to the
overall limitation in clause (6) below;
(5) Each Other Member, Public Stockholder or any other person
purchasing shares of Conversion Stock in the Subscription Offering,
Community Offering or in the Syndicated Community Offering, as applicable,
may subscribe for and purchase in the respective Offering up to one
percent (1%) of the total offering of shares of Conversion Stock in the
Subscription Offering, subject to the overall limitation in clause (6)
below;
(6) Except for the ESOP and certain Eligible Account Holders and
Supplemental Eligible Account Holders whose subscription rights are based
upon the amount of their deposits, the maximum number of shares of
Conversion Stock subscribed for or purchased in all categories by any
person, together with associates of and groups of persons acting in
concert with such persons, shall not exceed the number of shares of
Conversion Stock that when combined with Exchange Shares received
aggregate 3% of the number of shares of Common Stock issued in the
Conversion (28,497 shares and 38,555 shares at the minimum and maximum of
the Estimated Valuation Range, respectively); and
(7) No more than 24.7% of the total number of shares sold in the
Subscription Offering may be purchased by directors and officers of the
Mutual Holding Company and Ponchatoula in the fourth priority category in
the Subscription Offering. No more than 34.7% of the total number of
shares sold in the Offerings may be purchased by directors and officers of
the Mutual Holding Company and Ponchatoula and their associates in the
aggregate, excluding purchases by the ESOP.
For purposes of the purchase limitations set forth in the Plan of
Conversion, Exchange Shares will be valued at the same price that shares of
Conversion Stock are issued in the Offerings.
102
<PAGE>
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the Members of
the Mutual Holding Company or the Stockholders of Ponchatoula, both the
individual amount permitted to be subscribed for and the overall purchase
limitation may be decreased or increased up to a maximum of 5% of the total
shares of Common Stock to be issued in the Conversion at the sole discretion
of the Primary Parties. If such amount is increased, subscribers for the maximum
amount will be, and certain other large subscribers in the sole discretion of
the Primary Parties may be, given the opportunity to increase their
subscriptions up to the then applicable limit.
An individual Eligible Account Holder, Supplemental Eligible Account
Holder, Other Member or Public Stockholder may not purchase individually in the
Subscription Offering the overall maximum purchase limit of 3% of the number of
shares of Common Stock issued in the Conversion but may make such purchase,
together with associates of and persons acting in concert with such person, by
also purchasing in other available categories, subject to availability of shares
and the maximum overall purchase limit for purchases in the Offerings, including
Exchange Shares received by Public Stockholders for Public Ponchatoula Shares.
However, except as may otherwise be required by the OTS, Public Stockholders
will not have to sell any Public Ponchatoula Shares or be limited in receiving
Exchange Shares even if their current ownership of Public Ponchatoula Shares
when converted into Exchange Shares exceeds an applicable purchase limitation,
including the maximum purchase limitation of 3% of the number of shares of
Common Stock issued in the Conversion; provided, however, that a Public
Stockholder who would exceed an applicable purchase limitation may be precluded
from purchasing Conversion Stock in the Offerings.
In the event of an increase in the total number of shares of Conversion
Stock offered in the Conversion due to an increase in the Estimated Valuation
Range of up to 15% (the "Adjusted Maximum"), the additional shares will be
allocated in the following order of priority in accordance with the Plan: (i) to
fill the ESOP's subscription of 8% of the Adjusted Maximum number of shares;
(ii) in the event that there is an oversubscription by Eligible Account Holders,
to fill unfulfilled subscriptions of Eligible Account Holders, inclusive of the
Adjusted Maximum; (iii) in the event that there is an oversubscription by
Supplemental Eligible Account Holders, to fill unfulfilled subscriptions of
Supplemental Eligible Account Holders, inclusive of the Adjusted Maximum; (iv)
in the event that there is an oversubscription by Other Members, to fill
unfulfilled subscriptions of Other Members, inclusive of the Adjusted Maximum;
(v) in the event there is an oversubscription by directors, officers and
employees of the Mutual Holding Company and Ponchatoula, to fill unfulfilled
subscriptions of directors, officers and employees, inclusive of the Adjusted
Maximum; (vi) in the event that there is an oversubscription by Public
Stockholders, to fill unfulfilled subscriptions of Public Stockholders,
inclusive of the Adjusted Maximum; and (vii) to fill unfulfilled subscriptions
in the Community Offering to the extent possible, inclusive of the Adjusted
Maximum.
The term "associate" of a person is defined to mean (i) any corporation or
other organization (other than the Primary Parties or a majority-owned
subsidiary of Ponchatoula) of which such person is a director, officer or
partner or is directly or indirectly the beneficial owner of 10% or more of any
class of equity securities; (ii) any trust or other estate in which such person
has a substantial beneficial interest or as to which such person serves as
trustee or in a similar fiduciary capacity, provided, however, that such term
shall not include any tax-qualified employee stock benefit plan of the Primary
Parties in which such person has a substantial beneficial interest or serves as
a trustee or in a similar fiduciary capacity; and (iii) any relative or spouse
of such person, or any relative of such spouse, who either has the same home as
such person or who is a director or officer of the Primary Parties or any of
their subsidiaries. In addition, joint account relationships and common
addresses will be taken into account in applying the maximum purchase
limitations.
Marketing Arrangements
The Company and Ponchatoula have engaged Trident as a financial advisor
and marketing agent in connection with the offering of the Common Stock, and
Trident has agreed to use its best efforts to solicit subscriptions and purchase
orders for shares of Conversion Stock in the Offerings. Trident is a member of
the National Association of Securities Dealers, Inc. ("NASD") and an
SEC-registered broker-dealer. Trident is
103
<PAGE>
headquartered in Raleigh, North Carolina, and its telephone number is (919)
781-8900. Trident will provide various services including, but not limited to,
(i) training and educating Ponchatoula's directors, officers and employees
regarding the mechanics and regulatory requirements of the stock sales process;
(2) providing its employees to assist in staffing the Stock Sales Center to
assist Ponchatoula's customers and internal stock purchasers and to assist in
records management for orders of shares of Common Stock; and (3) targeting the
Company's sales efforts, including assisting in the preparation of marketing
materials. Based upon negotiations between the Company and Ponchatoula
concerning fee structure, Trident will receive a commission equal to 1.125% of
the aggregate dollar amount of Conversion Stock sold in the Offerings, excluding
any shares of Conversion Stock purchased in the Offerings by directors,
officers, employees and employee benefit plans of the Company and Ponchatoula.
The commission will be payable upon consummation of the Conversion. In the event
that a selected dealers agreement is entered into in connection with a
Syndicated Community Offering, Ponchatoula will pay to such selected dealers a
fee at the commission rate to be agreed upon by the Company, Ponchatoula and
Trident, for shares sold by an NASD member firm pursuant to a selected dealers
agreement. Fees to Trident and to any other broker-dealer may be deemed to be
underwriting fees, and Trident and such broker-dealers may be deemed to be
underwriters. Trident will also be reimbursed for its out-of-pocket expenses and
legal fees in amounts not to exceed $10,000 and $27,500, respectively, of which
$10,000 has been paid to date. The Company and Ponchatoula have agreed to
indemnify Trident and each person, if any, who controls Trident against all
losses, claims, damages or liabilities, joint or several, and all legal and
other expenses reasonably incurred by them in connection with certain claims
that may arise as a result of the Conversion, including liabilities under the
Securities Act, except those that are due to Trident's willful misconduct or
gross negligence.
Directors and executive officers of the Primary Parties may participate in
the solicitation of offers to purchase Conversion Stock. Other employees of
Ponchatoula may participate in the Offerings in ministerial capacities or
providing clerical work in effecting a sales transaction. Such other employees
have been instructed not to solicit offers to purchase Conversion Stock or
provide advice regarding the purchase of Conversion Stock. Questions of
prospective purchasers will be directed to executive officers or registered
representatives. The Company will rely on Rule 3a4-1 under the Exchange Act, and
sales of Conversion Stock will be conducted within the requirements of Rule
3a4-1, so as to permit officers, directors and employees to participate in the
sale of Conversion Stock. No officer, director or employee of the Primary
Parties will be compensated in connection with his solicitations or other
participation in the Offerings or the Exchange by the payment of commissions or
other remuneration based either directly or indirectly on transactions in the
Conversion Stock and Exchange Shares, respectively.
Procedure for Purchasing Shares in the Offerings
To ensure that each purchaser receives a Prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act,
no Prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the order
form will confirm receipt or delivery of the Prospectus in accordance with Rule
15c2-8. Order forms will only be distributed with a Prospectus.
To purchase shares in the Offerings, an executed order form with the
required payment for each share subscribed for, or with appropriate
authorization for withdrawal from a deposit account at Ponchatoula (which may be
given by completing the appropriate blanks in the order form), must be received
by Ponchatoula at any of its offices by noon, Central Time, on the Expiration
Date. In addition, the Primary Parties will require a prospective purchaser to
execute a certification in the form required by applicable OTS regulations in
connection with any sale of Conversion Stock. Order forms which are not received
by such time or are executed defectively or are received without full payment
(or appropriate withdrawal instructions) are not required to be accepted.
Copies of order forms, order forms unaccompanied by an executed certification
form, payments from other private third parties and wire transfers will not be
accepted. The Primary Parties have the right to waive or permit the correction
of incomplete or improperly executed forms, but do not represent that they will
do so. Once received, an executed order form may not be modified, amended or
rescinded without the consent of the Primary Parties, unless the
104
<PAGE>
Offerings have not been completed within 45 days after the end of the
Subscription and Community Offerings, unless such period has been extended.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priority, depositors as of the close of business on the Eligibility
Record Date (December 31, 1996) or the Supplemental Eligibility Record Date
(March 31, 1998) and depositors as of the close of business on the Voting
Record Date (May 4, 1998) must list on the order form all accounts in which
they have an ownership interest, giving all names in each account and the
account numbers.
Payment for subscriptions may be made (i) in cash if delivered in person
at any office of Ponchatoula, (ii) by check or money order or (iii) by
authorization of withdrawal from deposit accounts maintained with Ponchatoula.
Interest will be paid on payments made by cash, check or money order at
Ponchatoula's passbook rate of interest from the date payment is received until
completion or termination of the Conversion. If payment is made by authorization
of withdrawal from deposit accounts, the funds authorized to be withdrawn from a
deposit account will continue to accrue interest at the contractual rates until
completion or termination of the Conversion, but a hold will be placed on such
funds, thereby making them unavailable to the depositor until completion or
termination of the Conversion.
If a subscriber authorizes Ponchatoula to withdraw the amount of the
purchase price from a deposit account, Ponchatoula will do so as of the
effective date of the Conversion. Ponchatoula will waive any applicable
penalties for early withdrawal from certificate accounts. If the remaining
balance in a certificate account is reduced below the applicable minimum balance
requirement at the time that the funds actually are transferred under the
authorization, the certificate will be cancelled at the time of the withdrawal,
without penalty, and the remaining balance will earn interest at the passbook
rate.
The ESOP will not be required to pay for the shares subscribed for at the
time it subscribes, but rather may pay for such shares of Conversion Stock
subscribed for by it at the Purchase Price upon consummation of the Offerings,
provided that there is in force from the time of its subscription until such
time, a loan commitment from an unrelated financial institution or the Company
to lend to the ESOP, at such time, the aggregate Purchase Price of the shares
for which it subscribed.
Owners of self-directed Individual Retirement Accounts ("IRAs") may use
the assets of such IRAs to purchase shares of Conversion Stock in the Offerings,
provided that such IRAs are not maintained at Ponchatoula. Persons with
self-directed IRAs maintained at Ponchatoula must have their accounts
transferred to an unaffiliated institution or broker to purchase shares of
Conversion Stock in the Subscription and Community Offerings. In addition, ERISA
provisions and IRS regulations require that officers, directors and 10%
stockholders who use self-directed IRA funds to purchase shares of Conversion
Stock in the Subscription and Community Offerings make such purchases for the
exclusive benefit of the IRAs. Any interested parties wishing to use IRA funds
for stock purchases are advised to contact the Stock Sales Center for additional
information and allow sufficient time for the account to be transferred as
required.
Restrictions on Transfer of Subscription Rights and Shares
Pursuant to the rules and regulations of the OTS, no person with
subscription rights may transfer or enter into any agreement or understanding to
transfer the legal or beneficial ownership of the subscription rights issued
under the Plan or the shares of Conversion Stock to be issued upon their
exercise. Such rights may be exercised only by the person to whom they are
granted and only for his account. Each person exercising such subscription
rights will be required to certify that he is purchasing shares solely for his
own account and that he has no agreement or understanding regarding the sale or
transfer of such shares. Federal regulations also prohibit any person from
offering or making an announcement of an offer or intent to make an offer to
purchase such subscription rights or shares of Conversion Stock prior to the
completion of the Conversion.
105
<PAGE>
The Primary Parties will pursue any and all legal and equitable remedies
in the event they become aware of the transfer of subscription rights and will
not honor orders known by them to involve the transfer of such rights.
Liquidation Rights
In the unlikely event of a complete liquidation of the Mutual Holding
Company in its present mutual form, each depositor of Ponchatoula would receive
his pro rata share of any assets of the Mutual Holding Company remaining after
payment of claims of all creditors. Each depositor's pro rata share of such
remaining assets would be in the same proportion as the value of his deposit
account was to the total value of all deposit accounts in Ponchatoula at the
time of liquidation. After the Conversion, each depositor, in the event of a
complete liquidation of Ponchatoula, would have a claim as a creditor of the
same general priority as the claims of all other general creditors of
Ponchatoula. However, except as described below, his claim would be solely in
the amount of the balance in his deposit account plus accrued interest. He would
not have an interest in the value or assets of Ponchatoula or the Company above
that amount.
The Plan provides for the establishment, upon the completion of the
Conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in an amount equal to
the amount of any dividends waived by the Mutual Holding Company ($874,000 at
March 31, 1998) plus the greater of (1) Ponchatoula's retained earnings of
$3,673,000 at March 31, 1994, the date of the latest statement of financial
condition contained in the final offering circular utilized in the MHC
Reorganization, or (2) 75.2% of Ponchatoula's total stockholders' equity as
reflected in its latest statement of financial condition contained in the final
Prospectus utilized in the Offerings. As of the date of this Prospectus, the
initial balance of the liquidation account would be approximately $5.3
million. Each Eligible Account Holder and Supplemental Eligible Account Holder,
if he were to continue to maintain his deposit account at Ponchatoula, would be
entitled, upon a complete liquidation of Ponchatoula after the Conversion, to an
interest in the liquidation account prior to any payment to the Company as the
sole stockholder of Ponchatoula. Each Eligible Account Holder and Supplemental
Eligible Account Holder would have an initial interest in such liquidation
account for each deposit account, including passbook accounts, transaction
accounts such as checking accounts, money market deposit accounts and
certificates of deposit, held in Ponchatoula at the close of business on
December 31, 1996 or March 31, 1998, as the case may be. Each Eligible Account
Holder and Supplemental Eligible Account Holder will have a pro rata interest in
the total liquidation account for each of his deposit accounts based on the
proportion that the balance of each such deposit account on the December 31,
1996 Eligibility Record Date (or the March 31, 1998 Supplemental Eligibility
Record Date, as the case may be) bore to the balance of all deposit accounts in
Ponchatoula on such date.
If, however, on any December 31 annual closing date of Ponchatoula,
commencing December 31, 1998, the amount in any deposit account is less than the
amount in such deposit account on December 31, 1996 or March 31, 1998, as the
case may be, or any other annual closing date, then the interest in the
liquidation account relating to such deposit account would be reduced by the
proportion of any such reduction, and such interest will cease to exist if such
deposit account is closed. In addition, no interest in the liquidation account
would ever be increased despite any subsequent increase in the related deposit
account. Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders are satisfied would be
distributed to the Company as the sole stockholder of Ponchatoula.
Tax Aspects
Consummation of the Conversion is expressly conditioned upon prior receipt
of either a ruling or an opinion of counsel with respect to federal tax laws,
and either a ruling or an opinion with respect to Louisiana tax laws, to the
effect that consummation of the transactions contemplated hereby will not result
in a taxable reorganization under the provisions of the applicable codes or
otherwise result in any adverse tax consequences to the Mutual Holding Company,
Ponchatoula, the Company or to account holders receiving subscription rights,
except to the extent, if any, that subscription rights are deemed to have fair
market value on the date such rights are issued.
106
<PAGE>
This condition may not be waived by the Primary Parties. The Company believes
that the tax opinions summarized below address all material federal income tax
consequences that are generally applicable to the Primary Parties and the
persons receiving subscription rights.
Elias, Matz, Tiernan & Herrick L.L.P., Washington, D.C., has issued an
opinion to the Company and Ponchatoula to the effect that, for federal income
tax purposes: (1) the conversion of the Mutual Holding Company from mutual form
to a federal interim stock savings institution and its simultaneous merger with
and into Ponchatoula, with Ponchatoula being the surviving institution, will
qualify as a reorganization within the meaning of Section 368(a)(1)(A) of the
Code, (2) no gain or loss will be recognized by Ponchatoula upon the receipt of
the assets of the Mutual Holding Company in such merger, (3) the merger of
Interim with and into Ponchatoula, with Ponchatoula being the surviving
institution, will qualify as a reorganization within the meaning of Section
368(a)(1)(A) of the Code, (4) no gain or loss will be recognized by Interim upon
the transfer of its assets to Ponchatoula, (5) no gain or loss will be
recognized by Ponchatoula upon the receipt of the assets of Interim, (6) no gain
or loss will be recognized by the Company upon the receipt of Ponchatoula Common
Stock solely in exchange for Common Stock, (7) no gain or loss will be
recognized by the Public Stockholders upon the receipt of Common Stock solely in
exchange for their Public Ponchatoula Shares, (8) the basis of the Common Stock
to be received by the Public Stockholders will be the same as the basis of the
Public Ponchatoula Shares surrendered in exchange therefor, before giving effect
to any payment of cash in lieu of fractional shares, (9) the holding period of
the Common Stock to be received by the Public Stockholders will include the
holding period of the Public Ponchatoula Shares, provided that the Public
Ponchatoula Shares were held as a capital asset on the date of the exchange,
(10) no gain or loss will be recognized by the Company upon the sale of shares
of Conversion Stock in the Offerings, (11) the Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members will recognize gain, if
any, upon the issuance to them of withdrawable savings accounts in Ponchatoula
following the Conversion, interests in the liquidation account and
nontransferable subscription rights to purchase Conversion Stock, but only to
the extent of the value, if any, of the subscription rights, and (12) the tax
basis to the holders of Conversion Stock purchased in the Offerings will be the
amount paid therefor, and the holding period for the shares of Conversion Stock
will begin on the date of consummation of the Offerings if purchased through the
exercise of subscription rights and on the day after the date of purchase if
purchased in the Community Offering or Syndicated Community Offering.
Hannis T. Bourgeois, L.L.P. has issued an opinion to the Company and
Ponchatoula to the effect that the income tax consequences under Louisiana law
of the Conversion are not materially different than for federal tax purposes.
Based on a letter from RP Financial, which letter is not binding on the
IRS, the Company believes that the subscription rights do not have any value,
based on the fact that such rights are acquired by the recipients without cost,
are nontransferable and of short duration, and afford the recipients the right
only to purchase the Conversion Stock at a price equal to its estimated fair
market value, which will be the same price as the Purchase Price for the
unsubscribed shares of Conversion Stock. If the subscription rights granted to
eligible subscribers are deemed to have an ascertainable value, receipt of such
rights likely would be taxable only to those eligible subscribers who exercise
the subscription rights (either as a capital gain or ordinary income) in an
amount equal to such value, and the Primary Parties could recognize gain on such
distribution. Eligible subscribers are encouraged to consult with their own tax
advisor as to the tax consequences in the event that such subscription rights
are deemed to have an ascertainable value.
Unlike private rulings, an opinion is not binding on the IRS and the IRS
could disagree with the conclusions reached therein. In the event of such
disagreement, there can be no assurance that the IRS would not prevail in a
judicial or administrative proceeding.
107
<PAGE>
Delivery and Exchange of Certificates
Conversion Stock. Certificates representing Conversion Stock issued in
connection with the Offerings will be mailed by the Company's transfer agent for
the Common Stock to the persons entitled thereto at the addresses of such
persons appearing on the stock order form for Conversion Stock as soon as
practicable following consummation of the Conversion. Any certificates returned
as undeliverable will be held by the Company until claimed by persons legally
entitled thereto or otherwise disposed of in accordance with applicable law.
Until certificates for Conversion Stock are available and delivered to
subscribers, subscribers may not be able to sell such shares, even though
trading of the Common Stock may have commenced.
Exchange Shares. After consummation of the Conversion, each holder of a
certificate or certificates theretofore evidencing issued and outstanding shares
of Ponchatoula Common Stock (other than the Mutual Holding Company), upon
surrender of the same to an agent, duly appointed by the Company, which is
anticipated to be the transfer agent for the Common Stock (the "Exchange
Agent"), shall be entitled to receive in exchange therefor a certificate or
certificates representing the number of full shares of Common Stock for which
the shares of Ponchatoula Common Stock theretofore represented by the
certificate or certificates so surrendered shall have been converted based on
the Exchange Ratio. The Exchange Agent shall promptly mail to each such holder
of record of an outstanding certificate which immediately prior to the
consummation of the Conversion evidenced shares of Ponchatoula Common Stock, and
which is to be exchanged for Common Stock based on the Exchange Ratio as
provided in the Plan, a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to such certificate shall
pass, only upon delivery of such certificate to the Exchange Agent) advising
such holder of the terms of the exchange effected by the Conversion and of the
procedure for surrendering to the Exchange Agent such certificate in exchange
for a certificate or certificates evidencing Common Stock. Ponchatoula's
stockholders should not forward Ponchatoula Common Stock certificates to
Ponchatoula or the Exchange Agent until they have received the transmittal
letter.
No holder of a certificate theretofore representing shares of Ponchatoula
Common Stock shall be entitled to receive any dividends in respect of the Common
Stock into which such shares shall have been converted by virtue of the
Conversion until the certificate representing such shares of Ponchatoula Common
Stock is surrendered in exchange for certificates representing shares of Common
Stock. In the event that dividends are declared and paid by the Company in
respect of Common Stock after the consummation of the Conversion but prior to
surrender of certificates representing shares of Ponchatoula Common Stock,
dividends payable in respect of shares of Common Stock not then issued shall
accrue (without interest). Any such dividends shall be paid (without interest)
upon surrender of the certificates representing such shares of Ponchatoula
Common Stock. The Company shall be entitled, after the consummation of the
Conversion, to treat certificates representing shares of Ponchatoula Common
Stock as evidencing ownership of the number of full shares of Common Stock into
which the shares of Ponchatoula Common Stock represented by such certificates
shall have been converted, notwithstanding the failure on the part of the holder
thereof to surrender such certificates.
The Company shall not be obligated to deliver a certificate or
certificates representing shares of Common Stock to which a holder of
Ponchatoula Common Stock would otherwise be entitled as a result of the
Conversion until such holder surrenders the certificate or certificates
representing the shares of Ponchatoula Common Stock for exchange as provided
above, or, in default thereof, an appropriate affidavit of loss and indemnity
agreement and/or a bond as may be required in each case by the Company. If any
certificate evidencing shares of Common Stock is to be issued in a name other
than that in which the certificate evidencing Ponchatoula Common Stock
surrendered in exchange therefor is registered, it shall be a condition of the
issuance thereof that the certificate so surrendered shall be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange pay to the Exchange Agent any transfer or other tax required by reason
of the issuance of a certificate for shares of Common Stock in any name other
than that of the registered holder of the certificate surrendered or otherwise
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not payable.
108
<PAGE>
Required Approvals
Various approvals of the OTS are required in order to consummate the
Conversion. The OTS has approved the Plan of Conversion, subject to approval by
the Mutual Holding Company's Members and Ponchatoula's Stockholders. In
addition, consummation of the Conversion is subject to OTS approval of the
Company's application to acquire all of the to-be-outstanding Ponchatoula Common
Stock and the applications with respect to the merger of the Mutual Holding
Company (following its conversion to a federal interim stock savings
institution) into Ponchatoula and the merger of Interim into Ponchatoula, with
Ponchatoula being the surviving entity in both mergers. Applications for these
approvals have been filed and are currently pending. There can be no assurances
that the requisite OTS approvals will be received in a timely manner, in which
event the consummation of the Conversion may be delayed beyond the expiration of
the Offerings.
The Company is required to make certain filings with state securities
regulatory authorities in connection with the issuance of Conversion Stock and
Exchange Shares in the Conversion.
Pursuant to OTS regulations, the Plan of Conversion also must be approved
by (1) at least a majority of the total number of votes eligible to be cast by
Members of the Mutual Holding Company at the Members' Meeting, and (2) holders
of at least two-thirds of the outstanding Ponchatoula Common Stock at the
Stockholders' Meeting. In addition, the Primary Parties have conditioned the
consummation of the Conversion on the approval of the Plan by at least a
majority of the votes cast, in person or by proxy, by the Public Stockholders at
the Stockholders' Meeting.
Dissenters' Rights of Appraisal
Record holders of Ponchatoula Common Stock are entitled to appraisal
rights under Section 552.14 of the OTS regulations as a result of the merger of
the Mutual Holding Company with and into Ponchatoula and the merger of
Ponchatoula with and into Interim, with Ponchatoula to be the surviving entity
in both mergers. A holder of shares of Ponchatoula Common Stock wishing to
exercise his appraisal rights must deliver to the Secretary of Ponchatoula,
before the vote on the Plan of Conversion at the Stockholders' Meeting, a
writing which identifies such stockholder and which states his intention to
demand appraisal of and payment for his shares of Ponchatoula Common Stock. Such
demand must be in addition to and separate from any proxy or vote against the
Plan of Conversion. Any such stockholder who wishes to exercise such appraisal
rights should review carefully the discussion of such rights in Ponchatoula's
proxy statement, including Appendix A thereto, because failure to timely and
properly comply with the procedures specified will result in the loss of
appraisal rights under Section 552.14. All written demands for appraisal should
be sent or delivered to Barbara B. Theriot, Secretary, Ponchatoula Homestead
Savings, F.A., 195 North Sixth Street, Ponchatoula, Louisiana 70454 so as to be
received prior to the vote at the Stockholders' Meeting with respect to the Plan
of Conversion. Consummation of the Conversion is conditioned upon holders of
less than 10% of the outstanding Ponchatoula Common Stock exercising appraisal
rights.
In determining whether or not to exercise appraisal rights, current
stockholders of Ponchatoula should review the comparison of their rights as
stockholders of Ponchatoula with their rights as stockholders of the Company
following consummation of the Conversion. Such comparison is contained in
Ponchatoula's Proxy Statement to its stockholders under "The Conversion -
Comparison of Stockholder Rights." Because the Company is governed by the
Louisiana Business Corporation Law and Ponchatoula is governed by federal law,
including OTS regulations, there are material differences between the rights of
stockholders of Ponchatoula and stockholders of the Company.
Certain Restrictions on Purchase or Transfer of Shares after the Conversion
All shares of Conversion Stock purchased in connection with the Conversion
by a director or an executive officer of the Primary Parties will be subject to
a restriction that the shares not be sold for a period of one year following the
Conversion, except in the event of the death of such director or executive
officer or pursuant to a
109
<PAGE>
merger or similar transaction approved by the OTS. Each certificate for
restricted shares will bear a legend giving notice of this restriction on
transfer, and appropriate stop-transfer instructions will be issued to the
Company's transfer agent. Any shares of Common Stock issued within this one-year
period as a stock dividend, stock split or otherwise with respect to such
restricted stock will be subject to the same restrictions. The directors and
executive officers of the Company will also be subject to the insider trading
rules promulgated pursuant to the Exchange Act.
Purchases of Common Stock of the Company by directors, executive officers
and their associates during the three-year period following completion of the
Conversion may be made only through a broker or dealer registered with the SEC,
except with the prior written approval of the OTS. This restriction does not
apply, however, to negotiated transactions involving more than 1% of the
Company's outstanding Common Stock or to the purchase of stock pursuant to any
tax-qualified employee stock benefit plan, such as the ESOP, or by any
non-tax-qualified employee stock benefit plan, such as the 1998 Management
Recognition Plan.
Pursuant to OTS regulations, the Company will generally be prohibited from
repurchasing any shares of Common Stock within one year following consummation
of the Conversion. During the second and third years following consummation of
the Conversion, the Company may not repurchase any shares of its Common Stock
other than pursuant to (i) an offer to all stockholders on a pro rata basis
which is approved by the OTS; (ii) the repurchase of qualifying shares of a
director, if any; (iii) purchases in the open market by a tax-qualified or
non-tax-qualified employee stock benefit plan in an amount reasonable and
appropriate to fund the plan; or (iv) purchases that are part of an open-market
program not involving more than 5% of its outstanding capital stock during a
12-month period, if the repurchases do not cause Ponchatoula to become
undercapitalized and Ponchatoula provides to the Regional Director of the OTS no
later than 10 days prior to the commencement of a repurchase program written
notice containing a full description of the program to be undertaken and such
program is not disapproved by the Regional Director. However, the Regional
Director has authority to permit repurchases during the first year following
consummation of the Conversion and to permit repurchases in excess of 5% during
the second and third years upon the establishment of exceptional circumstances
(i.e., where such repurchases would be in the best interests of the institution
and its stockholders).
RESTRICTIONS ON ACQUISITION OF THE COMPANY
AND PONCHATOULA
General
As described below, certain provisions in the Company's Articles of
Incorporation and Bylaws and in the Company's and Ponchatoula's proposed benefit
plans, together with provisions of Louisiana corporate law and OTS regulations,
may have anti-takeover effects. In addition, regulatory restrictions may make it
difficult for persons or companies to acquire control of either the Company or
Ponchatoula.
Restrictions in the Company's Articles of Incorporation and Bylaws
General. A number of provisions of the Company's Articles of Incorporation
and Bylaws deal with matters of corporate governance and certain rights of
stockholders. The following discussion is a general summary of certain
provisions of the Company's Articles of Incorporation and Bylaws which might be
deemed to have a potential "anti-takeover" effect. These provisions may have the
effect of discouraging a future takeover attempt which is not approved by the
Board of Directors but which individual Company stockholders may deem to be in
their best interests or in which stockholders may receive a substantial premium
for their shares over then current market prices. As a result, stockholders who
might desire to participate in such a transaction may not have an opportunity to
do so. Such provisions will also render the removal of the current Board of
Directors or management of the Company more difficult. The following description
of certain of the provisions of the Articles of Incorporation and Bylaws of the
Company is necessarily general and reference should be made in each case to such
Articles of Incorporation
110
<PAGE>
and Bylaws, which are incorporated herein by reference. See "Additional
Information" as to how to obtain a copy of these documents.
Limitation on Voting Rights. Article 10.A of the Company's Articles of
Incorporation provides that for a period of five years from the date of the
Conversion, no person shall directly or indirectly offer to acquire or acquire
the beneficial ownership of (i) more than 10% of the issued and outstanding
shares of any class of an equity security of the Company, or (ii) any securities
convertible into, or exercisable for, any equity securities of the Company if,
assuming conversion or exercise by such person of all securities of which such
person is the beneficial owner which are convertible into, or exercisable for,
such equity securities (but of no securities convertible into, or exercisable
for, such equity securities of which such person is not the beneficial owner),
such person would be the beneficial owner of more than 10% of any class of an
equity security of the Company. The term "person" is broadly defined to prevent
circumvention of this restriction.
The foregoing restrictions do not apply to (i) any offer with a view
toward public resale made exclusively to the Company by underwriters or a
selling group acting on its behalf, (ii) any tax-qualified employee benefit plan
or arrangement established by the Company or Ponchatoula and any trustee of such
a plan or arrangement, and (iii) any other offer or acquisition approved in
advance by the affirmative vote of two-thirds of the Company's entire Board of
Directors. In the event that shares are acquired in violation of Article 10.A,
all shares beneficially owned by any person in excess of 10% shall be considered
"Excess Shares" and shall not be counted as shares entitled to vote and shall
not be voted by any person or counted as voting shares in connection with any
matters submitted to stockholders for a vote, and the Board of Directors may
cause such Excess Shares to be transferred to an independent trustee for sale on
the open market or otherwise, with the expenses of such trustee to be paid out
of the proceeds of sale.
Board of Directors. Article 6.B of the Articles of Incorporation of the
Company contains provisions relating to the Board of Directors and provides,
among other things, that the Board of Directors shall be divided into three
classes as nearly equal in number as possible, with the term of office of one
class expiring each year. See "Management - Management of the Company." The
classified Board is intended to provide for continuity of the Board of Directors
and to make it more difficult and time consuming for a stockholder group to
fully use its voting power to gain control of the Board of Directors without the
consent of the incumbent Board of Directors of the Company. Cumulative voting in
the election of directors is not permitted.
Directors may be removed without cause at a duly constituted meeting of
stockholders called expressly for that purpose upon the vote of the holders of
at least 75% of the total votes eligible to be cast by stockholders, and with
cause by the affirmative vote of a majority of the total votes eligible to be
cast by stockholders. Cause for removal shall exist only if the director whose
removal is proposed has been either declared of unsound mind by an order of a
court of competent jurisdiction, convicted of a felony or of an offense
punishable by imprisonment for a term of more than one year by a court of
competent jurisdiction, or deemed liable by a court of competent jurisdiction
for gross negligence or misconduct in the performance of such director's duties
to the Company. Any vacancy occurring in the Board of Directors for any reason
(including an increase in the number of authorized directors) may be filled by
the affirmative vote of a majority of the remaining directors, whether or not a
quorum of the Board of Directors is present, and a director appointed to fill a
vacancy shall serve until the expiration of the term to which he was appointed.
Article 6.F of the Articles of Incorporation governs nominations for
election to the Board, and requires all nominations for election to the Board of
Directors other than those made by the Board to be made by a stockholder
eligible to vote at an annual meeting of stockholders who has complied with the
notice provisions in that section. Written notice of a stockholder nomination
must be delivered to, or mailed to and received at, the principal executive
offices of the Company not later than 120 days prior to the anniversary date of
the initial mailing of proxy materials by the Company in connection with the
immediately preceding annual meeting of stockholders of the Company, provided
that, with respect to the first scheduled annual meeting following completion of
the Conversion, notice must be received no later than the close of business on
Monday, January 4, 1999. Each such notice shall set forth (a) the
111
<PAGE>
name, age, business address and residence address of the stockholder who intends
to make the nomination and of the person or persons to be nominated; (b) the
principal occupation or employment of the stockholder submitting the notice and
of each person being nominated; (c) the class and number of shares of the
Company's stock beneficially owned by the stockholder submitting the notice, by
any person who is acting in concert with or who is an affiliate or associate of
such stockholder (as such terms are defined in the Articles of Incorporation),
by any person who is a member of any group with such stockholder with respect to
the Company's stock or who is known by such stockholder to be supporting such
nominee(s) on the date the notice is given to the Company, by each person being
nominated, and by each person who is in control of, is controlled by or is under
common control with any of the foregoing persons (if any of the foregoing
persons is a partnership, corporation, limited liability company, association or
trust, information must be provided regarding the name and address of, and the
class of number of shares of Company stock which are beneficially owned by, each
partner in such partnership, each director, executive officer and stockholder in
such corporation, each member in such limited liability company or association,
and each trustee and beneficiary of such trust, and in each case each person
controlling such entity and each partner, director, executive officer,
stockholder, member or trustee of any entity which is ultimately in control of
such partnership, corporation, limited liability company, association or trust);
(d) a representation that the stockholder is a holder of record of stock of the
Company entitled to vote at such meeting and intends to appear in person or by
proxy at the meeting to nominate the person or persons specified in the notice;
(e) a description of all arrangements or understandings between the stockholder
and each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; (f) such other information regarding the stockholder submitting the
notice, each nominee proposed by such stockholder and any other person covered
by clause (c) of this paragraph as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the SEC; and (g) the consent of
each nominee to serve as a director of the Company if so elected.
Article 8.A of the Articles of Incorporation provides that a director or
officer of the Company will not be personally liable for monetary damages for
any action taken, or any failure to take any action, as a director or officer
except to the extent that by law a director's or officer's liability for
monetary damages may not be limited. This provision does not eliminate or limit
the liability of the Company's directors and officers for (a) any breach of the
director's or officer's duty of loyalty to the Company or its stockholders, (b)
any acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (c) any unlawful dividend, stock repurchase or
other distribution, payment or return of assets to stockholders, or (d) any
transaction from which the director or officer derived an improper personal
benefit. This provision may preclude stockholder derivative actions and may be
construed to preclude other third-party claims against the directors and
officers.
The Company's Articles of Incorporation also 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,
including actions by or in the right of the Company, whether civil, criminal,
administrative or investigative, by reason of the fact that such person is or
was a director, officer, employee or agent of the Company, or is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise. Such
indemnification is furnished to the full extent provided by law against expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred in connection with such action, suit or
proceeding. The indemnification provisions also permit the Company to pay
reasonable expenses in advance of the final disposition of any action, suit or
proceeding as authorized by the Company's Board of Directors, provided that the
indemnified person undertakes to repay the Company if it is ultimately
determined that such person was not entitled to indemnification.
The rights of indemnification provided in the Company's Articles of
Incorporation are not exclusive of any other rights which may be available under
the Company's Bylaws, any insurance or other agreement, by vote of stockholders
or directors (regardless of whether directors authorizing such indemnification
are beneficiaries thereof) or otherwise. In addition, the Articles of
Incorporation authorize the Company to maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Company,
whether or not the Company would have the power to provide indemnification to
such person. By action of the Board of Directors, the Company may create and
fund a trust fund or other fund or form of self-insurance arrangement of any
nature, and may enter into
112
<PAGE>
agreements with its officers, directors, employees and agents for the purpose of
securing or insuring in any manner its obligation to indemnify or advance
expenses provided for in the provisions in the Articles of Incorporation and
Bylaws regarding indemnification. These provisions are designed to reduce, in
appropriate cases, the risks incident to serving as a director, officer,
employee or agent and to enable the Company to attract and retain the best
personnel available.
The provisions regarding director elections and other provisions in the
Articles of Incorporation and Bylaws are generally designed to protect the
ability of the Board of Directors to negotiate with the proponent of an
unfriendly or unsolicited proposal to take over or restructure the Company by
making it more difficult and time-consuming to change majority control of the
Board, whether by proxy contest or otherwise. The effect of these provisions
will be to generally require at least two (and possibly three) annual
stockholders' meetings, instead of one, to effect a change in control of the
Board of Directors of the Company even if holders of a majority of the Company's
capital stock believed that a change in the composition of the Board of
Directors was desirable. Because a majority of the directors at any given time
will have prior experience as directors, these requirements will help to ensure
continuity and stability of the Company's management and policies and facilitate
long-range planning for the Company's business. The provisions relating to
removal of directors and filling of vacancies are consistent with and supportive
of a classified board of directors.
The procedures regarding stockholder nominations will provide the Board of
Directors with sufficient time and information to evaluate a stockholder nominee
to the Board and other relevant information, such as existing stockholder
support for the nominee. The proposed procedures, however, will provide
incumbent directors advance notice of a dissident slate of nominees for
directors, and will make it easier for the Board to solicit proxies resisting
such nominees. This may make it easier for the incumbent directors to retain
their status as directors, even when certain stockholders view the stockholder
nominations as in the best interests of the Company or its stockholders.
Authorized Shares. Article 4 of the Articles of Incorporation authorizes
the issuance of 15,000,000 shares of stock, of which 5,000,000 shares shall be
shares of serial Preferred Stock, and 10,000,000 shares shall be Common Stock.
The shares of Common Stock and Preferred Stock were authorized in an amount
greater than that to be issued in the Conversion to provide the Company's Board
of Directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits and
employee stock options. However, these additional authorized shares may also be
used by the Board of Directors consistent with its fiduciary duty to deter
future attempts to gain control of the Company. The Board of Directors also has
sole authority to determine the terms of any one or more series of Preferred
Stock, including voting rights, conversion rates, and liquidation preferences.
As a result of the ability to fix voting rights for a series of Preferred Stock,
the Board has the power, to the extent consistent with its fiduciary duty, to
issue a series of Preferred Stock to persons friendly to management in order to
attempt to block a post-tender offer merger or other transaction by which a
third party seeks control, and thereby assist management to retain its position.
The Company's Board currently has no plans for the issuance of additional
shares, other than the issuance of additional shares pursuant to stock benefit
plans.
Special Meetings of Stockholders and Stockholder Proposals. Article 9.B of
the Articles of Incorporation provides that special meetings of the Company's
stockholders may only be called by (i) the President, (ii) a majority of the
Board of Directors, and (iii) persons who beneficially own an aggregate of at
least 50% of the outstanding voting shares, except as may otherwise be provided
by law. The Articles of Incorporation also provide that any action permitted to
be taken at a meeting of stockholders may be taken without a meeting if a
consent in writing, setting forth the action so taken, is given by the holders
of all outstanding shares entitled to vote and filed with the Secretary of the
Company.
Article 9.D of the Company's Articles of Incorporation provides that only
such business as shall have been properly brought before an annual meeting of
stockholders shall be conducted at the annual meeting. In order to be properly
brought before an annual meeting following completion of the Conversion,
business must be (a) brought before the meeting by or at the direction of the
Board of Directors or (b) otherwise properly brought before the meeting by a
stockholder who has given timely and complete notice thereof in writing to the
Company. For stockholder proposals to be included in the Company's proxy
materials, the stockholder must comply with all the
113
<PAGE>
timing and informational requirements of Rule 14a-8 of the Exchange Act. With
respect to stockholder proposals to be considered at the annual meeting of
stockholders but not included in the Company's proxy materials, the
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company not later than 120 days prior to the
anniversary date of the initial mailing of proxy materials by the Company in
connection with the immediately preceding annual meeting; provided, however,
that with respect to the first scheduled annual meeting following completion of
the Conversion, such written notice must be received by the Company not later
than the close of business on Monday, January 4, 1999. A stockholder's notice
shall set forth as to each matter the stockholder proposes to bring before the
annual meeting (a) a description of the proposal desired to be brought before
the annual meeting, (b) the name and address, as they appear on the Company's
books, of the stockholder proposing such business, and, to the extent known, any
other stockholders known by such stockholder to be supporting such proposal, (c)
the class and number of shares of the Company which are beneficially owned by
the stockholder submitting the notice, by any person who is acting in concert
with or who is an affiliate or associate of such stockholder (as such terms are
defined in the Articles of Incorporation), by any person who is a member of any
group with such stockholder with respect to the Company's stock or who is known
by such stockholder to be supporting such proposal on the date the notice is
given to the Company, and by each person who is in control of, is controlled by
or is under common control with any of the foregoing persons (if any of the
foregoing persons is a partnership, corporation, limited liability company,
association or trust, information must be provided regarding the name and
address of, and the class and number of shares of Company stock which are
beneficially owned by, each partner in such partnership, each director,
executive officer and stockholder in such corporation, each member in such
limited liability company or association, and each trustee and beneficiary of
such trust, and in each case each person controlling such entity and each
partner, director, executive officer, stockholder, member or trustee of any
entity which is ultimately in control of such partnership, corporation, limited
liability company, association or trust), (d) the identification of any person
retained or to be compensated by the stockholder submitting the proposal, or any
person acting on his or her behalf, to make solicitations or recommendations to
stockholders for the purpose of assisting in the passage of such proposal and a
brief description of the terms of such employment, retainer or arrangement for
compensation, and (e) any material interest of the stockholder in such business.
The procedures regarding stockholder proposals are designed to provide the
Board with sufficient time and information to evaluate a stockholder proposal
and other relevant information, such as existing stockholder support for the
proposal. The proposed procedures, however, will give incumbent directors
advance notice of a stockholder proposal. This may make it easier for the
incumbent directors to defeat a stockholder proposal, even when certain
stockholders view such proposal as in the best interests of the Company or its
stockholders.
Amendment of Articles of Incorporation and Bylaws. Article 11 of the
Company's Articles of Incorporation generally provides that any amendment of the
Articles of Incorporation must be first approved by a majority of the Board of
Directors and then by the holders of at least 75% of the shares of the Company
entitled to vote in an election of directors ("Voting Shares"), except that if
the amendment is approved by at least two-thirds of the Board of Directors, the
amendment shall only need stockholder approval if required by the Louisiana
Business Corporation Law ("BCL") and then only by the affirmative vote of the
holders of a majority of the Voting Shares.
The Bylaws of the Company may be amended by a majority of the Board of
Directors or by the affirmative vote of a majority of the Voting Shares, except
that the affirmative vote of at least 75% of the Voting Shares shall be required
to amend, adopt, alter, change or repeal any provision inconsistent with certain
specified provisions of the Bylaws.
Louisiana Corporate Law
In addition to the provisions contained in the Company's Articles of
Incorporation, the BCL includes certain provisions applicable to Louisiana
corporations, such as the Company, which may be deemed to have an anti-takeover
effect. Such provisions include (i) rights of stockholders to receive the fair
value of their shares of stock following
114
<PAGE>
a control transaction from a controlling person or group and (ii) requirements
relating to certain business combinations.
The BCL provides that any person who acquires "control shares" will be
able to vote such shares only if the right to vote is approved by the
affirmative vote of at least a majority of both (1) all the votes entitled to be
cast by stockholders and (2) all the votes entitled to be cast by stockholders
excluding "interested shares". "Control shares" is defined to include shares
that would entitle the holder thereof, assuming the shares had full voting
rights, to exercise voting power within any of the following ranges: (a) 20% or
more but less than one-third of all voting power; (b) one-third or more but less
than a majority of all voting power; or (c) a majority or more of all voting
power. Any acquisition that would result in the ownership of control shares in a
higher range would require an additional vote of stockholders. "Interested
shares" includes control shares and any shares held by an officer or employee
director of the corporation. If the control shares are provided full voting
rights, all stockholders have dissenters' rights entitling them to receive the
"fair cash value" of their shares, which shall not be less than the highest
price paid per share to acquire the control shares.
The BCL defines a "Business Combination" generally to include (a) any
merger, consolidation or share exchange of the corporation with an "Interested
Shareholder" or affiliate thereof, (b) any sale, lease, transfer or other
disposition, other than in the ordinary course of business, of assets equal to
10% or more of the market value of the corporation's outstanding stock or of the
corporation's net worth to any Interested Shareholder or affiliate thereof in
any 12-month period, (c) the issuance or transfer by the corporation of equity
securities of the corporation with an aggregate market value of 5% or more of
the total market value of the corporation's outstanding stock to any Interested
Shareholder or affiliate thereof, except in certain circumstances, (d) the
adoption of any plan or proposal for the liquidation or dissolution of the
corporation in which anything other than cash will be received by an Interested
Shareholder or affiliate thereof, or (e) any reclassification of the
corporation's stock or merger which increases by 5% or more the ownership
interest of the Interested Shareholder or any affiliate thereof. "Interested
Shareholder" includes any person who beneficially owns, directly or indirectly,
10% or more of the corporation's outstanding voting stock, or any affiliate
thereof who had such beneficial ownership during the preceding two years,
excluding in each case the corporation, its subsidiaries and their benefit
plans.
Under the BCL, a Business Combination must be approved by any vote
otherwise required by law or the articles of incorporation, and by the
affirmative vote of at least each of the following: (1) 80% of the total
outstanding voting stock of the corporation; and (2) two-thirds of the
outstanding voting stock held by persons other than the Interested Shareholder.
However, the supermajority vote requirement shall not be applicable if the
Business Combination meets certain minimum price requirements and other
procedural safeguards, or if the transaction is approved by the Board of
Directors prior to the time that the Interested Shareholder first became an
Interested Shareholder.
The BCL authorizes the board of directors of Louisiana business
corporations to create and issue (whether or not in connection with the issuance
of any of its shares or other securities) rights and options granting to the
holders thereof (1) the right to convert shares or obligations into shares of
any class, or (2) the right or option to purchase shares of any class, in each
case upon such terms and conditions as the Company may deem expedient.
Anti-Takeover Effects of the Articles of Incorporation and Bylaws and Management
Remuneration Adopted in the Conversion
The foregoing provisions of the Articles of Incorporation and Bylaws of
the Company and Louisiana law could have the effect of discouraging an
acquisition of the Company or stock purchases in furtherance of an acquisition,
and could accordingly, under certain circumstances, discourage transactions
which might otherwise have a favorable effect on the price of the Company's
Common Stock.
In addition, the proposed employment agreements with Ponchatoula's
executive officers and certain provisions in Ponchatoula's existing stock
benefit plans provide for accelerated benefits to participants in the event of a
change in control of the Company or Ponchatoula, as applicable. See "Management
- - Employment Agreements"
115
<PAGE>
and "- Existing Stock Options. The foregoing provisions and limitations may make
it more costly for companies or persons to acquire control of the Company.
The Board of Directors believes that the provisions described above are
prudent and will reduce vulnerability to takeover attempts and certain other
transactions that are not negotiated with and approved by the Board of Directors
of the Company. The Board of Directors believes that these provisions are in the
best interests of the Company and its future stockholders. In the Board of
Directors' judgment, the Board of Directors is in the best position to determine
the true value of the Company and to negotiate more effectively for what may be
in the best interests of its stockholders. Accordingly, the Board of Directors
believes that it is in the best interests of the Company and its future
stockholders to encourage potential acquirors to negotiate directly with the
Board of Directors and that these provisions will encourage such negotiations
and discourage hostile takeover attempts. It is also the Board of Directors'
view that these provisions should not discourage persons from proposing a merger
or other transaction at prices reflective of the true value of the Company and
where the transaction is in the best interests of all stockholders.
Despite the Board of Directors' belief as to the benefits to the Company's
stockholders of the foregoing provisions, these provisions also may have the
effect of discouraging a future takeover attempt in which stockholders might
receive a substantial premium for their shares over then current market prices
and may tend to perpetuate existing management. As a result, stockholders who
might desire to participate in such a transaction may not have an opportunity to
do so. The Board of Directors, however, has concluded that the potential
benefits of these provisions outweigh their possible disadvantages.
The Board of Directors of the Company and Ponchatoula are not aware of any
effort that might be made to acquire control of the Company or Ponchatoula.
Regulatory Restrictions
The Change in Bank Control Act provides that no person, acting directly or
indirectly or through or in concert with one or more other persons, may acquire
control of a savings institution unless the OTS has been given at least 60 days'
prior written notice. The HOLA provides that no company may acquire "control" of
a savings institution without the prior approval of the OTS. Any company that
acquires such control becomes a thrift holding company subject to registration,
examination and regulation by the OTS. Pursuant to federal regulations, control
of a savings institution is conclusively deemed to have been acquired by, among
other things, the acquisition of more than 25% of any class of voting stock of
the institution or its holding company or the ability to control the election of
a majority of the directors of an institution or its holding company. Moreover,
control is presumed to have been acquired, subject to rebuttal, upon the
acquisition of more than 10% of any class of voting stock, or of more than 25%
of any class of stock, of a savings institution or its holding company where
certain enumerated "control factors" are also present in the acquisition. The
OTS may prohibit an acquisition if (i) it would result in a monopoly or
substantially lessen competition, (ii) the financial condition of the acquiring
person might jeopardize the financial stability of the institution, or (iii) the
competence, experience or integrity of the acquiring person indicates that it
would not be in the interest of the depositors or of the public to permit the
acquisition of control by such person. The foregoing restrictions do not apply
to the acquisition of the capital stock of a savings institution or its holding
company by one or more tax-qualified employee stock benefit plans, provided that
the plan or plans do not have beneficial ownership in the aggregate of more than
25% of any class of equity security of the savings institution or its holding
company.
For three years following the Conversion, OTS regulations prohibit any
person from acquiring, either directly or indirectly, or making an offer to
acquire more than 10% of the stock of any converted savings institution or its
holding company, without the prior written approval of the OTS, except for (i)
any offer with a view toward public resale made exclusively to the institution
or its holding company or to underwriters or a selling group acting on its
behalf, (ii) offers that if consummated would not result in the acquisition by
such person during the preceding 12-month period of more than 1% of such stock,
(iii) offers in the aggregate for up to 24.9% by the ESOP or other tax-qualified
plans of the Company or Ponchatoula, and (iv) an offer to acquire or acquisition
of beneficial ownership
116
<PAGE>
of more than 10% of the common stock of the savings institution or its holding
company by a corporation whose ownership is or will be substantially the same as
the ownership of the savings institution, provided that the offer or acquisition
is made more than one year following the date of completion of the Conversion.
Such prohibition also is applicable to the acquisition of the Common Stock. In
the event that any person, directly or indirectly, violates this regulation, the
securities beneficially owned by such person in excess of 10% shall not be
counted as shares entitled to vote and shall not be voted by any person or
counted as voting shares in connection with any matters submitted to a vote of
stockholders. The definition of beneficial ownership for this regulation extends
to persons holding revocable or irrevocable proxies for the stock of an
institution or its holding company under circumstances that give rise to a
conclusive or rebuttable determination of control under OTS regulations.
In addition to the foregoing, the Plan prohibits any person, prior to the
completion of the Conversion, from offering, or making an announcement of an
intent to make an offer, to purchase subscription rights for Conversion Stock.
See "The Conversion - Restrictions on Transfer of Subscription Rights and
Shares."
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
General
The Company is authorized to issue 10,000,000 shares of Common Stock and
5,000,000 shares of Preferred Stock. The Company currently expects to issue up
to a maximum of 1,285,170 shares of Common Stock, including 977,500 shares of
Conversion Stock and 307,670 shares of Exchange Shares, and no shares of
Preferred Stock in the Conversion. Each share of Common Stock will have the same
relative rights as, and will be identical in all respects with, each other share
of Common Stock. Upon payment of the Purchase Price for the Conversion Stock and
the issuance of the Exchange Shares in accordance with the Plan of Conversion,
all such stock will be duly authorized, fully paid and nonassessable.
The Common Stock will represent nonwithdrawable capital, will not be an
account of an insurable type and will not be insured by the FDIC or any other
governmental authority.
Common Stock
Dividends. The Company can pay dividends if, as and when declared by its
Board of Directors, subject to compliance with limitations which are imposed by
law. See "Dividend Policy." The holders of Common Stock will be entitled to
receive and share equally in such dividends as may be declared by the Board of
Directors of the Company out of funds legally available therefor. If the Company
issues Preferred Stock, the holders thereof may have a priority over the holders
of the Common Stock with respect to dividends.
Voting Rights. Upon completion of the Conversion, the holders of Common
Stock of the Company will possess exclusive voting rights in the Company. They
will elect the Company's Board of Directors and act on such other matters as are
required to be presented to them under Louisiana law or the Company's Articles
of Incorporation or as are otherwise presented to them by the Board of
Directors. Except as discussed in "Restrictions on Acquisition of the Company
and Ponchatoula - Restrictions in the Company's Articles of Incorporation and
Bylaws - Limitation on Voting Rights," each holder of Common Stock will be
entitled to one vote per share and will not have any right to cumulate votes in
the election of directors. If the Company issues Preferred Stock, holders of the
Preferred Stock may also possess voting rights.
Liquidation. In the event of any liquidation, dissolution or winding up of
the Company, the holders of the then-outstanding Common Stock would be entitled
to receive, after payment or provision for payment of all its debts and
liabilities, all of the assets of the Company available for distribution. If
Preferred Stock is issued, the holders thereof may have a priority over the
holders of the Common Stock in the event of liquidation or dissolution.
117
<PAGE>
Preemptive Rights. Holders of the Common Stock will not be entitled to
preemptive rights with respect to any shares which may be issued in the future.
The Common Stock is not subject to redemption.
Preferred Stock
None of the shares of the Company's authorized Preferred Stock will be
issued in the Conversion. Such stock may be issued with such preferences and
designations as the Board of Directors may from time to time determine. The
Board of Directors can, without stockholder approval, issue Preferred Stock with
voting, dividend, liquidation and conversion rights which could dilute the
voting strength of the holders of the Common Stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
EXPERTS
The financial statements of Ponchatoula as of December 31, 1997 and 1996,
and for each of the years ended December 31, 1997, 1996 and 1995, included in
this Prospectus have been included herein in reliance upon the report of Hannis
T. Bourgeois, L.L.P., independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
RP Financial has consented to the publication herein of the summary of its
report to the Company and Ponchatoula setting forth its opinion as to the
estimated pro forma market value of the Common Stock to be outstanding upon
completion of the Conversion and its opinion with respect to subscription
rights.
LEGAL MATTERS
The legality of the Common Stock and the federal income tax consequences
of the Conversion will be passed upon for the Company and Ponchatoula by Elias,
Matz, Tiernan & Herrick L.L.P., Washington, D.C., special counsel to the Company
and Ponchatoula. The Louisiana income tax consequences of the Conversion will be
passed upon for the Company and Ponchatoula by Hannis T. Bourgeois, L.L.P.
Certain legal matters will be passed upon for Trident by Luse Lehman Gorman
Pomerenk & Schick, P.C.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement under the
Securities Act with respect to the Conversion Stock and the Exchange Shares
offered hereby. As permitted by the rules and regulations of the SEC, this
Prospectus does not contain all the information set forth in the Registration
Statement. Such information can be examined without charge at the public
reference facilities of the SEC located at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of such material can be obtained from the SEC at
prescribed rates. In addition, the SEC maintains a web site that contains
registration statements and other reports regarding registrants that file
electronically with the SEC (such as the Company). The address of the SEC's web
site is http://www.sec.gov. The statements contained in this Prospectus as to
the contents of any contract or other document filed as an exhibit to the
Registration Statement are, of necessity, brief descriptions thereof and are not
necessarily complete; each such statement is qualified by reference to such
contract or document.
The Mutual Holding Company has filed an Application for Conversion with
the OTS with respect to the Conversion. This Prospectus omits certain
information contained in that application. The application may be examined at
the principal office of the OTS, 1700 G Street, N.W., Washington, D.C. 20552,
and at the Midwest Regional Office of the OTS located at 122 W. John Carpenter
Freeway, Suite 600, Irving, Texas 75039-2010.
118
<PAGE>
In connection with the Conversion, the Company will register its Common
Stock with the SEC under Section 12(g) of the Exchange Act, and, upon such
registration, the Company and the holders of its stock will become subject to
the proxy solicitation rules, reporting requirements and restrictions on stock
purchases and sales by directors, officers and greater than 10% stockholders,
the annual and periodic reporting requirements and certain other requirements of
the Exchange Act. Under the Plan, the Company has undertaken that it will not
terminate such registration for a period of at least three years following the
Conversion.
119
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report................................................F-1
Statements of Financial Condition as of December 31, 1997 and 1996..........F-2
Statements of Income for the years ended December 31, 1997, 1996 and 1995....36
Statements of Stockholders' Equity for the years ended December 31, 1997,
1996 and 1995..............................................................F-3
Statements of Cash Flows for the years ended December 31, 1997, 1996
and 1995....................................................................F-4
Notes to Financial Statements...............................................F-6
All financial statement schedules are omitted because the required
information either is not applicable or is shown in the financial statements or
in the notes thereto.
Homestead Mutual Holding Company has limited assets other than its shares
of Ponchatoula Common Stock (which will be cancelled in connection with the
Conversion ) and has engaged in only minimal activities to date; accordingly,
the financial statements of the Mutual Holding Company have been omitted because
of their immateriality.
Homestead Bancorp, Inc. was incorporated on February 27, 1998. Its current
capitalization is $1,000, and it has engaged in only minimal activities to date;
accordingly, the financial statements of the Company have been omitted because
of their immateriality.
120
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Ponchatoula Homestead Savings, F.A.
Ponchatoula, Louisiana
We have audited the Statements of Financial Condition of Ponchatoula
Homestead Savings, F.A. as of December 31, 1997 and 1996, and the related
Statements of Income, Stockholders' Equity and Cash Flows for the years ended
December 31, 1997, 1996 and 1995. These financial statements are the
responsibility of the Association'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 Ponchatoula Homestead
Savings, F.A. as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years ended December 31, 1997, 1996 and
1995 in conformity with generally accepted accounting principles.
RESPECTFULLY SUBMITTED,
HANNIS T. BOURGEOIS, L.L.P.
Baton Rouge, Louisiana
January 13, 1998, except as to Note 21,
which is as of February 25, 1998
F-1
<PAGE>
PONCHATOULA HOMESTEAD SAVINGS, F.A
STATEMENTS OF FINANCIAL CONDITION
as of December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash...................................... $609 $276
Interest-Bearing Deposits in Other
Institutions............................ 645 1,022
Securities:
Investment Securities Available for
Sale (Amortized Cost of $2.6 million
and $2.4 million)..................... 2,605 2,399
Mortgage-Backed Securities Available
for Sale (Amortized Cost of $14.3
million and $16.6 million)............ 14,261 16,472
Mortgage-Backed Securities Held to
Maturity (Fair Value of $10.4 million
and $10.4 million).................... 10,301 10,254
Federal Home Loan Bank Stock, at Cost... 584 543
------------ ------------
Total Securities.................... 27,751 29,668
Loans Held for Sale....................... 1,414 2,290
Loans Receivable.......................... 28,033 25,973
Leases Receivable......................... 301 459
Total Loans and Leases Receivable........ 28,334 26,432
------------ ------------
Less: Allowance for Loan and Lease
Losses................................... (265) (282)
------------ ------------
Net Loans and Lease Receivables...... 28,069 26,150
Real Estate Owned.......................... -- 141
Premises and Equipment, Net................ 545 542
Accrued Interest Receivable................ 420 463
Other Assets............................... 127 139
------------ ------------
Total Assets......................... $59,580 $60,691
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits................................... $42,111 $44,427
Advances from Borrowers for Taxes and
Insurance................................ 32 38
Advances from Federal Home Loan Bank....... 11,500 10,700
Income Taxes Payable....................... 162 --
Other Liabilities.......................... 40 83
------------ ------------
Total Liabilities.................... 53,845 55,248
------------ ------------
Commitments and Contingencies
Stockholders' Equity:
Common Stock-- $0.10 Par Value;
8,000,000 Shares Authorized,
606,345 Shares Issued and Outstanding
in 1997 and 606,285 Shares Issued and
Outstanding in 1996..................... 61 61
Paid-in Capital in Excess of Par.......... 2,017 1,697
Retained Earnings--Substantially
Restricted.............................. 3,734 3,843
Unrealized Loss on Securities Available
for Sale, Net of Income Taxes........... (35) (101)
------------ ------------
5,777 5,500
Common Stock acquired by Management
Recognition Plans........................ (42) (57)
------------ ------------
Total Stockholders' Equity........... 5,735 5,443
------------ ------------
Total Liabilities and Stockholders'
Equity............................. $59,580 $60,691
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
PONCHATOULA HOMESTEAD SAVINGS, F.A.
STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Common Stock:
Balance--Beginning of Year......................................................... $ 61 $ 60 $ 60
Exercise of Stock Option........................................................... -- 1 --
--------- --------- ---------
Balance--End of Year............................................................... $ 61 $ 61 $ 60
--------- --------- ---------
--------- --------- ---------
Paid-In Capital In Excess of Par:
Balance--Beginning of Year......................................................... $ 1,697 $ 1,402 $ 1,219
Exercise of Stock Option........................................................... -- 61 --
Dividends Declared and Waived by Holding Company................................... 320 234 183
--------- --------- ---------
Balance--End of Year............................................................... $ 2,017 $ 1,697 $ 1,402
--------- --------- ---------
--------- --------- ---------
Retained Earnings:
Balance--Beginning of Year......................................................... $ 3,843 $ 4,006 $ 3,937
Net Income......................................................................... 316 146 309
Cash Dividends Declared and Paid................................................... (105) (75) (57)
Dividends Declared and Waived by Holding Company................................... (320) (234) (183)
--------- --------- ---------
Balance--End of Year............................................................... $ 3,734 $ 3,843 $ 4,006
--------- --------- ---------
--------- --------- ---------
Unrealized Gain (Loss) on Securities Available for Sale, Net:
Balance--Beginning of Year......................................................... $ (101) $ 16 $ (437)
Net Change in Unrealized Gain (Loss)............................................... 66 (117) 453
--------- --------- ---------
Balance--End of Year............................................................... $ (35) $ (101) $ 16
--------- --------- ---------
--------- --------- ---------
Management Recognition Plans:
Balance--Beginning of Year......................................................... $ (57) $ -- $ --
Issuance of Common Stock........................................................... -- (57) --
Shares of Common Stock Earned...................................................... 15 -- --
--------- --------- ---------
Balance--End of Year................................................................. $ (42) $ (57) $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
PONCHATOULA HOMESTEAD SAVINGS, F.A.
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income............................................................................. $ 316 $ 146 $ 309
Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating
Activities:
Depreciation......................................................................... 29 43 52
Provision for Deferred Income Taxes.................................................. 31 10 19
Provision for (Recovery of) Loan and Lease Losses.................................... (16) 3 (6)
Loss on Sale of Real Estate Owned.................................................... 27 -- --
Provision for (Recovery of) Real Estate Losses....................................... (4) 4 5
Net Amortization of Premiums on Securities........................................... 57 42 23
Loss on Call of Mortgage-Backed Securities........................................... 1 -- --
Stock Dividends on Federal Home Loan Bank Stock...................................... (41) (58) (30)
Loans Originated for Sale............................................................ (7,835) (10,464) (7,018)
Sale of Loans........................................................................ 8,711 9,940 6,527
Changes in Assets and Liabilities:
(Increase) Decrease in Interest Receivable......................................... 43 (19) (100)
(Increase) Decrease in Other Assets................................................ (40) (46) (5)
Increase (Decrease) in Income Taxes Payable........................................ 131 -- --
Increase (Decrease) in Other Liabilities........................................... (26) (74) (26)
--------- --------- ---------
Net Cash Provided by (Used in) Operating Activities................................ 1,384 (473) (250)
--------- --------- ---------
Cash Flows From Investing Activities:
Purchase of Property and Equipment................................................... (32) (15) (60)
Maturities of Investment Securities.................................................. 1,200 1,200 1,500
Purchases of Investment Securities................................................... (1,400) (1,195) (1,506)
Proceeds from Call or Maturities of Mortgage-Backed Securities....................... 4,444 3,999 3,719
Purchases of Mortgage-Backed Securities.............................................. (2,244) (7,884) (7,720)
Net Increase in Loans and Leases Receivable.......................................... (1,844) (432) (338)
Proceeds from Sales of Real Estate Owned............................................. 61 -- 13
Purchases of Real Estate Owned....................................................... (1) -- --
-------- --------- ---------
Net Cash Provided by (Used in) Investing Activities................................ 184 (4,327) (4,392)
-------- --------- ---------
Cash Flows From Financing Activities:
Net Increase (Decrease) in Money Market Accounts, NOW Accounts and Savings
Accounts........................................................................... (1,588) (685) (8,010)
Net Increase (Decrease) in Certificates of Deposit................................... (728) 223 10,938
Increase (Decrease) in Advances from Borrowers for Taxes and Insurance............... (6) (9) (5)
</TABLE>
F-4
<PAGE>
PONCHATOULA HOMESTEAD SAVINGS, F.A.
STATEMENTS OF CASH FLOWS
(CONTINUED)
for the years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from Federal Home Loan Bank
Advances............................. 800 4,400 3,100
Dividends Paid on Common Stock......... (105) (75) (57)
MRP Shares Earned...................... 15 -- --
---------- --------- ---------
Net Cash Provided by (Used in)
Financing Activities.............. (1,612) 3,854 5,966
---------- --------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents............................ (44) (946) 1,324
Cash and Cash Equivalents -
Beginning of Year...................... 1,298 2,244 920
---------- --------- ---------
Cash and Cash Equivalents -
End of Year........................... $ 1,254 $ 1,298 $ 2,244
Supplemental Disclosures of Cash Flow
Information:
Cash Payments for:
Interest Paid to Depositors.......... $1,972 $ 2,159 $ 2,007
---------- --------- ---------
---------- --------- ---------
Income Taxes......................... $-- $ 91 $ 136
---------- --------- ---------
---------- --------- ---------
Supplemental Schedules of Noncash
Investing and Financing Activities:
Real Estate Acquired in Settlement of
Loans and Leases....................... $88 $ 145 $ 75
---------- --------- ---------
---------- --------- ---------
Loans and Leases to Facilitate the Sale
of Real Estate Owned................... $147 $ -- $ 120
---------- --------- ---------
---------- --------- ---------
Increase in Unrealized Gain (Loss) on
Securities Available for Sale........ $100 $(178) $ 697
---------- --------- ---------
---------- --------- ---------
Increase (Decrease) in Deferred Tax
Effect on Unrealized Gain (Loss) on
Securities Available for Sale........ $(34) $61 $(244)
---------- --------- ---------
---------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
PONCHATOULA HOMESTEAD SAVINGS, F.A.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
The accounting principles followed by Ponchatoula Homestead Savings, F.A.
("Ponchatoula") are those which are generally practiced within the savings
and loan industry. The methods of applying those principles conform with
generally accepted accounting principles and have been applied on a
consistent basis. The principles which significantly affect the determination
of financial position, results of operations, changes in stockholders' equity
and cash flows are summarized below. Homestead Mutual Holding Company (the
Company) is the majority stockholder of Ponchatoula and engages in no
business activities other than its ownership of approximately 75% of
Ponchatoula's common stock.
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. The most significant estimates and assumptions in the
financial statements affect the allowance for loan and lease losses and the
value of securities available for sale. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand, certificates of deposit,
and funds due from banks. For purposes of the Statements of Cash Flows,
Ponchatoula considers all highly liquid debt instruments with original
maturities when purchased of three months or less to be cash equivalents. In
addition, Ponchatoula reports its loans and certificates of deposit on a net
basis.
INVESTMENT AND MORTGAGE-BACKED SECURITIES
Securities are being accounted for in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities", which requires the classification of securities as
held to maturity, trading, or available for sale.
Securities classified as held to maturity are those securities
Ponchatoula has both the intent and ability to hold to maturity regardless of
changes in market conditions, liquidity needs or changes in general economic
conditions. These securities are carried at cost adjusted for amortization of
premium and accretion of discount, computed by the interest method over their
contractual lives.
Securities classified as available for sale are those securities that
Ponchatoula intends to hold for an indefinite period of time but not necessarily
to maturity. Any decision to sell a security classified as available for sale
would be based on various factors, including significant movements in interest
rates, changes in the maturity mix of Ponchatoula's assets and liabilities,
liquidity needs, regulatory capital considerations, and other similar factors.
Securities available for sale are carried at fair value. Unrealized gains or
losses are reported as increases or decreases in stockholders' equity, net of
related income tax effects. Realized gains or losses, determined on the basis of
the cost of specific securities sold, are included in earnings. Ponchatoula does
not engage in trading activities.
F-6
<PAGE>
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
LOANS HELD FOR SALE
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated fair value in the aggregate. Net
unrealized losses are recognized in a valuation allowance by charges to income.
Gains on sales of loans are recognized when the proceeds from the loan sales are
received by the Association.
LOANS RECEIVABLE
Loans receivable are stated at unpaid principal balances, less the allowance
for loan losses, and net deferred loan origination fees. Interest on mortgage
and consumer loans is accrued based on the principal outstanding.
Impaired loans are being accounted for in accordance with Statement of
Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan", as amended by Statement No. 118, "Accounting by Creditors
for Impairment of a Loan--Income Recognition and Disclosure." The statements
generally require impaired loans to be measured on the present value of expected
future cash flows discounted at the loan's effective interest rate, or as an
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent.
A loan is impaired when it is probable the creditor will be unable to
collect all contractual principal and interest payments due in accordance with
the terms of the loan agreement.
Ponchatoula discontinues the accrual of interest income when a loan becomes
90 days past due as to principal or interest. At that time, a reserve is
recorded equal to the amount of delinquent interest. If the delinquent interest
is subsequently collected, it is credited to income in the period collected.
Interest on impaired loans is discontinued when, in management's opinion, the
borrower may be unable to meet payments as they become due.
ALLOWANCE FOR LOSSES
The allowance for loan and lease losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses inherent in the loan
and lease portfolios. The amount of the allowance is based on management's
evaluation of the collectibility of the loan and lease portfolios, including the
nature of the portfolios, credit concentrations, trends in historical loss
experience, specific impaired loans, and economic conditions. Allowances for
impaired loans are generally determined based on collateral values or the
present value of estimated cash flows. The allowance is increased by a provision
for loan and lease losses, which is charged to expense, and reduced by
charge-offs, net of recoveries.
LOAN FEES
Loan fees received are accounted for in accordance with SFAS No. 91,
"Accounting for Nonrefundable Fees and Costs Associated With Originating or
Acquiring Loans and Initial Direct Costs of Leases". Loan fees and certain
direct loan origination costs are deferred, and the net fee or cost is
recognized as interest income using the level yield method over the contractual
life of the loan.
LEASING ACTIVITIES
Ponchatoula's leasing operations consist of the leasing of various real
estate properties owned. The leases are classified as sales-type leases. The
lease terms range from 15 to 30 years. Under the sales-type method of accounting
for leases, the total net rentals receivable under the lease contracts,
including accrued interest, are recorded as a lease sale receivable. The
interest is recognized each month as it is earned so as to produce a constant
periodic rate of return on the unrecovered investment.
Valuations are periodically performed by management and an allowance for
losses is established by a charge to operations if the carrying value of the
property exceeds its estimated net realizable value.
F-7
<PAGE>
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Expenditures for maintenance and repairs are charged to operations as incurred.
Costs of major additions and improvements are capitalized.
Ponchatoula computes depreciation generally on the straight-line and
accelerated methods for financial reporting. The accelerated methods used do not
differ materially from results obtained using the straight-line method.
Depreciation is based on the estimated service lives of the assets. The
estimated service lives for buildings is twenty to thirty nine years and for
furniture, fixtures and equipment is five to ten years.
The costs of assets retired or otherwise disposed of and the related
accumulated depreciation are eliminated from the accounts in the year of
disposal and the resulting gains or losses are included in current operations.
INCOME TAXES
Deferred income taxes are provided on differences between income reported
for financial reporting and income tax purposes as explained more fully in Note
10. Deferred taxes are provided on a liability method in accordance with SFAS
No. 109. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to be recovered or
settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the
enactment date.
CURRENT ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board issued Statement No. 130 "Reporting
Comprehensive Income", which becomes effective for fiscal years beginning after
December 15, 1997. This statement establishes standards for reporting and
display of comprehensive income and its components which are revenues, expenses,
gains, and losses that under GAAP are included in comprehensive income but
excluded from net income. Ponchatoula will adopt this statement in 1998 and
anticipates that comprehensive income will not differ materially from net income
reported.
NOTE 2--SECURITIES -
The amortized cost and fair values of securities being held to maturity as
of December 31, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- ----------------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31, 1997
Mortgage-Backed Securities....................................... $ 10,301 $135 $(21) $ 10,415
--------- ----- ---- ----------
--------- ----- ---- ----------
December 31, 1996
Mortgage-Backed Securities....................................... $ 10,254 $109 $(11) $ 10,352
--------- ----- ---- ----------
--------- ----- ---- ----------
</TABLE>
The amortized cost and fair values of securities being held to maturity may
differ from contractual maturities in mortgage-backed securities because the
mortgages underlying the securities may be called or repaid without any
penalties. Therefore, these securities are not included in maturity categories.
The amortized cost and fair values of securities available for sale as of
December 31, 1997 and 1996 are summarized as follows:
F-8
<PAGE>
NOTE 2--SECURITIES -(continued)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- --------------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31, 1997
Securities of U.S.
Government Agencies........................... $ 2,595 $ 10 $ -- $ 2,605
------------- ------ ------- ---------
------------- ------ ------- ---------
Mortgage-Backed Securities.................... $ 14,324 $ 74 $ (137) $ 14,261
------------- ------ ------- ---------
------------- ------ ------- ---------
December 31, 1996
Securities of U.S.
Government Agencies........................... $ 2,396 $ 6 $ (3) $ 2,399
------------- ------ ------- ---------
------------- ------ ------- ---------
Mortgage-Backed Securities.................... $ 16,629 $ 62 $ (219) $ 16,472
------------- ------ ------- ---------
------------- ------ ------- ---------
</TABLE>
The amortized cost and fair values of securities available for sale as of
December 31, 1997 by contractual maturity are shown below. Actual maturities
may differ from contractual maturities in mortgage-backed securities because
the mortgages underlying the securities may be called or repaid without any
penalties. Therefore these securities are not included in the maturity
categories in the following maturity summary. The mortgage-backed securities
are insured or guaranteed by the GNMA, the FHLMC or the FNMA, and have
adjustable rates of interest.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
------------- ---------
(IN THOUSANDS)
<S> <C> <C>
Within One Year....................................... $ 1,196 $ 1,203
One to Five Years..................................... 1,399 1,402
------------- ---------
2,595 2,605
Mortgage-backed Securities............................ 14,324 14,261
------------- ---------
Total............................................... $ 16,919 $ 16,866
------------- ---------
------------- ---------
</TABLE>
There were no sales of securities during 1997, 1996 or 1995. Pledged
securities totaled $11.6 million and $11.0 million at December 31, 1997 and
1996.
Ponchatoula has invested in FHLB stock which is carried at cost which
approximates market.
NOTE 3--LOANS AND LEASES RECEIVABLE -
Loans and leases receivable at December 31, 1997 and 1996 consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
First Mortgage Loans (Includes $19.4
millon and $18.1 million in 1-4 family)... $ 19,500 $ 18,302
Second Mortgage Loans (Includes $164,000
and $317,000 in 1-4 family)............... 164 317
Construction Loans.......................... 968 1,114
Consumer Loans.............................. 7,175 6,812
Commercial Loans............................ 521 52
--------- ---------
28,328 26,597
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Less:
Undisbursed Portion of Mortgage Loans............. (287) (607)
Deferred Loan Fees................................ (8) (17)
--------- ---------
Net Loans Receivable............................ 28,033 25,973
Leases Receivable................................... 301 459
Less:
Allowance for Loan and Lease Losses............... (265) (282)
--------- ---------
28,069 26,150
Loans Held for Sale................................. 1,414 2,290
--------- ---------
Net Loans and Leases.............................. $ 29,483 $ 28,440
--------- ---------
--------- ---------
</TABLE>
Ponchatoula had loans 90 days or more past due totaling approximately
$173,000 and $365,000 at December 31, 1997and 1996, respectively.
There were no impaired loans at December 31, 1997 which were required to be
recorded in conformity with SFAS No. 114 as amended by SFAS No. 118.
Ponchatoula is permitted to make extensions of credit to its officers and
directors in the ordinary course of business. The loans are made on
substantially the same terms as those prevailing at the time for comparable
loans with other parties. The total of such indebtedness outstanding at December
31, 1997 and 1996 was $403,000 and $341,000, respectively. An analysis of the
aggregate of these loans for 1997 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Balance--Beginning of Year............................. $ 341
New Loans.............................................. 135
Repayments............................................. (73)
-----
Balance--End of Year................................... $ 403
-----
-----
</TABLE>
Following is a summary of the activity in the allowance for losses for the
years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance--Beginning of Year.................................... $ 282 $ 280 $ 288
Provision for (Recovery of) Prior Provisions.................. (16) 3 (6)
Charge Offs................................................... (1) (1) (2)
--------- --------- ---------
Balance--End of Year.......................................... $ 265 $ 282 $ 280
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-10
<PAGE>
NOTE 4--LEASES RECEIVABLE--
The composition of the sales-type lease receivables as of December 31, 1997
and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Total Minimum Lease Payments To Be Received....................................................... $ 529 $ 886
Less: Unearned Income............................................................................. 228 427
--------- ---------
Net Lease Receivable.............................................................................. $ 301 $ 459
--------- ---------
--------- ---------
</TABLE>
At December 31, 1997, the total minimum future lease payments receivable is
due as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
-----------------
<S> <C>
1998..............................................................................................$ 19
1999.............................................................................................. 18
2000.............................................................................................. 19
2001.............................................................................................. 21
2002.............................................................................................. 21
Thereafter........................................................................................ 203
-----
$ 301
-----
-----
</TABLE>
NOTE 5--LOAN SERVICING--
Mortgage loans serviced for others are not included in the accompanying
Statements of Financial Condition. The unpaid principal balances of these
loans serviced for FHLMC at December 31, 1997, 1996 and 1995 amounted to
$91,000, $271,000 and $497,000, respectively.
Custodial escrow balances maintained in connection with the foregoing
loan servicing were approximately $300, $3,000 and $7,000 at December 31,
1997, 1996 and 1995, respectively.
NOTE 6--PREMISES AND EQUIPMENT--
Office properties and equipment at December 31, 1997 and 1996 consisted of
the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Land................................................................................... $ 53 $ 53
Buildings.............................................................................. 680 680
Furniture, Fixtures and Equipment...................................................... 357 325
--------- ---------
1,090 1,058
Less: Accumulated Depreciation......................................................... (545) (516)
--------- ---------
$ 545 $ 542
--------- ---------
--------- ---------
</TABLE>
The provision for depreciation charged to expense was $29,000, $43,000 and
$52,000, respectively, for the years ended December 31, 1997, 1996 and 1995.
F-11
<PAGE>
NOTE 7--ACCRUED INTEREST RECEIVABLE---
Accrued Interest Receivable at December 31, 1997 and 1996 consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Investment Securities.................................................................... $ 39 $ 38
Mortgage-Backed Securities............................................................... 178 220
Loans.................................................................................... 203 205
--------- ---------
$ 420 $ 463
--------- ---------
--------- ---------
</TABLE>
NOTE 8--DEPOSITS--
An analysis of the deposit accounts at December 31, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------------- ----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RATE AMOUNT % RATE AMOUNT
----------- --------- --- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Money Market...................................................... 2.27% $ 934 2% 2.50% $ 1,032
NOW Accounts...................................................... 2.05% 1,491 3 2.05% 1,642
Passbook Savings.................................................. 2.52% 8,253 20 3.04% 9,592
--------- --- ---------
10,678 25 12,266
--------- --- ---------
Certificates:
2.00-3.99%...................................................... 3.03% 285 1 3.02% 551
4.00-5.99%...................................................... 5.22% 30,031 71 5.38% 30,686
6.00-7.99%...................................................... 6.28% 1,117 3 6.34% 882
8.00-9.99%...................................................... -% -- -- 8.02% 42
--------- --- ---------
31,433 75 32,161
--------- --- ---------
$ 42,111 100% $ 44,427
--------- --- ---------
--------- --- ---------
<CAPTION>
%
---
<S> <C>
Money Market...................................................... 2%
NOW Accounts...................................................... 4
Passbook Savings.................................................. 22
---
28
---
Certificates:
2.00-3.99%...................................................... 1
4.00-5.99%...................................................... 69
6.00-7.99%...................................................... 2
8.00-9.99%...................................................... --
---
72
---
100%
---
---
</TABLE>
The aggregate amount of deposits with a minimum balance of $100,000 was
approximately $4.8 million at December 31, 1997 and $4.5 million at December 31,
1996. Deposit amounts in excess of $100,000 are not federally insured.
A summary of certificates of deposit by maturity at December 31, 1997 and
1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
1997................................................................................ $ -- $ 28,932
1998................................................................................ 28,608 2,166
1999................................................................................ 2,062 579
2000................................................................................ 359 352
2001................................................................................ 97 97
2002................................................................................ 307 35
--------- ---------
$ 31,433 $ 32,161
--------- ---------
--------- ---------
</TABLE>
F-12
<PAGE>
NOTE 8--DEPOSITS-- (CONTINUED)
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
NOW and Money Market................................................................. $ 59 $ 72 $ 76
Passbook Savings..................................................................... 228 294 373
Certificates of Deposit.............................................................. 1,684 1,792 1,558
--------- --------- ---------
$ 1,971 $ 2,158 $ 2,007
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 9--ADVANCES FROM FEDERAL HOME LOAN BANK--
Ponchatoula had outstanding advances from the Federal Home Loan Bank (FHLB)
of $11.5 million and $10.7 million at December 31, 1997 and 1996, respectively.
Specific mortgage-backed securities, with a fair value of approximately $11.7
million and $11 million and a carrying value of $11.6 million and $11 million at
December 31, 1997 and 1996, respectively, were pledged to the FHLB as collateral
securing the advances. Interest expense on advances from the FHLB totaled
$544,000, $433,000, and $335,000 for the years ended December 31, 1997, 1996 and
1995, respectively. All advances are for a one month period.
The following schedule provides certain information about the advances at
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Borrowing at End of Year........................................................ $11.5 million $10.7 million
Rate at End of Year............................................................. 5.85% 5.48%
Maximum Borrowing during Year................................................... $11.5 million $10.7 million
Average Borrowing during Year................................................... $9.8 million $7.63 million
Weighted Average Rate........................................................... 5.53% 5.38%
</TABLE>
NOTE 10--INCOME TAXES--
The total provision for income taxes charged to income amounted to $185,000,
$60,000, and $150,000 for 1997, 1996, and 1995.
Following is a reconciliation between income tax expense based on the
federal statutory tax rates and income taxes reported in the Statements of
Income:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at Statutory Rate--(34%)............................................................. $ 170 $ 70 $ 156
Increases (Decreases) in Taxes:
Bad Debt Deduction Based on Percentage of Income......................................... -- -- (11)
Bad Debt Provision (Recovery) Per Books.................................................. -- -- (6)
Other.................................................................................... 15 (10) 11
--------- --------- ---------
Provision for Federal Income Taxes....................................................... $ 185 $ 60 $ 150
--------- --------- ---------
--------- --------- ---------
Effective Tax Rate....................................................................... 36.93% 29.13% 32.68%
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-13
<PAGE>
NOTE 10--INCOME TAXES-- (CONTINUED)
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ----- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision for Current Taxes................................................................ $ 154 $ 50 $ 131
Provision for Deferred Taxes............................................................... 31 10 19
--------- --- ---------
$ 185 $ 60 $ 150
--------- --- ---------
--------- --- ---------
</TABLE>
The deferred tax provision (benefit) consists of the following timing
differences:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Bad Debt Deduction for Tax Reporting in Excess of Amount for Financial Reporting............. $ (9) $ 10 $ 19
Depreciation................................................................................. 7 -- --
Stock Dividends.............................................................................. 33 -- --
--- --- ---
$ 31 $ 10 $ 19
--- --- ---
--- --- ---
</TABLE>
The net deferred tax asset or liability consists of the following components
at December 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Depreciation............................................................................... $ (7) $ -- $ --
Stock Dividends............................................................................ (33) -- --
Provision for Loan Losses.................................................................. (19) (29) (19)
Unrealized (Gain) Loss on Securities Available for Sale.................................... 18 52 (9)
--- --- ---
Total Deferred Tax Asset (Liability)..................................................... $ (41) $ 23 $ (28)
--- --- ---
--- --- ---
</TABLE>
The reserve method of accounting for bad debt utilized by qualified thrift
institutions pursuant to Code Section 593 was repealed for tax years beginning
after December 31, 1995. The $68,000 of excess reserves of Ponchatoula are being
taken into income ratably over a six-year period beginning January 1, 1996. This
change in accounting method and reversal of excess bad debt reserves is
adequately provided for in Ponchatoula's deferred tax liability.
NOTE 11--OTHER GENERAL AND ADMINISTRATIVE EXPENSES--
An analysis of other general and administrative expenses for the years ended
December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Data Processing Fees...................................................................... $ 47 $ 67 $ 92
Professional Fees......................................................................... 214 242 201
Postage and Supplies...................................................................... 44 40 47
Insurance................................................................................. 28 27 34
Other..................................................................................... 228 192 166
--------- --------- ---------
$ 561 $ 568 $ 540
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-14
<PAGE>
NOTE 12--PROFIT SHARING PLAN--
Ponchatoula established a noncontributory profit sharing plan during the
year ended December 31, 1986. The plan is a defined contribution plan and covers
all employees after a specified period of employment and within specified age
brackets. The profit sharing expense for the years ended December 31, 1997, 1996
and 1995 amounted to $77,000, $74,000 and $74,000, respectively. The Board of
Directors of Ponchatoula has determined that Ponchatoula's liability will be
computed each year based on fifteen percent of eligible wages.
NOTE 13--STOCK OPTION AND MANAGEMENT RECOGNITION PLANS--
1996 STOCK INCENTIVE PLAN
This program was designed to attract and retain qualified personnel in key
positions, provide key employees with a proprietary interest in Ponchatoula as
an incentive to contribute to the success of Ponchatoula and reward key
employees for outstanding performance. An aggregate of 10,782 shares of
authorized but unissued Common Stock of Ponchatoula was reserved for issuance
under the Plan, which is equal to 7.5% of Common Stock issued to the public in
connection with the formation of the mutual holding company ("the offering").
The exercise price of each option equals the market price of Ponchatoula's stock
on the date of grant and an option's maximum term is 10 years. Options are
granted and vested at the discretion of the Compensation Committee. Ninety
percent of the options were granted on July 10, 1996. At December 31, 1997,
shares available for grant under this plan amounted to 1,583 shares.
1996 DIRECTORS' STOCK OPTION PLAN
In order to attract and retain qualified directors for Ponchatoula, the
Board of Directors and stockholders of Ponchatoula have adopted the 1996
Directors' Stock Option Plan. An aggregate of 3,594 shares of authorized but
unissued Common Stock of Ponchatoula was reserved for issuance under the
Directors' Stock Option Plan, which is equal to 2.5% of the Common Stock of
Ponchatoula issued in the offering. The exercise price of each option equals the
market price of Ponchatoula's stock on the date of grant and an option's maximum
term is 10 years. Ninety percent of the options were granted on the date the
Plan was approved by the stockholders of Ponchatoula, which was April 10, 1996.
The options become exercisable after six months from the grant date.
1996 MANAGEMENT RECOGNITION PLAN FOR OFFICERS
The objective of this plan is to enable Ponchatoula to provide officers and
key employees with a proprietary interest in Ponchatoula as compensation for
their contributions to the Association and as an incentive to contribute to
Ponchatoula's future success. An aggregate of 4,312 shares of authorized Common
Stock of Ponchatoula was issued to the Management Recognition Plan for Officers,
which is equal to 3.0% of the Common Stock of Ponchatoula issued in the
offering. The awards are allocated at the discretion of the Committee. Shares
vest at the rate of 20% on each annual anniversary date.
1996 MANAGEMENT RECOGNITION PLAN FOR DIRECTORS
The objective of this plan is to enable Ponchatoula to provide non-employee
directors with a proprietary interest in Ponchatoula as compensation for their
contributions to Ponchatoula and as an incentive to contribute to Ponchatoula's
future success. An aggregate of 1,434 shares of authorized Common Stock of
Ponchatoula was issued to the Management Recognition Plan for Directors, which
is equal to 1.0% of the Common Stock of Ponchatoula issued in the offering.
Ninety percent of the awards were granted on the date the Plan was approved by
the stockholders of Ponchatoula, which was April 10, 1996. The remaining 144
shares were granted April 10, 1997. Shares vest at the rate of 20% on each
annual anniversary date.
The tables below summarize the activity in the Plans during 1996 and 1997.
F-15
<PAGE>
1996 STOCK INCENTIVE PLAN
<TABLE>
<CAPTION>
REMAINING
CONTRACTUAL PRICE RANGE
SHARES LIFE PER SHARE
----------- ----------- -------------
<S> <C> <C> <C>
Outstanding, December 31, 1995............................................... -- -- $ --
Granted...................................................................... 9,812 -- 10.00
-----
Outstanding, December 31, 1996............................................... 9,812 9.5 Years 10.00
Granted...................................................................... --
Forfeited.................................................................... (613)
-----
Outstanding, December 31, 1997............................................... 9,199 8.5 Years 10.00-- 10.50
-----
-----
Exercisable, December 31, 1997............................................... 1,832 -- 10.00-- 10.50
-----
-----
</TABLE>
1996 DIRECTORS STOCK OPTION PLAN
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING
CONTRACTUAL PRICE RANGE
SHARES LIFE PER SHARE
--------- ----------- -------------
<S> <C> <C> <C>
Outstanding, December 31, 1995.............................................. -- -- $ --
Granted..................................................................... 3,234 -- 10.00
Exercised................................................................... (539) -- 10.00
---------
Outstanding and Exercisable, December 31, 1996.............................. 2,695 9.4 Years 10.00
Granted..................................................................... 839
Exercised................................................................... (60)
Forfeited................................................................... (1,078)
---------
Outstanding, December 31, 1997.............................................. 2,396 8.8 Years 10.00-- 10.50
---------
---------
Exercisable, December 31, 1997.............................................. 2,396 10.00-- 10.50
---------
---------
</TABLE>
1996 MANAGEMENT RECOGNITION PLAN FOR OFFICERS
<TABLE>
<CAPTION>
REMAINING
CONTRACTUAL PRICE RANGE
SHARES LIFE PER SHARE
----------- ----------- -------------
<S> <C> <C> <C>
Outstanding, December 31, 1995............................................... -- -- $ --
Granted...................................................................... 4,312 -- 10.00
-----
Outstanding, December 31, 1996............................................... 4,312 9.5 Years 10.00
Forfeited.................................................................... (206)
-----
Outstanding, December 31, 1997............................................... 4,106 8.5 Years 10.00-- 10.50
-----
-----
Vested, December 31, 1997.................................................... 893 10.00-- 10.50
-----
-----
</TABLE>
F-16
<PAGE>
NOTE 13--STOCK OPTION AND MANAGEMENT RECOGNITION PLANS-- (CONTINUED)
1996 MANAGEMENT RECOGNITION PLAN FOR DIRECTORS
<TABLE>
<CAPTION>
REMAINING
CONTRACTUAL PRICE RANGE
SHARES LIFE PER SHARE
----------- ----------- -------------
<S> <C> <C> <C>
Outstanding, December 31, 1995............................................... -- -- $ --
Granted...................................................................... 1,290 -- 10.00
-----
Outstanding, December 31, 1996............................................... 1,290 9.5 Years 10.00
Granted...................................................................... 144
-----
Outstanding, December 31, 1997............................................... 1,434 8.5 Years 10.00-- 10.50
-----
-----
Vested, December 31, 1997.................................................... 602 10.00-- 10.50
-----
-----
</TABLE>
Ponchatoula applies APB Opinion 25 and related interpretations in accounting
for its stock option and management recognition plans. Had compensation cost for
Ponchatoula's stock-based compensation plans been determined based on the fair
value of the grant dates for awards under those plans consistent with the
methods of SFAS No. 123, Ponchatoula's net income and earnings per common share
would have been reduced to the proforma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
(DOLLARS IN
THOUSANDS)
Net Income As Reported............................................................................ $ 316 $ 146
Proforma.......................................................................................... $ 316 $ 130
Earnings Per Common Share
As Reported....................................................................................... $ .52 $ .24
Proforma.......................................................................................... $ .52 $ .21
</TABLE>
Compensation cost recognized under SFAS No. 123 was estimated using the
Black-Scholes model with the following assumptions: dividend yield of 7%, an
expected life of the options of 7 years, expected volatility of 19% and a risk
free interest rate of 7.0%.
NOTE 14--REGULATORY CAPITAL REQUIREMENTS--
Under applicable regulations, Ponchatoula is required by law to maintain (i)
core capital equal to at least 3% of adjusted total assets, (ii) tangible
capital equal to at least 1.5% of adjusted total assets, and (iii) total capital
equal to at least 8.0% of risk-weighted assets.
The following is a reconciliation of GAAP capital to regulatory capital at
December 31, 1997:
<TABLE>
<CAPTION>
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
----------- --------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
GAAP Capital...................................................................... $ 5,735 $ 5,735 $ 5,735
Additional Capital Items:
Unrealized Losses on Securities Available for Sale.............................. 35 35 35
General Valuation Allowances.................................................... -- -- 250
----------- --------- -----------
Regulatory Capital--Computed...................................................... 5,770 5,770 6,020
Minimum Capital Requirement....................................................... (894) (1,788) (2,033)
----------- --------- -----------
Regulatory Capital-Excess......................................................... $ 4,876 $ 3,982 $ 3,987
----------- --------- -----------
----------- --------- -----------
</TABLE>
F-17
<PAGE>
At December 31, 1997, Ponchatoula's leverage ratio was 9.68%, Tier 1
risk-based ratio was 22.71%, total risk-based ratio was 23.69%, and tangible
equity ratio was 9.68%, based on leverage capital of $5.8 million, Tier 1
capital of $5.8 million, total risk-based capital of $6 million and tangible
capital of $5.8 million, as defined. Based on these capital ratios, Ponchatoula
meets the criteria for a "well capitalized" institution at December 31, 1997.
Ponchatoula's management believes that under the current regulations,
Ponchatoula will continue to meet its minimum capital requirements in the
foreseeable future. However, events beyond the control of Ponchatoula, such as
increased interest rates or a downturn in the economy in Ponchatoula's area
could adversely affect future earnings and consequently, the ability of
Ponchatoula to continue to exceed its future minimum capital requirements.
NOTE 15--DIVIDENDS--
Ponchatoula declared quarterly dividends of $.16, $.17, $.18, and $.19 per
share in the first, second, third and fourth quarters of 1997. The Company
waived receipt of dividends declared on all shares owned; the amounts waived
have been recorded by Ponchatoula as additional paid-in capital. Total dividends
paid to the stockholders other than the Company in 1997 was $105,000 or $.70 per
share. Under Federal regulations, Ponchatoula may not declare or pay a cash
dividend on its capital stock if the effect thereof would cause Ponchatoula's
regulatory capital to be reduced below the amount required for liquidity.
NOTE 16--EARNINGS PER SHARE--
In February 1997, Statement of Financial Accounting Standards No. 128
"Earnings Per Share" ("SFAS No. 128") was issued which establishes standards
for computing and presenting earnings per share ("eps"). Under SFAS No. 128,
primary eps is replaced with basic eps. Basic eps is computed by dividing
income applicable to common shares by the weighted average shares
outstanding; no dilution for any potentially convertible shares is included
in the calculation. Fully diluted eps, now called diluted eps reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity. The
following illustrates the reconciliation of the numerators and denominators
of the basic and diluted eps computations:
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------- -----------------------------------------------
PER- PER-
INCOME SHARES SHARE INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
--------------- --------------- ----------- ----------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS
EXCEPT PER SHARE DATA)
Basic EP
Income
available
to
common
stockholders.. $316 606,345 $ .52 $ 146 606,285 $ .24
--- ---
--- ---
Effect of
Dilutive
Securities
Stock
Options.. 11,534 12,507
------- -------
Diluted
EPS
Income
available
to
common
stockholders
+
assumed
conversions.. $316 617,879 $ .51 $ 146 618,792 $ .23
----- ------- --- --- ------- ---
----- ------- --- --- ------- ---
<CAPTION>
1995
------------------------------------------------
PER-
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------------- --------------- -----------
<S> <C> <C> <C>
Basic EP
Income
available
to
common
stock $ 309 600,000 $ .51
Effect of
Dilutive
Securit
Stock
Options.. --
-------
Diluted
EPS
Income
available
to
common
stockho
+
assumed
convers $ 309 600,000 $ .51
--- ------- ---
--- ------- ---
</TABLE>
F-18
<PAGE>
NOTE 17--OFF-BALANCE SHEET INSTRUMENTS--
Ponchatoula is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit. Those
instruments involve, to varying degrees, elements of credit risk in excess of
the amount recognized in the Statements of Financial Condition.
Ponchatoula'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 amount of those instruments. Ponchatoula uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance sheet instruments.
In the normal course of business, Ponchatoula has made commitments to extend
credit of $463,000 and $370,000 at December 31, 1997 and 1996, respectively.
These amounts include unfunded loan commitments and lines of credit with rates
adjusting at Wall Street Prime + 1 1/2%.
Ponchatoula has entered into agreements with outside third parties to sell
loans that it originates. Ponchatoula may be required to repurchase a loan if it
becomes delinquent within a specified period of time as stated in the agreement.
The total amount of loans originated and sold to these parties subject to
repurchase amounted to $2.4 million and $3.4 million at December 31, 1997 and
1996, respectively.
NOTE 18--FAIR VALUE OF FINANCIAL INSTRUMENTS--
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and Short-Term Investments--For those short-term instruments, the
carrying amount is a reasonable estimate of fair value.
Securities--Fair value of securities available for sale is based on quoted
market prices or dealer quotes, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
securities.
Loans--The fair value for loans is estimated using discounted cash flow
analyses, with interest rates currently being offered for similar loans to
borrowers with similar credit rates. Loans with similar classifications are
aggregated for purposes of the calculations. The allowance for loan loss, which
was used to measure the credit risk, is subtracted from loans.
Deposits--The fair value of demand deposits, savings accounts, and certain
money market deposits is the amount payable on demand at the reporting date. The
fair value of fixed-maturity certificates of deposit is estimated using
discounted cash flow analyses, with interest rates currently offered for
deposits of similar remaining maturities.
Commitments to Extend Credit and Standby Letters of Credit--The fair value
of commitments to extend credit and standby letters of credit were not
significant.
The estimated approximate fair values of Ponchatoula's financial instruments
as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Financial Assets:
Cash and Short-Term Investments..................................... $ 1,254 $ 1,254 $ 1,298 $ 1,298
Securities Available for Sale....................................... 17,450 17,450 19,414 19,414
Securities--Held to Maturity........................................ 10,301 10,415 10,254 10,352
Loans--Net.......................................................... 29,483 29,294 28,440 28,445
--------- --------- --------- ---------
$ 58,488 $ 58,413 $ 59,406 $ 59,509
--------- --------- --------- ---------
--------- --------- --------- ---------
Financial Liabilities:
Deposits............................................................ $ 42,111 $ 42,088 $ 44,427 $ 44,889
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
F-19
<PAGE>
NOTE 19--CONTINGENCIES--
In the normal course of business, Ponchatoula is involved in various legal
proceedings. In the opinion of management and legal counsel, any liability
resulting from such proceedings would not have a material adverse effect on
Ponchatoula's financial statements.
NOTE 20--CONCENTRATIONS OF CREDIT--
All of Ponchatoula's business activities are with customers in Ponchatoula's
market area, which consists primarily of Tangipahoa Parish. The majority of such
customers are depositors of Ponchatoula. The concentrations of credit by type of
loan are shown in Note 3. Ponchatoula generally originates single-family
residential loans within its primary lending area. It is also active in
originating secured consumer loans to customers, primarily automobile and home
equity loans.
NOTE 21--THE CONVERSION--
On February 25, 1998, the Board of Directors of Ponchatoula and the Company
adopted a Plan of Conversion and Agreement and Plan of Reorganization (the
Plan). Pursuant to the Plan, (1) the Company, which owns approximately 75.2% of
Ponchatoula, will convert from mutual to stock form and simultaneously merge
into Ponchatoula, with Ponchatoula being the surviving entity; (2) Ponchatoula
will then merge into an interim institution (Interim) to be formed as a wholly
owned subsidiary of Homestead Bancorp, Inc., a newly formed Louisiana
corporation formed in connection with the reorganization, with Ponchatoula being
the surviving entity; and (3) the outstanding shares of Ponchatoula's common
stock (other than those held by the Company, which will be canceled) will be
converted into shares of common stock of Homestead Bancorp, Inc. Homestead
Bancorp, Inc. will then offer for sale pursuant to the Plan additional shares
equal to 75.2% of the common shares of Homestead Bancorp, Inc. Consummation of
the Plan is subject to (i) the approval of the members of the Company, (ii) the
stockholders of Ponchatoula and (iii) various regulatory agencies.
Pursuant to the Plan, shares of Homestead Bancorp, Inc.' s common stock are
expected to be offered initially for subscription by eligible members of the
Company and certain other persons as of specified dates subject to various
subscription priorities as provided in the Plan. The common stock will be
offered at a price to be determined by the Board of Directors based upon an
appraisal to be made by an independent appraisal firm. The exact number of
shares to be offered will be determined by the Board of Directors in conjunction
with the determination of the price at which the shares will be sold. At least
the minimum number of shares offered in the conversion must be sold. Any stock
not purchased in the subscription offering will be sold in a community offering
expected to the commenced simultaneously with the subscription offering or, if
necessary, in a syndicated community offering.
The Plan provides that when the conversion is completed, a "Liquidation
Account" will be established in an amount equal to the greater of (1) the
retained earnings of Ponchatoula as of March 31, 1994 or (2) 75.2% of
Ponchatoula's total stockholders' equity as reflected in its latest statement of
financial condition in the final prospectus utilized in the conversion. The
Liquidation Account is established to provide a limited priority claim to the
assets of Ponchatoula to qualifying depositors as of specified dates (Eligible
Account Holders and Supplemental Eligible Account Holders) who continue to
maintain deposits in Ponchatoula after the conversion. In the unlikely event of
a complete liquidation of Ponchatoula, and only in such an event, Eligible
Account Holders and Supplemental Eligible Account Holders would receive from the
Liquidation Account a liquidation distribution based on their proportionate
share of the then total remaining qualifying deposits.
Current regulations allow Ponchatoula to pay dividends on its stock after
the conversion if its regulatory capital would not thereby be reduced below the
amount then required for the aforementioned Liquidation Account. Also, capital
distribution regulations limit Ponchatoula's ability to make capital
distributions which include dividends, stock redemptions or repurchases,
cash-out mergers, interest payments on certain convertible debt, and other
transactions charged to the capital account based on their capital level and
supervisory condition. Federal regulations also preclude any repurchase of the
stock of Ponchatoula or its holding company for three years after the
conversion, except for repurchases of qualifying shares of a director and
repurchases pursuant to an offer made on a pro-rate basis to all stockholders
and with prior approval of the Office of Thrift Supervision or pursuant to an
open-market stock repurchase program that complies with certain regulatory
criteria. Ponchatoula has retained the services of both a marketing firm and
legal counsel for the specific purpose of implementing the Plan. Costs relating
to the conversion will be deferred and, upon conversion, such costs and any
additional costs will be charged against the proceeds from the sale of stock. As
of December 31, 1997 (unaudited), there were no deferred costs related to the
conversion. If the conversion is not completed, deferred costs will be charged
to operations.
F-20
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by the Company, the Mutual Holding Company, Ponchatoula or Trident.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any of the securities offered hereby to any person in any
jurisdiction in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not qualified to do so, or to
any person to whom it is unlawful to make such offer or solicitation in such
jurisdiction. Neither the delivery of this Prospectus nor any sale hereunder
shall under any circumstances create any implication that there has been no
change in the affairs of the Company or Ponchatoula since any of the dates as of
which information is furnished herein or since the date hereof.
---------------------
TABLE OF CONTENTS
---------------------
Page
----
Summary.................................................................. 4
Selected Financial Data.................................................. 15
Summary of Recent Developments........................................... 16
Risk Factors............................................................. 18
Proposed Management Purchases............................................ 25
Use of Proceeds.......................................................... 26
Dividend Policy.......................................................... 27
Market for Common Stock.................................................. 28
Regulatory Capital....................................................... 28
Capitalization........................................................... 30
Pro Forma Data........................................................... 32
Statements of Income..................................................... 36
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.......................................................... 37
Business ................................................................ 48
Regulation............................................................... 68
Taxation................................................................. 77
Management .............................................................. 79
The Conversion .......................................................... 89
Restrictions on Acquisition of the
Company and Ponchatoula................................................ 107
Description of Capital Stock of the Company.............................. 114
Experts.................................................................. 115
Legal Matters............................................................ 115
Additional Information................................................... 115
Index to Financial Statements............................................ 116
Until August 12, 1998 or 90 days after commencement of the Syndicated
Community Offering, if any, whichever is later, all dealers effecting
transactions in the registered securities, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
================================================================================
================================================================================
1,285,170 Shares
HOMESTEAD
BANCORP, INC.
(Proposed Holding Company for
Ponchatoula Homestead Savings, F.A.)
COMMON STOCK
---------------------
PROSPECTUS
---------------------
TRIDENT SECURITIES, INC.
May 14, 1998
================================================================================
<PAGE>
PROSPECTUS SUPPLEMENT
HOMESTEAD BANCORP, INC.
COMMON STOCK, $.01 PAR VALUE
PONCHATOULA HOMESTEAD ASSOCIATION
EMPLOYEES 401(K) PROFIT SHARING PLAN
(Up to 422,741 Shares and Participation Interests Therein)
This Prospectus Supplement relates to the offer and sale to participants
(the "Participants") in the Ponchatoula Homestead Association Employees
401(k) Profit Sharing Plan (the "Plan") of Ponchatoula Homestead Savings,
F.A. (the "Association" or the "Employer") of up to 422,741 shares of common
stock, par value $.01 per share (the "Common Stock"), of Homestead Bancorp,
Inc. (the "Company") and participation interests in the Plan, as set forth
herein.
In connection with the proposed conversion of Homestead Mutual Holding
Company (the "Mutual Holding Company") from mutual to stock form, the merger of
the Mutual Holding Company into the Association, the reorganization of the
Association to the stock holding company structure as a subsidiary of the
Company, and the offering of the Company's Common Stock in accordance with a
Plan of Conversion (collectively, the "Conversion"), Participants in the Plan
may direct the Trustees of the Plan to purchase Common Stock offered in the
Conversion with amounts held in the Plan attributable to such Participants.
Shares of common stock of the Association ("Association Common Stock") currently
held in the Plan will automatically be exchanged for the Company's Common Stock
upon consummation of the Conversion. This Prospectus Supplement relates to the
election of a Participant to direct the purchase of the Company's Common Stock
in the Conversion from assets in the Plan other than the Association Common
Stock Fund.
The Prospectus dated May 14, 1998 of the Company (the "Prospectus"),
which accompanies this Prospectus Supplement, includes detailed information
with respect to the Company, the Conversion, the Common Stock and the
financial condition, results of operations, and business of the Association.
The Summary Plan Description of the Plan, attached hereto, along with this
Prospectus Supplement provides detailed information with respect to the Plan
and should be read only in conjunction with the Prospectus.
For a discussion of certain factors that should be considered by each
Participant, see "Risk Factors" beginning on page 18 of the Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION OR ANY OTHER FEDERAL
AGENCY OR STATE SECURITIES COMMISSION, NOR HAS SUCH COMMISSION, OFFICE OR OTHER
AGENCY OR COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY.
The date of this Prospectus Supplement is May 14, 1998.
<PAGE>
Description of the Plan
Attached to this Prospectus Supplement is the Summary Plan Description,
which provides detailed information concerning the Plan and its terms. Also
included herein are the most recent financial statements for the Plan, as well
as information concerning the investment return for the past five calendar years
for each of the investment funds to which Participants may currently make
contributions pursuant to the Plan.
Method of Directing Transfer
Included with this Prospectus Supplement is a form to direct a transfer
among investment funds (the "Transfer Direction Form"). If a Participant wishes
to transfer all or part of his or her beneficial interest in the assets of the
Plan (other than his or her interest in the Association's Common Stock) to the
purchase of Common Stock in the Conversion, he or she should indicate that
decision on the Transfer Direction Form. If a Participant does not wish to make
such an election, he or she does not need to take any action.
Time for Directing Transfer
The deadline for submitting a direction to transfer amounts to purchase
the Company's Common Stock in the Conversion is June 23, 1998. The Transfer
Direction Form should be returned to the Plan Administrator by noon, Central
Time, on such date.
Irrevocability of Transfer Direction
A Participant's direction to transfer amounts credited in the Plan to his
or her accounts to purchase Common Stock in the Conversion generally shall be
irrevocable until completion or termination of the Conversion. However,
subscribers for the Common Stock offered in the Conversion may be resolicited
and given the right to modify or cancel their orders under certain circumstances
specified in the Prospectus, and in such event Participants will be given the
same opportunity to modify or cancel their transfer directions. See "The
Conversion - Stock Pricing, Exchange Ratio and Number of Shares to be Issued" in
the accompanying Prospectus.
2
<PAGE>
Investment Return Summary
The following table shows the annual returns in each of the last five
calendar years for each of the investment alternatives currently available to
Participants in the Plan.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
Total Total Total Total Total
Fund Return Return Return Return Return
- -------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Zurich Money Market 5.37% 5.22% 5.67% 3.99% 2.88%
Kemper Horizon 5 11.82 9.43 -- -- --
Kemper Horizon 10 15.98 12.30 -- -- --
Kemper Horizon 20 18.90 15.11 -- -- --
Kemper Small Cap Value 20.02 29.60 43.29 0.15 2.54
Kemper-Dreman High Return 31.92 28.79 46.86 (0.99) 9.22
Equity
Kemper High Yield 11.51 13.49 17.46 (1.72) 20.29
Kemper U.S. Government 9.03 2.83 18.37 (3.06) 6.31
Securities
Kemper Blue Chip 26.21 27.70 31.72 (5.16) 3.02
</TABLE>
The foregoing table does not reflect performance information for the
Association's Common Stock because the stock is not actively traded. The future
performance of the Common Stock of the Company will depend on several factors,
including the future performance of the Company as well as the fluctuation of
securities prices in general. There can be no assurance that the Company's
Common Stock will perform better than any of the other investment alternatives
set forth above.
Purchase Price of Common Stock
The funds transferred for the purchase of Common Stock in the Conversion
will be used by the Trustees to purchase Common Stock through the exercise of
subscription rights granted to the Participants in the Plan under the Plan of
Conversion and Agreement of Reorganization ("Plan of Conversion") adopted by the
Mutual Holding Company, the Association and the Company. The price paid for
such shares of Common Stock will be the same $10.00 price per share as is paid
by all other persons who purchase Common Stock in the Conversion.
3
<PAGE>
The following financial information was obtained from the Plan's Form 5500
filed with the Internal Revenue Service for the 1997 Plan Year:
<TABLE>
<CAPTION>
December 31,
1997
------------
<S> <C>
Assets:
Cash $679,240
Investments:
Corporate debt and equity instruments 143,750
--------
Total assets 822,990
Liabilities:
Total liabilities 0
---------
Net assets $822,990
---------
---------
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
-----------------
<S> <C>
Income:
Contributions received or receivable in cash from Employer(s)
(including contributions on behalf of self-employed
individuals) $ 76,604
Earnings from investments (interest, dividends, rents,
royalties) 56,107
Insurance refunds 823
--------
Total income 133,534
--------
Expenses:
Distribution of benefits and payments to provide benefits
directly to participants or their beneficiaries 123,471
Insurance premiums and other expenses 14,401
--------
Total expenses 137,872
--------
Net income (loss) $(4,338)
--------
--------
</TABLE>
4
<PAGE>
EXHIBIT A TO PROSPECTUS SUPPLEMENT
TRANSFER DIRECTION FORM
<PAGE>
PONCHATOULA HOMESTEAD ASSOCIATION EMPLOYEES 401(K)
PROFIT SHARING PLAN
TRANSFER DIRECTION FORM
Social Security # _____________________ Date of Birth ____/____/____
Date of Hire ____/____/____
Name
--------------------------------------------------------------------------
Last First Middle Initial
1. Instructions. You may use this form to direct a transfer of all or part
of the funds credited to your account in the Plan (other than Association
Common Stock held by the Plan) to be used to purchase Common Stock of the
Company in the Conversion. Shares of Association Common Stock currently held
in the Plan will automatically be exchanged for the Company's Common Stock
upon consummation of the Conversion. To direct a transfer, you should
complete and file this form with the Plan Administrator, no later than noon,
Central Time, on June 23, 1998. If you need assistance in completing the
form, please contact Lawrence C. Caldwell, Jr. at (504) 386-3379.
2. Transfer Direction. I hereby direct the Plan Administrator to transfer my
beneficial interest in the Plan to purchase Common Stock of the Company in the
Conversion in the following designated amounts:
Opposite each fund enter the dollar amount to be transferred from such fund
to purchase the Company's Common Stock.
<TABLE>
<CAPTION>
<S> <C>
Zurich Money Market Fund $_______________
Kemper Horizon 5 $_______________
Kemper Horizon 10 $_______________
Kemper Horizon 20 $_______________
Kemper U.S. Government Securities $_______________
Kemper High Yield $_______________
Kemper Blue Chip $_______________
Kemper Small Cap Value $_______________
Kemper - Dreman High Return Equity $_______________
</TABLE>
<PAGE>
3. Effectiveness of Direction. I understand that this Transfer Direction Form
shall be subject to all the terms and conditions of the Plan. I acknowledge
that I have received a copy of the Prospectus and the Prospectus Supplement.
- ------------------------------ -------------------------
Signature of Participant Date
* * * *
4. Acknowledgement of Receipt. This Transfer Direction Form was received by
the Plan Administrator on the date noted below.
- ------------------------------ -------------------------
Plan Administrator Date
<PAGE>
EXHIBIT B TO PROSPECTUS SUPPLEMENT
SUMMARY PLAN DESCRIPTION
<PAGE>
---------------------------------------------
Ponchatoula Homestead Association Employees
401(k) Profit Sharing Plan
SUMMARY PLAN DESCRIPTION
---------------------------------------------
Effective: January 1, 1998
<PAGE>
<TABLE>
<CAPTION>
Summary Plan Description
Table of Contents
<S> <C> <C>
ARTICLE DESCRIPTION PAGE
I INTRODUCTION 1
II GENERAL INFORMATION ABOUT YOUR PLAN 2
III PARTICIPATION IN YOUR PLAN 3
IV EMPLOYEE CONTRIBUTIONS 4
V EMPLOYER CONTRIBUTIONS 6
VI VESTING 8
VII SERVICE RULES 9
VIII COMPENSATION 10
IX PARTICIPANTS' ACCOUNTS 11
X DISTRIBUTIONS AND BENEFITS UNDER YOUR PLAN 13
XI BENEFIT PAYMENT OPTIONS 17
XII TOP-HEAVY RULES 18
XIII PARTICIPANT LOAN PROGRAM 19
XIV MISCELLANEOUS 22
XV STATEMENT OF ERISA RIGHTS 24
</TABLE>
<PAGE>
----------------------------------------
Article I
INTRODUCTION
----------------------------------------
In order to recognize the hard work and good efforts of its employees, your
Employer, Ponchatoula Homestead Savings, FA, (the "Employer") established the
Ponchatoula Homestead Association Employees 401(k) Profit Sharing Plan (the
"Plan"), for the exclusive benefit of all eligible employees and their
beneficiaries. The original effective date of the Plan was January 1, 1956.
However, this Summary Plan Description reflects the terms of the Plan under the
most recent amendment, effective January 1, 1998. The Plan allows eligible
employees to defer part of their income on a tax-favored basis into the Plan.
The contributions which you make to the Plan as 401(k) salary deferrals are also
called "salary reduction" contributions because your current taxable income is
reduced for every dollar you deposit into the Plan.
Also. the money in the Plan grows tax free until your retirement. However, you
must pay taxes when the money is paid out, unless it is transferred to another
retirement plan or an IRA. You may also be eligible for benefits in the event of
your death, total disability or other termination of your employment with the
Employer. This Plan is subject to the provisions of the Employee Retirement
Income Security Act of 1974 (ERISA).
This Summary Plan Description is a brief description of your Plan and your
rights and benefits under the Plan. This Summary Plan Description is not meant
to interpret or change the provisions of your Plan. A copy of your Plan is on
file at your Employer's office and may be read by you, your beneficiaries, or
your legal representatives at any reasonable time. If you have any questions
regarding either your Plan or this Summary Plan Description, you should ask your
Plan Administrator. If any discrepancies exist between this Summary Plan
Description and the actual provisions of the Plan, the Plan shall govern.
1
<PAGE>
----------------------------------------
Article II
GENERAL INFORMATION ABOUT YOUR PLAN
----------------------------------------
Plan Name: Ponchatoula Homestead Association Employees
401(k) Profit Sharing Plan
Employer: Ponchatoula Homestead Savings, FA
195 North Sixth St.
Ponchatoula, LA 70454
(504) 386-3379
Employer I.D. No: 72-1271955
Plan Number: 001
Type of Plan: Cash or Deferred Arrangement (401(k) Plan)
Administration Type: Administration by Trustee
Plan Administrator: Ponchatoula Homestead Savings, FA
195 North Sixth St.
Ponchatoula, LA 70454
(504) 386-3379
Legal Agent: Ponchatoula Homestead Savings, FA
195 North Sixth St.
Ponchatoula, LA 70454
(504) 386-3379
(Legal Process may also be served on the Trustee
or Plan Administrator.)
Trustees: L.C. Caldwell Jr.
Dennis E. James
Kelly B. Morse
Trustees Address: 195 North Sixth St.
Ponchatoula, LA 70454
(504) 386-3379
Funding Arrangement: Trust
Plan Year: January 1st to December 31st
Limitation Year: January 1st to December 31st
Anniversary Date: December 31st
2
<PAGE>
----------------------------------------
Article III
PARTICIPATION IN YOUR PLAN
----------------------------------------
Before you become a Participant in the Plan, there are certain eligibility and
participation requirements which you must meet. These requirements are explained
in this section.
Eligible Employees:
All of your Employer's employees are considered Eligible Employees and may
participate in the Plan, once they meet the Eligibility and Participation
Requirements, except members of a collective bargaining unit whose retirement
benefits were the subject of a collective bargaining agreement that is in full
force and effect, and non-resident aliens with no U.S. source of income.
Eligibility Requirements:
In order to be eligible for discretionary Employer contributions, you must have
attained age 20 and have completed 6 months of service.
To be eligible to enroll in the salary reduction portion of the Plan you must
have attained age 20 and completed 6 months of service.
In order to be eligible for matching contributions, you must be making 401(k)
contributions to the Plan. You must also have attained age 20 and completed 6
months of service.
The "eligibility computation period" is the 12 month period that begins with the
date you were hired. If you don't meet the service requirements during the first
year following your date of hire, the eligibility computation period becomes the
Plan Year. You may then meet the requirements during any Plan Year.
Entry Dates:
Participation in the Plan can begin only on an Entry Date. Your first Entry Date
is the first day of the Plan Year, January 1st, nearest to the date you meet the
Eligibility requirements. This means that your Entry Date can be before the
exact date you meet the Eligibility requirements.
Rehired employees:
If you had satisfied the Eligibility requirements before you terminated
employment, you will become a Participant immediately on the date you are
rehired, if your rehire date is on or after your first Entry Date, as defined
above. Otherwise, you will be eligible to participate on the next Entry Date. If
you had not yet satisfied the Eligibility requirements at the time you
terminated employment, you must meet the Eligibility requirements as if you were
a new employee.
3
<PAGE>
----------------------------------------
Article IV
EMPLOYEE CONTRIBUTIONS
----------------------------------------
Your 401(k) Salary Deferral Plan offers you special tax advantages and
incentives to participate. First, every dollar you put into the Plan reduces
your income currently subject to Federal Income Tax. Thus, your deposits into
the 401(k) Plan are often called "salary reductions." (However, you must still
pay Social Security Taxes on your gross wages.)
Although you will have to pay income tax when you withdraw money from the Plan,
you may be able to defer taxes on a withdrawal by depositing the funds into
another Plan or an Individual Retirement Account (IRA). Because you defer paying
taxes until you receive payments from the Plan, 401(k) contributions are
sometimes called "salary deferrals."
The following chart illustrates the advantage of making deposits into the 401(k)
Plan (saving on a tax-deferred basis) rather than saving on an after-tax basis
such as a bank passbook savings account or a money market fund.
<TABLE>
<CAPTION>
401(k) Plan Passbook
Tax-deferred After-tax
Savings Savings
<S> <C> <C>
Gross Wages $20,000 $20,000
401(k) Deposit 1,000 N/A
------- -------
Taxable Wages 19,000 20,000
Estimated Taxes (25%) 4,750 5,000
Passbook Deposit N/A 1,000
------- -------
Net Take-home Pay $14,250 $14,000
</TABLE>
In our example, net take-home pay (after paying taxes and after saving $1,000)
is $250 greater when the savings are deposited into the 401(k) Plan, rather than
an after-tax savings program like a money market or bank passbook account.
Saving $1,000 in the 401(k) Plan only "cost" our example person $750 in
take-home pay.
This is only a rough illustration of the advantages of tax-deferred savings.
Please discuss your situation with your tax advisor.
Tax free accumulation:
Another big advantage your Plan offers is tax-deferred accumulation of the
earnings on your investments. All the earnings on the money you contribute to
your account compounds tax free. You pay taxes on this money only when you
retire or take distributions for some other reason,
4
<PAGE>
such as death or becoming totally disabled. If you put your money into a savings
account you are required to pay income taxes on the interest each year. Thus, by
contributing to your 401(k) Savings Plan, you'll have more money available at
retirement.
Salary reduction agreement:
In order to enroll (or to refuse enrollment), your Employer will ask you to
complete a Salary Reduction Agreement. It is here that you tell your Employer
how much of your income you wish to defer to your Plan.
There are limits placed on the amount you can defer into this Plan. Your salary
deferrals cannot exceed a maximum dollar amount determined by the Federal
Government each year. For 1997, that amount is $9,500. Generally, if your total
deferrals from all cash or deferred arrangements for a calendar year exceed the
dollar amount set by the government, the excess must be included in your income
for the year. The IRS also requires that the combined contribution by you and
your Employer to your accounts not exceed the lesser of $30,000 or 25 % of your
pay. Your Employer may also place restrictions on the amount you may defer in
order to meet IRS requirements.
Your Employer will deduct the amount you've elected from your paycheck in
accordance with procedures established by your Employer.
Restrictions:
In order to provide tax-advantaged savings, the Plan must place restrictions on
withdrawals from the Plan. Article X describes the circumstances under which you
may withdraw 401(k) deposits from the Plan.
Election not to defer:
You may decide that you do not wish to make salary reduction contributions on
your first Entry Date. The Plan Administrator will explain the procedures for
delayed enrollment in the salary reduction portion of the Plan, if you decide to
enroll at a later date.
Excess deferrals:
If you participate in two or more deferred compensation plans (which include
401(k), Simplified Employee Pensions and 403(b) plans), your total deferrals to
all plans could exceed IRS limits for the year. To avoid paying additional
excise taxes if excess contributions have to be returned, you may want to
designate which plan is to return any excess contributions to you.
If you elect to have this Plan return any excess, you should notify the Plan
Administrator so that the excess can be returned to you, along with any
earnings, before April 15.
5
<PAGE>
----------------------------------------
Article V
EMPLOYER CONTRIBUTIONS
----------------------------------------
Your Employer may make contributions to the Plan, in addition to your salary
deferral 401(k) contributions. Your Employer may make matching contributions,
non-elective or discretionary contributions and required minimum contributions
under the Top-Heavy rules (see Article XII) or other legal requirements.
Matching Contributions:
To be eligible to receive an allocation of matching contributions, you must have
worked 1 hour during the Plan Year.
If you do not meet the hours requirement because you have retired, become
disabled, or died, you will still receive matching contributions.
The amount of the match depends on your 401(k) contributions. Your Employer will
provide a matching contribution of 100 cents for every dollar you invest in the
Plan.
Your employer will make matching contributions only on the first 7.5% of
compensation deposited as elective contributions. Amounts deferred over 7.5% are
not matched.
The matching contribution shall be allocated each pay period.
Non-Elective or Discretionary Contributions:
In order to receive an allocation of discretionary Employer contributions, you
must have worked 1,000 hours during the Plan Year, and be employed on the last
day of the Plan Year.
If you do not meet the hours requirement or are not employed on the last day of
the Plan Year because you have retired, become disabled, or died, you will still
receive an allocation of the discretionary Employer contribution.
You do not have to make 401(k) contributions in order to receive a discretionary
contribution.
The amount of the discretionary contribution is set by the Employer each year.
6
<PAGE>
Your share of the non-elective/discretionary contribution is based on the
relationship of your compensation to the total compensation for all
Participants. For example, if your compensation is $20,000 and if the total
compensation is $1,000,000, your share would be 2% of the total discretionary
contribution. In our example, if the discretionary contribution was $30,000,
your share would be:
$30,000 x ($20,000/$1,000,000) = $600 or
$30,000 x .02 (2%) = $600
Other required contributions:
In certain situations, your Employer may be required to make additional
contributions to the Plan. If the Plan is Top-Heavy (see Article XII) or if
highly paid participants contribute a higher percentage of pay to the Plan than
other participants, your Employer may have to take corrective action. This
action could result in either a reduction in the contributions for the highly
compensated participants or an additional Employer contribution, in the form of
Non-Elective or Qualified Non-Elective contributions.
7
<PAGE>
----------------------------------------
Article VI
VESTING
----------------------------------------
The term "vesting" refers to the percentage of your Employer contribution
account(s) (if any) other than your Qualified Non-Elective contributions
account, that you are entitled to receive in the event of your termination of
employment. You are also 100% vested in your Qualified Non-Elective account.
If you terminate employment before you meet the requirements for retirement (see
Article X), the distribution from the Employer matching and discretionary
accounts will be limited to the vested portion. Your vesting percentage grows
with your Years of Service. Article VII explains how Years of Service are
credited.
The same vesting schedule applies to the matching and discretionary Employer
contributions.
Vesting schedule for matching and discretionary Employer accounts:
Years of Service Percent Vested
Less than 1 0%
1 but less than 2 0%
2 but less than 3 0%
3 but less than 4 20%
4 but less than 5 40%
5 but less than 6 60%
6 but less than 7 80%
7 or more 100%
You will also become 100% vested at Normal Retirement, if you become disabled or
if you die. Refer to Article X for information on retirement, disability or
death.
In the event the Plan should become 'top-heavy', a faster vesting schedule will
apply. See Article XII for an explanation of the top-heavy rules.
Top-Heavy vesting schedule for matching and discretionary Employer accounts:
Years of Service Percent Vested
Less than 1 0%
1 but less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
8
<PAGE>
----------------------------------------
Article VII
SERVICE RULES
----------------------------------------
Year of Service:
You will earn a Year of Service for vesting if you are credited with 1,000 Hours
of Service during a Plan Year. However, if you are credited with 1,000 hours
during your first year of employment, you'll earn a Year of Service. You cannot
earn more than one Year of Service credit during any Plan Year, though.
If you terminate employment and are later rehired by the Employer, your Years of
Service after reemployment will be added to the Years of Service you had
accumulated when you left.
Hours of Service:
You are credited with the actual number of hours you work and for hours for
which you are paid, but are not at work such as paid vacation or paid sick
leave.
Break in service rules:
When you fail to complete at least 501 hours during the Plan Year, you incur a
break in service. Thus, in any year in which you work less than 501 hours
(approximately 3 months), you will incur a break in service.
However, in certain circumstances, your Plan is required to credit you with 501
hours, even though you didn't actually work 501 hours. This is primarily if you
take time off to have, adopt or care for a child for a period immediately
following the birth or adoption. You will receive this credit only for the
purpose of determining whether you have incurred a break in service and not for
receiving additional credit for a contribution or for vesting.
9
<PAGE>
----------------------------------------
Article VIII
COMPENSATION
----------------------------------------
Throughout this Summary Plan Description, the words "compensation" and "pays"
are used to define contribution amounts. "Pay" or "Compensation" means the total
wages paid to you by your Employer for the Plan Year.
Compensation includes deferred compensation which is not includable in your
gross taxable income due to SEP Deferrals, Cafeteria Benefits, 401(k) deferrals,
Tax Deferred Annuities and Governmental Deferred Compensation Plans.
In no event shall compensation in excess of $160,000 (as adjusted for changes in
the Consumer Price Index: $160,000 for 1997) be taken into account for any
Participant in this Plan.
Your compensation for the first Plan Year in which you participate shall be your
compensation from the Employer for the full Plan Year.
10
<PAGE>
----------------------------------------
Article IX
PARTICIPANTS' ACCOUNTS
----------------------------------------
Under the 401(k) Savings Plan, the money you deposit and any Employer
contributions are placed into investment accounts. which are credited with gains
and losses at each Valuation Date. The Valuation Date for your 401(k) Plan
occurs on the Anniversary Date (see Article II).
Separate accounts are set up for each different type of money: 401(k) deposits,
matching, discretionary, rollover and Qualified Non-Elective contributions
because there are different Plan and IRS rules for each type of contribution.
Forfeitures:
Forfeitures of Employer discretionary contributions will supplement non-elective
contributions. Forfeitures of matching contributions will supplement matching
contributions. "Forfeitures" are amounts which could not be paid to terminated
participants because they were not 100% vested when they separated from service
with the Employer.
In order to share in the allocation of forfeitures, you must be eligible to
share in Employer contributions for the Plan Year.
If you are eligible to share in the forfeiture allocation, your portion will be
credited to your account as of the last day of the Plan Year in which the
terminated participant receives a distribution from the Plan.
And, your portion will be determined in proportion to your share of the Employer
contribution.
Rollover Accounts:
Your Plan allows employees who had retirement accounts with a previous Employer
to directly transfer or rollover the previous account balance to your Plan even
if you are not a Participant in this plan. This is a segregated "Rollover"
account and it is always 100% vested. If you are making a rollover instead of a
direct transfer, in order to avoid taxes on your "Rollover" money, you must
complete the rollover from your old plan to this Plan within 60 days after
receiving the money.
Investments:
Your Plan offers several investment options and you may instruct the Trustees
how you would like to invest the funds in your Rollover, 401(k), Matching,
Voluntary, Non-Elective and Qualified Non-Elective accounts.
If you choose not to select how your accounts are invested, the Trustee will
invest them for you. The Trustees are fiduciaries of the Plan, which means that
they have a responsibility to you to invest the Plan assets prudently.
11
<PAGE>
Contact your Plan Administrator for information concerning the investment
options which are currently available.
Crediting your accounts with gain or loss:
Each investment account is credited with investment gain or loss as of each
Valuation Date. Earnings or losses are allocated on the basis of the ratio your
account balance bears to the total account balances of all participants in the
same investment. You are then credited with that percentage of earnings or
losses.
When you receive a distribution from the Plan, the Plan Administrator must first
establish the value of your account. The date of this special valuation is the
Distribution Determination Date. If the Distribution Determination Date is any
date other than a Valuation Date, the value of your account will be adjusted for
the actual gain or loss from the prior Valuation Date to the Distribution
Determination Date.
12
<PAGE>
----------------------------------------
Article X
DISTRIBUTIONS AND BENEFITS UNDER YOUR PLAN
----------------------------------------
In-Service Distributions:
An In-Service Distribution is one that you receive while you are actively
employed. The primary purpose of the Plan is to provide benefits to you upon
your retirement, but you may request an In-Service Distribution of all or a
portion of your accounts, provided that you are fully vested and have reached
age 59 1/2, and
In addition, you may request an In-Service Distribution of the full value of all
of your accounts, on or after the date you reach Normal Retirement Age (defined
below).
Also, you may request an In-Service Distribution in the event of financial
hardship. Financial hardship might result from your own, your spouse's or your
dependents' medical expenses, expenses in purchasing your primary residence or
in preventing eviction or foreclosure, or tuition for the next 12 months of
post-secondary education for you, your spouse or dependents. In addition, a
financial hardship only occurs when you have no other resources available to
you. For example, you may need to prove that you have been turned down for loans
or that you have sold other assets before you can receive a Hardship
Distribution.
The amount of your Hardship Distribution cannot exceed the amount needed to meet
the immediate financial hardship. In addition, the distribution will be limited
to the amount of your 401(k) contributions (no investment income).
If you receive a Hardship Distribution, the Plan must impose restrictions on the
amount of your 401(k) salary deferrals in the future. First, you cannot make any
401(k) contributions for the 12-month period following the date of your Hardship
Distribution. Secondly, the maximum amount of 401(k) contributions that you can
make for the calendar year that begins after the date of distribution is reduced
by the amount of your elective deferrals in the year you took the hardship
withdrawal.
For example, let's say that you took a hardship withdrawal on July 1, 1998, and
during 1998, you deposited $5,000 in elective deferrals. You can't make any
401(k) contributions until July 1, 1999. And, the maximum amount that you can
contribute for 1999 would be the legal limit minus $5,000. If the legal maximum
was $9,500 for 1999, you would be limited to $4,500.
Plan benefits are also paid when you retire, or become permanently disabled.
Benefit payments may also be made to your beneficiary (ies) upon your death.
Each of these events is discussed below.
13
<PAGE>
Normal Retirement Benefits:
The Normal Retirement Age for the Plan is age 65.
Your Normal Retirement Date is the date you reach Normal Retirement Age.
At your Normal Retirement Date, you will be entitled to 100% of your account
balance. Payment of your benefits will begin as soon as practicable following
your retirement. (See Article XI, Benefit Payment Options.)
Early Retirement Benefits:
You are eligible for Early Retirement Benefits on the day you are at least 55
years old and have completed at least 10 Years of Service. If you retire on or
after your Early Retirement Date, payment of your Early Retirement benefits will
commence as soon as practicable following your retirement.
Late Retirement Benefits:
If you decide to work past your Normal Retirement Date, you can defer payment of
your benefits until your Retirement Date. Payment of your Retirement benefits
will commence as soon as practicable following your late retirement date.
Death Benefits:
Should you die before termination of your employment by retirement or
disability, your spouse or beneficiary will be entitled to 100% of your account
balance.
If you are married at the time of your death, your spouse will be the
beneficiary of your death benefits, unless you otherwise elect in writing on a
form to be furnished to you by the Plan Administrator. IF YOU WISH TO DESIGNATE
A BENEFICIARY OTHER THAN YOUR SPOUSE AS YOUR BENEFICIARY, YOUR SPOUSE MUST
CONSENT TO WAIVE HIS/HER RIGHT TO RECEIVE DEATH BENEFITS UNDER THE PLAN. YOUR
SPOUSE'S CONSENT MUST BE IN WRITING AND WITNESSED BY A NOTARY OR A PLAN
REPRESENTATIVE.
If your spouse has consented to a valid waiver of any rights to the death
benefit; or your spouse cannot be located; or you are single at the time of your
death, then your death benefit will be paid to any beneficiary you may choose.
The Plan Administrator will supply you with a beneficiary designation form.
Since your spouse has certain rights under your Plan, you should immediately
inform the Plan Administrator of any changes in your marital status.
Disability Benefits:
Should you become permanently disabled while a Participant under this Plan, you
will receive 100% of your account balance. "Disability" means a medically
determinable physical or mental
14
<PAGE>
impairment which may be expected to result in death or to last at least a year
and which renders you incapable of performing your duties with your Employer. A
determination of disability will be made by the Plan Administrator in a uniform,
nondiscriminatory manner on the basis of medical evidence.
If it is determined you are disabled, your payments will begin as soon as
practicable following the date you were determined to be disabled.
Benefits Upon Termination:
If your employment is terminated for any reason other than those set out above,
you will only be entitled to that portion of your Employer accounts in which you
are vested.
"Vesting" refers to the percentage of your account balance you are entitled to
at any point in time. For each year you remain a Participant in the Plan, you
become vested with a higher percentage of your Employer account balance. (See
Vesting, Article VI.)
If your benefit is over $3,500, you may at your option, request the Plan
Administrator to distribute your benefit to you before your retirement date.
However, the value of your account will not be determined earlier than as soon
as practical following your termination if you are not fully vested, or as soon
as practical if you are 100% vested. You will receive payment of your benefits
as soon as practical after that date.
If your benefit is $3,500 or less, the Plan Administrator may distribute your
benefit early. No consent is needed for distributions of $3,500 or less.
Distributions Due To A Domestic Relations Order:
In general, contributions made by you or your Employer for your retirement are
not subject to alienation. This means they cannot be sold, used as collateral
for a loan, given away or otherwise transferred. They are not subject to the
claims of your creditors. However, they may be subject to claims under a
Qualified Domestic Relations Order (QDRO).
The Administrator may be required by law to recognize obligations you incur as a
result of court ordered child support or alimony payments. The Administrator
must honor a "Qualified Domestic Relations Order" which is defined as a decree
or order issued by a court that obligates you to pay child support or alimony,
or otherwise allocates a portion of your assets in the Plan to your spouse,
child or other dependent. If a QDRO is received by the Administrator, all or
portions of your benefits may be used to satisfy the obligation. It is the Plan
Administrator's responsibility to determine the validity of a QDRO.
Taxation of Distributions:
The benefits you receive from the Plan will be subject to ordinary income tax in
the year in which you receive the payment, unless you defer taxation by a
"rollover" of your distribution into
15
<PAGE>
another qualified plan or an IRA. Also, in certain situations, your tax may be
reduced by special tax treatment such as "5-year forward averaging."
VERY IMPORTANT NOTE: Under most circumstances, if you receive a distribution
from this Plan on or after January 1, 1993, twenty percent (20%) of your
distribution will be withheld for federal income tax purposes, unless you
instruct the trustees of this Plan to DIRECTLY transfer your distribution into
another qualified plan or an IRA. You must give these instructions to the
trustees no more than 90 days before the date you receive the payment. Also,
unless you sign a waiver form, the trustees must wait at least 30 days after
receiving your instructions before making the payment, to allow you time to
change your decision.
In addition to ordinary income tax, you may be subject to a 10% tax penalty if
you receive a "premature" distribution. If you receive a distribution upon
terminating employment before age 55 and you don't receive the payment as a life
annuity, you will be subject to the 10% penalty, unless you "rollover" your
payment. If you take a hardship withdrawal before age 59-1/2, the withdrawal
will usually be subject to the 10% penalty. But, there is no penalty for
payments due to your death or disability.
As the rules concerning "rollovers" and the taxation of benefits are complex,
please consult your tax advisor before making a withdrawal or requesting a
distribution from the Plan. As required by law the Plan Administrator will
provide you with a brief explanation of the rules concerning "rollovers".
16
<PAGE>
----------------------------------------
Article XI
BENEFIT PAYMENT OPTIONS
----------------------------------------
There is one form of payment under your Plan. Your distribution will be in the
form of a lump-sum distribution of your total account balances, or you may
select an alternate form of payment, if permitted under your Plan, at the time
of your distribution.
The Plan Administrator may delay payment to you for a reasonable time for
administrative convenience. However, unless you choose to defer receipt of your
distribution, the Plan must begin your payments within 60 days after the close
of the Plan Year following the latest of:
(a) the date on which you reached your Normal Retirement Age;
(b) the 10th anniversary of the year in which you became a Participant in
the Plan; or
(c) the date you terminated employment with the Employer.
In any event, the law requires that your distributions begin no later than April
1 of the year following the date you reach age 70-1/2 (the date six months after
your 70th birthday.)
17
<PAGE>
----------------------------------------
Article XII
TOP-HEAVY RULES
----------------------------------------
A Plan becomes Top-Heavy when the total of the Key Employees' account balances
make up more than 60 % of the total of all account balances in the Plan. Key
Employees are certain highly compensated officers or owners/shareholders.
If your Plan is Top-Heavy. Plan participants who are not "key" must receive a
minimum contribution. This minimum contribution is the smaller of the percentage
of pay contributed by the Employer to Key Employees, or 3 % of your
compensation. If the Employer contribution allocated to your account for the
Top-Heavy year is equal to or more than this minimum contribution, no additional
Employer contribution would be needed to meet the Top-Heavy rules.
Also, the vesting schedules which apply to the Discretionary Employer and
Matching contributions change if your Plan becomes Top-Heavy. Vesting is
discussed in Article VI.
18
<PAGE>
----------------------------------------
Article XIII
PARTICIPANT LOAN PROGRAM
----------------------------------------
Pursuant to the terms of Ponchatoula Homestead Association Employees 401(k)
Profit Sharing Plan, the Trustee has adopted a participant loan program as part
of such Plan and Trust. The program is intended to comply with Labor Regulation
2550.408b-1. Loans will be made pursuant to the terms of the Plan and Trust and
the following provisions of the Participant Loan Program.
A. Administration of Program
The following person ("the Loan Administrator") is responsible for the
administration of the loan program. All loan requests and other inquires
should be delivered to:
Ponchatoula Homestead Savings, FA
195 North Sixth St.
Ponchatoula, LA 70454
(504) 386-3379
B. Application Procedure
1. Obtain and complete a loan application on forms provided by the
Loan Administrator.
2. Submit the completed loan application to the Loan Administrator
at least 10 days before the date the loan is to be made.
3. Loan applications will be reviewed by the Loan Administrator for
completeness. Incomplete applications will be returned to the
applicant for completion.
4. Approved loans will be processed on the first day of each month.
C. Basis for Approvals
Loans are available to all participants and, in the event of a
participant's death, his or her beneficiaries without regard to any
individual's race, color, religion, sex, age or national origin. Each
application will be reviewed on a nondiscriminatory basis but will be
assessed on the applicant's credit worthiness, financial need, and the
purpose and terms of the loan. An individual may be denied future loans if
he or she defaulted on any previous loan.
D. Limitations
1. Limitations on Types of Loans
Subject to the limitations on the amount of any loan, loans will
be approved if the loan proceeds are to be used:
- For the purpose of acquiring (excluding mortgage payments) a
principal residence for the participant.
- For the purpose of paying deductible medical expenses
(described in
19
<PAGE>
Section 213(d) of the Internal Revenue Code) incurred by the
participant, his or her spouse or dependents.
- For the purpose of payment of tuition for the next semester or
quarter of post-secondary education for the participant, his or
her spouse, children or dependents.
- To prevent the eviction of the participant from his principal
residence or foreclosure on the mortgage of the participant's
principal residence.
- For proven financial hardship.
2. Limitations on Amounts of Loans
- The minimum amount of any loan is $1,000.
- The maximum amount of any loan is the lesser of $50,000 or 50%
of the vested interest of the participant in the Plan. The
$50,000 maximum amount will be reduced by the participant's
highest outstanding loan balance in the previous twelve months,
even if amounts have been repaid.
- The maximum amount of any loan is $50,000.
- The balance of outstanding loans to a single participant may
not exceed $50,000.
- A participant may have no more than 1 loan outstanding at any
one time.
3. Prior to funding a Participant Loan, the amount necessary to fund
such loan will be transferred from the source accounts to a
segregated account from which the Participant Loan shall be made.
During the term of the Participant Loan, repayment of principal
and interest shall be made to this segregated account. This
segregated account shall not share in any other gains or losses
credited to the Plan.
E. Interest
The interest rate will be determined from-time to time by the Trustee with
the intention of providing the Plan with a return commensurate with the
interest rates charged by persons in the business of lending money for
loans which would be made under similar circumstances.
Until otherwise determined by the Trustee, the interest rate will be the
prime rate of interest charged by a local financial institution as of the
date of the loan, plus 1 percent.
The rate of interest will be constant throughout the term of the loan.
F. Collateral or Other Security
All loans must be adequately secured. No more than 50 percent of the
present value of a participant's vested interest in the Plan may be
considered by the Plan as security for the outstanding balance of all Plan
loans made to the participant.
The Trustee will accept other collateral as security for the loan, such as
a lien on real estate, marketable securities, savings accounts or other
assets, provided that the Trustee determines that in the event of default,
the collateral to be sold, foreclosed upon or otherwise disposed of has
such value and liquidity that it may reasonably be anticipated that loss of
principal or interest will not result from the loan.
20
<PAGE>
G. Repayment Terms
All loans are required to be repaid within 5 years of the loan unless the
purpose of the loan is to acquire a dwelling unit which is to be used
within a reasonable time as the principal residence of the participant.
Loans are to be repaid on the basis of substantially level amortization
over the term of the loan with payments made each pay period.
H. Default
A loan is in default when a scheduled installment payment is 60 days late.
If payment has not been made within 30 days of the installment due date,
the Loan Administrator will notify the participant in writing that payment
is due within 15 days of the date of the notification. If payment is not
received within such stipulated time period, the following will take place:
1. The delinquent installment will be considered to be in default as
of the date the last payment was due.
2. At the discretion of the Trustee exercised in a uniform and
nondiscriminatory manner, the loan will be renegotiated and
payments will be made through payroll withholding. If the loan is
not renegotiated in a manner acceptable to the Trustee, if
permitted in the Plan, the loan will be deemed an in-service
withdrawal. Such withdrawal will be subject to personal income
and possible penalty taxes. Form 1099R will be timely issued to
the participant and the IRS showing such withdrawal.
3. If the participant fails to make provisions for repayment
reasonably acceptable to the Trustee, at the election of the
Trustee, exercised in a uniform and nondiscriminatory manner, the
remaining principal and interest on the loan shall be declared
due and payable as of the date the last payment was due.
4. The amount of any uncured default will be considered as having
been received in a taxable event, subject to personal income and
penalty taxes. Such tax consequences do not affect the
participant's obligation to repay the loan. Form 1099R will be
timely issued to the Participant and the IRS; however, the loan
will not be charged against the Participant's vested account
balance until he or she terminates service, retires, dies,
becomes disabled, or reaches the earliest date distribution is
permitted under the Plan.
5. To the extent necessary, any other collateral pledged as
additional security will be foreclosed upon.
21
<PAGE>
----------------------------------------
Article XIV
MISCELLANEOUS
----------------------------------------
Protection of benefits:
Except for the requirements of a Qualified Domestic Relations Order, your Plan
benefits are not subject to claims, indebtedness, execution, garnishment or
other similar legal or equitable process. Also, you cannot voluntarily (or
involuntarily) assign your benefits under this Plan. See Distributions due to a
Domestic Relations Order in Article X.
Amendment and Termination:
The Employer has reserved the right to amend or terminate your Plan. However, no
amendment can take away any benefits you have already earned. If your Plan is
terminated, you will be entitled to the full amount in your account as of the
date of termination, regardless of the percent you are vested at the time of
termination.
Pension Benefit Guaranty Corporation:
The Pension Benefit Guaranty Corporation (PBGC) provides plan termination
insurance for defined benefit pension plans. In your 401(k) Plan (a defined
contribution plan), all of the contributions and investment earnings are
allocated to Participants' accounts. PBGC insurance is not needed and does not
apply.
Claims:
When you request a distribution of all or any part of your account, you will
contact the Plan Administrator who will provide you with the proper forms to
make your claim for benefits.
Your claim for benefits will be given a full and fair review. However, if your
claim is denied, in whole or in part, the Plan Administrator will notify you of
the denial within 90 days of date your claim for benefits was received, unless
special circumstances delay the notification. If a delay occurs, you will be
given a written notice of the reason for the delay and a date by which a final
decision will be given (not more than 180 days after the receipt of your claim.)
Notification of a denial of claims will include:
(a) the specific reason(s) for the denial,
(b) reference(s) to the Plan provision(s) on which the denial is based,
22
<PAGE>
(c) a description of any additional material necessary to correct your
claim and an explanation of why the material is necessary, and
(d) an explanation of the steps to follow to appeal the denial, including
notification that you (or your beneficiary) must file your appeal
within 60 days of the date you receive the denial notice.
If you or your beneficiary do not file an appeal within the 60-day period, the
denial will stand. If you do file an appeal within the 60 days, your Employer
will review the facts and hold hearings, if necessary, in order to reach a final
decision. Your Employer's decision will be made within 60 days of receipt of the
notice of your appeal, unless an extension is needed due to special
circumstances. In any event, your Employer will make a decision within 120 days
of the receipt of your appeal.
Article XV, STATEMENT OF ERISA RIGHTS, describes the protection you have under
ERISA and the steps you can take to enforce these rights.
23
<PAGE>
----------------------------------------
Article XV
STATEMENT OF ERISA RIGHTS
----------------------------------------
As a participant in Ponchatoula Homestead Association Employees 401(k) Profit
Sharing Plan you are entitled to certain rights and protections under the
Employee Retirement Income Security Act of 1974 (ERISA). ERISA provides that all
Plan participants shall be entitled to:
(a) examine, without charge, at the Plan Administrator's office copies of
all documents filed by the Plan with the U.S. Department of Labor,
such as detailed annual reports and Plan descriptions,
(b) obtain copies of all Plan documents and other Plan information upon
written request to the Plan Administrator (the Administrator may make
a reasonable charge for the copies),
(c) receive a summary of the Plan's annual financial report. The Plan
Administrator is required by law to furnish each participant with a
copy of this summary annual report.
(d) obtain a statement telling you whether you have a right to receive a
retirement benefit at Normal Retirement Age and if so, what your
benefits would be at Normal Retirement Age if you stop working under
the Plan now. If you do not have a right to a benefit, the statement
will tell you how many more years you have to work to get a right to a
benefit. This statement must be requested in writing and is not
required to be given more than once a year. The Plan must provide the
statement free of charge.
In addition to creating rights for Plan participants, ERISA imposes duties upon
the people who are responsible for the operation of the employee benefit plan.
The people who operate your Plan, called "fiduciaries" of the Plan, have a duty
to do so prudently and in the interest of you and other Plan participants and
beneficiaries. No one, including your Employer may fire you or otherwise
discriminate against you in any way to prevent you from obtaining a retirement
benefit or exercising your rights under ERISA.
If your claim for a retirement benefit is denied in whole or in part you must
receive a written explanation of the reason for the denial. You have the right
to have the Plan review and reconsider your claim.
Under ERISA, there are steps you can take to enforce the above rights. For
instance, if you request materials from the Plan and do not receive them within
30 days, you may file suit in a federal court. In such a case, the court may
require the Plan Administrator to provide the materials and pay you up to $100 a
day until you receive the materials, unless the materials were not sent because
of reasons beyond the control of the administrator.
24
<PAGE>
If you have a claim for benefits which is denied or ignored, in whole or in
part, you may file suit in a state or federal court.
If it should happen that Plan fiduciaries misuse the Plan's money, or if you are
discriminated against for asserting your rights, you may seek assistance from
the U.S. Department of Labor, or you may file suit in a federal court. The court
will decide who should pay court costs and legal fees. If you are successful,
the court may order the person you have sued to pay these costs and fees. If you
lose, the court may order you to pay these costs and fees, for example, if it
finds your claim is frivolous.
If you have any questions about your rights under ERISA, you should contact the
nearest Area Office of the U.S. Management Services Administration, Department
of Labor.
25
