<PAGE>
As filed with the Securities and Exchange Commission on August 5, 1998
Registration No. 333-56465
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
(INCLUDING EXHIBITS)
PULASKI FINANCIAL CORP.
-----------------------------------------
(Exact name of registrant in its charter)
Delaware 6035 43-1816913
- ------------------------------- ----------------- -------------------
(State or other jurisdiction of (Primary SIC No.) (I.R.S. Employer
incorporation or organization) Identification No.)
12300 Olive Boulevard
St. Louis, Missouri
(314) 878-2210
-------------------------------------------------------------------------
(Address and telephone number of principal executive offices and place of
business)
Paul M. Aguggia, Esquire
Aaron M. Kaslow, Esquire
BREYER & AGUGGIA LLP
1300 I Street, N.W.
Suite 470 East
Washington, D.C. 20005
(202) 737-7900
---------------------------------------------------------
(Name, address and telephone number of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
================================================================================
Calculation of Registration Fee
================================================================================
<TABLE>
<CAPTION>
Title of Each Class of Securities Proposed Proposed Proposed Maximum Amount of
Being Registered Maximum Offering Aggregate Offering Registration Fee
Amount Being Price(1) Price(1)
Registered(1)
<S> <C> <C> <C> <C>
Common Stock, $0.01 Par Value 8,652,037 $10.00 $ 86,520,370 $25,523.51(2)
Participation interests 41,000 - - (3)
</TABLE>
================================================================================
(1) Estimated solely for purposes of calculating the registration fee. As
described in the Prospectus, the actual number of shares to be issued and
sold are subject to adjustment based upon the estimated pro forma market
value of the registrant and market and financial conditions.
(2) Previously paid.
(3) The securities of the Registrant to be purchased by the Pulaski Bank, A
Federal Savings Bank 401(k) Plan are included in the amount shown for
Common Stock. Accordingly, pursuant to Rule 457(h) of the Securities Act
of 1933, as amended, no separate fee is required for the participation
interests. Pursuant to such rule, the amount being registered has been
calculated on the basis of the number of shares of Common Stock that may be
purchased with the current assets of such Plan.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS SUPPLEMENT
PULASKI FINANCIAL CORP.
PULASKI BANK, A FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS AND PROFIT SHARING PLAN AND TRUST
UP TO 41,000 PARTICIPATION INTERESTS AND SHARES OF COMMON STOCK
PRICE PER SHARE: $10.00
This Prospectus Supplement relates to the offer and sale to participants
("Participants") in the Pulaski Bank, A Federal Savings Bank Employees' Savings
and Profit Sharing Plan and Trust ("Plan" or "401(k) Plan") of participation
interests and shares of Pulaski Financial Corp. common stock, par value $.01 per
share ("Common Stock"), as set forth herein.
In connection with the proposed reorganization of Pulaski Bank, A Federal
Savings Bank ("Bank" or "Employer") from the mutual holding company form of
organization to a wholly owned subsidiary of a stock savings and loan holding
company, Pulaski Financial Corp. (the "Holding Company") has been formed. The
reorganization of the Bank as a wholly-owned subsidiary of the Holding Company,
the exchange of shares of Bank common stock ("Bank Common Stock") by public
stockholders of the Bank (the "Public Stockholders") for Common Stock and the
sale of Common Stock to the public (the "Conversion Offerings") are herein
referred to as the "Conversion." Applicable provisions of the 401(k) Plan permit
the investment of the Plan assets in Common Stock at the direction of a Plan
Participant. This Prospectus Supplement relates to the election of a
Participant to direct the purchase of Common Stock in connection with the
Conversion.
The Prospectus, dated _________, 1998, of the Holding Company
("Prospectus"), which is attached to this Prospectus Supplement includes
detailed information with respect to the Conversion, the Conversion Offerings,
the Common Stock and the financial condition, results of operation and business
of the Bank and the Holding Company. This Prospectus Supplement, which provides
detailed information with respect to the Plan, should be read only in
conjunction with the Prospectus. Terms not otherwise defined in this Prospectus
Supplement are defined in the Prospectus.
A PARTICIPANT'S ELIGIBILITY TO PURCHASE COMMON STOCK IN THE CONVERSION
THROUGH THE PLAN IS SUBJECT TO THE PARTICIPANT'S GENERAL ELIGIBILITY TO PURCHASE
SHARES OF COMMON STOCK IN THE CONVERSION OFFERINGS AND THE MAXIMUM AND MINIMUM
LIMITATIONS SET FORTH IN THE PLAN OF CONVERSION. SEE "THE CONVERSION -- THE
SUBSCRIPTION, DIRECT COMMUNITY AND SYNDICATED COMMUNITY OFFERINGS" BEGINNING ON
PAGE 100 IN THE PROSPECTUS AND "--LIMITATIONS ON PURCHASES OF SHARES" BEGINNING
ON PAGE 107 IN THE PROSPECTUS.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PARTICIPANT, SEE "RISK FACTORS" IN THE PROSPECTUS.
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC"), THE OFFICE OF THRIFT SUPERVISION ("OTS"), THE
FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC") OR ANY OTHER FEDERAL AGENCY OR
ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC, THE OTS, THE FDIC OR ANY OTHER
AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus Supplement is ________________, 1998
No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus or this Prospectus
Supplement in connection with the offering made hereby, and, if given or made,
such information and representations must not be relied upon as having been
authorized by the Holding Company, the Bank or the Plan. This Prospectus
Supplement does not constitute an offer to sell or solicitation of an offer to
buy any securities in any jurisdiction to any person to whom it is unlawful to
make such offer or solicitation in such jurisdiction. Neither the delivery of
this Prospectus Supplement and the Prospectus nor any sale made hereunder shall
under any circumstances create any implication that there has been no change in
the affairs of the Bank or the Plan since the date hereof, or that the
information herein contained or incorporated by reference is correct as of any
time subsequent to the date hereof. This Prospectus Supplement should be read
only in conjunction with the Prospectus that is attached herein and should be
retained for future reference.
<PAGE>
TABLE OF CONTENTS
PAGE
The Offering
Securities Offered ...................................... S-1
Election to Purchase Common Stock in the Conversion...... S-1
Value of Participation Interests......................... S-1
Method of Directing Transfer............................. S-1
Time for Directing Transfer.............................. S-2
Irrevocability of Transfer Direction..................... S-2
Treatment of Bank Common Stock Held in the Plan.......... S-2
Direction to Purchase Common Stock After the Conversion.. S-2
Purchase Price of Common Stock........................... S-3
Nature of a Participant's Interest in the Common Stock... S-3
Voting and Tender Rights of Common Stock................. S-3
Description of the Plan
Introduction............................................. S-3
Eligibility and Participation............................ S-4
Contributions Under the Plan............................. S-4
Limitations on Plan Assets............................... S-5
Investment of Contributions.............................. S-7
The Employer Stock Fund.................................. S-9
Benefits Under the Plan.................................. S-9
Withdrawals and Distributions from the Plan.............. S-9
Administration of the Plan............................... S-10
Reports to Plan Participants............................. S-11
Plan Administrator....................................... S-11
Amendment and Termination................................ S-11
Merger, Consolidation or Transfer........................ S-12
Federal Income Tax Consequences.......................... S-12
Restrictions on Resale................................... S-15
Legal Opinions................................................ S-15
Investment Form............................................... S-16
<PAGE>
THE OFFERING
SECURITIES OFFERED
The securities offered hereby are participation interests in the Plan and
up to 41,000 shares, at the actual purchase price of $10.00 per share, of Common
Stock which may be acquired by the Plan for the accounts of employees
participating in the Plan. The Holding Company is the issuer of the Common
Stock. Only employees and former employees of the Savings Bank and their
beneficiaries may participate in the Plan. Information with regard to the Plan
is contained in this Prospectus Supplement and information with regard to the
Conversion and the financial condition, results of operation and business of the
Bank and the Holding Company is contained in the attached Prospectus. The
address of the principal executive office of the Bank is 12300 Olive Boulevard,
St. Louis, Missouri 63141. The Bank's telephone number is (314) 878-2210. To
obtain additional information about the Plan and its administrators, please
contact Michael J. Donius, Executive Vice President and Chief Operating Officer.
ELECTION TO PURCHASE COMMON STOCK IN THE CONVERSION
In connection with the Bank's Conversion, each Participant in the 401(k)
Plan may direct the trustees of the Plan (collectively, the "Trustee") to
transfer up to 100% of a Participant's beneficial interest in the assets of the
Plan to the Employer Stock Fund and to use such funds to purchase Common Stock
issued in connection with the Conversion. Amounts transferred may include
salary deferral, Employer matching and profit sharing contributions. The
Employer Stock Fund consists of investments in the Common Stock. Funds not
transferred to the Employer Stock Fund may be invested at the Participant's
discretion in the other investment options available under the Plan. See
"DESCRIPTION OF THE PLAN -- INVESTMENT OF CONTRIBUTIONS" below. A PARTICIPANT'S
ABILITY TO TRANSFER FUNDS TO THE EMPLOYER STOCK FUND IN THE CONVERSION OFFERINGS
IS SUBJECT TO THE PARTICIPANT'S GENERAL ELIGIBILITY TO PURCHASE SHARES OF COMMON
STOCK IN THE CONVERSION OFFERINGS. FOR GENERAL INFORMATION AS TO THE ABILITY OF
THE PARTICIPANTS TO PURCHASE SHARES IN THE CONVERSION OFFERINGS, SEE "THE
CONVERSION -- THE SUBSCRIPTION, DIRECT COMMUNITY AND SYNDICATED COMMUNITY
OFFERINGS" IN THE ATTACHED PROSPECTUS.
VALUE OF PARTICIPATION INTERESTS
The assets of the Plan are valued on an ongoing basis and each Participant
is informed of the value of his or her beneficial interest in the Plan on a
monthly basis. This value represents the market value of past contributions to
the Plan by the Bank and by the Participants and earnings thereon, less previous
withdrawals, loansand transfers from other Plans.
S-1
<PAGE>
METHOD OF DIRECTING TRANSFER
The last page of this Prospectus Supplement is an investment form to direct
a transfer to the Employer Stock Fund ("Investment Form"). If a Participant
wishes to transfer funds to the Employer Stock Fund to purchase Common Stock
issued in connection with the Conversion Offerings, the Participant should
indicate that decision in Part 2 of the Investment 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 THE EMPLOYER
STOCK FUND IN ORDER TO PURCHASE COMMON STOCK ISSUED IN CONNECTION WITH THE
CONVERSION OFFERINGS IS ___________, 1998. The Investment Form should be
returned to ___________ at the Bank no later than the close of business on such
date.
IRREVOCABILITY OF TRANSFER DIRECTION
A Participant's direction to transfer amounts credited to such
Participant's account in the Plan to the Employer Stock Fund in order to
purchase shares of Common Stock in connection with the Conversion Offerings
shall be irrevocable. Participants, however, will be able to direct the sale of
Common Stock, as explained below.
TREATMENT OF BANK COMMON STOCK HELD IN THE PLAN
Shares of Bank Common Stock held in the Employer Stock Fund prior to the
consummation of the Conversion will treated in the same manner as shares held by
other Public Stockholders. Such shares will be exchanged for shares of Common
Stock pursuant to the Exchange Ratio. Application of the Exchange Ratio will
result in the holders of the outstanding Bank Common Stock owning, in the
aggregate, approximately the same percentage of the Common Stock to be
outstanding upon the completion of the Conversion as the percentage of Bank
Common Stock owned by them, in the aggregate, immediately prior to the
consummation of the Conversion. FOR ADDITIONAL INFORMATION REGARDING THE
TREATMENT OF BANK COMMON STOCK, SEE "THE CONVERSION" IN THE PROSPECTUS.
DIRECTION TO PURCHASE COMMON STOCK AFTER THE CONVERSION
After the Conversion, a Participant will be able to direct that a certain
percentage of such Participant's interests in the trust assets ("Trust") be
transferred to the Employer Stock Fund and invested in Common Stock or to the
other investment funds available under the Plan. Alternatively, a Participant
may direct that a certain percentage of such Participant's interest in the
Employer Stock Fund be transferred from the Employer Stock Fund to other
investment funds available under the Plan. Participants will be permitted to
direct that future contributions made to the Plan by or on their behalf be
invested in Common Stock. Following the initial election, the allocation of a
Participant's
S-2
<PAGE>
interest in the Employer Stock Fund may be changed by the Participant on a daily
basis. Special restrictions may apply to transfers directed by those
Participants who are executive officers, directors and principal stockholders of
the Holding Company who are subject to the provisions of Section 16(b) of the
Securities and Exchange Act of 1934, as amended ("Exchange Act") or other
applicable provisions of federal securities laws.
PURCHASE PRICE OF COMMON STOCK
The funds transferred to the Employer Stock Fund for the purchase of Common
Stock in connection with the Conversion will be used by the Trustee to purchase
shares of Common Stock. The price paid for such shares of Common Stock will be
the same price as is paid by all other persons who purchase shares of Common
Stock in the Conversion Offerings.
NATURE OF A PARTICIPANT'S INTEREST IN THE COMMON STOCK
The Holding Company Stock purchased for an account of a Participant will be
held in the name in the Employer Stock Fund. Any earnings, losses or expenses
with respect to the Common Stock, including dividends and appreciation or
depreciation in value, will be credited or debited to the account and will not
be credited to or borne by any other accounts.
VOTING AND TENDER RIGHTS OF COMMON STOCK
The Trustee generally will exercise voting and tender rights attributable
to all Common Stock held by the Trust as directed by Participants with an
interest in the Employer Stock Fund. With respect to each matter as to which
holders of Common Stock have the right to vote, each Participant will be
allocated a number of voting instruction rights reflecting such Participant's
proportionate interest in the Employer Stock Fund. The percentage of shares of
Common Stock held in the Employer Stock Fund that are voted in the affirmative
or negative on each matter shall be the same percentage of the total number of
voting instruction rights that are exercised in either the affirmative or
negative, respectively.
DESCRIPTION OF THE PLAN
INTRODUCTION
The Bank adopted the Plan effective August 1, 1998 as the successor to the
Bank's prior defined contribution retirement plan. The Plan is a cash or
deferred arrangement established in accordance with the requirement under
Section 401(a) and Section 401(k) of the Internal Revenue Code of 1986, as
amended ("Code").
The Bank intends that the Plan, in operation, will comply with the
requirements under Section 401(a) and Section 401(k) of the Code. The Bank will
adopt any amendments to the Plan that may be necessary to ensure the qualified
status of the Plan under the Code and applicable
S-3
<PAGE>
Treasury Regulations. The Bank has received a determination from the Internal
Revenue Service ("IRS") that the Plan is qualified under Section 401(a) of the
Code and that it satisfies the requirements for a qualified cash or deferred
arrangement under Section 401(k) of the Code.
EMPLOYEE RETIREMENT INCOME SECURITY ACT. The Plan is an "individual
account plan" other than a "money purchase pension plan" within the meaning of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). As
such, the Plan is subject to all of the provisions of Title I (Protection of
Employee Benefit Rights) and Title II (Amendments to the Internal Revenue Code
Relating to Retirement Plans) of ERISA, except the funding requirements
contained in Part 3 of Title I of ERISA, which by their terms do not apply to an
individual account plan (other than a money purchase pension plan). The Plan is
not subject to Title IV (Plan Termination Insurance) of ERISA. Neither the
funding requirements contained in Title IV of ERISA nor the plan termination
insurance provisions contained in Title IV will be extended to Participants or
beneficiaries under the Plan.
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS OR HER
BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF EMPLOYMENT WITH
THE BANK. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE IMPOSED ON WITHDRAWALS
MADE PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59 1/2, UNLESS A PARTICIPANT
RETIRES AS PERMITTED UNDER THIS PLAN REGARDLESS OF WHETHER SUCH A WITHDRAWAL
OCCURS DURING HIS OR HER EMPLOYMENT WITH THE BANK OR AFTER TERMINATION OF
EMPLOYMENT.
REFERENCE TO FULL TEXT OF PLAN. THE FOLLOWING STATEMENTS ARE SUMMARIES OF
THE MATERIAL PROVISIONS OF THE PLAN. THEY ARE NOT COMPLETE AND ARE QUALIFIED IN
THEIR ENTIRETY BY THE FULL TEXT OF THE PLAN, WHICH IS FILED AS AN EXHIBIT TO THE
REGISTRATION STATEMENT FILED WITH THE SEC. COPIES OF THE PLAN ARE AVAILABLE TO
ALL EMPLOYEES BY FILING A REQUEST WITH THE PLAN ADMINISTRATOR. EACH EMPLOYEE IS
URGED TO READ CAREFULLY THE FULL TEXT OF THE PLAN.
ELIGIBILITY AND PARTICIPATION
Any employee of the Bank is eligible to participate and will become a
Participant in the Plan following completion of 1,000 hours of service with the
Bank within a consecutive 12 month period of employment and the attainment of
age 21. The Plan fiscal year is the calendar year ("Plan Year"). Directors who
are not employees of the Bank are not eligible to participate in the Plan.
During 1997, approximately 65 employees participated in the Plan.
S-4
<PAGE>
CONTRIBUTIONS UNDER THE PLAN
PARTICIPANT CONTRIBUTIONS. Each Participant in the Plan is permitted to
elect to reduce such Participant's Compensation (as defined below) pursuant to a
salary reduction agreement and have that amount contributed to the Plan on such
Participant's behalf. Such amounts are credited to the Participant's deferral
contributions account. For purposes of the Plan, "Compensation" means a
Participant's plus a Participant's commissions but not in excess of $150,000.
Due to recent statutory changes, the annual Compensation of each Participant
taken into account under the Plan is limited to $160,000 (as adjusted under
applicable Code provisions). A Participant may elect to modify the amount
contributed to the Plan under the participant's salary reduction agreement
during the Plan Year. Deferral contributions are generally transferred by the
Bank to the Trustee of the Plan on a periodic basis.
EMPLOYER CONTRIBUTIONS. The Bank currently matches 50% of a Participant's
monthly deferral contributions to a maximum of 4% of Compensation.
LIMITATIONS ON CONTRIBUTIONS
LIMITATIONS ON ANNUAL ADDITIONS AND BENEFITS. Pursuant to the requirements
of the Code, the Plan provides that the amount of contributions allocated to
each Participant's Account during any Plan Year may not exceed the lesser of 25%
of the Participant's "Section 415 Compensation" for the Plan Year or $30,000 (as
adjusted periodically under applicable Code provisions). A Participant's
"Section 415 Compensation" is a Participant's Compensation, excluding any amount
contributed to the Plan under a salary reduction agreement or any employer
contribution to the Plan or to any other plan or deferred compensation or any
distributions from a plan of deferred compensation. In addition, annual
additions are limited to the extent necessary to prevent the limitations for the
combined plans of the Bank from being exceeded. To the extent that these
limitations would be exceeded by reason of excess annual additions to the Plan
with respect to a Participant, the excess must be reallocated to the remaining
Participants who are eligible for an allocation of Employer contributions for
the Plan Year.
LIMITATION ON 401(K) PLAN CONTRIBUTIONS. The annual amount of deferred
compensation of a Participant (when aggregated with any elective deferrals of
the Participant under any other employer plan, a simplified employee pension
plan or a tax-deferred annuity) may not exceed $9,500 (as adjusted periodically
under applicable Code provisions). Contributions in excess of this limitation
("excess deferrals") will be included in the Participant's gross federal income
tax purposes in the year they are made. In addition, any such excess deferral
will again be subject to federal income tax when distributed by the Plan to the
Participant, unless the excess deferral (together with any income allocable
thereto) is distributed to the Participant not later than the first April 15th
following the close of the taxable year in which the excess deferral is made.
Any income on the excess deferral that is distributed not later than such date
shall be treated, for federal income tax purposes, as earned and received by the
Participant in the taxable year in which the excess deferral is made.
S-5
<PAGE>
LIMITATION ON PLAN CONTRIBUTIONS FOR HIGHLY COMPENSATED EMPLOYEES.
Sections 401(k) and 401(m) of the Code limit the amount of deferred compensation
contributed to the Plan in any Plan Year on behalf of Highly Compensated
Employees (defined below) in relation to the amount of deferred compensation
contributed by or on behalf of all other employees eligible to participate in
the Plan. Specifically, the actual deferral percentage for a Plan Year (i.e.,
----
the average of the ratios, calculated separately for each eligible employee in
each group, by dividing the amount of salary reduction contributions credited to
the salary reduction contribution account of such eligible employee by such
employee's compensation for the Plan Year) of the Highly Compensated Employees
may not exceed the greater of (a) 125% of the actual deferred percentage of all
other eligible employees, or (b) the lesser of (i) 200% of the actual deferred
percentage of all other eligible employees, or (ii) the actual deferral
percentage of all other eligible employees plus two percentage points. In
addition, the actual contribution percentage for a Plan Year (i.e., the average
----
of the ratios calculated separately for each eligible employee in each group, by
dividing the amount of employer contributions credited to the Matching
contributions account of such eligible employee by each eligible employee's
compensation for the Plan Year) of the Highly Compensated Employees may not
exceed the greater of (a) 125% of the actual contribution percentage of all
other eligible employees, or (b) the lesser of (i) 200% of the actual
contributions percentage of all other eligible employees, or (ii) the actual
contribution percentage of all other eligible employees plus two percentage
points.
In general, a Highly Compensated Employee includes any employee who, during
the Plan Year or the preceding Plan Year, (1) was at any time a 5% owner (i.e.,
----
owns directly or indirectly more than 5% of the stock of the Employer, or stock
possessing more than 5% of the total combines voting power of all stock of the
Employer) or, (2) during the preceding Plan Year, received Section 415
Compensation in excess of $80,000 (as adjusted periodically under applicable
Code provisions) and, if elected by the Bank, was in the top paid group of
employees for such Plan Year.
In order to prevent disqualification of the Plan, any amounts contributed
by Highly Compensated Employees that exceed the average deferral limitation in
any Plan Year ("excess contributions"), together with any income allocable
thereto, must be distributed to such Highly Compensated Employees before the
close of the following Plan Year. However, the Bank will be subject to a 10%
excise tax on any excess contributions unless such excess contributions,
together with any income allocable thereto, either are recharacterized or are
distributed before the close of the first 2 1/2 months following the Plan Year
to which such excess contributions relate. In addition, in order to avoid
disqualification of the Plan, any contributions by Highly Compensated Employees
that exceed the average contribution limitation in any Plan Year ("excess
aggregate contributions") together with any income allocable thereto, must be
distributed to such Highly Compensated Employees before the close of the
following Plan Year. However, the 10% excise tax will be imposed on the Bank
with respect to any excess aggregate contributions, unless such amounts, plus
any income allocable thereto, are distributed within 2 1/2 months following the
close of the Plan Year in which they arose.
S-6
<PAGE>
TOP-HEAVY PLAN REQUIREMENTS. If, for any Plan Year, the Plan is a Top-
Heavy Plan (as defined below), then (i) the Bank may be required to make certain
minimum contributions to the Plan on behalf of non-key employees (as defined
below), and (ii) certain additional restrictions would apply with respect to the
combination of annual additions to the Plan and projected annual benefits under
any defined plan maintained by the Bank.
In general, the Plan will be regarded as a "Top-Heavy Plan" for any Plan
Year, if as of the last day of the preceding Plan Year, the aggregate balance of
the accounts of all Participants who are key Employees exceeds 60% of the
aggregate balance of the Accounts of the Participants. "Key Employees"
generally include any employee, who at any time during the Plan Year or any
other the four preceding Plan Years, if (1) an officer of the Bank having annual
compensation in excess of $60,000 who is in an administrative or policy-making
capacity, (2) one of the ten employees having annual compensation in excess of
$30,000 and owing, directly or indirectly, the largest interest in the employer,
(3) a 5% owner of the employer (i.e., owns directly or indirectly more than 5%
----
of the stock of the employer, or stock possessing more than 5% of the total
combined voting power of all stock of the employer), or (4) a 1% of owner of the
employer having compensation in excess of $150,000.
INVESTMENT OF PLAN ASSETS
All amounts credited to Participants' Accounts under the Plan are held in
the Plan's trust (the "Trust") which is administered by the Trustee appointed by
the Association's Board of Directors. Prior to the Conversion, all Plan assets
are invested in the funds listed below, except for the Employer Stock Fund.
Upon the Conversion, the Accounts of a Participant held in trust under the Plan
will be invested by the Trustee, at the direction of the Participant, in the
following funds, including the Employer Stock Fund:
a. Money Market Fund
b. Stable Value Fund
c. Government Bond Fund
d. S&P 500 Stock Fund
e. S&P MidCap Stock Fund
f. International Stock Fund
g. Income Plus Assets Allocation Fund
h. Growth Asset Allocation Fund
i. Growth and Income Assets Allocation Fund
A brief summary of such funds is as follows:
Money Market Fund: Invests in a broad range of high-quality short-term
instruments. Its objective is short-term to achieve competitive short-term
rates of return while preserving the value of a Participant's principal.
S-7
<PAGE>
Stable Value Fund: Invests primarily in Guaranteed Investment Contracts and
Synthetic Guaranteed Investment Contracts. Its objective is short-to
intermediate-term: to achieve a stable return over a short to intermediate
periods of time while preserving the value of a Participant's investment.
Government Bond Fund: Invests in U.S. Treasury bonds with a maturity of 20
years or more. Its objective is long-term: to earn a higher level of income
along with the potential for capital appreciation.
S&P 500 Stock Fund: Invests in the stocks of a broad array of established
U.S. companies. Its objective is long-term: to earn higher returns by investing
in the largest companies in the U.S. economy.
S&P MidCap Stock Fund: Invests in the stocks of mid-sized U.S. Companies.
Its objectice is long-term: to earn higher returns which reflect the growth
potential of such companies.
International Stock Fund: Invests in over 1,000 foreign stocks in 20
countries. Its objective is long-term: to offer the potential return of
investing in the stock of established non-U.S. companies, as well as the
potential risk-reduction of broad diversification.
Income Plus Asset Allocation Fund: Invests approximately 80% of its
portfolio in a combination of stable value investments and U.S. bonds. The
balance is invested in U.S. and international stocks. Its objective is
intermediate-term: to preserve the value of a Participant's investment over
short periods of time and to offer some potential for growth.
Growth Assets Allocation Fund: Invests the majority of its assets in stocks
- - domestic as well as international. Its objective is long-term: to pursue high
growth of a Participant's investment over time.
Growth and Income Asset Allocation Fund: Invests in U.S. domestic and
international stocks, U.S. domestic bonds, and stable value investment. Its
objective is intermediate-term: to provide a balance between the pursuit of
growth and protection from risk.
EMPLOYER STOCK FUND
The Employer Stock Fund will consist of cash and investments in Common
Stock made on and after the effective date of the Conversion. Cash dividends
paid on Common Stock held in the Employer Stock Fund will be credited to a cash
dividend subaccount for each Participant investing in the Employer Stock Fund.
One the occasion o f the payment of a cash dividend, the Trustee may use the
dividend to purchase additional shares of Common Stock. The Trustee will, to
the extent practicable, use all amounts held by it in the Employer Stock Fund to
purchase shares of Common Stock of the Company as of the effective date of the
Conversion. Following the Conversion, the Employer Stock Fund may purchase
shares of Common Stock in the open-market or from
S-8
<PAGE>
Participants Accounts directing the sale of such account assets. Pending
investment in Common Stock, assets held in the Employer Stock Fund will be
placed in bank deposits or other short-term investments.
When Common Stock is purchased in the Conversion no sales commissions will
be paid. The Association expects to pay any transfer fees and other expenses
incurred in the purchase of Common Stock for the Employer Stock Fund. A
Participant's Accounts will be adjusted to reflect changes in the value of
shares of Common Stock resulting from stock dividends, stock splits and similar
changes.
As of the date of this Prospectus Supplement, none of the shares of Common
Stock have been issued or are outstanding and there is no established market for
the Common Stock. Accordingly, there is no record of the historical performance
of the Employer Stock Fund.
In connection with the Conversion, Participants may, prior to the
expiration of the Subscription Offering being conducted by the Company in
connection with the Conversion, elect to liquidate all or part of their
investments in the other investment funds under the Plan and transfer the
liquidation proceeds to the Employer Stock Fund. See "Time for Directing
Investment." Such an investment election will be evidences by a properly signed
and timely delivered Investment Form and Form 7. The Trustee will then
subscribe to purchase in the Conversion the maximum number of shares of Common
Stock of the Holding Company that may be purchased by Participants with the
amounts allocated to the Employer Stock Fund as of the end of the subscription
period. In all instances, purchases by Participants shall be subject to the
individual purchase limitations set forth in the Association's Plan of
Conversion. If there is not enough Common Stock in the Conversion to the all
subscriptions, the Common Stock would be apportioned and the Plan may not be
able to purchase all Common Stock requested by the Participants. In such case,
the Trustee will purchase shares of Common Stock in the open market after the
Conversion to fulfill Participants' requests. Such purchases may be at prices
higher than the purchase price in the Conversion.
The Bank or the Plan Trustee may adopt investment guidelines, which may
limit or restrict a Participant's Investment in the Employer Stock Fund. In no
event may any Participant purchase in the aggregate shares of Common Stock
through the Employer Stock Fund, or otherwise, in an amount in excess of shares
of Common Stock being offered by the Company in the Conversion (shares with
those acting in concert). (See the discussion under "The Conversion -
Limitations on Purchases of Shares" in the accompanying Prospectus for
clarification of purchases aggregated for purposes of this purchase limitation.)
Each Participant who makes an election to direct investment of assets under
the Employer Stock Fund may liquidate such investment at a future date, in
whole, or in part, by filing a Change of Investment Allocation form with
Pentegra, or by using Pentegra's voice response unit by calling (800) 433-4422,
in accordance with established procedures to dispose of such Plan investment and
reinvest the net proceeds in an alternative investment under the Plan. The
process of such sale, net
S-9
<PAGE>
of expenses, shall be allocated to the Participant's Account and reinvested in
accordance with the Plan.
Please refer to the section "Restrictions on Resale" contained herein for
additional information related to the sale of Common Stock held under the
Employer Stock Fund as an investment in a Participant's Account.
INVESTMENT ACCOUNTS
The Trust assets are invested by the Trustee pursuant to Participant's
directions, as described below. Each investment fund is valued as of the end of
each business day.
INVESTMENTS IN THE EMPLOYER STOCK FUND MAY INVOLVE CERTAIN RISK FACTORS
ASSOCIATED WITH INVESTMENTS IN COMMON STOCK OF THE HOLDING COMPANY. FOR A
DISCUSSION OF THESE RISK FACTORS, SEE "RISK FACTORS" IN THE PROSPECTUS.
BENEFITS UNDER THE PLAN
VESTING. A Participant, has at all times a fully vested, nonforfeitable
interest in all of his or her deferred contributions and the earnings thereon
under the Plan. A Participant vests in his or her matching contributions
account a the rate of 25% per year of employment with 100% vesting after four
years of employment.
WITHDRAWALS AND DISTRIBUTIONS FROM THE PLAN
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS OR HER
BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59 1/2
UNLESS A PARTICIPANT RETIRES AS PERMITTED UNDER THE PLAN REGARDLESS OF WHETHER
SUCH A WITHDRAWAL OCCURS DURING HIS OR HER EMPLOYMENT WITH THE BANK.
DISTRIBUTION UPON RETIREMENT, DISABILITY OR TERMINATION OF EMPLOYMENT.
Payment of benefits to a Participant who retires, incurs a disability, or
otherwise terminates employment generally shall be made in a lump sum cash
payment. At the request of the Participant, the distribution may include an in-
kind distribution of Common Stock of the Holding Company credited to the
Participant's Account. A Participant whose total vested account balance equals
or exceeds $3,500 at the time of termination, may elect, in lieu of a lump sum
payments, to be paid in annual installments over a period not exceeding the life
expectancy of the Participant or the joint life expectancies of the Participant
and his or her designated beneficiary. Benefits payments ordinarily shall be
made not later than 60 days following the end of the Plan Year in which occurs
later of the Participant's: (i) termination of employment; (ii) attainment of
age 65; or (iii) tenth anniversary of commencement of participation in the Plan;
but in no event later than April 1 following the calendar
S-10
<PAGE>
year in which the Participant attains age 70 1/2 (if the Participant is
retired). However, if the vested portion of the Participant's Account balances
exceeds $3,500, no distribution shall be made from the Plan prior to the
Participant's attaining age 65 unless the Participant consents to an earlier
distribution. Special rules may apply to the distribution of Common Stock of the
Holding Company to those Participants who are executive officers, directors and
principal shareholders of the Holding Company who are subject to the provisions
of Section 16(b) of the Exchange Act.
DISTRIBUTION UPON DEATH. A Participant who dies prior to the benefit
commencement date for retirement, disability or termination of employment, and
who has a surviving spouse, shall have his or her benefits paid to the surviving
spouse in a lump sum, or if the payment of his or her benefits had commenced
before his or her death, in accordance with the distribution method in effect at
his or her death. With respect to an unmarried Participant, and in the case of
a married Participant with spousal consent to the designation of another
beneficiary, payment of benefits to the beneficiary, payments of benefits to the
beneficiary of a deceased Participant shall be made in the form of a lump sum
payment in cash or in Common Stock, or if the payment of his or her benefit had
commenced before his or her death, in accordance with the distribution method if
effect at death.
NONALIENATION OF BENEFITS. Except with respect to federal income tax
withholding and as provided with respect to a qualified domestic relations order
(as defined in the Code), benefits payable under the Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to
benefits payable under the Plan shall be void.
ADMINISTRATION OF THE PLAN
TRUSTEE. The Trustee with respect to Plan assets, other than the Employer
Stock Fund, is currently Bank of New York. The Bank's Administrative Committee
will serve as Trustee with respect to the Employer Stock Fund until 30 days
after the closing of the Company's Conversion. __________ Bank of New York also
serve as Trustee of the Employer Stock Fund assets.
Pursuant to the terms of the Plan, the Trustee receives and holds
contributions to the Plan in trust and has exclusive authority and discretion to
manage and control the assets of the Plan pursuant to the terms of the Plan and
to manage, invest and reinvest the Trust and income therefrom. The Trustee has
the authority to invest and reinvest the Trust and may sell or otherwise dispose
of Trust investments at any time and may hold trust funds uninvested. The
Trustee has authority to invest the assets of the Trust in "any type of
property, investment or security" as defined under ERISA.
The Trustee has full power to vote any corporate securities in the Trust in
person or by proxy; provided, however, that the Participants will direct the
Trustee as to voting and tendering of all Common Stock held in the Employer
Stock Fund.
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<PAGE>
The Trustee is entitled to reasonable compensation for its services and is
also entitled to reimbursement for expenses properly and actually incurred in
the administration of the Trust. The expenses of the Trustee and the
compensation of the persons so employed is paid out of the Trust except to the
extent such expenses and compensation are paid by the Bank.
The Trustee must render at least annual reports to the Bank and to the
Participants in such form and containing information that the Trustee deems
necessary.
REPORTS TO PLAN PARTICIPANTS
The administrator will furnish to each Participant a statement at least
quarterly showing (i) the balance in the Participant's Account as of the end of
that period, (ii) the amount of contributions allocated to such Participant's
Account for that period, and (iii) the adjustments to such Participant's Account
to reflect earnings or losses (if any), distributions, loans disbursed, loan
repayments and transfers between investment funds.
PLAN ADMINISTRATOR
The Bank currently serves as the Plan Administrator. The Plan
Administrator is responsible for the administration of the Plan, interpretation
of the provisions of the Plan, prescribing procedures for filing applications
for benefits, preparation and distribution of information explaining the Plan,
maintenance of plan records, books of account and all other data necessary for
the proper administration of the Plan, and preparation and filing of all returns
and reports relating to the Plan which are required to be filed with the U.S.
Department of Labor and the IRS, and for all disclosures required to be made to
Participants, beneficiaries and others under Sections 104 and 105 of ERISA.
AMENDMENT AND TERMINATION
The Bank may terminate the Plan at any time. If the Plan is terminated in
whole or in part, then regardless of other provisions in the Plan, each employee
who ceases to be a Participant shall have a fully vested interest in his or her
Account. The Bank reserves the right to make, from time to time, any amendment
or amendments to the Plan which do not cause any part of the Trust to be used
for, or diverted to, any purpose other than the exclusive benefit of the
Participants or their beneficiaries.
MERGER, CONSOLIDATION OR TRANSFER
In the event of the merger or consolidation of the Plan with another plan,
or the transfer of the Trust to another plan, the Plan requires that each
Participant (if either the Plan or the other plan then terminated) receive a
benefit immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit he or she would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).
S-12
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX ASPECTS
OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED
TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN. THE
SUMMARY IS NECESSARILY GENERAL IN NATURE AND DOES NOT PURPORT TO BE COMPLETE.
MOREOVER, STATUTORY PROVISIONS ARE SUBJECT TO CHANGE, AS ARE THEIR
INTERPRETATIONS, AND THEIR APPLICATION MAY VARY IN INDIVIDUAL CIRCUMSTANCES.
FINALLY, THE CONSEQUENCES UNDER APPLICABLE STATE AND LOCAL INCOME TAX LAWS MAY
NOT BE THE SAME AS UNDER THE FEDERAL INCOME TAX LAWS.
PARTICIPANTS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO ANY
DISTRIBUTION FROM THE PLAN AND TRANSACTIONS INVOLVING THE PLAN.
The Plan has received a determination from the IRS that it is qualified
under Section 401(a) and 401(k) of the Code, and that the related Trust is
exempt from tax under Section 501(a) of the Code. A plan that is "qualified"
under these sections of the Code is afforded special tax treatment which include
the following: (1) the sponsoring employer is allowed an immediate tax deduction
for the amount contributed to the Plan of each year; (2) Participants pay no
current income tax on amounts contributed by the employer on their behalf; and
(3) earnings of the Plan are tax-exempt thereby permitting the tax-free
accumulation of income and gains on investments. The Plan will be administered
to comply in operation with the requirements of the Code as of the applicable
effective date of any change in the law. The Bank expects to timely adopt any
amendments to the Plan that may be necessary to maintain the qualified status of
the Plan under the Code. Following such an amendment, the Plan will be
submitted to the IRS for a determination that the Plan, as amended, continues to
qualify under Sections 401(a) and 501(a) of the Code and that it continues to
satisfy the requirements for a qualified cash or deferred arrangement under
Section 401(k) of the Code.
Assuming that the Plan is administered in accordance with the requirements
of the Code, participation in the Plan under existing federal income tax laws
will have the following effects:
(a) Amounts contributed to a Participant's 401(k) account and the
investment earnings are actually distributed or withdrawn from the Plan.
Special tax treatment may apply to the taxable portion of any distribution that
includes Common Stock or qualified as a "Lump Sum Distribution" (as described
below).
(b) Income earned on assets held by the Trust will not be taxable to the
Trust.
LUMP SUM DISTRIBUTION. A distribution from the Plan to a Participant or
the beneficiary of a Participant will qualify as a "Lump Sum Distribution" if it
is made: (i) within a single taxable year of the Participant or beneficiary;
(ii) on account of the Participant's death or separation from service, or after
the Participant attains age 59 1/2; and (iii) consists of the balance to the
credits of the
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<PAGE>
Participant under the Plan and all other profit sharing plans, if any,
maintained by the Bank. The portion of any Lump Sum Distribution that is
required to be included in the Participant's or beneficiary's taxable income for
federal income tax purposes ("total taxable amount") consists of the entire
amount of such Lump Sum Distribution less the amount of after-tax contributions,
if any, made by the Participant to any other profit sharing plans maintained by
the Bank which is included in such distribution.
AVERAGING RULES. The portion of the total taxable amount of a Lump Sum
Distribution ("ordinary income portion") will be taxable generally as ordinary
income for federal income tax purposes. However, for distributions occurring
prior to January 1, 2000, a Participant who has completed at least five years of
participation in the Plan before the taxable year in which the distribution is
made, or a beneficiary who receives a Lump Sum Distribution on account of the
Participant's death (regardless of the period of the Participant's participation
in the Plan or any other profit sharing plan maintained by the Employer), may
elect to have the ordinary income portion of such Lump Sum Distribution taxed
according to a special averaging rule ("five-year averaging"). The election of
the special averaging rules may apply only to one Lump Sum Distribution received
by the Participant or beneficiary, provided such amount is received on or after
the Participant turns 59 1/2 and the recipient elects to have any other Lump Sum
Distribution from a qualified plan received in the same taxable year taxed under
the special averaging rule. The special five-year averaging rule has been
repealed for distributions occurring after December 31, 1999. Under a special
grandfather rule, individuals who turned 50 by 1986 may elect to have their Lump
Sum Distribution taxed under either the five-year averaging rule (if available)
or the prior law ten-year averaging rule. Such individuals also may elect to
have that portion of the Lump Sum Distribution attributable to the Participant's
pre-1974 participation in the Plan taxed at a flat 20% rate as gain from the
sale of a capital asset.
COMMON STOCK INCLUDED IN LUMP SUM DISTRIBUTION. If a Lump Sum Distribution
includes Common Stock, the distribution generally will be taxed in the manner
described above, except that the total taxable amount will be reduced by the
amount of any net unrealized appreciation with respect to such Common Stock,
i.e., the excess of the value of such Common Stock at the time of the
- ----
distribution over its cost to the Plan. The tax basis of such Common Stock to
the Participant or beneficiary for purposes of computing gain or loss on its
subsequent sale will be the value of the Common Stock at the time of
distribution less the amount of net unrealized appreciation. Any gain on a
subsequent sale or other taxable disposition of such Common Stock, to the extent
of the amount of net unrealized appreciation at the time of distribution, will
be considered long-term capital gain regardless of the holding period of such
Common Stock. Any gain on a subsequent sale or other taxable disposition of the
Common Stock in excess of the amount of net unrealized appreciation at the time
of distribution will be considered either short-term capital gain or long-term
capital gain depending upon the length of the holding period of the Common
Stock. The recipient of a distribution may elect to include the amount of any
net unrealized appreciation in the total taxable amount of such distribution to
the extent allowed by the regulations by the IRS.
S-14
<PAGE>
DISTRIBUTIONS: ROLLOVERS AND DIRECT TRANSFERS TO ANOTHER QUALIFIED PLAN OR
TO AN IRA. Pursuant to a change in the law, effective January 1, 1993, virtually
all distributions from the Plan may be rolled over to another qualified Plan or
to an individual retirement account ("IRA") without regard to whether the
distribution is a Lump Sum Distribution or Partial Distribution. Effective
January 1, 1993, Participants have the right to elect to have the Trustee
transfer all or any portion of an "eligible rollover distribution" directly to
another plan qualified under Section 401(a) of the Code or to an IRA. If the
Participant does not elect to have an "eligible rollover distribution"
transferred directly to another qualified plan of to an IRA, the distribution
will be subject to a mandatory federal withholding tax equal to 20% of the
taxable distribution. An "eligible rollover distribution" means any amount
distributed from the Plan except: (1) a distribution that is (a) one of a
series of substantially equal periodic payments made (not less frequently than
annually) over the Participant's life of the joint life of the Participant and
the Participant's designated beneficiary, or (b) for a specified period of ten
years or more; (2) any amount that is required to be distributed under the
minimum distribution rules; and (3) any other distributions excepted under
applicable federal law. The tax law change described above did not modify the
special tax treatment of Lump Sum Distributions, that are not rolled over or
transferred, i.e., forward averaging, capital gains tax treatment and the
----
nonrecognition of net unrealized appreciation, discussed earlier.
ADDITIONAL TAX ON EARLY DISTRIBUTIONS. A Participant who receives a
distribution from the Plan prior to attaining age 59 1/2 will be subject to an
additional income tax equal to 10% of the taxable amount of the distribution.
The 10% additional income tax will not apply, however, to the extent the
distribution is rolled over into an IRA or another qualified plan or the
distribution is (i) made to a beneficiary (or to the estate of a Participant) on
or after the death of the Participant, (ii) attributable to the Participant's
being disabled within the meaning of Section 72(m)(7) of the Code, (iii) part of
a series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the Participant or the joint
lives (or joint life expectancies) of the Participant and his or her
beneficiary, (iv) made to the Participant after separation from service on
account of early retirement under the Plan after attainment of age 55, (v) made
to pay medical expenses to the extent deductible for federal income tax
purposes, (vi) pursuant to a qualified domestic relations order, or (vii) made
to effect the distribution of excess contributions or excess deferrals.
THE FOREGOING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX ASPECTS
OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED
TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN.
ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT A TAX ADVISOR CONCERNING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.
S-15
<PAGE>
RESTRICTIONS ON RESALE
Any person receiving shares of the Common Stock under the Plan who is an
"affiliate" of the Bank or the Holding Company as the term "affiliate" is used
in Rules 144 and 405 under the Securities Act of 1933, as amended ("Securities
Act") (e.g., directors, officers and substantial shareholders of the Bank) may
reoffer or resell such shares only pursuant to a registration statement filed
under the Securities Act (the Holding Company and the Bank having no obligation
to file such registration statement) or, assuming the availability thereof,
pursuant to Rule 144 or some other exemption from the registration requirements
of the Securities Act. Any person who may be an "affiliate" of the Bank or the
Holding Company may wish to consult with counsel before transferring any Common
Stock owned by him or her. In addition, Participants are advised to consult
with counsel as to the applicability of the reporting and short-swing profit
liability rules of Section 16 of the Exchange Act which may affect the purchase
and sale of the Common Stock where acquired or sold under the Plan or otherwise.
LEGAL OPINIONS
The validity of the issuance of the Common Stock will be passed upon by
Breyer & Aguggia LLP, Washington, D.C., which firm is acting as special counsel
for the Holding Company in connection with the Bank's Conversion from the mutual
holding company form of organization to a wholly-owned subsidiary of the Holding
Company.
S-16
<PAGE>
PSI FORM 7 (97) - H12 PULASKI BANK,
A FEDERAL SAVINGS BANK
CHANGE OF INVESTMENT ALLOCATION
MEMBER DATA (Please Type or Print Clearly):
1. Soc. Sec. Number ___ ___ ____ - ___ ___ - ___ ___ ___ ___
2. Name
-------------------------------------------------------------------
Last First Middle Initial
3. Current Address
--------------------------------------------------------
Street City State Zip Code
SECTION I
NEW INVESTMENT DIRECTIONS (APPLICABLE TO FUTURE CONTRIBUTIONS ONLY):
I hereby revoke any previous investment instructions and now direct that any
future contributions and/or loan repayments, if any, made by me or on my behalf
by Pulaski Bank, A Federal Savings Bank, including those contributions and/or
repayments received by the Pulaski Bank, A Federal Savings Bank Employees'
Savings & Profit Sharing Plan and Trust during the same reporting period as this
form, be invested in the following whole percentages. Any future contributions
or loan repayments will be invested in the Pulaski Financial Corp. Stock Fund
the month following the conclusion of the Initial Public Offering.
S&P 500 Stock Fund ______%
Stable Value Fund ______%
S&P MidCap Stock Fund ______%
Money Market Fund ______%
Government Bond Fund ______%
International Stock Fund ______%
Income Plus Asset Allocation Fund ______%
Growth & Income Asset Allocation Fund ______%
Growth Asset Allocation Fund ______%
Pulaski Financial Corp. Stock Fund ______%
======
100
SECTION II
NEW INVESTMENT DIRECTIONS (APPLICABLE TO ACCUMULATED BALANCES ONLY)
I hereby revoke any previous investment direction and now direct that the market
value of the units that I have invested in the following Funds, to the extent
permissible, be transferred out of the specified Fund and invested in the
selected Funds in whole percentages.
THE TOTAL OF YOUR FUND TO FUND PERCENTAGES MUST TOTAL 100%.
<TABLE>
<CAPTION>
______% FROM ______% FROM ______% FROM
S&P 500 STOCK FUND TO: STABLE VALUE FUND TO: S&P MIDCAP STOCK FUND TO:
<S> <C> <C>
______%Stable Value Fund ______%S&P 500 Stock Fund ______%S&P 500 Stock Fund
______%S&P MidCap Stock Fund ______%S&P MidCap Stock Fund ______%Stable Value Fund
______%Money Market Fund ______%Government Bond Fund ______%Money Market Fund
______%Government Bond Fund ______%International Stock Fund ______%Government Bond Fund
______%International Stock Fund ______%Income Plus Fund ______%International Stock Fund
______%Income Plus Fund ______%Growth and Income Fund ______%Income Plus Fund
______%Growth and Income Fund ______%Growth Fund ______%Growth and Income Fund
______%Growth Fund ______%Pulaski Financial Corp. ______%Growth Fund
______% PulaskiFinancial Corp. Stock Fund ______% Pulaski Financial Corp.
Stock Fund ====== Stock Fund
====== 100 ======
100 100
</TABLE>
S-17
<PAGE>
<TABLE>
<CAPTION>
______% FROM ______% FROM ______% FROM
MONEY MARKET FUND TO: GOVERNMENT BOND FUND TO: INTERNATIONAL STOCK FUND TO:
<S> <C> <C>
______%S&P 500 Stock Fund ______%S&P 500 Stock Fund ______%S&P 500 Stock Fund
______%Stable Value Fund ______%Stable Value Fund ______%Stable Value Fund
______%S&P MidCap Stock Fund ______%S&P MidCap Stock Fund ______%S&P MidCap Stock Fund
______%Government Bond Fund ______%Money Market Fund ______%Money Market Fund
______%International Stock Fund ______%International Stock Fund ______%Government Bond Fund
______%Income Plus Fund ______%Income Plus Fund ______%Income Plus Fund
______%Growth and Income Fund ______%Growth and Income Fund ______%Growth and Income Fund
______%Growth Fund ______%Growth Fund ______%Growth Fund
______%Pulaski Financial ______%Pulaski Financial ______%Pulaski Financial
Corp. Stock Fund Corp. Stock Fund Corp. Stock Fund
====== ====== ======
100 100 100
<CAPTION>
______% FROM ______% FROM ______% FROM
INCOME PLUS ASSET ALLOCATION FUND TO: GROWTH AND INCOME ASSET ALLOCATION FUND TO: GROWTH ASSET ALLOCATION FUND TO:
______%S&P 500 Stock Fund ______%S&P 500 Stock Fund ______%S&P 500 Stock Fund
______%Stable Value Fund ______%Stable Value Fund ______%Stable Value Fund
______%S&P MidCap Stock Fund ______%S&P MidCap Stock Fund ______%S&P MidCap Stock Fund
______%Money Market Fund ______%Money Market Fund ______%Money Market Fund
______%Government Bond Fund ______%Government Bond Fund ______%Government Bond Fund
______%International Stock Fund ______%International Stock Fund ______%International Stock Fund
______%Growth and Income Fund ______%Income Plus Fund ______%Income Plus Fund
______%Growth Fund ______%Growth Fund ______%Growth and Income Fund
______%Pulaski Financial ______%Pulaski Financial ______%Pulaski Financial
Corp. Stock Fund Corp. Stock Fund Corp. Stock Fund
====== ====== ======
100 100 100
</TABLE>
NOTE: All percentages elected in Section II will be subtracted from current
fund values prior to any reallocation noted under Section I on this
form.
Notes:
- -----
No amounts invested in the Stable Value Fund may be transferred directly to the
Money Market Fund. Stable Value Fund amounts invested in the S&P 500 Stock
Fund, the S&P MidCap Stock Fund, Government Bond Fund, International Stock Fund,
Income Plus Asset Allocation Fund, Growth and Income Asset Allocation Fund,
Growth Asset Allocation Fund and/or Pulaski Financial Corp. Stock Fund, for a
period of three months may be transferred to the Money Market Fund upon the
submission of a separate Change of Investment Allocation form.
The percentage that can be transferred to the Money Market Fund may be limited
by any amounts previously transferred from the Stable Value Fund that have not
satisfied the equity wash requirement. Such amounts will remain in either the
S&P 500 Stock Fund, the S&P MidCap Stock Fund, Government Bond Fund,
International Stock Fund, Income Plus Asset Allocation Fund, Growth and Income
Asset Allocation Fund, Growth Asset Allocation Fund, and/or Pulaski Financial
Corp. Stock Fund and a separate direction to transfer them to the Money Market
Fund will be required when they become available.
MEMBER'S SIGNATURE
---------------------------------- ------------------
Signature of Member Date
PENTEGRA SERVICES IS HEREBY AUTHORIZED TO MAKE THE ABOVE LISTED CHANGE(S) TO
THIS MEMBER'S RECORD.
- ------------------------------------------------------ -----------------------
Signature of Pulaski Bank, A Federal Date
Savings Bank's Authorized Representative
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<PAGE>
PROSPECTUS
PULASKI FINANCIAL CORP.
(PROPOSED HOLDING COMPANY FOR PULASKI BANK, A FEDERAL SAVINGS BANK)
BETWEEN 4,080,000 AND 6,348,000 SHARES OF COMMON STOCK
Pulaski Bank, A Federal Savings Bank is converting from the mutual holding
company form of organization to the stock holding company form of organization.
Pulaski Bancshares, M.H.C., which is a federally-chartered mutual holding
company, currently owns 69.81% of the outstanding common stock of Pulaski Bank.
As a result of the conversion, Pulaski Bancshares, M.H.C. will cease to exist
and Pulaski Bank will become a wholly-owned subsidiary of Pulaski Financial
Corp., a Delaware corporation that was formed in May 1998. Pulaski Financial
Corp. is offering its common stock to the public under the terms of a Plan of
Conversion which must be approved by the members of Pulaski Bancshares, M.H.C.
and by the stockholders of Pulaski Bank. The conversion will not go forward if
Pulaski Bancshares, M.H.C. and Pulaski Bank do not receive these approvals or if
Pulaski Financial Corp. does not sell at least the minimum number of shares.
Pursuant to the Plan of Conversion, Pulaski Financial Corp. will issue shares of
its common stock in this offering that will represent a 73.37% ownership
interest in Pulaski Financial Corp., which is based on the percentage ownership
that Pulaski Bancshares, M.H.C. currently maintains in Pulaski Bank, after
certain adjustments for waived dividends. Pulaski Financial Corp. will also
issue shares of its common stock to the public stockholders of Pulaski Bank in
exchange for their shares of Pulaski Bank's common stock pursuant to an exchange
ratio that will result in the public stockholders of Pulaski Bank owning in the
aggregate approximately 26.8663% of Pulaski Financial Corp.
- --------------------------------------------------------------------------------
OFFERING SUMMARY
Price Per Share: $10.00
<TABLE>
<CAPTION>
Minimum Midpoint Maximum Maximum, as adjusted
----------- ----------- ----------- --------------------
<S> <C> <C> <C> <C>
Number of shares: 4,080,000 4,800,000 5,520,000 6,348,000
Gross offering proceeds: $40,800,000 $48,000,000 $55,200,000 $63,480,000
Estimated offering expenses: $ 974,000 $ 1,027,000 $ 1,080,000 $ 1,141,000
Estimated net proceeds: $39,826,000 $46,973,000 $54,120,000 $62,339,000
Estimated net proceeds per share: $ 9.76 $ 9.79 $ 9.80 $ 9.82
</TABLE>
The amount of common stock being offered in the conversion is based on an
independent appraisal of the market value of Pulaski Bank and Pulaski
Bancshares, M.H.C. after giving effect to the conversion. The independent
appraiser has stated that as of July 24, 1998, the market value of the converted
Pulaski Bank and Pulaski Bancshares, M.H.C. ranged from $55,608,560 to
$75,235,100. Based on this valuation and the 73.37% ownership interest being
sold in this offering, the minimum of the offering range was set at $40,800,000
and the maximum was set at $55,200,000. Subject to approval of the Office of
Thrift Supervision, an additional 15% above the maximum number of shares may be
sold.
Charles Webb & Company, a Division of Keefe, Bruyette & Woods, Inc. ("Webb")
will use its best efforts to assist Pulaski Financial Corp. in selling at least
the minimum number of shares but does not guarantee that this number will be
sold. All funds received from subscribers will be held in an interest-bearing
savings account at Pulaski Bank until the completion or termination of the
conversion.
Pulaski Financial Corp. has received preliminary approval to have its common
stock quoted on the Nasdaq National Market under the symbol PULB.
The subscription offering will terminate at 12:00 Noon, Central Time, on
September 18, 1998, unless extended for up to 17 days. Funds will be returned
promptly if the conversion is terminated. If the conversion is not completed by
November 19, 1998 and the Office of Thrift Supervision consents to an extension
of time to complete the conversion, subscribers will be given the right to
increase, decrease or rescind their orders. No single extension may exceed 90
days and such extensions may not go beyond September 28, 2000.
- --------------------------------------------------------------------------------
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT INSURED OR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
FOR A DISCUSSION OF CERTAIN RISKS THAT YOU SHOULD CONSIDER, SEE "RISK FACTORS"
BEGINNING ON PAGE 10.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT
SUPERVISION, NOR ANY STATE SECURITIES REGULATOR HAS APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
For additional information about the conversion, please refer to the more
detailed information in this prospectus. For assistance, please contact the
stock information center at (314)___________.
<PAGE>
CHARLES WEBB & COMPANY,
a Division of Keefe, Bruyette & Woods, Inc.
The date of this prospectus is ___________, 1998
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain of the statements contained herein that are not historical facts
are forward-looking statements. These forward-looking statements include
statements of goals, intentions and expectations and involve risks and
uncertainties including, but not limited to, the following: changes in general
economic conditions; the performance of financial markets; interest rates; and
competitive, regulatory, legislative or tax changes that affect the cost of or
demand for the Bank's products. Because of these uncertainties, actual future
results may differ materially from those contemplated by such statements.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary................................... 1
Risk Factors.............................. 10
Selected Financial Information........... 15
Recent Developments....................... 17
Use of Proceeds........................... 22
Dividend Policy........................... 23
Market for Common Stock................... 24
Capitalization............................ 26
Historical and Pro Forma
Regulatory Capital Compliance........... 28
Pro Forma Data............................ 29
Effect of the Conversion on the Bank's
Stockholders............................ 34
Subscriptions by Executive Officers and
Directors............................... 35
Pulaski Bank, A Federal Savings Bank and
Subsidiaries Consolidated Statements
of Income............................... 36
Management's Discussion and
Analysis of Financial Condition
and Results of Operations............... 37
Business of the Holding Company........... 52
Business of the Bank...................... 52
Management of the Holding Company......... 73
Management of the Bank.................... 74
Regulation................................ 85
Taxation.................................. 92
The Conversion............................ 94
Comparison of Stockholders' Rights........ 110
Restrictions on Acquisition
of the Holding Company.................. 114
Description of Capital Stock
of the Holding Company.................. 119
Registration Requirements................. 120
Legal and Tax Opinions.................... 120
Experts................................... 120
Additional Information.................... 121
Index to Consolidated
Financial Statements.................... 122
Glossary.................................. G-1
</TABLE>
[Map of St. Louis area showing branch locations]
<PAGE>
SUMMARY
The following summary explains the significant aspects of the conversion.
For additional information about the conversion and the stock offering please
refer to the more detailed information in this prospectus. Throughout this
prospectus, Pulaski Bank, A Federal Savings Bank is referred to as the "Bank",
Pulaski Bancshares, M.H.C. is referred to as the "MHC" and Pulaski Financial
Corp. is referred to as the "Holding Company." See the glossary at the back of
this prospectus for the definitions of certain terms that are printed in
boldface type the first time they appear in this prospectus.
PULASKI FINANCIAL CORP.
The Bank formed the Holding Company under Delaware law in May 1998 for the
purpose of owning all of the Bank's capital stock following completion of the
conversion. The Holding Company has applied for and expects to receive approval
of the OTS to become a savings and loan holding company by acquiring the capital
stock of the Bank in the conversion. Before the completion of the conversion,
the Holding Company will not have any material assets or liabilities and it will
not conduct any business other than business related to the conversion. After
the conversion, the Holding Company's primary assets will be all of the capital
stock of the Bank, the loan that the Holding Company intends to make to the
Bank's ESOP and the net proceeds remaining from the sale of its common stock
after contributing 50% of the net proceeds to the Bank and funding the ESOP
loan. Initially, the primary activity of the Holding Company will be to direct,
plan and coordinate the Bank's business activities. In the future, the Holding
Company might become an operating company or acquire or organize other operating
subsidiaries, including other financial institutions, although it currently has
no specific plans or agreements to do so. The Holding Company's main office is
located at 12300 Olive Boulevard, St. Louis, Missouri 63141 and its telephone
number is (314) 878-2210.
PULASKI BANCSHARES, M.H.C.
The MHC is the federally-chartered mutual holding company of the Bank. The
MHC was formed in May 1994 as a result of the reorganization of the Bank into a
federally chartered mutual holding company. The members of the MHC consist of
depositors of the Bank and those current borrowers of the Bank who had loans
outstanding as of the consummation date of the MHC reorganization (May 11,
1994). The MHC's sole business activity is holding 1,470,000 shares of the
Bank's common stock, which represents 69.81% of the outstanding shares as of the
date of this prospectus. As part of the conversion, the MHC will merge into the
Bank, with the Bank as the surviving entity. As a result of this merger, the
MHC will cease to exist. The MHC's main office is located at 12300 Olive
Boulevard, St. Louis, Missouri 63141 and its telephone number is (314) 878-2210.
PULASKI BANK, A FEDERAL SAVINGS BANK
The Bank was founded in 1922 as a Missouri-chartered mutual savings and
loan association. In 1994, in connection with the formation of the MHC, the
Bank converted to a Missouri-chartered capital stock savings and loan
association. In 1995, the Bank converted to a federally chartered stock savings
bank and adopted the name Pulaski Bank, A Federal Savings Bank. Upon completion
of the conversion, the Bank will adopt the name Pulaski Bank. The Bank's main
office is located at 12300 Olive Boulevard, St. Louis, Missouri 63141 and its
telephone number is (314) 878-2210.
The Bank is regulated by the OTS and the FDIC. The Bank's deposits have
been federally-insured by the FDIC since 1947 and are currently insured by the
FDIC under the SAIF. The Bank has been a member of the FHLB-System since 1946.
The Bank's strategy is to operate as an independent, retail financial
institution dedicated to financing home ownership and other consumer needs in
St. Louis and the surrounding area. At March 31, 1998, the Bank operated five
offices in the St. Louis area and had total assets of $183.6 million, deposits
of $154.1 million and stockholders' equity
1
<PAGE>
of $24.6 million. At that date, $117.4 million, or 93.7%, of the Bank's loans
were residential mortgage loans and $7.3 million, or 5.8%, of the Bank's loans
were consumer loans. In recent years, as part of its asset/liability management
strategy, the Bank has sold most of the fixed-rate loans that it has originated.
Loan sales for the six months ended March 31, 1998 and the year ended September
30, 1997 totaled $51.6 million and $63.6 million, respectively. For a
discussion of the Bank's business strategy and recent results of operations, see
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." For a discussion of the Bank's business activities, see "BUSINESS
OF THE BANK."
THE CONVERSION
The conversion is being undertaken pursuant to the PLAN OF CONVERSION that
was adopted by the Boards of Directors of the Bank and the MHC on April 15, 1998
and subsequently amended on July 21, 1998. Pursuant to the Plan of Conversion,
(i) the MHC will merge into the Bank, at which time the MHC will cease to exist
and the outstanding shares of the Bank's common stock held by the MHC will be
canceled, and (ii) the Bank will become a wholly-owned subsidiary of the Holding
Company. As part of the conversion, the Holding Company will sell shares of its
common stock in this offering that will represent an ownership interest in the
Holding Company that is based on the percentage ownership that the MHC currently
maintains in the Bank. The Holding Company will also issue shares of its common
stock to the public stockholders of the Bank in exchange for their shares of
Bank common stock pursuant to an exchange ratio that will result in the public
stockholders of the Bank owning in the aggregate approximately 26.8663% of the
Holding Company, before giving effect to any (i) payment of cash in lieu of
issuing fractional shares and (ii) shares purchased by the stockholders of the
Bank in the offering.
The following diagram illustrates the current organizational structure and
ownership of the Bank:
Pulaski Bancshares, MHC Public Stockholders
69.81% 30.19%
Pulaski Bank
The following diagram reflects the post-conversion organizational structure
and ownership of the Holding Company and the Bank. The ownership interests
presented assume no fractional shares of the Holding Company's common stock are
issued and does not give effect to purchases of any shares in this offering by
the Bank's public stockholders or to the exercise of outstanding stock options.
As required by the OTS, the aggregate ownership interest of the Bank's public
stockholders has been adjusted downward to reflect assets held by the MHC and
the waiver by the MHC of certain dividends paid by the Bank.
2
<PAGE>
Purchase in Offering Former Bank Stockholders
73.14% 26.86%
Pulaski Financial Corp.
100%
Pulaski Bank
Completion of the conversion requires the following member and shareholder
approvals:
1. Approval by the holders of at least a majority of the total number of
votes eligible to be cast by the members of the MHC.
2. Approval by the holders of at least two-thirds of the outstanding shares
of the Bank's common stock (including those shares held by the MHC).
3. Approval by the holders of at least a majority of the shares of the
Bank's common stock (not including those shares held by the MHC) present
in person or by proxy at a meeting of stockholders called for the
purpose of considering the Plan of Conversion.
The MHC has called a special meeting of its members to be held on September
28, 1998 for the purpose of considering the Plan of Conversion. The Bank has
called a special meeting of its stockholders also to be held on September 28,
1998 for the purpose of considering the Plan of Conversion. The MHC intends to
vote its shares of Bank Common Stock, which amounts to 69.81% of the outstanding
shares, in favor of the Plan of Conversion at the special meeting of
stockholders. As of March 31, 1998, directors (including directors emeritus)
and executive officers of the Bank and their associates beneficially owned
137,607 (not including shares that may be acquired through the exercise of stock
options), or 21.6%, of the outstanding shares of Bank common stock held by the
Bank's public shareholders (i.e. shareholders other than the MHC), which they
----
intend to vote in favor of the Plan of Conversion.
REASONS FOR THE CONVERSION
The Boards of Directors of the Holding Company, the MHC and the Bank
believe that the conversion is in the best interests of the MHC and its members,
the Bank and its stockholders, and the communities served by the MHC and the
Bank. In their decision to pursue the conversion, the Boards of Directors
considered the various regulatory uncertainties associated with the mutual
holding company structure, including the MHC's future ability to waive any
dividends from the Bank and the uncertain future of the federal thrift charter.
In addition, the Boards of Directors considered the various advantages of the
stock holding company form of organization, including: (i) the Holding Company's
ability to repurchase shares of its common stock without adverse tax
consequences; (ii) the Holding Company's greater flexibility under current law
and regulations relative to the MHC to acquire other financial institutions and
diversify operations; (iii) the larger capital base of the Holding Company that
will result from the sale of common stock in this offering; and (iv) the
potential increased liquidity in the Holding Company common stock relative to
the Bank common stock because of the larger number of shares to be outstanding
upon consummation of the conversion. Currently, the Boards of Directors of the
Holding Company and the Bank have no specific plans, arrangements or
understandings, written or oral, regarding any stock repurchases, acquisitions
or diversification of operations. See "THE CONVERSION -- Purposes of
Conversion."
3
<PAGE>
THE SUBSCRIPTION OFFERING AND THE DIRECT COMMUNITY OFFERING
The Holding Company is offering shares of its common stock in a
SUBSCRIPTION OFFERING to certain current and former depositor and borrower
customers of the Bank and to the Bank's ESOP. Pursuant to its Plan of
Conversion, the Bank has granted subscription rights in the following order of
priority in accordance with applicable regulatory requirements to:
1. "Eligible Account Holders" -- the Bank's depositors with $50 or more on
deposit as of March 31, 1997.
2. The Bank's ESOP.
3. "Supplemental Eligible Account Holders" -- the Bank's depositors with
$50 or more on deposit as of June 30, 1998.
4. "Other Members" -- the Bank's depositors as of July 31, 1998 and
borrowers of the Bank as of May 11, 1994 whose loans continue to be
outstanding as of July 31, 1998.
If the number of shares sold in the conversion is increased above the
maximum of the offering range the ESOP will have first priority to purchase any
such shares over the maximum of the offering range, up to a total of 8% of the
common stock sold in this offering.
IMPORTANT: Subscription rights are not transferable, and persons with
subscription rights may not subscribe for shares for the benefit of any
other person. If you violate this prohibition you may lose your right to
purchase shares in the conversion and may be subject to criminal
prosecution and/or other sanctions.
The Subscription Offering will expire at 12:00 Noon, Central Time, on the
EXPIRATION DATE of September 18, 1998, unless extended by the Bank and the
Holding Company for up to 17 days. In the event of an oversubscription, shares
will be allocated in accordance with the Plan of Conversion.
Concurrently with the Subscription Offering, shares will be offered to the
general public in a DIRECT COMMUNITY OFFERING. Public stockholders of the Bank
will have first preference to purchase shares in the Direct Community Offering
and natural persons and trusts of natural persons who are residents of the
Bank's LOCAL COMMUNITY will have second preference. The Direct Community
Offering will terminate on the Expiration Date unless extended with approval of
the OTS, if necessary. The Subscription Offering and the Direct Community
Offering are being managed by Webb. Webb is a registered broker-dealer and a
member of the NASD. Webb is not obligated to purchase any shares of common
stock in this offering. Shares not sold in the Subscription Offering or Direct
Community Offering may be offered for sale in a SYNDICATED COMMUNITY OFFERING,
which would be an offering to the general public on a best efforts basis by a
selling group of broker-dealers managed by Webb. See "THE CONVERSION -- The
Subscription, Direct Community and Syndicated Community Offerings."
EXCHANGE OF THE BANK'S COMMON STOCK
As part of the conversion, each share of Bank common stock held by the MHC
will be canceled and each share of Bank common stock held by the Bank's public
stockholders will be exchanged for shares of Holding Company common stock. The
number of shares of Holding Company common stock to be issued to the Bank's
public stockholders will be based on an EXCHANGE RATIO that will result in the
Bank's public stockholders owning in the aggregate approximately 26.8626.63% of
the outstanding shares of Holding Company common stock before giving effect to
any (i) payment of cash in lieu of issuing fractional shares of Holding Company
common stock and (ii) shares purchased by the Bank's public stockholders in the
offering. As required by the OTS, the aggregate ownership interest of the
Bank's public stockholders has been adjusted downward from 30.19% to 26.8626.63%
to reflect assets held by the MHC and the waiver by the MHC of certain dividends
paid by the Bank. THE FINAL EXCHANGE RATIO WILL BE BASED
4
<PAGE>
ON THE PERCENTAGE OWNERSHIP INTEREST OF THE BANK'S PUBLIC STOCKHOLDERS IN THE
BANK AND THE NUMBER OF SHARES SOLD IN THIS OFFERING AND NOT ON THE MARKET VALUE
OF BANK COMMON STOCK. ACCORDINGLY, THE VALUE OF THE SHARES OF HOLDING COMPANY
COMMON STOCK TO BE RECEIVED FOR EACH SHARE OF BANK COMMON STOCK MAY BE LESS THAN
THE MARKET VALUE OF BANK COMMON STOCK AT THE TIME OF EXCHANGE. Because the
Exchange Ratio will be based on the number of shares sold in this offering, the
final Exchange Ratio will not be determined until the conclusion of this
offering. Prior to the consummation of the conversion, the Bank will issue a
press release regarding the final Exchange Ratio. See "-- Stock Pricing and
Number of Shares to be Issued in the Conversion."
Pursuant to OTS regulations, stockholders of the Bank do not have dissent
and appraisal rights with respect to the conversion because the Bank's common
stock is listed on The Nasdaq Stock Market. Accordingly, if the conversion is
approved, the exchange of each share of Bank common stock for shares of Holding
Company common stock will be mandatory. DO NOT SEND YOUR CERTIFICATES FOR
EXCHANGE AT THIS TIME. The Holding Company will mail to each stockholder of the
Bank exchange instructions, including information about the Exchange Ratio, and
a transmittal letter after the consummation of the conversion. See "THE
CONVERSION -- Delivery and Exchange of Stock Certificates -- Exchange Shares."
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED IN THE CONVERSION
Between 4,080,000 and 5,520,000 shares of the common stock will be sold
in this offering, all at a price of $10.00 per share. With the approval of
the OTS, the number of shares may be increased to 6,348,000. You will not pay
a commission to buy any shares in the conversion.
The amount of common stock being offered in the conversion is based on an
independent appraisal of the estimated pro forma market value of the Bank and
the MHC after giving effect to the conversion. RP FINANCIAL, the independent
appraiser, has estimated that, in its opinion, as of July 24, 1998, the
aggregate pro forma market value of the Bank and the MHC ranged between
$55,608,560 and $75,235,100 (with a midpoint of $65,421,830) ("Estimated
Valuation Range"). The pro forma market value is the market value of the Bank
and the MHC after taking into account the sale of shares in this offering and
the formation of the Holding Company. The appraisal was based in part on the
Bank's financial condition and operations and the effect of the additional
capital raised by the sale of common stock in this offering. Based on this
valuation and the approximate 73.37% ownership interest being sold in this
offering, the Board of Directors of the Holding Company and the Bank established
an offering range of $40,800,000 to $55,200,000. The independent appraisal will
be updated prior to the completion of the conversion. If the pro forma market
value of the Bank and the MHC changes to either below $55,608,560 or above
$86,520,370 (the adjusted maximum of the Estimated Valuation Range), you will be
notified and provided with the opportunity to modify or cancel your order. The
$10.00 per share purchase price was determined by the Boards of Directors of the
Holding Company and the Bank. See "THE CONVERSION -- Stock Pricing and Number of
Shares to be Issued."
Based on the 2,105,840 shares of Bank common stock outstanding at the date
of this Prospectus, and assuming a minimum of 4,080,000 and a maximum of
5,520,000 shares of Holding Company common stock are sold in the offering, the
Exchange Ratio is expected to range from approximately 2.3290 to 3.1510. The
final Exchange Ratio will be adjusted if any options to purchase shares of Bank
common stock are exercised after the date of this prospectus and before the
consummation of the conversion.
5
<PAGE>
<TABLE>
<CAPTION>
Shares to be Sold Shares to be Exchanged Total Shares
in this for Bank of Common
Offering(1) Common Stock (1) Stock to be Exchange
------------------------------ ---------------------- -------------------------------
Amount Percent Amount Percent Outstanding(1) Ratio(1)
------------ ---------------- ----------- -------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Minimum.... 4,080,000 73.37 1,480,856 26.63 5,560,856 2.3290
Midpoint... 4,800,000 73.37 1,742,183 26.63 6,542,183 2.7400
Maximum.... 5,520,000 73.37 2,003,510 26.63 7,523,510 3.1510
15% above
Maximum... 6,348,000 73.37 2,304,037 26.63 8,652,037 3.6236
- ------------------------
</TABLE>
(1) Assumes that outstanding options to purchase 15,592 shares of Bank common
stock are not exercised before consummation of the conversion. If all
options are exercised, the percentages represented by the shares sold in
this offering and the shares issued in exchange for the Bank's common stock
would be 72.89% 27.11%, respectively, and the Exchange Ratio would
be 2.2732, 2.6744, 3.0755, and 3.5369, at the minimum, midpoint, maximum
and 15% above the maximum of the Estimated Valuation Range, respectively.
PURCHASE LIMITATIONS
The minimum number of shares that you may purchase is 25. The Bank has
established the following additional purchase limitations:
1. No person (including all persons on a joint account) may purchase more
than 40,000 shares in the offering.
2. No person, either alone or together with associates or persons acting in
concert, may purchase shares in an amount that, when combined with shares
received in exchange for Bank common stock, exceeds 125,000 shares.
Because OTS policy requires that the maximum purchase limitation include
shares to be received in exchange for shares of Bank common stock, if you own
shares of Bank common stock you may be limited in your ability to subscribe for
and purchase shares in this offering.
For further discussion of the purchase limits and definitions of
"associate" and "acting in concert," see "THE CONVERSION -- Limitations on
Purchases of Shares."
PROCEDURE FOR PURCHASING COMMON STOCK
To subscribe for shares of common stock in the Subscription Offering, you
should send or deliver an original, signed stock order form together with full
payment (or appropriate instructions for withdrawal of full payment from
permitted deposit accounts, as described below) to the Bank in the postage-paid
envelope provided so that the stock order form is received before the end of the
Subscription Offering. You must also sign the certification that is part of the
stock order form. Payment for shares may be made in cash (if made in person) or
by check or money order. All funds received from subscribers will be held in an
interest-bearing savings account at the Bank until the completion or termination
of the conversion. The Bank will pay interest at the rate it pays on passbook
accounts from the date funds are received until completion or termination of the
conversion. Subscribers who have deposit accounts with the Bank may include
instructions on the stock order form requesting withdrawal from such deposit
account(s) to purchase shares. Withdrawals from certificates of deposit may be
made without incurring an early withdrawal penalty. All funds authorized for
withdrawal from deposit accounts with the Bank will earn interest at the
applicable account rate, but a hold will be placed on such funds making them
unavailable until the completion of the conversion. After the Bank receives
your order, your order cannot be withdrawn or changed, except with the consent
of the Bank.
6
<PAGE>
IMPORTANT: To ensure that your subscription rights are properly
identified, you must list all qualifying savings accounts and loans, as of the
respective qualifying dates, on the stock order form. Persons who do not list
all qualifying savings accounts and loans may be subject to reduction or
rejection of their subscription.
The Holding Company and the Bank have the discretion to accept or reject
orders received either through the Direct Community Offering or the Syndicated
Community Offering. If your order is rejected in part, you will not have the
right to cancel the remainder of the order.
Owners of self-directed IRAS may use the assets of their IRAs to purchase
shares of common stock in the conversion, provided that their IRAs are not
maintained on deposit with the Bank. If you want to use funds in a self-
directed IRA maintained by the Bank to purchase shares of common stock, you must
transfer your account to an unaffiliated institution or broker. If you are
interested in doing so, you should contact the stock information center at least
one week before the Expiration Date.
For further information on how to purchase stock, see "THE CONVERSION --
Procedure for Purchasing Shares in the Subscription and Direct Community
Offerings."
USE OF PROCEEDS
The Holding Company will use the proceeds of the offering as follows:
. 50% of the net proceeds will be contributed to the Bank. The Bank will
use these funds to make loans and purchase investments similar to the
kinds it currently holds. The Bank may also use these funds to expand its
banking operations through the acquisition of additional branches or
other financial institutions.
. The remaining net proceeds will be kept for general corporate purposes.
These purposes may include, for example, paying dividends or buying back
shares of common stock. Funds may also be used for future
diversification or acquisition activities or may be contributed to the
Bank to support its growth.
. An amount equal to 8% of the gross proceeds will be loaned to the ESOP
to fund its purchase of common stock.
For further discussion, see "USE OF PROCEEDS."
PURCHASES BY OFFICERS AND DIRECTORS
The Bank expects its directors and executive officers (together with their
associates) to subscribe for 50,000 shares, which equals 1.0% of the shares
issued at the midpoint of the offering range. The purchase price paid by
them will be the same $10.00 per share price as that paid by all other persons
who purchase shares in the conversion. See "SUBSCRIPTIONS BY EXECUTIVE OFFICERS
AND DIRECTORS."
BENEFITS OF THE CONVERSION TO MANAGEMENT
ESOP. In connection with the conversion, the Bank established the ESOP
and, in accordance with OTS regulations, provided that it will have the second
priority in the Subscription Offering. The Bank's ESOP intends to purchase 8%
of the shares of common stock sold in this offering. If the ESOP's subscription
is not filled in its entirety, the ESOP may purchase shares in the open market
following consummation of the conversion. If the number of shares sold in the
conversion is increased above the maximum of the offering range, the ESOP will
have a first priority to purchase any such shares over the maximum of the
offering range, up to a total of 8% of the common stock sold in the offering.
The ESOP is an employee benefit plan available only to employees of the Holding
Company and the Bank and their subsidiaries. Shares held by the ESOP will be
allocated among ESOP participants based on each participant's proportional share
of total compensation. The Holding Company will recognize additional
compensation expense as
7
<PAGE>
a result of the adoption of the ESOP. For information about the ESOP, see
"MANAGEMENT OF THE BANK --Benefits -- Employee Stock Ownership Plan." See also
"RISK FACTORS -- Expenses Associated with ESOP and MRDP" and "PRO FORMA DATA."
MANAGEMENT RECOGNITION AND DEVELOPMENT PLAN. After the conversion, the
Holding Company expects to adopt the Pulaski Financial Corp. 1999 Management
Recognition and Development Plan ("1999 MRDP"). If the 1999 MRDP is implemented
within one year after the conversion, under current OTS regulations the plan
will be subject to approval by stockholders at a meeting which may be held no
earlier than six months after completion of the conversion. The 1999 MRDP will
reserve a number of shares equal to 4% of the number of shares sold in this
offering (220,800 shares at the maximum of the Estimated Valuation Range).
Pursuant to the 1999 MRDP, the Holding Company would be able to make
awards of shares of common stock to key employees and directors of the Holding
Company and the Bank at no cost to the recipient. All awards would be subject
to vesting over a period of years. The size of individual awards will be
determined prior to submitting the 1999 MRDP for stockholder approval, and
disclosure of anticipated awards will be included in the proxy materials for
such meeting. The Holding Company will recognize additional compensation
expense as a result of the adoption of the 1999 MRDP. For additional
information about the 1999 MRDP, see "MANAGEMENT OF THE BANK -- Benefits --
Management Recognition and Development Plans." See also "RISK FACTORS -- New
Expenses Associated With ESOP and 1999 MRDP" and "PRO FORMA DATA."
STOCK OPTION PLAN. After the conversion, the Holding Company expects to
adopt the Pulaski Financial Corp. 1999 Stock Option Plan ("1999 Option Plan").
If the 1999 Option Plan is implemented within one year after the conversion,
under current OTS regulations the plan will be subject to approval by
stockholders at a meeting which may be held no earlier than six months after
completion of the conversion. The 1999 Option Plan will reserve a number of
shares equal to 10% of the number of shares sold in this offering. Pursuant to
the 1999 Option Plan, the Holding Company would be able to award options to
acquire shares of common stock to key employees and directors of the Holding
Company and the Bank at no cost to the recipient. The exercise price of such
options would be 100% of the fair market value of the common stock on the date
the option is granted. All awards would be subject to vesting over a period of
years. The size of individual awards will be determined prior to submitting the
1999 Option Plan for stockholder approval, and disclosure of anticipated awards
will be included in the proxy materials for such meeting. For additional
information about the 1999 Option Plan, see "MANAGEMENT OF THE BANK -- Benefits
- -- Stock Option Plans."
EMPLOYMENT AND SEVERANCE AGREEMENTS. The Holding Company and the Bank plan
to enter into employment agreements with William A. Donius, the Holding
Company's and the Bank's President and Chief Executive Officer, Thomas F. Hack,
the Holding Company's and the Bank's Chief Financial Officer, and Michael J.
Donius, the Holding Company's and the Bank's Chief Operating Officer, to replace
the employment agreements that each of these officers currently have with the
Bank. The new employment agreements will provide certain benefits to the
executive if he is terminated following a change in control of the Holding
Company or the Bank. If there is a change in control of the Holding Company or
the Bank, the executive will be entitled to a package of cash and/or benefits
with a maximum value equal to 2.99 times his average annual compensation during
the five-year period preceding the change in control. If a change in control
had occurred as of March 31, 1998, the aggregate value of the severance benefits
payable to the executives under the proposed employment agreements would have
been approximately $738,000. See "RISK FACTORS -- Provisions of Employment and
Severance Agreements" and "MANAGEMENT OF THE BANK --Executive Compensation --
Employment Agreements."
The Holding Company and the Bank plan to enter into severance agreements
with two of the Bank's senior officers, neither of whom will be covered by an
employment agreement. The severance agreements provide certain benefits to the
officers if they are terminated following a change in control of the Holding
Company or the Bank. If there is a change in control of the Holding Company or
the Bank each officer would be entitled to a package of cash and/or benefits
with a maximum value equal to two times the officer's compensation during the
12-month period preceding the change in control. If a change in control had
occurred as of March 31, 1998, the total value of the severance benefits payable
to these senior officers under the proposed agreements would have been
approximately
8
<PAGE>
$374,000. See "RISK FACTORS -- Provisions of Employment and Severance
Agreements" and "MANAGEMENT OF THE BANK -- Executive Compensation --Severance
Agreements."
ASSUMPTION OF EXISTING BENEFIT PLANS. Upon consummation of the conversion,
the Holding Company will assume the Bank's 1994 Stock Option Plan ("1994 Option
Plan") and Management Recognition and Development Plan ("1994 MRDP"). All stock
options awarded pursuant to the 1994 Option Plan that are outstanding at the
consummation of the conversion will be converted into options to purchase shares
of Holding Company 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. The duration of the
options will also be unchanged. As of the date of this prospectus, there were
outstanding options to purchase 48,160 shares of Bank common stock at a
weighted-average exercise price of $14.79 per share. Shares of restricted stock
granted pursuant to the 1994 MRDP will be converted into shares of Holding
Company common stock based on the Exchange Ratio without any change in the
vesting or other terms of the awards. See "MANAGEMENT OF THE BANK - Benefits."
MARKET FOR COMMON STOCK
The Holding Company has obtained preliminary approval for its common stock
to be listed on the Nasdaq National Market under the symbol PULB. The Bank's
common stock, which currently trades on the Nasdaq SmallCap Market under the
symbol PULB, will continue to be listed until consummation of the conversion.
After shares of the Holding Company's common stock commence trading, interested
investors may contact a stock broker to buy or sell shares. The Holding Company
cannot assure you that there will be an active trading market for the common
stock. See "RISK FACTORS -- Absence of Prior Market for the Common Stock" and
"MARKET FOR COMMON STOCK."
DIVIDEND POLICY
Following consummation of the conversion, the Holding Company's Board of
Directors intends to pay cash dividends on the common stock at an initial
quarterly rate equal to $.275 per share divided by the final Exchange Ratio.
This formula will result in an initial quarterly dividend rate of $.12,
$.10, $.087 and $.075 per share at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range, respectively. Dividends
will be subject to determination and declaration by the Board of Directors,
which will take into account a number of factors, including the Holding
Company's consolidated operating results and financial condition, net worth and
capital requirements, as well as regulatory restrictions on the payment of
dividends from the Bank to the Holding Company (which would be a primary source
of funds for the Holding Company). The Holding Company cannot guarantee you
that dividends will in fact be paid or that if paid such dividends will not be
reduced or eliminated in the future. For further information about the payment
of dividends, see "DIVIDEND POLICY."
COMPARISON OF STOCKHOLDERS' RIGHTS
The Holding Company is a Delaware corporation subject to the provisions of
the Delaware General Corporation Law, and the Bank is a federally-chartered
savings bank subject to federal laws and OTS regulations. Upon consummation of
the conversion, the stockholders of the Bank will become stockholders of the
Holding Company and their rights as stockholders will be governed by the Holding
Company's Certificate of Incorporation and Bylaws and Delaware law, rather than
the Bank's Federal Stock Charter and Bylaws, federal law and OTS regulations.
For a discussion of certain material differences in the rights of stockholders
of the Holding Company and the Bank and an explanation of possible antitakeover
effects of certain provisions of the Holding Company's Certificate of
Incorporation and Bylaws, see "COMPARISON OF STOCKHOLDERS' RIGHTS" and
"RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY."
9
<PAGE>
RISK FACTORS
Before investing in the common stock please carefully consider the matters
discussed below. The common stock is not a savings account or deposit and is
not insured by the FDIC or any other government agency.
MORTGAGE LENDING AND RISKS ASSOCIATED WITH ARM LOANS
At March 31, 1998, approximately 63.9% of the Bank's assets consisted of
residential mortgage loans held for investment. Such loans represented 93.7% of
the total loan portfolio at that date. While generally considered to involve
less risk than other types of lending, such as commercial mortgage loans,
commercial business loans and consumer loans, residential mortgage loans provide
relatively lower yields. The Bank's loan portfolio also includes a significant
amount of loans with adjustable rates of interest. At March 31, 1998, $87.0
million, or 69.7%, of the Bank's total loans receivable (excluding loans held
for sale) had adjustable interest rates. Adjustable rate loans generally pose
the risk that as interest rates rise the underlying payments of the borrowers
rise, thereby increasing the potential for loan delinquencies and loan losses.
At the same time, the marketability of the underlying properties may be
adversely affected by higher interest rates. The Bank's adjustable rate loans
contain periodic and lifetime interest rate adjustment limits which, in a rising
interest rate environment, may prevent such loans from repricing to market
interest rates. Accordingly, the Bank has no assurance that yields on ARM LOANS
will be sufficient to offset increases in the Bank's cost of funds. Moreover,
the Bank's ability to originate ARM loans may be affected by changes in the
level of interest rates and by market acceptance of the terms of such loans. In
a relatively low interest rate environment, as currently exists, borrowers
generally tend to favor fixed-rate loans over ARM loans. For a discussion of
the Bank's loan portfolio, see "BUSINESS OF THE BANK -- Lending Activities."
FLUCTUATION IN INCOME FROM LOAN SALES
Changes in the level of interest rates and the condition of the local and
national economies affect the amount of loans originated by the Bank and
demanded by investors to whom the loans are sold. Generally, the Bank's loan
origination and sale activity and, therefore, its results of operations, may be
adversely affected by an increasing interest rate environment to the extent such
environment results in decreased loan demand by borrowers and/or investors.
Accordingly, the volume of loan originations and the profitability of this
activity can vary significantly from period to period. In addition, the Bank's
results of operations are affected by the amount of operating expenses
associated with loan origination and sale activities, such as compensation and
benefits, occupancy and equipment expenses, and other operating costs. During
periods of reduced loan demand, the Bank's results of operations may be
adversely affected to the extent that it is unable to reduce expenses
commensurate with the decline in loan originations.
INTEREST RATE RISK
Changes in interest rates can have significant effects on the Bank's
profitability. The Bank's ability to make a profit, like that of most financial
institutions, depends largely on its net interest income, which is the
difference between the interest income received from its interest-earning assets
(such as loans and investment securities) and the interest expense incurred in
connection with its interest-bearing liabilities (such as deposits and
borrowings). The Bank's net interest income and the market value of its assets
and liabilities could be significantly affected by changes in interest rates.
In both a rising and declining interest rate environment, the Bank anticipates
that its net interest income could be adversely affected. In addition, rising
interest rates may adversely affect the Bank's earnings because they may cause a
decrease in customer demand for loans. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Asset and Liability
Management."
Changes in interest rates also can affect the average life of loans and
mortgage-backed securities. During periods of declining interest rates, loans
and mortgage-backed securities prepay faster as loans are prepaid and refinanced
at lower interest rates. During such periods, the Bank generally will not be
able to reinvest the proceeds of any such prepayments at comparable yields.
Conversely, during periods of rising interest rates, the rate of prepayments
generally slows. Moreover, volatility in interest rates also can result in
disintermediation, or the flow of funds away
10
<PAGE>
from savings institutions into direct investments, such as U.S. Government and
corporate securities and other investment vehicles which, because of the absence
of federal insurance premiums and reserve requirements, generally pay higher
rates of return than savings institutions.
BELOW AVERAGE RETURN ON EQUITY AFTER CONVERSION
Return on equity (net income divided by average equity) is a ratio used by
many investors to compare the performance of a particular company with other
companies. Because the proceeds of this offering will increase the Holding
Company's equity to a level greater than that of many of its peers, the Holding
Company's post-conversion return on equity will be below the average return on
equity for many publicly held savings associations and banks. In addition, the
expenses associated with the ESOP and 1999 MRDP, along with other post-
conversion expenses, will limit earnings growth levels. Over time, the Holding
Company intends to deploy the net proceeds from the conversion to increase
earnings per share and book value per share, without assuming undue risk, with
the goal of achieving a return on equity competitive with other publicly traded
savings associations. This goal could take a number of years to achieve, and
the Holding Company cannot assure you that this goal can be attained.
Consequently, you should not expect a competitive return on equity in the near
future. See "SELECTED FINANCIAL INFORMATION," "CAPITALIZATION" and "PRO FORMA
DATA."
RISK OF CONCENTRATION OF CREDIT
The Bank has no significant concentration of credit other than that a
substantial portion of its loan portfolio is secured by real estate, either as
primary or secondary collateral, located in the St. Louis metropolitan area.
This concentration of credit could have a material adverse effect on the Bank's
financial condition and results of operations if there is a material
deterioration in the economy of the St. Louis metropolitan area.
EXPENSES ASSOCIATED WITH ESOP AND 1999 MRDP
If the ESOP and 1999 MRDP are implemented, the Bank will recognize
additional material employee compensation and benefit expenses that stem from
the shares purchased or granted to employees and executives under those plans.
The Bank cannot predict the actual amount of these new expenses because
applicable accounting practices require that they be based on the fair market
value of the shares of common stock when the expenses are recognized. Expenses
for the ESOP would be recognized when shares are committed to be released to
participants' accounts, and expenses for the 1999 MRDP would be recognized over
the vesting period of awards made to recipients. These expenses have been
reflected in the pro forma financial information under "PRO FORMA DATA" assuming
the $10.00 per share purchase price as fair market value. Actual expenses,
however, will be based on the fair market value of the common stock at the time
of recognition, which may be higher or lower than $10.00. For further
discussion of these plans, see "MANAGEMENT OF THE BANK -- Benefits -- Employee
Stock Ownership Plan" and "-- Benefits --Management Recognition and Development
Plan."
POSSIBLE DILUTIVE EFFECT OF BENEFIT PROGRAMS
If the conversion is completed and stockholders approve the 1999 MRDP and
1999 Option Plan, the Holding Company intends to issue shares to its officers
and directors through these plans. If the shares for the 1999 MRDP are issued
from authorized but unissued stock, your ownership interest could be diluted by
up to approximately 2.8%. If the shares for the 1999 Option Plan are issued
from authorized but unissued stock, your ownership interest could be diluted by
up to approximately 7.0%. In either case, the issuance of additional shares
would decrease net income per share and stockholders' equity per share. See
"PRO FORMA DATA."
11
<PAGE>
POSSIBLE VOTING CONTROL BY MANAGEMENT AND EMPLOYEES
The 50,000 shares of common stock expected to be purchased by the Bank's
directors and executive officers and their associates in the conversion,
combined with shares such persons will receive in exchange for their shares of
Bank common stock and the shares expected to be awarded or sold to plan
participants under the ESOP, the 1999 MRDP, the 1999 Option Plan and the 1994
Option Plan, could ultimately result in management and employees and their
associates controlling up to approximately 21.8% of the outstanding shares
of the common stock (assuming the sale of 5,520,000 shares in the conversion
and that the shares issued under the 1999 MRDP, the 1999 Option Plan
and the 1994 Option Plan are repurchased treasury shares) and could permit
management to benefit from certain statutory and regulatory provisions, as well
as certain provisions in the Holding Company's Certificate of Incorporation and
Bylaws, that tend to promote the continuity of existing management. If these
individuals were to act as a group or in concert with each other they could have
significant influence over the outcome of any stockholder vote requiring a
majority vote and in the election of directors and could effectively exercise
veto power in matters requiring the approval of stockholders, such as certain
business combinations. Management might thus have the power to authorize
actions that might be viewed as contrary to the best interests of non-affiliated
holders of the common stock and might have veto power over actions that such
holders might deem to be in their best interests. See "SHARES TO BE PURCHASED BY
MANAGEMENT PURSUANT TO SUBSCRIPTION RIGHTS," "MANAGEMENT OF THE BANK --
Executive Compensation" and "RESTRICTIONS ON ACQUISITION OF THE HOLDING
COMPANY."
ANTI-TAKEOVER PROVISIONS AND STATUTORY PROVISIONS THAT COULD DISCOURAGE HOSTILE
ACQUISITIONS OF CONTROL
Provisions in the Holding Company's Certificate of Incorporation and
Bylaws, the corporation law of the state of Delaware, and certain federal
regulations might make it difficult and expensive to pursue a tender offer,
change in control or takeover attempt that management opposes. As a result,
stockholders who might desire to participate in such a transaction might not
have an opportunity to do so. Such provisions will also make the removal of the
current board of directors or management of the Holding Company, or the
appointment of new directors, more difficult. These provisions include:
limitations on voting rights of beneficial owners of more than 10% of the
Holding Company's common stock; supermajority voting requirements for certain
business combinations; the election of directors to staggered terms of three
years; the elimination of cumulative voting for directors; and the removal of
directors without cause only upon the vote of holders of 80% of the outstanding
voting shares. The Certificate of Incorporation of the Holding Company also
contains provisions regarding the timing and content of stockholder proposals
and nominations and limiting the calling of special meetings. See "RESTRICTIONS
ON ACQUISITION OF THE HOLDING COMPANY."
POSSIBLE ANTI-TAKEOVER EFFECT OF EMPLOYMENT AND SEVERANCE AGREEMENTS
The employment and severance agreements of senior officers of the Holding
Company and the Bank provide for cash severance payments and/or the continuation
of health, life and disability benefits in the event of their termination of
employment following a change in control of the Holding Company or the Bank. If
a change in control had occurred at March 31, 1998, the aggregate value of the
severance benefits available to these executive officers under the employment
and severance agreements would have been approximately $1.2 million. These
arrangements may have the effect of increasing the costs of acquiring the
Holding Company, thereby discouraging future attempts to take over the Holding
Company or the Bank. For information about the proposed employment and
severance agreements, see "MANAGEMENT OF THE BANK -- Executive Compensation."
COMPETITION
The Bank faces intense competition both in making loans and attracting
deposits. Competition for loans principally comes from commercial banks,
savings associations, credit unions, mortgage banking companies and insurance
companies. Historically, commercial banks, savings associations and credit
unions have been the Bank's most direct competition for deposits. The Bank also
competes with short-term money market funds and with other financial
12
<PAGE>
institutions, such as brokerage firms and insurance companies, for deposits. In
competing for loans, the Bank may be forced periodically to offer lower loan
interest rates. Conversely, in competing for deposits, the Bank may be forced
periodically to offer higher deposit interest rates. Either case or both cases
could adversely affect net interest income. See "BUSINESS OF THE BANK --
Competition."
ABSENCE OF PRIOR MARKET FOR THE COMMON STOCK
The Holding Company has never issued capital stock and, consequently, there
is no existing market for the common stock. Although the Holding Company has
received preliminary approval to list its common stock on the Nasdaq National
Market under the symbol PULB, the Holding Company cannot guarantee that an
active and liquid trading market for its common stock will develop, or if it
does develop, that it will continue. Furthermore, the Holding Company cannot
guarantee that if you purchase shares in the conversion you will be able to sell
your shares at or above the $10.00 purchase price. See "MARKET FOR COMMON
STOCK."
POSSIBLE INCREASE IN ESTIMATED VALUATION RANGE AND NUMBER OF SHARES ISSUED
RP Financial may increase the Estimated Valuation Range up to 15% to
reflect material changes in the financial condition or results of operations of
the Bank or changes in market conditions or general financial, economic or
regulatory conditions following the commencement of the offering. If the
Estimated Valuation Range is increased, the Holding Company anticipates that it
would sell, without any additional notice, up to 6,348,000 shares of common
stock for an aggregate price of up to $63,480,000. This increase in the
number of shares would decrease pro forma net earnings per share and
stockholders' equity per share, increase the Holding Company's pro forma
consolidated stockholders' equity and net earnings, and increase the purchase
price as a percentage of pro forma stockholders' equity per share and net
earnings per share. See "PRO FORMA DATA."
RISK OF YEAR 2000 DATA PROCESSING PROBLEMS
Computer programs that use only two digits to identify a year could fail or
create erroneous results by or at the year 2000. All of the material data
processing of the Bank that could be affected by this problem is provided by a
third party service bureau. If the Bank's service bureau is unable to complete
its year 2000 adjustments in a timely fashion and the Bank is unable to find a
new service bureau, or if the Bank's service bureau does not successfully make
all the necessary year 2000 adjustments, resulting computer malfunctions could
interrupt the operations of the Bank and have a significant adverse impact on
the Bank's financial condition and results of operations. The Bank has
developed a plan and created a committee of the Board of Directors to analyze
how the year 2000 will impact its operations and to monitor the status of its
vendors. Currently, the total pre-tax costs associated with required
modifications and conversions is not expected to exceed $100,000. Such
estimate is based on assumptions regarding the continued availability of various
resources, third-party modification plans and other factors. Accordingly,
actual expenses may be different from estimates. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Year 2000
Issues."
RISK OF DELAY IN CONSUMMATING THE CONVERSION
Once tendered, subscription orders cannot be revoked without the consent of
the Holding Company and the Bank, unless the conversion is terminated or there
is a resolicitation offering. If the conversion is not completed by November
19, 1998 as a result of changes that lead to a material revision in the
Estimated Valuation Range and the OTS consents to an extension of time to
complete the conversion, there would be a resolicitation offering. OTS
regulations permit the OTS to grant one or more time extensions, none of which
shall exceed 90 days. Such extensions may not go beyond September 28, 2000. In
the resolicitation offering, all subscribers would be mailed a supplement to
this prospectus and given the opportunity to confirm, modify or cancel their
subscriptions. Failure to confirm affirmatively or modify would be deemed a
cancellation and all subscription funds, together with accrued interest, would
be returned to the subscriber, or if the subscriber authorized payment by
withdrawal of funds on deposit at the Bank, that authorization would terminate.
13
<PAGE>
If a subscriber affirmatively confirms his subscription order during the
resolicitation offering, the Holding Company and the Bank would continue to hold
the subscriber's subscription funds until the expiration of the resolicitation
offering. All subscriptions held by the Holding Company and the Bank when the
resolicitation offering expires would be irrevocable without the consent of the
Holding Company and the Bank until the completion or termination of the
conversion.
FINANCIAL INSTITUTION REGULATION AND THE FUTURE OF THE THRIFT INDUSTRY
The Bank is subject to extensive regulation, supervision and examination by
the OTS and the FDIC. In May 1998, the U.S. House of Representatives passed
legislation that is intended to modernize the financial services industry.
Pursuant to this legislation, newly formed unitary savings and loan holding
companies would not be permitted to exercise the expanded powers otherwise
available to unitary savings and loan holding companies. Previous proposals
would have eliminated the federal savings association charter by requiring that
all federal savings associations convert to national banks or other banking
charters, but such provision was not included in the legislation that was
passed. The Bank is a federal savings association and the Holding Company, upon
completion of the conversion, will be a unitary savings and loan holding
company. No assurance can be given whether federal legislation will be enacted
that affects the federal savings association charter or unitary savings and loan
holding companies, or if such legislation is enacted, what form this legislation
might take. Accordingly, management of the Bank and the Holding Company cannot
predict what effect, if any, such legislation would have on the activities and
operations of the Bank and the Holding Company.
14
<PAGE>
SELECTED FINANCIAL INFORMATION
The following tables set forth certain information concerning the financial
position and results of operations of the Bank at the dates and for the periods
indicated. This information should be read in conjunction with the Financial
Statements and Notes thereto presented elsewhere in this prospectus.
Information at March 31, 1998 and for the six months ended March 31, 1998 and
1997 is unaudited, but, in the opinion of management, reflects all adjustments
(none of which are other than normal recurring entries) necessary for a fair
presentation. Results for the six months ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year ending
September 30, 1998.
<TABLE>
<CAPTION>
At September 30,
At March 31, ----------------------------------------------------------
1998 1997 1996 1995 1994 1993
------------ --------- --------- --------- ------------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Total assets.................................. $183,629 $179,419 $178,812 $183,095 $190,701 $184,332
Loans receivable, net......................... 124,734 130,359 134,044 148,551 157,724 128,950
Loans held for sale........................... 21,695 14,384 7,210 3,263 2,509 1,984
Bankers acceptances, investment securities
and FHLB stock.............................. 12,674 17,706 16,650 7,094 8,446 17,632
Mortgage-backed and related securities........ 6,120 6,362 7,424 9,443 11,680 14,960
Cash and cash equivalents..................... 14,028 6,248 9,022 10,882 6,937 17,786
Deposits...................................... 154,116 148,672 147,824 151,505 152,828 162,217
FHLB advances................................. 1,900 2,200 3,000 5,000 12,000 3,000
Stockholders' equity.......................... 24,649 23,858 22,504 22,096 21,328 14,846
<CAPTION>
Six Months
Ended March 31, Year Ended September 30,
------------------ -------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income............................... $ 6,848 $ 6,629 $ 13,498 $ 13,329 $ 12,823 $ 12,010 $12,739
Interest expense.............................. 3,546 3,473 6,985 7,071 6,882 6,034 6,783
-------- -------- -------- -------- -------- -------- -------
Net interest income........................... 3,302 3,156 6,513 6,258 5,941 5,976 5,956
Provision for loan losses..................... 69 18 169 65 151 274 158
-------- -------- -------- -------- -------- -------- -------
Net interest income after provision for loan
losses....................................... 3,233 3,138 6,344 6,193 5,790 5,702 5,798
Other income.................................. 587 393 887 729 815 736 1,071
Other expense................................. 2,309 2,174 4,284 5,669(1) 4,766 4,588 4,460
-------- -------- -------- -------- -------- -------- -------
Income before income taxes and cumulative
effect of a change in accounting principle... 1,510 1,357 2,947 1,253 1,839 1,850 2,409
Income taxes.................................. 534 463 1,024 370 614 584 801
Cumulative effect of change in
accounting principle......................... -- -- -- -- -- 40(2) --
-------- -------- -------- -------- -------- -------- -------
Net income.................................... $ 976 $ 894 $ 1,923 $ 883 $ 1,225 $ 1,306 $ 1,608
======== ======== ======== ======== ======== ======== =======
PER SHARE DATA (3)
Net income - basic........................... $0.47 $0.43 $0.92 $0.42 $0.59 $0.63 n/a
Net income - diluted......................... 0.46 0.43 0.91 0.42 0.58 n/a n/a
Dividends(4).................................. 0.55 0.50 1.03 0.85 0.80 0.15 n/a
</TABLE>
- ---------------------------
(1) Includes one-time SAIF assessment of $1.0 million.
(2) Reflects adoption of SFAS No. 109, "Accounting for Income Taxes."
(3) Effective December 31, 1997, the Bank adopted SFAS 128 relating to the
computation of earnings per share, which requires the presentation of
basic earnings per share and diluted earnings per share. Prior per
share data have been restated.
(4) The MHC has waived the receipt of all dividends declared and paid by
the Bank.
15
<PAGE>
<TABLE>
<CAPTION>
At September 30,
At --------------------------------------------
March 31, 1998 1997 1996 1995 1994 1993
-------------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
SELECTED OTHER DATA:
Number of:
Real estate loans outstanding....................... 2,818 2,921 3,031 3,228 3,409 3,233
Deposit accounts.................................... 17,260 16,047 16,316 17,155 17,831 18,881
Full-service offices................................ 5 5 5 4 5 5
</TABLE>
<TABLE>
<CAPTION>
At or For
the Six Months At or For
Ended March 31, Year Ended September 30,
---------------- ------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS:
Performance Ratios(1):
Return on average assets(2).......................... 1.07% 1.01% 1.08% 0.49% 0.66% 0.70% 0.88%
Return on average equity(3).......................... 7.88 7.82 8.28 3.90 5.66 7.46 11.44
Average equity as a percent of average total assets.. 13.64 12.85 12.98 12.60 11.71 9.37 7.67
Interest rate spread(4).............................. 3.10 3.00 3.07 2.97 2.79 2.95 3.10
Net interest margin(5)............................... 3.74 3.62 3.72 3.57 3.30 3.29 3.37
Average interest-earning assets to
average interest-bearing liabilities................ 115.87 115.62 116.26 114.96 113.31 110.27 107.11
Other expenses as a percent of average total assets.. 2.54 2.44 2.40 3.14 2.55 2.41 2.40
Dividend payout ratio(6)............................. 35.34 34.88 33.27 60.04 40.27 6.91 N/A
Capital Ratios:
Tangible............................................. 13.39 13.00 13.29 12.59 11.94 11.18 8.05
Core................................................. 13.39 13.00 13.29 12.59 11.94 11.18 8.05
Risk-based........................................... 26.27 30.08 28.74 29.41 26.92 25.19 20.22
Asset Quality Ratios:
Nonperforming loans as a percent
of total loans(7)................................... 0.97 0.52 0.86 0.50 0.56 1.15 0.48
Nonperforming assets as a
percent of total assets(8).......................... 0.80 0.45 0.70 0.47 0.65 1.03 0.40
Allowance for loan losses as a percent
of total loans...................................... 0.45 0.33 0.42 0.34 0.28 0.30 0.19
Allowance for loan losses as a
percent of nonperforming loans...................... 46.56 63.31 49.04 67.93 49.44 25.93 39.14
Net charge-offs as a percent of
average outstanding loans........................... 0.01 0.03 0.02 0.00 0.13 0.03 0.02
- ---------------------
</TABLE>
(1) Ratios for the six-month periods are annualized where appropriate.
(2) Net income divided by average total assets.
(3) Net income divided by average total equity.
(4) Difference between weighted average yield on interest-earning assets
and weighted average cost of interest-bearing liabilities.
(5) Net interest income as a percentage of average interest-earning assets.
(6) Dividends per share divided by net income per weighted average
publicly traded common share. The MHC has waived all dividends
declared and paid by the Bank.
(7) Nonperforming loans consist of loans accounted for on a nonaccrual
basis and accruing loans 90 days or more past due.
(8) Nonperforming assets consist of nonperforming loans, real estate
acquired in settlement of loans, and restructured loans. See
"BUSINESS OF THE BANK -- Lending Activities -- Nonperforming Assets
and Delinquencies."
16
<PAGE>
RECENT DEVELOPMENTS
The following tables set forth selected financial condition data for the
Association at June 30, 1998, and September 30, 1997, selected operating data
for the Bank for the three and nine months ended June 30, 1998 and 1997 and
selected financial ratios for the Bank at and for the three and nine months
ended June 30, 1998 and 1997. The selected financial and operating data and
financial ratios at and for the three and nine months ended June 30, 1998 and
1997 are derived from the unaudited financial statements of the Bank, which, in
the opinion of management, reflect all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation. This information should
be read in conjunction with the Consolidated Financial Statements and Notes
thereto presented elsewhere in this prospectus.
<TABLE>
<CAPTION>
At At
June 30, September 30,
1998 1997
------------ -------------
(in thousands)
<S> <C> <C>
SELECTED BALANCE SHEET DATA:
Total assets............................ $186,917 $179,419
Loans receivable, net................... 128,590 130,359
Loans held for sale..................... 14,621 14,384
Investment securities and FHLB stock.... 14,267 17,706
Mortgage-backed and related securities.. 5,881 6,362
Cash and cash equivalents............... 17,542 6,248
Deposits................................ 156,434 148,672
FHLB advances........................... 1,900 2,200
Stockholders' equity.................... 24,988 23,858
<CAPTION>
Three Months Nine Months
Ended June 30, Ended June 30,
-------------------- ------------------------
1998 1997 1998 1997
------ -------- -------- --------
(in thousands except per share data)
SELECTED OPERATING DATA:
Interest income......................... $3,400 $ 3,396 $ 10,248 $10,025
Interest expense........................ 1,786 1,748 5,332 5,221
------ -------- -------- -------
Net interest income..................... 1,614 1,648 4,916 4,804
Provision for loan losses............... 64 15 133 34
------ -------- -------- -------
Net interest income after
provision for loan losses.............. 1,550 1,633 4,783 4,770
Other income............................ 412 231 999 624
Other expense........................... 1,167 1,034 3,477 3,207
------ -------- -------- -------
Income before income taxes.............. 795 830 2305 2,187
Income taxes............................ 296 296 830 758
------ -------- -------- -------
Net income.............................. $ 499 $ 534 $ 1,475 $ 1,429
====== ======== ======== =======
PER SHARE DATA:
Net income - basic...................... $0.24 $0.26 $ 0.70 $ 0.68
Net income - diluted.................... 0.23 0.25 0.69 0.68
Dividends(1)............................ 0.55 0.50 0.83 0.75
</TABLE>
- ----------
(1) The MHC has waived the receipt of all dividends declared and paid by the
Bank.
17
<PAGE>
<TABLE>
<CAPTION>
For the For the
Three Months Nine Months
Ended June 30, Ended June 30,
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS:
Performance Ratios:(1)
Return on average assets(2).......................... 1.08% 1.19% 1.08% 1.07%
Return on average equity(3).......................... 7.75 9.15 7.83 8.27
Average equity as a percent of average total assets.. 13.89 13.05 13.73 12.92
Interest rate spread(4).............................. 2.99 3.12 3.09 3.03
Net interest margin(5)............................... 3.58 3.77 3.68 3.67
Average interest-earning assets to
average interest-bearing liabilities................ 114.92 116.05 114.98 115.81
Other expenses as a percent of average total assets.. 2.52 2.31 2.53 2.40
Dividend payout ratio(6)............................. 35.06 29.20 35.25 32.76
Net charge-offs as a percent of
average outstanding loans........................... 0.01 0.03
<CAPTION>
At June 30,
-----------------------
1998 1997
-------- --------
Capital Ratios:
Tangible............................................. 13.33% 13.03%
Core................................................. 13.33 13.03
Risk-based........................................... 24.56 30.02
Asset Quality Ratios:
Nonperforming loans as a percent of total loans(7)... 1.26 0.72
Nonperforming assets as a
percent of total assets(8).......................... 0.97 0.60
Allowance for loan losses as a percent
of total loans...................................... 0.51 0.33
Allowance for loan losses as a
percent of nonperforming loans...................... 40.39 45.85
</TABLE>
- --------------------------
(1) Ratios for the three- and nine-month periods are annualized where
appropriate.
(2) Net income divided by average total assets.
(3) Net income divided by average total equity.
(4) Difference between weighted average yield on interest-earning assets and
weighted average cost of interest-bearing liabilities.
(5) Net interest income as a percentage of average interest-earning assets.
(6) Dividends per share divided by net income per weighted average publicly
traded common share. The MHC has waived all dividends declared and paid by
the Bank.
(7) Nonperforming loans consist of loans accounted for on a nonaccrual basis
and accruing loans 90 days or more past due.
(8) Nonperforming assets consist of nonperforming loans, real estate acquired
in settlement of loans and restructured loans.
18
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1998 AND SEPTEMBER 30, 1997
Total assets at June 30, 1998 were $186.9 million, an increase of $7.5
million from $179.4 million at September 30, 1997. The increase in total assets
is primarily attributable to an increase in cash and cash equivalents offset by
decreases in loans receivable and investment securities.
Loans held for sale were $14.4 million at September 30, 1997 and increased
to $14.6 million at June 30, 1998. The increase was due to greater volume of
lending due in part to increased refinancing of mortgage loans. Cash
equivalents increased as loan repayments and deposits were invested in overnight
funds. In management's opinion, the current "flat" yield curve (i.e., short-
term rates and long-term rates are relatively equal) does not provide sufficient
incentive to warrant maturity extension of the investment portfolio.
Investments in debt securities decreased from $16.1 million at September
30, 1997 to $14.2 million at June 30, 1998. This decrease was due to maturity
of investments and redemption, prior to maturity, of callable securities that
resulted from the declining interest rates.
Loans receivable decreased from $130.4 million at September 30, 1997 to
$128.6 million at June 30, 1998. The decrease of $1.8 million is due to
repayment of loans exceeding originations and reflects the payoff of the Bank's
largest loan totaling approximately $1.2 million during the nine month period
ended June 30, 1998. In the current rate environment, the majority of the
Bank's borrowers preferred fixed rate loans, which are generally originated for
sale in the secondary market rather than retained in the Bank's portfolio.
Total liabilities at June 30, 1998 were $161.9 million, an increase of $6.3
million from $155.6 million at September 30, 1997. Deposits for the same period
increased from $148.7 million to $156.4 million, or $7.7 million. This growth is
as a result of the implementation of the high performance checking program,
which involves frequent direct mail advertisement and gifts for new checking
accounts. The number of new checking and money market accounts has increased
almost 47% since September 30, 1997. The Bank also believes that it has
benefitted from the bank mergers and consolidations in the St. Louis market
which finds customers leaving larger institutions and obtaining services from a
smaller, personally oriented financial institution.
Offsetting the increase in deposits, advances from the Federal Home Loan
Bank of Des Moines decreased $300,000 from $2.2 million at September 30, 1997 to
$1.9 million at June 30, 1998. The $300,000 decrease is due to scheduled debt
service payments.
Total stockholders' equity at June 30, 1998 was $25.0 million, an increase
of $1.1 million over $23.9 million at September 30, 1997. The increase is
attributable to net income of $1,475,000 offset by dividends declared and paid
to minority stockholders of $522,000. Also during the nine months ended June
30, 1998, stock options were exercised which resulted in capital contributions
totaling approximately $136,000.
NON-PERFORMING ASSETS AND DELINQUENCIES
Loans accounted for on a non-accrual basis amounted to $648,000 at June 30,
1998 as compared to $217,000 at September 30, 1997. The largest non-accrual
loan represents the Bank's interest ($227,000 at June 30, 1998) in a
participation loan in which the borrower has declared bankruptcy. The borrower
is paying in accordance with the terms of the bankruptcy court's ruling, and the
interest rate has been increased to 11.625% during the period of delinquency.
Interest income is only being recognized upon receipt of payment. Substantially
all of the remaining balance of non-accrual loans represents single-family
residential loans. Accruing loans that were contractually past due 90 days or
more at June 30, 1998 amounted to $1.1 million of which $252,000 were FHA/VA
government-insured loans. Real estate acquired in settlement of loans, net of
allowance for losses, increased to $13,000 at June 30, 1998 from $-0- at
September 30, 1997, and consisted of one single-family residence. The allowance
for loan losses was $729,000 at June 30, 1998, or .51% of total loans.
19
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED JUNE 30,
1998 AND 1997
GENERAL. Net income for the three months ended June 30, 1998 was $499,000,
or $0.23 per share (diluted), compared to $534,000, or $0.26 per share (diluted)
for the three months ended June 30, 1997. The decrease in net income between
the periods was primarily the result of increases in the provision for loan
losses and other expenses, which were partially offset by an increase in other
income due to strong loan sales. Additionally, net income for the nine months
ended June 30, 1998 was $1,475,000, or $0.69 per share (diluted), compared to
$1,429,000, or $0.68 per share (diluted), for the nine months ended June 30,
1997. The increase in net income between the periods was primarily the result of
increases in net interest income and other income, which were partially offset
by increases in the provision for loan losses and other expenses.
INTEREST INCOME. Interest income increased $4,000 for the three months
ended June 30, 1998 compared to the three months ended June 30, 1997. The
increase resulted primarily from an increase in interest on overnight deposits
of $125,000, offset by a decrease in interest on investments of $84,000 and a
decrease in interest on loans of $21,000. Interest income increased $223,000 for
the nine months ended June 30, 1998 compared to the nine months ended June 30,
1997. The increase resulted from an increase in interest on loans of $266,000
and interest on overnight deposits of $146,000, offset by a decrease in interest
on investments and mortgage-backed securities of $189,000.
Although interest on loans decreased during the quarter ended June 30,
1998, it increased by $266,000 for the nine months ended June 30, 1998, compared
to the nine months ended June 30, 1997. The increase in the nine month period
resulted from an increase in the average balance of loans outstanding from
$139.3 million in 1997 to $143.3 million in 1998. The average yield on loans
for the nine month period remained relatively consistent at 8.03% in 1997 and
8.05% in 1998. In contrast, the average yield on loans decreased to 7.98% for
the quarter ended June 30, 1998 from 8.13% for the same quarter in 1997. The
average balance of loans outstanding increased due to the increased volume of
consumer lending. As part of the Bank's interest rate risk policy, the majority
of fixed rate mortgage loans are sold with servicing released.
Interest on overnight deposits increased as a result of the increase in
average balance to $17.9 million and $13.0 million for the three and nine months
ended June 30, 1998 from $8.7 million and $9.7 million for the three and nine
months ended June 30, 1997, with the weighted average interest rate increasing
from 5.27% in 1997 to 5.44% in 1998. Excess liquidity has been invested in
federal funds because management believes the current "flat" yield curve
provides insufficient incentive for maturity extension.
The decrease in interest income on investment securities resulted from a
decrease in the average balance from $19.7 million and $18.7 million for the
three and nine months ended 1997 to $14.9 million and $15.5 million for the
three and nine months ended 1998 and a consistent average yield on these
investments of 5.9% in 1997 and 1998. The decrease in the average balances is a
reflection of the redemption, prior to maturity, of callable securities and
utilization of maturing securities to fund loan closings. At June 30, 1998, the
Bank's portfolio included $5.3 million of callable securities with a weighted
average rate of 5.97%. Callable securities carry the risk that if called prior
to maturity, the proceeds may be reinvested at lower interest rates or longer
terms.
INTEREST EXPENSE. Interest expense increased $38,000 for the three months
ended June 30, 1998 compared to the three months ended June 30, 1997. The
increase resulted primarily from an increase in the average balance of deposits,
from $148.6 million for the three months ended June 30, 1997 to $155 million for
the three months ended June 30, 1998 partially offset by a decrease in the
weighted average yield on deposits from 4.61% for the quarter ended June 30,
1997 to 4.53% for the quarter ended June 30, 1998. Interest expense increased
$111,000 for the nine months ended June 30, 1998 compared to the nine months
ended June 30, 1997. The increase resulted primarily from an increase in the
average balance of deposits, from $148.1 million for the nine months ended June
30, 1997 to $152.7 million for the nine months ended June 30, 1998 partially
offset by a decrease in the weighted average yield on deposits from 4.59% for
the nine months ended June 30, 1997 to 4.57% for the nine months ended June 30,
1998. The increased deposit volume has resulted from the implementation of the
high performance checking program which involves frequent direct mail
advertisement and gifts for new checking accounts.
20
<PAGE>
Interest on FHLB advances declined $4,000 and $26,000 for the three and
nine months ended June 30, 1998, respectively. These decreases are a result of
the decreased principal balance resulting from scheduled debt service payments.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the three
months ended June 30, 1998 and 1997 was $64,000 and $15,000, respectively. The
provision for loan losses for the nine months ended June 30, 1998 and 1997 was
$133,000 and $34,000, respectively. This increase reflects the increase in the
Bank's investment in consumer credit and non-conforming residential real estate
loans. Non-conforming residential real estate loans represent credit issued
which does not meet Fannie-Mae lending guidelines and therefore may not be
pooled and securitized with other loans. Although these type of loans are
inherently more subject to default, management believes that the credit risk is
being adequately mitigated by more stringent collection efforts and additional
monitoring activities. Management believes that the current level of allowance
for loan losses is adequate to absorb estimated losses inherent in the loan
portfolio.
OTHER INCOME. Other income increased $181,000 and $376,000 for the three
and nine months ended June 30, 1998 in comparison to the three and nine months
ended June 30, 1997. These fluctuations are primarily due to increases in gains
on sales of loans. Year-to-date gains have increased due to loan volumes being
approximately 96% greater than last year.
In addition, for the three months ended June 30, 1998, services charges on
deposit accounts increased $30,000, commissions on sales of insurance products
increased $42,000, and miscellaneous other income increased $44,000. Such
increases for the nine months ended June 30, 1998, totaled $45,000 for service
charges on deposit accounts, $74,000 for commissions on sales of insurance
products, and $44,000 for miscellaneous other income.
OTHER EXPENSES. Other expenses increased $134,000 and $270,000 to $1.2
million and $3.5 million for the three and nine months ended June 30, 1998,
respectively. Aside from advertising expenses and professional services, the
other classifications of other expenses remained relatively consistent.
Advertising expense increased $62,000 and $190,000 for the three and nine
months ended June 30, 1998 compared to the three and nine months ended June 30,
1997. Advertising expense for the nine month period consisted of $20,000 of
expense related to the celebration of the Bank's seventy-fifth anniversary and
$146,000 associated with the commencement of the checking account promotion.
The checking account promotion has been designed to last three years. The Bank
projects the first year promotional costs (consisting primarily of marketing
firm fees, postage and direct mailing expenses, etc.) to be approximately
$360,000 (including the costs incurred during the nine months ended June 30,
1998) with similar costs expected in each of the subsequent two years if the
promotion is continued. The goals of the promotion are (i) to increase the
percentage of transaction accounts to total deposits, thereby decreasing the
Bank's cost of funds and (ii) to increase other income through insufficient
funds charges, service charges and fees levied on checking accounts.
Professional services increased $96,000 from $134,000 for the nine months
ended June 30, 1997 to $230,000 for the nine months ended June 30, 1998. This
increase is attributable to certain consultative services provided to Bank
management including fees related to the high performance checking program.
Other consulting services included fees for employee benefit consulting as well
as fees for development of a strategic business and management development
program.
INCOME TAXES. The provision for income taxes remained consistent for the
three months ended June 30, 1998 in comparison to the three months ended June
30, 1997. The provision for income taxes increased $71,000 for the nine months
ended June 30, 1998 in comparison to the nine months ended June 30, 1997. The
increase is primarily attributable to increased levels of taxable income and a
slight increase in the Bank's effective tax rate.
21
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the common stock offered hereby are
estimated to range from $39.8 million to $54.1 million. If the Estimated
Valuation Range is increased by 15%, net proceeds are estimated to be $2.3
million. See "PRO FORMA DATA" for the assumptions used to arrive at such
amounts. The Holding Company has received conditional OTS approval to contribute
50% of the net proceeds of the offering to the Bank.
The following table presents the estimated net proceeds of the offering
based on the number of shares set forth below together with the amount to be
retained by the Holding Company and the amount to be contributed to the Bank.
<TABLE>
<CAPTION>
4,080,000 4,800,000 5,520,000 6,348,000
Shares at Shares at Shares at Shares at
$10.00 $10.00 $10.00 $10.00
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Gross proceeds................... $ 40,800 $ 48,000 $ 55,200 $ 63,480
Less expenses.................... 974 1,027 1,080 1,141
--------- --------- --------- ---------
Net proceeds..................... $ 39,826 $ 46,973 $ 54,120 $ 62,339
========= ========= ========= =========
Amount to be retained by the
Holding Company................. $ 19,913 $ 23,487 $ 27,060 $ 31,170
Amount to be contributed to the
Bank............................ $ 19,913 $ 23,487 $ 27,060 $ 31,170
</TABLE>
Receipt of 50% of the net proceeds of the sale of the common stock will
increase the Bank's capital and will support the expansion of the Bank's
existing business activities. The Bank will use the funds contributed to it for
general corporate purposes, including, initially, lending and investment in
short-term U.S. Government and agency obligations. The Bank may also use these
funds to expand its banking operations through the acquisition of additional
branches or other financial institutions.
In connection with the conversion and the establishment of the ESOP, the
Holding Company intends to loan the ESOP the amount necessary to purchase 8% of
the shares of common stock sold in the conversion. The Holding Company's loan
to fund the ESOP may range from $3,264,000 to $4,416,000 based on the sale of
326,400 shares to the ESOP (at the minimum of the Estimated Valuation Range)
and 441,600 shares (at the maximum of the Estimated Valuation Range),
respectively, at $10.00 per share. If 15% above the maximum of the Estimated
Valuation Range, or 6,348,000 shares, are sold in the conversion, the Holding
Company's loan to the ESOP would be approximately $5,078,400 (based on the
sale of 507,840 shares to the ESOP). It is anticipated that the ESOP loan will
have a 15-year term with interest payable at the prime rate as published in
The Wall Street Journal on the closing date of the conversion. The loan will
be repaid principally from the Bank's contributions to the ESOP and from any
dividends paid on shares of common stock held by the ESOP.
The remaining net proceeds retained by the Holding Company initially will
be invested primarily in short-term U.S. Government and agency obligations.
Such proceeds will be available for additional contributions to the Bank in the
form of debt or equity, to support future diversification or acquisition
activities, as a source of dividends to the stockholders of the Holding Company
and for future repurchases of common stock to the extent permitted under
Delaware law and federal regulations. The Holding Company will consider
exploring opportunities to use such funds to expand operations through acquiring
or establishing additional branch offices or acquiring other financial
institutions.
22
<PAGE>
Currently, there are no specific plans, arrangements, agreements or
understandings, written or oral, regarding any expansion activities.
Following consummation of the conversion, the Board of Directors will have
the authority to adopt plans for repurchases of common stock, subject to
statutory and regulatory requirements. Since the Holding Company has not yet
issued stock, there currently is insufficient information upon which an
intention to repurchase stock could be based. The facts and circumstances upon
which the Board of Directors may determine to repurchase stock in the future
would include but are not 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 the
ability to improve the Holding 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
Holding Company and its stockholders. Any stock repurchases will be subject to
a determination by the Board of Directors that both the Holding Company and the
Bank will be capitalized in excess of all applicable regulatory requirements
after any such repurchases and that capital will be adequate, taking into
account, among other things, the Bank's level of nonperforming and classified
assets, the Holding Company's and the Bank's current and projected results of
operations and asset/liability structure, the economic environment and tax and
other regulatory considerations. For a discussion of the regulatory limitations
applicable to stock repurchases, see "THE CONVERSION -- Restrictions on
Repurchase of Stock."
DIVIDEND POLICY
GENERAL
Since September 1994, the Bank has paid quarterly cash dividends on the
Bank's common stock. The MHC has waived receipt of all cash dividends paid by
the Bank. Upon completion of the conversion, the Holding Company's Board of
Directors will have the authority to declare dividends on the common stock,
subject to statutory and regulatory requirements. The Board of Directors of the
Holding Company intends to pay cash dividends on the common stock at an initial
quarterly rate equal to $0.275 per share divided by the final Exchange Ratio.
This formula will result in an initial quarterly dividend rate of $.12, $.10,
$.087 and $.075 per share at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively. By adjusting the
quarterly dividend in this fashion, the Holding Company intends to achieve
economic parity with the dividends currently paid on the Bank's common stock.
The first dividend payment on the Holding Company's common stock is expected
during January 1999. In addition, the Board of Directors may determine to pay
periodic special cash dividends in addition to, or in lieu of, regular cash
dividends. Declarations or payments of any dividends (regular and special) will
be subject to determination by the Holding Company's Board of Directors, which
will take into account the amount of the net proceeds retained by the Holding
Company, the Holding Company's financial condition, results of operations, tax
considerations, capital requirements, industry standards, economic conditions
and other factors, including the regulatory restrictions that affect the payment
of dividends by the Bank to the Holding Company discussed below. Under Delaware
law, the Holding Company will be permitted to pay cash dividends after the
conversion either out of surplus or, if there is no surplus, out of net profits
for the fiscal year in which the dividend is declared and/or the preceding
fiscal year. In order to pay such cash dividends, however, the Holding Company
must have available cash either from the net proceeds raised in the conversion
and retained by the Holding Company, borrowings by the Holding Company,
dividends received from the Bank or earnings on Holding Company assets. No
assurances can be given that any dividends, either regular or special, will be
declared or, if declared, what the amount of dividends will be or whether such
dividends, if commenced, will continue.
23
<PAGE>
CURRENT RESTRICTIONS
Dividends from the Holding Company may depend, in part, upon receipt of
dividends from the Bank because the Holding Company initially will have no
source of income other than dividends from the Bank and earnings from the
investment of the net proceeds from the offering retained by the Holding
Company. OTS regulations require the Bank to give the OTS 30 days' advance
notice of any proposed declaration of dividends to the Holding Company, and the
OTS has the authority under its supervisory powers to prohibit the payment of
dividends to the Holding Company. The OTS imposes certain limitations on the
payment of dividends from the Bank to the Holding Company which utilize a three-
tiered approach that permits various levels of distributions based primarily
upon a savings association's capital level. The Bank currently meets the
criteria to be designated a Tier 1 association, as defined under "REGULATION --
Federal Regulation of Savings Associations -- Limitations on Capital
Distributions," and consequently could at its option (after prior notice to and
no objection made by the OTS) distribute up to 100% of its net income during the
calendar year plus 50% of its surplus capital ratio at the beginning of the
calendar year less any distributions previously paid during the year. In
addition, the Bank may not declare or pay a cash dividend on its capital stock
if the effect thereof would be to reduce the regulatory capital of the Bank
below the amount required for the liquidation account to be established pursuant
to the Bank Plan of Conversion. See "REGULATION -- Federal Regulation of
Savings Associations -- Limitations on Capital Distributions," "THE CONVERSION -
- - Effects of Conversion to Stock Form on Depositors and Borrowers of the Bank -
Liquidation Account" and Note 10 of the Notes to Consolidated Financial
Statements included elsewhere herein.
Additionally, in connection with the conversion, the Holding Company and
the Bank have committed to the OTS that during the one-year period following
consummation of the conversion, the Holding Company will not take any action to
declare an extraordinary dividend to stockholders that would be treated by
recipients as a tax-free return of capital for federal income tax purposes.
TAX CONSIDERATIONS
In addition to the foregoing, retained earnings of the Bank appropriated to
bad debt reserves and deducted for federal income tax purposes cannot be used by
the Bank to pay cash dividends to the Holding Company without the payment of
federal income taxes by the Bank at the then current income tax rate on the
amount deemed distributed, which would include the amounts of any federal income
taxes attributable to the distribution. See "TAXATION - Federal Taxation" and
Note 9 of the Notes to Consolidated Financial Statements included elsewhere
herein. The Holding Company does not contemplate any distribution by the Bank
that would result in a recapture of the Bank's bad debt reserve or create the
above-mentioned federal tax liabilities.
MARKET FOR COMMON STOCK
The Holding Company has never issued capital stock and, consequently, there
is no existing market for the common stock. Although the Holding Company has
received preliminary approval to list the common stock on the Nasdaq National
Market under the symbol PULB, there can be no assurance that the Holding Company
will meet the Nasdaq National Market listing requirements, which include a
minimum market capitalization, at least three market makers and a minimum number
of record holders. Keefe, Bruyette & Woods, Inc. has agreed to make a market
for the common stock following consummation of the conversion, although it has
no obligation to do so, and will assist the Holding Company in seeking to
encourage at least two additional market makers to establish and maintain a
market in the common stock. 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. Based on the level of market making in the Bank's
common stock, the Holding Company anticipates that prior to the completion of
the conversion it will be able to obtain the commitment from at least two
additional broker-dealers to act as market maker for the common stock.
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 Holding Company, the Bank or any market maker. There can be no assurance
that an active and liquid trading market for the common stock
24
<PAGE>
will develop or that, if developed, it will continue. The number of active
buyers and sellers of the common stock at any particular time may be limited.
Under such circumstances, investors in the common stock could have difficulty
disposing of their shares on short notice and should not view the common stock
as a short-term investment. Furthermore, there can be no assurance that
purchasers will be able to sell their shares at or above the $10.00 purchase
price or that quotations will be available on the Nasdaq National Market as
contemplated.
The Bank's common stock is listed on the Nasdaq SmallCap Market under the
same symbol PULB. At March 31, 1998, there were 486 record holders of the
Bank's common stock (not including holders in nominee or "street name") and
eight market makers in the Bank's common stock as reported by the Nasdaq Stock
Market. The following table sets forth the high and low trading prices, as
reported by Nasdaq, and cash dividends paid during the periods indicated.
<TABLE>
<CAPTION>
Cash Dividend
High Low Declared
------ ------ -------------
<S> <C> <C> <C>
Fiscal 1996
- ----------------------------------
Quarter Ended December 31, 1995... $16.50 $12.25 $ .20
Quarter Ended March 31, 1996...... 16.50 15.00 .20
Quarter Ended June 30, 1996....... 15.50 14.00 .20
Quarter Ended September 30, 1996.. 14.75 12.25 .25
Fiscal 1997
- ----------------------------------
Quarter Ended December 31, 1996... 14.75 13.75 .25
Quarter Ended March 31, 1997...... 20.00 14.00 .25
Quarter Ended June 30, 1997....... 19.63 17.38 .25
Quarter Ended September 30, 1997.. 27.88 24.75 .275
Fiscal 1998
- ----------------------------------
Quarter Ended December 31, 1997... 32.25 30.00 .275
Quarter Ended March 31, 1998...... 51.00 47.50 .275
Quarter Ended June 30, 1998....... 49.00 37.06 .275
Quarter Ended September 30, 1998
(through August __, 1998).......
</TABLE>
25
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the Bank at
March 31, 1998, and the pro forma consolidated capitalization of the Holding
Company after giving effect to the assumptions set forth under "PRO FORMA DATA,"
based on the sale of the number of shares of common stock at the minimum,
midpoint, maximum and maximum, as adjusted, of the Estimated Valuation Range.
The shares that would be issued at the maximum, as adjusted, of the Estimated
Valuation Range would be subject to receipt of OTS approval of an updated
appraisal confirming such valuation. A CHANGE IN THE NUMBER OF SHARES TO BE
ISSUED IN THE CONVERSION MAY MATERIALLY AFFECT PRO FORMA CONSOLIDATED
CAPITALIZATION.
<TABLE>
<CAPTION>
Holding Company
Pro Forma Consolidated Capitalization
Based Upon the Sale of
--------------------------------------------------------
Bank 4,080,000 4,800,000 5,520,000 6,348,000
Capitalization Shares at Shares at Shares at Shares at
as of $10.00 $10.00 $10.00 $10.00
March 31, 1998 Per Share(1) Per Share(1) Per Share(1) Per Share(2)
-------------- ------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Deposits(3)............................ $154,116 $ 154,116 $ 154,116 $ 154,116 $ 154,116
FHLB advances.......................... 1,900 1,900 1,900 1,900 1,900
-------- ---------- ---------- ---------- ----------
Total deposits and borrowed funds...... $156,016 $ 156,016 $ 156,016 $ 156,016 $ 156,016
======== ========== ========== ========== ==========
Stockholders' equity:
Preferred stock:
1,000,000 shares, $.01 par value
per share, authorized; none issued
or outstanding...................... $ -- $ -- $ -- $ -- $ --
Common stock:
25,000,000 shares, $.01 par value
per share, authorized; specified
number of shares assumed to be
issued and outstanding(4)........... 2,106 56 65 76 87
Additional paid-in capital........... 5,255 47,131 54,269 61,406 69,613
Retained earnings(5)................. 17,389 17,603 17,603 17,603 17,603
Less:
Common stock acquired
by ESOP(6)......................... -- (3,264) (3,840) (4,416) (5,078)
Common stock acquired
by 1994 MRDP....................... (101) (101) (101) (101) (101)
Common stock to be acquired
by 1999 MRDP(7).................... -- (1,632) (1,920) (2,208) (2,539)
-------- ---------- ---------- ---------- ----------
Total stockholders' equity............ $ 24,649 $ 59,793 $ 66,076 $ 72,359 $ 79,584
======== ========== ========== ========== ==========
</TABLE>
(footnotes on following page)
26
<PAGE>
- ----------------
(1) Does not reflect the possible increase in the Estimated Valuation Range to
reflect material changes in the financial condition or results of operations
of the Bank or changes in market conditions or general financial, economic
and regulatory conditions, or the issuance of additional shares under the
1999 Option Plan.
(2) This column represents the pro forma capitalization of the Holding Company
in the event the aggregate number of shares of common stock issued in the
conversion is 15% above the maximum of the Estimated Valuation Range. See
"PRO FORMA DATA" and Footnote 1 thereto.
(3) Withdrawals from deposit accounts for the purchase of common stock are not
reflected. Such withdrawals will reduce pro forma deposits by the amounts
thereof.
(4) The Bank's authorized capital consists solely of 20,000,000 shares of common
stock, par value $1.00 per share, 1,000 shares of which will be issued to
the Holding Company, and 10,000,000 shares of preferred stock, no par value
per share, none of which will be issued in connection with the conversion.
(5) Pro forma retained income includes approximately $214,000 of retained
earnings of the MHC at March 31, 1998. Retained earnings are substantially
restricted by applicable regulatory capital requirements. Additionally, the
Bank will be prohibited from paying any dividend that would reduce its
regulatory capital below the amount in the liquidation account, which will
be established for the benefit of the Bank's Eligible Account Holders and
Supplemental Eligible Account Holders at the time of the conversion and
adjusted downward thereafter as such account holders reduce their balances
or cease to be depositors. See "THE CONVERSION -- Effects of Conversion to
Stock Form on Depositors and Borrowers of the Bank -- Liquidation Account."
(6) Assumes that 8% of the common stock sold in the conversion will be acquired
by the ESOP in the conversion with funds borrowed from the Holding Company.
Under GAAP, the amount of common stock to be purchased by the ESOP
represents unearned compensation and is, accordingly, reflected as a
reduction of capital. As shares are released to ESOP participants'
accounts, a corresponding reduction in the charge against capital will
occur. Since the funds are borrowed from the Holding Company, the borrowing
will be eliminated in consolidation and no liability or interest expense
will be reflected in the consolidated financial statements of the Holding
Company. See "MANAGEMENT OF THE BANK -- Benefits -- Employee Stock Ownership
Plan."
(7) Assumes the purchase in the open market at $10.00 per share, pursuant to the
proposed 1999 MRDP, of a number of shares equal to 4% of the shares of
common stock issued in the conversion at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range. The shares are
reflected as a reduction of stockholders' equity. See "RISK FACTORS --
Possible Dilutive Effect of Benefit Programs," "PRO FORMA DATA" and
"MANAGEMENT OF THE BANK -- Benefits -- Management Recognition Plan." The
1999 MRDP is subject to stockholder approval at a meeting following
consummation of the conversion.
27
<PAGE>
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
The following table presents the Bank's historical and pro forma capital
position relative to its capital requirements at March 31, 1998. The amount of
capital infused into the Bank for purposes of the following table is 50% of the
net proceeds of the offering. For purpose of the table below, the amount
expected to be borrowed by the ESOP and the cost of the shares expected to be
acquired by the MRDP are deducted from pro forma regulatory capital. For a
discussion of the assumptions underlying the pro forma capital calculations
presented below, see "USE OF PROCEEDS," "CAPITALIZATION" and "PRO FORMA DATA."
The definitions of the terms used in the table are those provided in the capital
regulations issued by the OTS. For a discussion of the capital standards
applicable to the Bank, see "REGULATION -- Federal Regulation of Savings
Associations -- Capital Requirements."
<TABLE>
<CAPTION>
PRO FORMA AT MARCH 31, 1998
----------------------------------------------------------------------------------
15% Above
Minimum of Midpoint of Maximum of Maximum of
Estimated Estimated Estimated Estimated
Valuation Range Valuation Range Valuation Range Valuation Range
------------------- ------------------- ------------------- -------------------
4,080,000 Shares 4,800,000 Shares 5,520,000 Shares 6,348,000 Shares
March 31, 1998 at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share
------------------- ------------------- ------------------- ------------------- -------------------
Percent of Percent of Percent of Percent of Percent of
Adjusted Adjusted Adjusted Adjusted Adjusted
Total Total Total Total Total
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(2)............ $24,649 13.42% $39,880 19.73% $42,589 20.73% $45,299 21.71% $48,414 22.79%
Tangible capital(2)........ $24,589 13.39% $39,820 19.71% $42,529 20.71% $45,239 21.68% $48,354 22.76%
Tangible capital
requirement............... 2,754 1.50 3,031 1.50 3,080 1.50 3,130 1.50 3,186 1.50
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess..................... $21,835 11.89% $36,789 18.21% $39,449 19.21% $42,110 20.18% $45,168 21.26%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Core capital(2)............ $24,589 13.39% $39,820 19.71% $42,529 20.71% $45,239 21.68% $48,354 22.76%
Core capital requirement(3) 5,507 3.00 6,062 3.00 6,160 3.00 6,259 3.00 6,372 3.00
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess..................... $19,082 10.39% $33,758 16.71% $36,369 17.71% $38,480 18.68% $41,982 19.76%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Total capital(4)........... $25,248 26.27% $40,479 38.27% $43,188 40.17% $45,898 42.02% $49,013 44.08%
Risk-based
capital requirement....... 7,688 8.00 8,463 8.00 8,600 8.00 8,738 8.00 8,896 8.00
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess..................... $17,560 18.27% $32,016 30.27% $34,588 32.17% $37,160 34.02% $40,117 36.08%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
- -------------------------
(1) Tangible capital levels and core capital levels are shown as a percentage of
adjusted total assets. Risk-based capital levels are shown as a percentage
of risk-weighted assets.
(2) Disallowed mortgage servicing assets account for the difference between GAAP
capital and each of tangible capital and core capital.
(3) The current OTS core capital requirement for savings associations is 3% of
total adjusted assets. The OTS has proposed core capital requirements which
would require a core capital ratio of 3% of total adjusted assets for
thrifts that receive the highest supervisory rating for safety and soundness
and a core capital ratio of 4% to 5% for all other thrifts.
(4) Percentage represents total core and supplementary capital divided by total
risk-weighted assets. Assumes net proceeds are invested in assets that carry
a 20% risk-weighting.
28
<PAGE>
PRO FORMA DATA
Pursuant to the Plan of Conversion, the amount of common stock being
offered in the conversion is based on an independent appraisal of the estimated
pro forma market value of the Bank and the MHC after giving effect to the
conversion. The Estimated Valuation Range as of July 24, 1998 is from a
minimum of $55.6 million to a maximum of $75.2 million with a midpoint
of $65.4 million. Based on this valuation and the approximate 73.37%
ownership interest being sold in this offering, the Board of Directors of the
Holding Company and the Bank established an offering range of $40.8 million
to $55.2 million, with a midpoint of $48.0 million. At a price per
share of $10.00, this results in a minimum number of shares of
4,080,000, a maximum number of shares of 5,520,000 and a midpoint number of
shares of 4,800,000. The actual net proceeds from the sale of the common stock
cannot be determined until the conversion is completed. However, net proceeds
set forth on the following table are based upon the following assumptions: (i)
Webb will receive fees of approximately $296,000, $349,000, $402,000 and
$463,000 at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range, respectively (see "THE CONVERSION -- Plan of
Distribution for the Subscription, Direct Community and Syndicated Community
Offerings); (ii) all of the common stock will be sold in the Subscription and
Direct Community Offerings; and (iii) conversion expenses, excluding the fees
paid to Webb, will total approximately $678,000 at each of the minimum,
midpoint, maximum and 15% above the Estimated Valuation Range. Actual expenses
may vary from this estimate, and the fees paid will depend upon the percentages
and total number of shares sold in the Subscription Offering, Direct Community
Offering and Syndicated Community Offering and other factors.
The following table summarizes the historical net income and retained
income of the Bank and the pro forma consolidated net income and stockholders'
equity of the Holding Company for the periods and at the dates indicated based
on the minimum, midpoint and maximum of the Estimated Valuation Range and based
on a 15% increase in the maximum of the Estimated Valuation Range. The pro
forma consolidated net income of the Bank for the six months ended March 31,
1998 and the year ended September 30, 1997 has been calculated as if the
conversion had been consummated at the beginning of each period and the
estimated net proceeds received by the Holding Company and the Bank had been
invested at 5.39% and 5.44% at the beginning of the period, respectively, which
represents the one-year U.S. Treasury Bill yield as of March 31, 1998 and
September 30, 1997. While OTS regulations provide for the use of a yield
representing the arithmetic average of the weighted average yield earned by the
Bank on its interest-earning assets and the rates paid on its deposits, the
Holding Company believes that the U.S. Treasury Bill yield represents a more
realistic yield on the investment of the conversion proceeds. As discussed
under "USE OF PROCEEDS," the Holding Company expects to retain 50% of the net
proceeds of the offering from which it will fund the ESOP loan. A pro forma
after-tax return of 3.40% and 3.43% is used for both the Holding Company and the
Bank for the six months ended March 31, 1998 and the year ended September 30,
1997, respectively, after giving effect to an incremental combined federal and
state income tax rate of 37.0%. Historical and pro forma per share amounts have
been calculated by dividing historical and pro forma amounts by the number of
shares of common stock indicated in the footnotes to the table. Per share
amounts have been computed as if the common stock had been outstanding at the
beginning of the respective periods, but without any adjustment of per share
historical or pro forma stockholders' equity to reflect the earnings on the
estimated net proceeds.
No effect has been given to: (i) the shares to be reserved for issuance
under the Holding Company's 1999 Stock Option Plan, which is expected to be
voted upon by stockholders at a meeting following consummation of the
conversion; (ii) withdrawals from deposit accounts for the purpose of purchasing
common stock in the conversion; (iii) the issuance of shares from authorized but
unissued shares to the 1999 MRDP, which is expected to be voted upon by
stockholders at a meeting following consummation of the conversion; or (iv) the
establishment of a liquidation account for the benefit of Eligible Account
Holders and Supplemental Eligible Account Holders. See "MANAGEMENT OF THE BANK
- -- Benefits -- Stock Option Plan" and "THE CONVERSION -- Stock Pricing and
Number of Shares to be Issued."
THE FOLLOWING PRO FORMA INFORMATION MAY NOT BE REPRESENTATIVE OF THE
FINANCIAL EFFECTS OF THE CONVERSION AT THE DATE ON WHICH THE CONVERSION ACTUALLY
OCCURS AND SHOULD NOT BE TAKEN AS INDICATIVE OF FUTURE RESULTS OF OPERATIONS.
STOCKHOLDERS' EQUITY REPRESENTS THE DIFFERENCE BETWEEN THE STATED AMOUNTS OF
CONSOLIDATED ASSETS AND
29
<PAGE>
LIABILITIES OF THE HOLDING COMPANY COMPUTED IN ACCORDANCE WITH GAAP.
STOCKHOLDERS' EQUITY HAS NOT BEEN INCREASED OR DECREASED TO REFLECT THE
DIFFERENCE BETWEEN THE CARRYING VALUE OF LOANS AND OTHER ASSETS AND MARKET
VALUE. STOCKHOLDERS' EQUITY IS NOT INTENDED TO REPRESENT FAIR MARKET VALUE NOR
DOES IT REPRESENT AMOUNTS THAT WOULD BE AVAILABLE FOR DISTRIBUTION TO
STOCKHOLDERS IN THE EVENT OF LIQUIDATION.
<TABLE>
<CAPTION>
At or For the Six Months Ended March 31, 1998
--------------------------------------------------------
Minimum of Midpoint of Maximum of 15% Above
Estimated Estimated Estimated Maximum of
Valuation Valuation Valuation Estimated
Range Range Range Valuation Range
----------- ------------ ----------- ----------------
4,080,000 4,800,000 5,520,000 6,348,000(1)
Shares Shares Shares Shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share
---------- ----------- ---------- ---------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds...................................... $ 40,800 $ 48,000 $ 55,200 $ 63,480
Less: estimated expenses............................ 974 1,027 1,080 1,141
---------- ---------- ---------- ------------
Estimated net proceeds.............................. 39,826 46,973 54,120 62,339
---------- ---------- ---------- ------------
Less: Common stock acquired by ESOP................. (3,264) (3,840) (4,416) (5,078)
Less: Common stock to be acquired
by 1999 MRDP.................................... (1,632) (1,920) (2,208) (2,539)
---------- ---------- ---------- ------------
Net investable proceeds......................... $ 34,930 $ 41,213 $ 47,496 $ 54,721
========== ========== ========== ============
Consolidated net income:
Historical......................................... $ 976 $ 976 $ 976 $ 976
Pro forma income on net proceeds(2)................ 593 700 806 929
Pro forma ESOP adjustments(3)...................... (69) (81) (93) (107)
Pro forma 1999 MRDP adjustments(4)................. (103) (121) (139) (160)
---------- ---------- ---------- ------------
Pro forma net income............................. $ 1,397 $ 1,474 $ 1,550 $ 1,638
========== ========== ========== ============
Consolidated net income per share (5)(6):
Historical......................................... $ 0.19 $ 0.16 $ 0.14 $ 0.12
Pro forma income on net proceeds................... 0.11 0.11 0.11 0.11
Pro forma ESOP adjustments(3)...................... (0.01) (0.01) (0.01) (0.01)
Pro forma 1999 MRDP adjustments(4)................. (0.02) (0.02) (0.02) (0.02)
---------- ---------- ---------- ------------
Pro forma net income per share(7)................ $ 0.27 $ 0.24 $ 0.22 $ 0.20
========== ========== ========== ============
Consolidated stockholders' equity (book value):
Historical......................................... $ 24,863 $ 24,863 $ 24,863 $ 24,863
Estimated net proceeds............................. 39,826 46,973 54,120 62,339
Less: Common stock acquired by ESOP................ (3,264) (3,840) (4,416) (5,078)
Less: Common stock to be acquired
by 1999 MRDP(4).................................. (1,632) (1,920) (2,208) (2,539)
---------- ---------- ---------- ------------
Pro forma stockholders' equity(8)................ $ 59,793 $ 66,076 $ 72,359 $ 79,584
========== ========== ========== ============
Consolidated stockholders' equity per share(6)(9):
Historical(6)...................................... $ 4.47 $ 3.80 $ 3.30 $ 2.87
Estimated net proceeds............................. 7.16 7.18 7.20 7.21
Less: Common stock acquired by ESOP................ (0.59) (0.59) (0.59) (0.59)
Less: Common stock to be acquired
by 1999 MRDP(4).................................. (0.29) (0.29) (0.29) (0.29)
---------- ---------- ---------- ------------
Pro forma stockholders' equity per share(7)...... $ 10.75 $ 10.10 $ 9.62 $ 9.20
========== ========== ========== ============
Purchase price as a percentage of pro forma
stockholders' equity per share..................... 93.02% 99.01% 103.95% 108.70%
Purchase price as a multiple of pro forma
net income per share (10).......................... 18.52x 20.83x 22.73x 25.00x
</TABLE>
(footnotes on following page)
30
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended September 30, 1997
--------------------------------------------------------
Minimum of Midpoint of Maximum of 15% Above
Estimated Estimated Estimated Maximum of
Valuation Valuation Valuation Estimated
Range Range Range Valuation Range
----------- ------------ ----------- ----------------
4,080,000 4,800,000 5,520,000 6,348,000(1)
Shares Shares Shares Shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share
----------- ----------- ----------- ---------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds...................................... $ 40,800 $ 48,000 $ 55,200 $ 63,480
Less: estimated expenses............................ 974 1,027 1,080 1,141
---------- ---------- ---------- ------------
Estimated net proceeds.............................. 39,826 46,973 54,120 62,339
- ---------------------------------------------------- ---------- ---------- ---------- ------------
Less: Common stock acquired by ESOP................. (3,264) (3,840) (4,416) (5,078)
Less: Common stock to be acquired
by 1999 MRDP................................... (1,632) (1,920) (2,208) (2,539)
---------- ---------- ---------- ------------
Net investable proceeds........................ $ 34,930 $ 41,213 $ 47,496 $ 54,721
========== ========== ========== ============
Consolidated net income:
Historical......................................... $ 1,923 $ 1,923 $ 1,923 $ 1,923
Pro forma income on net proceeds(2)................ 1,197 1,412 1,628 1,875
Pro forma ESOP adjustments(3)...................... (137) (161) (185) (213)
Pro forma 1999 MRDP adjustments(4)................. (206) (242) (278) (320)
---------- ---------- ---------- ------------
Pro forma net income............................. $ 2,777 $ 2,932 $ 3,088 $ 3,265
========== ========== ========== ============
Consolidated net income per share (5)(6):
Historical......................................... $ 0.37 $ 0.31 $ 0.27 $ 0.24
Pro forma income on net proceeds................... 0.23 0.23 0.23 0.23
Pro forma ESOP adjustments(3)...................... (0.03) (0.03) (0.03) (0.03)
Pro forma 1999 MRDP adjustments(4)................. (0.04) (0.04) (0.04) (0.04)
---------- ---------- ---------- ------------
Pro forma net income per share(7)................ $ 0.53 $ 0.47 $ 0.43 $ 0.40
========== ========== ========== ============
Consolidated stockholders' equity (book value):
Historical......................................... $ 24,072 $ 24,072 $ 24,072 $ 24,072
Estimated net proceeds............................. 39,826 46,973 54,120 62,339
Less: Common stock acquired by ESOP................ (3,264) (3,840) (4,416) (5,078)
Less: Common stock to be acquired
by 1999 MRDP(4).................................. (1,632) (1,920) (2,208) (2,539)
---------- ---------- ---------- ------------
Pro forma stockholders' equity(8)................ $ 59,002 $ 65,285 $ 71,568 $ 78,793
========== ========== ========== ============
Consolidated stockholders' equity per share(6)(9):
Historical(6)...................................... $ 4.33 $ 3.68 $ 3.20 $ 2.78
Estimated net proceeds............................. 7.16 7.18 7.19 7.21
Less: Common stock acquired by ESOP................ (0.59) (0.59) (0.59) (0.59)
Less: Common stock to be acquired
by 1999 MRDP(4).................................. (0.29) (0.29) (0.29) (0.29)
---------- ---------- ---------- ------------
Pro forma stockholders' equity per share(7)...... $ 10.61 $ 9.98 $ 9.51 $ 9.11
========== ========== ========== ============
Purchase price as a percentage of pro forma
stockholders' equity per share..................... 94.25% 100.20% 105.15% 109.77%
Purchase price as a multiple of pro forma
net income per share............................... 18.87x 21.28x 23.26x 25.00x
- ---------------------------
</TABLE>
(1) Gives effect to the sale of an additional 828,000 shares in the
conversion, which may be issued to cover an increase in the pro forma
market value of the Holding Company and the Bank as converted, without the
resolicitation of subscribers or any right of cancellation. The issuance
of such additional shares will be conditioned on a determination by RP
Financial that such issuance is compatible with its determination of the
estimated pro forma market value of the Bank and the MHC as converted. See
"THE CONVERSION -- Stock Pricing and Number of Shares to be Issued."
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing common stock in the conversion. Since funds on
deposit at the Bank may be withdrawn to purchase shares of common stock
(which will reduce deposits by the amount of such purchases), the net
amount of funds available to the Bank for investment following receipt of
the net proceeds of the conversion will be reduced by the amount of such
withdrawals.
31
<PAGE>
(3) It is assumed that 8% of the shares of common stock sold in the offering
will be purchased by the ESOP. The funds used to acquire such shares will
be borrowed by the ESOP (at an interest rate equal to the prime rate as
published in The Wall Street Journal on the closing date of the conversion,
which rate is currently 8.50%) from the net proceeds from the offering
retained by the Holding Company. The amount of this borrowing has been
reflected as a reduction from gross proceeds to determine estimated net
investable proceeds. The Bank intends to make contributions to the ESOP in
amounts at least equal to the principal and interest requirement of the
debt. As the debt is paid down, stockholders' equity will be increased.
The Bank's payment of the ESOP debt is based upon equal installments of
principal over a 15-year period, assuming a combined federal and state
income tax rate of 37.0%. Interest income earned by the Holding Company on
the ESOP debt offsets the interest paid by the Bank on the ESOP loan. No
reinvestment is assumed on proceeds contributed to fund the ESOP.
Applicable accounting practices require that compensation expense for the
ESOP be based upon shares committed to be released and that unallocated
shares be excluded from earnings per share computations. The valuation of
shares committed to be released would be based upon the average market
value of the shares during the year, which, for purposes of this
calculation, was assumed to be equal to the $10.00 per share purchase
price. See "MANAGEMENT OF THE BANK -- Benefits -- Employee Stock Ownership
Plan."
(4) In calculating the pro forma effect of the 1999 MRDP, it is assumed that
the required stockholder approval has been received, that the shares were
acquired by the 1999 MRDP at the beginning of the period presented in open
market purchases at the $10.00 per share purchase price, that 20% of the
amount contributed was an amortized expense during such period, and that
the combined federal and state income tax rate is 37.0%. The issuance of
authorized but unissued shares of the common stock instead of open market
purchases would dilute the voting interests of existing stockholders by
approximately 2.8% and pro forma net income per share would be $0.26,
$0.24, $0.22 and $0.20 at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range, respectively, for
the six months ended March 31, 1998, and $0.52, $0.47, $0.43
and $0.40 at the minimum, midpoint, maximum and 15% above the maximum
of the Estimated Valuation Range, respectively, for the year ended
September 30, 1997, and pro forma stockholders' equity per share would be
$0.73, $0.10, $9.65 and $9.22 at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range,
respectively, at March 31, 1998, and $10.59, $9.98, $9.53 and
$9.13 at the minimum, midpoint, maximum and 15% above the maximum of
the Estimated Valuation Range, respectively, at September 30, 1997. Shares
issued under the 1999 MRDP vest 20% per year and for purposes of this table
compensation expense is recognized on a straight-line basis over each
vesting period. In the event the fair market value per share is greater
than $10.00 per share on the date shares are awarded under the 1999 MRDP,
total 1999 MRDP expense would increase. No effect has been given to the
shares reserved for issuance under the proposed 1999 Option Plan.
(5) Per share amounts are based upon shares outstanding of 5,245,336,
6,170,983, 7,096,630 and 8,161,125 at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range, respectively, for the six months ended March 31, 1998,
and 5,256,216, 6,183,783, 7,111,350, and 8,178,053 at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range, respectively, for the year ended September 30, 1997, which includes
the shares of common stock issued in the conversion less the number of
shares assumed to be held by the ESOP not committed to be released within
the first year following the conversion.
(6) Historical per share amounts have been computed as if the shares of common
stock expected to be issued in the conversion had been outstanding at the
beginning of the period or on the date shown, but without any adjustment of
historical net income or historical retained earnings to reflect the
investment of the estimated net proceeds of the sale of shares in the
conversion, the additional ESOP expense or the proposed 1999 MRDP expense,
as described above.
(7) No effect has been given to the issuance of additional shares pursuant to
options to granted pursuant to the 1999 Option Plan or to existing stock
options. If stockholders approve the 1999 Option Plan following the
conversion, the Holding Company will have reserved for issuance under the
1999 Option Plan authorized but unissued shares of common stock
representing an amount of shares equal to 10% of the shares sold in this
offerings. If all of these options were to be exercised utilizing
authorized but unissued shares rather than treasury shares which could be
acquired, the voting interests of existing stockholders would be diluted by
approximately 6.8%. Assuming
32
<PAGE>
stockholder approval of the 1999 Option Plan, and that all options under
the 1999 Option Plan were exercised at the end of the period at an exercise
price of $10.00 per share, pro forma net earnings per share would be
$0.25, $0.22, $0.20 and $0.19 at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range,
respectively, for the six months ended March 31, 1998, and $0.49,
$0.44, $0.40 and $0.37 at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range, respectively, for
the year ended September 30, 1997, and pro forma stockholders' equity per
share would be $10.70, $10.09, $9.64 and $9.25 at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range, respectively, at March 31, 1998 and $10.57, $9.98,
$8.949.55 and $9.17 at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively, at September 30,
1997. See "MANAGEMENT OF THE SAVINGS BANK -- Benefits -- Stock Option
Plans" and "RISK FACTORS -- Possible Dilutive Effect of Benefit Programs."
(8) "Book value" represents the difference between the stated amounts of the
Bank's assets and liabilities. The amounts shown do not reflect the
liquidation account which will be established for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in the
conversion, or the federal income tax consequences of the restoration to
income of the Bank's special bad debt reserves for income tax purposes
which would be required in the unlikely event of liquidation. See "THE
CONVERSION -- Effects of Conversion to Stock Form on Depositors and
Borrowers of the Bank" and "TAXATION." The amounts shown for book value do
not represent fair market values or amounts distributable to stockholders
in the unlikely event of liquidation.
(9) Per share amounts are based upon shares outstanding of 4,080,000,
4,800,000, 5,520,000 and 6,348,000 at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range, respectively.
(10) Annualized.
33
<PAGE>
EFFECT OF THE CONVERSION ON THE BANK'S STOCKHOLDERS
The following table illustrates the effect of the conversion on the public
stockholders of the Bank by setting forth selected comparative per share data
for the Bank on both an historical and a pro forma equivalent basis giving
effect to the conversion, assuming that at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range, one share of Bank common
stock will be exchanged for 2.3290, 2.7400, 3.1510 and 3.6236 shares of
Holding Company common stock, respectively. Pro forma equivalent book value
per share and pro forma equivalent net income per share represent the pro forma
amounts set forth in the tables under "PRO FORMA DATA" above multiplied by the
foregoing Exchange Ratios. Pro forma equivalent dividends per share represent
the intended dividend payment set forth under "DIVIDEND POLICY" above multiplied
by the foregoing Exchange Ratios. This table should be read in conjunction with
the consolidated financial statements of the Bank, including the notes thereto,
appearing elsewhere in this prospectus. The following information is not
necessarily indicative of the results of operations or the financial position
that would have resulted had the conversion been consummated at the beginning of
the periods indicated.
<TABLE>
<CAPTION>
At or For the At or For the
Six Months Ended Year Ended
March 31, 1998 September 30, 1997
---------------- ------------------
<S> <C> <C>
Book value per share
Historical............................................ $11.71 $11.39
Pro forma equivalent:
At minimum of Estimated Valuation Range............ 25.04 24.71
At midpoint of Estimated Valuation Range........... 27.67 27.35
At maximum of Estimated Valuation Range............ 30.31 29.97
At 15% above maximum of Estimated
Valuation Range.................................. 33.34 33.01
Basic net income per share
Historical............................................ $ 0.47 $ 0.92
Pro forma equivalent:
At minimum of Estimated Valuation Range............ 0.63 1.23
At midpoint of Estimated Valuation Range........... 0.66 1.29
At maximum of Estimated Valuation Range............ 0.69 1.35
At 15% above maximum of Estimated
Valuation Range.................................. 0.72 1.45
Dividends per share
Historical............................................ $ 0.55 $ 1.03
Pro forma equivalent:
At minimum of Estimated Valuation Range............ 0.56 1.12
At midpoint of Estimated Valuation Range........... 0.55 1.10
At maximum of Estimated Valuation Range............ 0.55 1.10
At 15% above maximum of Estimated Valuation Range.. 0.54 1.09
</TABLE>
34
<PAGE>
SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth, for each director and executive officer of
the Bank (and their associates) and for all of the directors and executive
officers as a group, (i) shares of Holding Company common stock to be received
in exchange for shares of Bank common stock based upon the number of shares
owned as of March 31, 1998, (ii) proposed purchases of common stock, assuming
shares available to satisfy their subscriptions, and (iii) total shares of
Holding Company common stock to be held upon consummation of the conversion, in
each case assuming that 4,800,000 shares are sold at the midpoint of
the Estimated Valuation Range. No individual has entered into a binding
agreement with respect to such intended purchases and, therefore, actual
purchases could be more or less than indicated below. Directors and executive
officers and their associates may not purchase in excess of 32% of the shares
sold in the conversion. Because OTS policy requires that the maximum purchase
limitation include shares to be received in exchange for shares of Bank common
stock, certain officers and directors of the Bank may be limited in their
ability to purchase shares in this offering.
<TABLE>
<CAPTION>
Number of
Shares Received Proposed Purchase of Total Common Stock
in Exchange Common Stock to be Held
for Bank -------------------- ----------------------
Common Stock Number Number Percentage
(1)(2) Amount of Shares of Shares of Total
------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Robert A. Ebel 67,130 $200,000 20,000 87,130 1.3%
Dr. Edward J. Howenstein 68,217 -- -- 68,217 1.0
William A. Donius 8,537 125,000 12,500 21,037 *
Michael J. Donius 9,907 100,000 10,000 19,907 *
E. Douglas Britt 35,293 50,000 5,000 40,293 *
Garland A. Dorn 10,778 25,000 2,500 13,278 *
Thomas F. Hack 28,030 -- -- 28,030 *
Other Officers (4 persons) 53,232 -- -- 53,232 *
------- -------- ------ -------
Total 281,124 $500,000 50,000 331,124 5.1
======= ======== ====== =======
</TABLE>
- ----------------------
(*) Less than 1%.
(1) Includes shares of Holding Company common stock received in exchange for
shares of Bank common stock awarded pursuant to the 1994 MRDP that remain
subject to vesting. Excludes shares which may be received upon the exercise
of outstanding stock options granted under the 1994 Option Plan. Based upon
the Exchange Ratio of 2.7400 at the midpoint of the Estimated Valuation
Range, the following persons named in the table would have options to
purchase common stock as follows: Mr. Ebel, 8,220 shares; Mr. Howenstein,
8,220 shares; Mr. William Donius, 25,207 shares; Mr. Michael Donius, 18,083
shares; Mr. Britt, 4,931 shares; Mr. Dorn, 2,739 shares; Mr. Hack, 9,315
shares; and other officers, 31,564 shares.
(2) Does not include stock options that may be granted under the 1999 Option
Plan and shares that may be awarded under 1999 MRDP if such plans are
approved by stockholders. See "MANAGEMENT OF THE BANK -- Benefits."
35
<PAGE>
PULASKI BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of Pulaski Bank, A Federal
Savings Bank for the fiscal years ended September 30, 1997, 1996 and 1995 have
been audited by Deloitte & Touche LLP, independent auditors, whose report
thereon appears elsewhere in this prospectus. The Consolidated Statements of
Income for the six months ended March 31, 1998 and 1997 were not audited by
Deloitte & Touche LLP, but, in the opinion of management, reflect all
adjustments (none of which are other than normal recurring entries) necessary
for a fair presentation. The results of operations for the six months ended
March 31, 1998 are not necessarily indicative of the results of operations that
may be expected for the entire fiscal year. These statements should be read in
conjunction with the Consolidated Financial Statements and related Notes
included elsewhere herein.
<TABLE>
<CAPTION>
Six Months
Ended March 31, Years Ended September 30,
---------------------- --------------------------------------
1998 1997 1997 1996 1995
---------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans................................... $5,826,780 $5,539,557 $11,356,782 $11,480,242 $11,221,194
Investment securities................... 475,331 530,301 1,098,553 708,208 410,714
Mortgage-backed and related securities.. 257,776 292,334 570,691 674,999 839,084
Other................................... 288,310 267,059 471,697 465,887 352,184
---------- ---------- ----------- ----------- -----------
Total interest income................. 6,848,197 6,629,251 13,497,723 13,329,336 12,823,176
---------- ---------- ----------- ----------- -----------
INTEREST EXPENSE:
Deposit................................. 3,476,746 3,381,715 6,824,171 6,885,279 6,413,203
Advances from Federal Home Loan Bank.... 69,231 90,983 160,594 186,490 468,335
---------- ---------- ----------- ----------- -----------
Total interest expense................ 3,545,977 3,472,698 6,984,765 7,071,769 6,881,538
---------- ---------- ----------- ----------- -----------
NET INTEREST INCOME...................... 3,302,220 3,156,553 6,512,958 6,257,567 5,941,638
PROVISION FOR LOAN LOSSES................ 69,523 18,481 169,176 64,700 151,358
---------- ---------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES......................... 3,232,697 3,138,072 6,343,782 6,192,867 5,790,280
---------- ---------- ----------- ----------- -----------
OTHER INCOME:
Service charges on deposit accounts..... 52,538 37,285 75,929 78,210 80,711
Gains on sales of loans................. 280,738 157,043 408,180 214,054 66,662
Insurance commissions................... 82,281 50,394 130,417 125,255 165,360
Other................................... 171,624 147,964 272,832 311,308 502,165
---------- ---------- ----------- ----------- -----------
Total other income.................... 587,181 392,686 887,358 728,827 814,898
---------- ---------- ----------- ----------- -----------
OTHER EXPENSES:
Salaries and employee benefits.......... 1,178,886 1,273,312 2,510,438 2,647,036 2,418,705
Occupancy and equipment expense......... 277,245 250,221 529,605 445,190 471,897
Federal insurance premiums.............. 48,667 93,704 142,034 355,935 361,553
SAIF premium assessment................. 1,010,105
Outside data processing................. 119,658 117,196 225,492 215,231 246,967
Advertising............................. 154,918 26,977 56,781 89,947 111,332
Professional services................... 175,899 92,963 175,875 193,362 255,843
Other................................... 354,118 319,139 643,438 711,452 899,911
---------- ---------- ----------- ----------- -----------
Total other expenses.................. 2,309,391 2,173,512 4,283,663 5,668,258 4,766,208
---------- ---------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES............... 1,510,487 1,357,246 2,947,477 1,253,436 1,838,970
INCOME TAXES............................. 533,934 462,833 1,024,586 369,974 613,480
---------- ---------- ----------- ----------- -----------
NET INCOME............................... $ 976,553 $ 894,413 $ 1,922,891 $ 883,462 $ 1,255,490
========== ========== =========== =========== ===========
BASIC EARNINGS PER SHARE................. $0.47 $0.43 $0.92 $0.42 $0.59
========== ========== =========== =========== ===========
DILUTED EARNINGS PER SHARE............... $0.46 $0.43 $0.91 $0.42 $0.58
========== ========== =========== =========== ===========
</TABLE>
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Bank. The information contained in this section
should be read in conjunction with the consolidated financial statements and
accompanying notes thereto contained in this prospectus.
OPERATING STRATEGY
The business of the Bank consists principally of attracting retail deposits
from the general public and using them to originate mortgage loans secured by
one- to four-family residences. The Bank's profitability depends primarily on
its net interest income, which is the difference between the interest income it
receives on its loan and investment portfolio and the interest it pays on
deposits and borrowings. The Bank's profitability is also affected by the level
of other income and expenses. Other income includes service charges, gains on
sales of loans and commissions on the sale of mortgage insurance, homeowners
insurance and annuities. Other expenses include salaries and employee benefits,
occupancy and equipment expenses, deposit insurance premiums, and data
processing. The Bank's profitability is also significantly affected by general
economic and competitive conditions, particularly changes in market interest
rates, government legislation and regulation, and monetary and fiscal policies.
The Bank's strategy is to operate as an independent, retail financial
institution dedicated to financing home ownership and other consumer needs in
St. Louis and the surrounding area. During 1997 the Bank implemented certain
actions, outlined below, designed to further this strategy. In addition, when
Walter A. Donius retired as President and Chief Executive Officer of the Bank in
December 1997 after 42 years of service and William A. Donius, his son,
succeeded him, management of the Bank viewed this transition as an opportune
time to assess the Bank's competitive position and reevaluate its strategic
business plan. In February 1998, the Bank's senior management held a strategic
planning retreat to formulate a strategic plan through the year 2000 which was
subsequently discussed with and approved by the Bank's Board of Directors.
The Bank has recently taken and expects to take the following actions in
furtherance of its strategic business plan:
. In May 1998, the Bank hired M. Brad Condon, a mortgage banker with 20 years
of experience, to supervise and manage its growing mortgage lending
activities. Mortgage loan originations have increased from $17.5 million in
fiscal 1991 to $91.9 million in fiscal 1997.
. In 1997, the Bank formed a consumer loan department and began offering
consumer loans, including automobile loans. Consumer loan originations have
increased from $1.5 million in fiscal 1995 to $4.9 million for the six
months ended March 31, 1998. Later in 1998, the Bank will introduce home
equity lines of credit.
. The Bank began installing ATMs at its office facilities in July 1998.
. The Bank implemented a telephone banking system in May 1998, which allows
customers to check account balances, transfer funds and make loan payments
over the telephone.
. In January 1998, the Bank introduced its High Performance Checking Account
program, which expands the Bank's line of deposit products while helping to
reduce the Bank's cost of funds.
37
<PAGE>
. In the fourth calendar quarter of 1998, the Bank will relocate its North
County office to a larger facility that will include three drive-through
lanes.
. The Bank adopted an expansion plan for reaching new customers in the
St. Louis area that calls for opening one new branch in 1999 and another
new branch in 2000.
The Bank has also taken internal steps to improve its productivity. In 1997,
the Bank purchased a master customer information file system that will enable
the Bank to monitor its customer relationships and allow it to better cross-sell
products. In May 1998 the Bank implemented a new company-wide performance
management system linked to compensation, that is intended to reward high
performance and provide motivation to achieve annual goals.
The conversion will increase the consolidated capital of the Holding Company
by the amount of the net proceeds, after deduction for the shares to be sold to
the ESOP. Funds withdrawn from deposit accounts will decrease interest-bearing
liabilities, and new funds used to purchase shares will increase interest-
earning assets. While the Holding Company expects these changes to increase its
net interest income, the Holding Company also expects that the adoption of the
ESOP and the 1999 MRDP will increase its non-interest expenses. For additional
information regarding the effects of this offering, see "PRO FORMA DATA."
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1998 AND SEPTEMBER 30, 1997
Total assets increased $4.2 million to $183.6 million at March 31, 1998 from
$179.4 million at September 30, 1997. The increase in total assets is primarily
attributable to increases in loans held for sale and cash and cash equivalents
offset by decreases in loans receivable and investment securities.
Loans held for sale totaled $21.7 million at March 31, 1998 compared with
$14.4 million at September 30, 1997. The increase was due to greater volume of
lending as low interest rates continued to attract refinancing of mortgage
loans. Cash equivalents increased as loan repayments and deposits were invested
in overnight funds. During the first six months of fiscal 1998, management
determined that the prevailing interest rate environment did not provide
sufficient incentive to warrant maturity extension of the investment portfolio.
Investments in debt securities decreased from $16.1 million at September 30,
1997 to $11.0 million at March 31, 1998. This decrease was due to maturity of
investments and redemption, prior to maturity, of callable securities that
resulted from the declining interest rate yield curve. At March 31, 1998, the
Bank's investment securities portfolio included $1.0 million of collateralized
mortgage obligations. Nearly all of the Bank's collateralized mortgage
obligations are collateralized by pools of Freddie Mac certificates, which are
backed by Freddie Mac. The principal risk of the Bank's collateralized mortgage
obligations is prepayment caused by the prepayment of the underlying mortgage
loans.
Loans receivable decreased from $130.4 million at September 30, 1997 to
$124.7 million at March 31, 1998. The decrease of $5.7 million was due to
repayment of loans exceeding portfolio originations and reflects the payoff of
the Bank's largest loan totaling approximately $1.2 million during the six month
period ended March 31, 1998. In the current rate environment, the majority of
the Bank's borrowers preferred fixed rate loans. As it is the Bank's strategy
to maintain mostly adjustable rate loans in its portfolio, fixed rate loans were
sold to correspondent lenders.
Total liabilities at March 31, 1998 were $159.0 million, an increase of
$3.4 million from $155.6 million at September 30, 1997. Deposits increased $5.4
million from $148.7 million at September 30, 1997 to $154.1 million at March 31,
1998. This growth was a result of the implementation of the High Performance
Checking Account program, which involves frequent direct mail advertisement and
gifts for new checking accounts. The number of new checking accounts has
increased almost 28% since September 30, 1997. The Bank also believes that it
has benefitted from the bank mergers and consolidations in the St. Louis market,
which have caused customers to leave larger institutions and obtain services
from smaller, locally-based financial institutions.
Offsetting the increase in deposits, advances from the FHLB-Des Moines
decreased $300,000 from $2.2 million at September 30, 1997 to $1.9 million at
March 31, 1998. The decrease was due to scheduled debt service payments.
38
<PAGE>
Total stockholders' equity increased $791,000 to $24.6 million at March 31,
1998 from $23.9 million at September 30, 1997. The increase was attributable to
net income of $976,000 offset by dividends of $347,000 declared and paid to
minority stockholders. Also during the six months ended March 31, 1998, stock
options were exercised, which resulted in capital contributions totaling
approximately $134,000.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1997 AND 1996
Total assets at September 30, 1997 were $179.4 million, an increase of
$600,000 from $178.8 million at September 30, 1996. Loans held for sale
increased $7.2 million and investment securities increased $1.1 million during
1997. These increases were offset by decreases in loans receivable of $3.7
million and cash equivalents of $2.8 million.
Loans receivable decreased as loan prepayments and amortization exceeded
portfolio loan originations. In fiscal 1997, the Bank's largest loan ($1.6
million) was repaid. During fiscal 1997, the majority of the Bank's borrowers
preferred fixed rate loans. As it is the Bank's strategy to maintain mostly
adjustable-rate mortgage loans in its portfolio, fixed rate loans were sold to
correspondent lenders, which resulted in increased balances of loans held for
sale. Proceeds were utilized to purchase investment-grade debt securities.
The mortgage banking activities of the Bank include sale of loans to MHDC,
for the purpose of providing subsidized loans to low-income and first-time
homeowners. Loans made under these programs are generally securitized into GNMA
mortgage-backed securities and sold ($10.2 million in fiscal 1997) to MHDC. In
April 1998, the Bank discontinued its historical practice of retaining
servicing on loans sold to MHDC due to a change in servicing policy by MHDC.
Periodically, the Bank may purchase qualifying loans from other mortgage lenders
who may not have sufficient volumes to fulfill commitment levels.
Total liabilities at September 30, 1997 were $155.6 million, a decrease of
$700,000 from $156.3 million at September 30, 1996. The decrease was due
primarily to an $800,000 reduction in FHLB advances and a net decrease of
$800,000 in other liabilities, primarily the result of payment in December 1996
of the special SAIF assessment premium which was accrued at September 30, 1996.
These decreases were offset by an increase in deposits of $900,000.
Total stockholders' equity at September 30, 1997 was $23.9 million, an
increase of $1.4 million over $22.5 million at September 30, 1996. The increase
is attributable to net income of $1.9 million, reduced by dividends paid to
minority shareholders of $640,000.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED MARCH 31, 1998 AND 1997
GENERAL. Net income for the six months ended March 31, 1998 was $977,000,
or $0.46 per share (diluted), compared to $894,000, or $0.43 per share
(diluted), for the six months ended March 31, 1997.
INTEREST INCOME. Interest income increased $219,000 for the six months
ended March 31, 1998 compared to the six months ended March 31, 1997. The
increase resulted primarily from an increase in interest on loans of $287,000,
offset by a decrease in interest on investment and mortgage-backed securities of
$90,000.
The increase in interest income on loans resulted from an increase in the
average balance of loans outstanding from $138.8 million in 1997 to $144.2
million in 1998. The average yield on loans increased 10 basis points to 8.08%.
The average balance of loans outstanding increased due to the significant
increase in lending volume resulting from the low interest rate environment for
fixed rate loans. As part of the Bank's interest rate risk policy, the majority
of fixed rate mortgage loans are sold with servicing released.
Interest on federal funds increased as a result of the increase in average
balance to $10.6 million in 1998 from $10.3 million in 1997, coupled with an
increase in the average interest rate from 5.20% to 5.44%. Excess liquidity was
39
<PAGE>
invested in federal funds because management believed the prevailing interest
rate environment provided insufficient incentive for maturity extension.
The decrease in interest income on investment securities resulted from a
decrease in the average balance from $18.3 million in 1997 to $15.8 million in
1998 offset by an increase in the average yield on these investments from 5.80%
in 1997 to 6.01% in 1998. The average yield increased due to the increase in
short-term interest rates and a change in the portfolio to include callable
instruments. The decrease in the average balance is a reflection of the
redemption, prior to maturity, of callable securities and utilization of
maturing securities to fund loan closings. At March 31, 1998, the Bank's
portfolio included $5.0 million of callable securities with a weighted average
rate of 6.01%. Callable securities carry the risk that if called proceeds may
be reinvested at lower rates or longer terms. The decrease in interest income
on mortgage-backed and related securities resulted primarily from a decrease in
the average balance while the weighted average rate changed from 8.18% to 8.28%
for the same period. The average balance of mortgage-backed and related
securities declined as principal repayments were received. The average yield
increased due to repayment and/or amortization of lower-rate securities.
INTEREST EXPENSE. Interest expense increased $95,000 for the six months
ended March 31, 1998 compared to the six months ended March 31, 1997. The
increase resulted primarily from an increase in the average balance of deposits
from $147.9 million for the six months ended March 31, 1997 to $150.4 million
for the six months ended March 31, 1998. The increased deposit volume resulted
from the implementation of the High Performance Checking Account program, which
involves frequent direct mail advertisement and gifts for new checking accounts.
The Bank also believes that it has attracted new customers as a result of bank
mergers and consolidations in the St. Louis market. Interest on FHLB advances
declined $22,000 as a result of the decreased principal balance due to scheduled
debt service payments.
PROVISION FOR LOAN LOSSES. The provision for loan losses is determined by
management as the amount to be added to the allowance for loan losses after net
charge-offs have been deducted to bring the allowance to a level which is
considered adequate to absorb losses inherent in the loan portfolio. Because
management believes it adheres to strict loan underwriting guidelines focusing
on mortgage loans secured by one-to-four-family residences, the Bank's
historical loan loss experience has been low. No assurances, however, can be
given as to future loan loss experience.
The provision for loan losses for the six month periods ended March 31,
1998 and 1997 was $69,000 and $18,000, respectively. This increase reflects the
increase in the Bank's investment in consumer credit and non-conforming
residential real estate loans. Non-conforming residential real estate loans
represent credit issued which does not meet FANNIE MAE lending guidelines and
therefore may not be pooled and securitized with other loans. Although these
types of loans are inherently more subject to default, management believes that
the credit risk is being adequately mitigated by more stringent collection
efforts and additional monitoring activities.
OTHER INCOME. Other income increased $194,000 for the six months ended
March 31, 1998 from the six months ended March 31, 1997. This fluctuation was
primarily due to an increase in gains on sales of loans. Year-to-date gains
were due to loan volumes being approximately 89% greater than last year. In
addition, commissions on sales of insurance products increased $32,000 and
service charges on deposit accounts increased $15,000.
OTHER EXPENSES. Other expenses increased $136,000 to $2.3 million for the
six months ended March 31, 1998. Aside from advertising expenses and
professional services, the other categories of other expenses remained
relatively constant. Advertising expense increased $128,000 from $27,000 for
the six months ended March 31, 1997 to $155,000 for the six months ended
March 31, 1998. Advertising expenses for the six-month period consisted of
$20,000 of expenses related to the celebration of the Bank's seventy-fifth
anniversary and $92,000 associated with the commencement of the High Performance
Checking Account program. The checking account promotion has been designed to
last a minimum of three years. The Bank projects the first year promotional
costs (consisting primarily of marketing firm fees, postage and direct mailing
expenses, etc.) to be approximately $360,000 (including the costs incurred
during the six months ended March 31, 1998) with similar costs expected in each
of the subsequent two years if the promotion is continued. The goals of the
promotion are (i) to increase the percentage of transaction accounts to
40
<PAGE>
total deposits, thereby decreasing the Bank's cost of funds, (ii) to increase
other income through insufficient funds charges, service charges and fees levied
on checking accounts and (iii) to increase cross-sell opportunities of other
bank products. Professional services increased $82,000 from $50,000 for the
three months ended March 31, 1997 to $132,000 for the three months ended
March 31, 1998. This increase is attributable to certain consultative services
provided to Bank management, including fees related to the implementation of the
checking account program. Other consulting services included fees for the
performance management compensation system design as well as fees for
development of a strategic business and management development program.
Income Taxes. The provision for income taxes increased to $534,000 for the
six months ended March 31, 1998 from $463,000 for the six months ended March 31,
1997. The increase is primarily attributable to increased levels of taxable
income and a slight increase in the Bank's effective tax rate.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996
GENERAl. Net income for the year ended September 30, 1997 was $1.9
million, or $.91 per share (diluted) , compared to $883,000, or $.42 per share
(diluted), for the year ended September 30, 1996. The increase was primarily
due to a $1.2 million decrease in FDIC insurance premiums. On September 30,
1996 the FDIC imposed a special one-time assessment on each depository
institution with SAIF-assessable deposits to recapitalize the SAIF to a level
commensurate with the Bank Insurance Fund (BIF). The special assessment of
approximately $1.0 million was accrued by the Bank at September 30, 1996.
INTEREST INCOME. Interest income increased $169,000 from $13.3 million in
1996 to $13.5 million in 1997. The increase was due primarily to an increase in
interest on investments of $391,000, offset by a decrease of $123,000 of
interest on loans, and a $104,000 decline in interest on mortgage-backed
securities. The increase in interest on investment securities resulted from an
increase in the average balance from $12.2 million in 1996 to $18.5 million in
1997. The average yield increased from 5.80% to 5.93% over the same period of
time. The decrease in the interest on loans resulted from a decrease in the
average balance of loans, from $146.0 million in 1996 to $140.8 million in 1997.
The weighted average rate increased from 7.86% in 1996 to 8.07% in 1997. The
higher average yield on loans was the result of repricing on adjustable rate
loans. The reduced average balance of loans outstanding was due primarily to an
increase in principal repayments, including the payoff of the Bank's largest
loan, and refinancing of loans into lower fixed rates. As part of the Bank's
interest rate risk policy, the majority of fixed rate loans originated in 1997
were sold with servicing released. The decrease in interest income on
mortgage-backed and related securities resulted primarily from a decrease in the
average balance from $8.3 million in 1996 to $6.9 million in 1997. The average
rate changed from 8.12% in 1996 to 8.30% in 1997. The average balance of
mortgage-backed and related securities declined as principal repayments were
received. The average yield increased due to repayment and/or amortization of
lower-rate securities.
INTEREST EXPENSE. Interest expense decreased $87,000, from $7.1 million in
1996 to $7.0 million in 1997. The reduction resulted primarily from reduced
interest expense on interest-bearing deposits of $61,000, and reduced expense on
borrowing from the FHLB of $25,000. The decrease in interest expense on
deposits was the result of the decline of the average balance of deposits, from
$149.4 million in 1996 to $148.0 million in 1997. The average yield remained
the same at 4.61%. The reduced deposit volume has resulted primarily from
increased withdrawals and competition for funds from other financial
intermediaries. The decrease in interest on FHLB advances is the result of a
decline in the average balance, which was $3.0 million in 1996 compared to $2.6
million in 1997. The balance declined as a result of scheduled principal
payments. The average rate increased from 6.08% in 1996 to 6.20% in 1997.
PROVISION FOR LOAN LOSSES. The provision for loan losses increased
$104,000, from $65,000 in 1996 to $169,000 in 1997. Management deemed the
increase in the loan loss provision necessary as a result of an increase in non-
performing loans as well as an increase in consumer credit lines which are
inherently riskier than one- to four-family mortgage loans. Consumer loans
increased $2.4 million in 1997.
41
<PAGE>
OTHER INCOME. Other income increased $158,000, from $729,000 in 1996 to
$887,000 in 1997. The increase was due primarily to an increase in the gains on
sales of loans, which were $214,000 in 1996, and $408,000 in 1997. These
additional gains were the result of a slight increase in volume and the
recording of mortgage servicing rights in accordance with SFAS No. 122 (see Note
1 of the Notes to Consolidated Financial Statements) for $10.2 million of loans
securitized and sold with servicing rights retained.
OTHER EXPENSES. Other expenses decreased from $5.7 million in 1996 to $4.3
million in 1997. The reduction was due primarily to a decrease in the Federal
deposit insurance expense of $1.2 million. In 1996, the FDIC imposed a special
premium on the thrift industry to recapitalize the SAIF. The Bank's share of
the special premium amounted to $1.0 million. Compensation expense decreased
$137,000 in 1997 compared to 1996. In June 1996 the Board of Directors approved
a supplemental non-qualified retirement plan for the Bank's former president.
Offsetting these decreased expenses was an increase in office occupancy expense
of $85,000, up from $445,000 in 1996 to $530,000 in 1997. The increase was due
to higher depreciation expense, as a result of capital improvements, and higher
lease expense as a result of the opening of the Sunset Hills branch office in
August 1996.
INCOME TAXES. The provision for income taxes in 1997 increased $655,000 as
the result of additional taxable income. The effective tax rate increased from
29.5% to 34.8% as the result of changes in investment portfolio mix and related
taxable versus nontaxable investment yields.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
GENERAL. Net income for the year ended September 30, 1996 was $883,000, or
$.42 per share (diluted), compared to $1.2 million, or $.58 per share (diluted),
for the year ended September 30, 1995. The decline was primarily attributed to
a special FDIC insurance assessment to recapitalize the SAIF. The special
assessment of approximately $1.0 million was accrued by the Bank at
September 30, 1996.
INTEREST INCOME. Interest income increased from $12.8 million for the year
ended September 30, 1995 to $13.3 million for the year ended September 30, 1996.
The increase of $506,000, or 4.0%, resulted from an increase in interest on
loans of $259,000, an increase in interest from investments of $297,000 and an
increase of $114,000 in interest on federal funds and overnight deposits, offset
by a decrease of $164,000 in the interest on mortgage-backed securities. The
average yield on loans increased from 7.18% in 1995 to 7.86% in 1996. The
higher average yield on loans is the result of an increase in market interest
rates. Additionally, a portion of the Bank's teaser rate mortgages repriced
into market rate adjustable mortgages. During the same period the average loan
balance decreased from $156.3 million in 1995 to $146.0 million in 1996. The
increased interest on investment securities resulted from an increase in the
average balance from $7.2 million in 1995 to $12.2 million in 1996. The average
balance on these investments increased as payments received on loans receivable
and mortgage-backed securities were reinvested. Additionally, the average yield
on investment securities increased from 5.73% in 1995 to 5.80% in 1996. The
decrease in interest income on mortgage-backed and related securities resulted
primarily from a decrease in the average balance from $10.6 million in 1995 to
$8.3 million in 1996. The average balance of mortgage-backed and related
securities declined as principal repayments were received. Management decided
to invest in U.S. Treasury and Agency securities due to insufficient yield
incentive for investment in long-term fixed rate mortgage-backed securities.
Interest on federal funds and overnight deposits increased due to an increase in
the average balance from $6.1 million in 1995 to $8.7 million in 1996. This,
offset with a decrease in the average yield from 5.76% to 5.38% during the same
time period, accounted for the $114,000 increase in interest income. The
average balance increased as a portion of net cash inflows from the loan
portfolio were invested in federal funds and overnight deposits. The decrease
in the average yield was due to the downturn in short-term interest rates.
INTEREST EXPENSE. Interest expense increased from $6.9 million for the
year ended September 30, 1995 to $7.1 million for the year ended September 30,
1996. The increase of $189,000, or 2.8%, resulted primarily from increased
interest expense on deposits of $472,000 offset by reduced borrowing costs of
$282,000 on FHLB advances. The increase in interest expense on deposits
resulted from an increase in the average rate paid on deposits from 4.24% in
1995 to 4.61% in 1996. The increase in average rate paid on deposits resulted
from an overall increase in prevailing
42
<PAGE>
market interest rates and management's decision to offer competitive rates on
special term certificates to help reduce the decline in savings growth. The
average balance of deposits decreased from $151.2 million in 1995 to $149.4
million in 1996. A significant portion of the deposit loss was associated with
the closing of the Sappington office in 1995, and the opening of a replacement
office in Sunset Hills in July 1996. The residual effect of this transition was
a decrease in deposits of approximately $1.2 million. This accounted for over
31% of the total savings loss experienced during 1996. The decrease in interest
on FHLB advances is a result of a decrease in the average balance of advances,
which was $7.8 million in 1995 contrasted to an average balance of $3 million
in 1996.
PROVISION FOR LOAN LOSSES. The provision for loan losses decreased $86,000
from $151,000 for 1995 to $65,000 for 1996. Management considered the decline
in the balance of nonperforming loans from $848,000 at September 30, 1995 to
$702,000 at September 30, 1996, as well as the decline in total loan portfolio,
as the bases for the reduced addition to the allowance for loan losses.
OTHER INCOME. Other income decreased $86,000, from $815,000 in 1995 to
$729,000 in 1996. The decline was due primarily to reduced profits on the sale
of foreclosed properties, the absence of a $230,000 insurance claim settlement
on a commercial real estate property the Bank had acquired through foreclosure
and had sold during 1995 and a $40,000 decrease on commissions from annuity
sales due to lower sales volume. Offsetting these reduced amounts of other
income were increases in gains on the sales of loans servicing released of
$147,000 resulting from loan sale volume increasing from $34.5 million in 1995
to $49.7 million in 1996.
OTHER EXPENSES. Other expenses increased $902,000 from $4.7 million for
the year ended September 30, 1995 to $5.6 million for the year ended
September 30, 1996. The increase was due primarily to the special FDIC premium
imposed on the thrift industry to recapitalize the SAIF. The Bank's share of
this special premium amounted to $1.0 million. Compensation expense increased
$228,000, to $2.6 million, in 1996, due primarily to the implementation of a
non-qualified supplemental retirement plan for the Bank's former president. The
Bank experienced a decline of $63,000 in professional fees and reduced data
processing costs of $32,000. The reduction in professional fees resulted from
lower legal expense in 1996, and the data processing costs were reduced as a
result of a new five year contract executed in May 1996. Additional expense
reduction was achieved through reduced loss provisions on real estate owned,
which were $50,000 in 1996, down $84,000 from $134,000 in 1995.
INCOME TAXES. The provision for income taxes in 1996 decreased $244,000 as
a result of a decrease in taxable income. The effective tax rate decreased from
33.4% to 29.5% which is primarily attributable to reduced levels of income
subject to federal and state tax.
43
<PAGE>
AVERAGE BALANCE SHEET
The following table sets forth for the periods indicated information
regarding average balances of assets and liabilities as well as the total dollar
amounts of interest income from average interest-earning assets and interest
expense on average interest-bearing liabilities and average yields and costs.
Such yields and costs for the periods indicated are derived by dividing income
or expense by the average balances of assets or liabilities, respectively, for
the periods presented. Average balances for the year ended September 30, 1995
were derived from month-end balances.
<TABLE>
<CAPTION>
Six Months Ended March 31,
-------------------------------------------------------------------
1998 1997
-------------------------------- ---------------------------------
Interest Interest
Average and Yield/ Average and Yield
Balance Dividends Cost(1) Balance Dividends Cost(1)
-------- --------- ----------- --------- --------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Net loans (2)............................... $144,160 $5,827 8.08% $138,766 $5,540 7.98%
Investment securities (3)................... 15,803 475 6.01 18,297 530 5.80
Mortgage-backed and related securities...... 6,233 258 8.28 7,144 292 8.18
Federal funds sold and overnight deposits... 10,579 288 5.44 10,263 267 5.20
-------- ------ -------- ------
Total interest-earning assets........... 176,775 6,848 7.75 174,470 6,629 7.60
Non-interest-earning assets.................. 4,999 3,491
-------- --------
Total assets............................ $181,774 $177,961
======== ========
Interest-bearing liabilities:
Deposits (4)................................ $150,359 3,477 4.62 147,901 3,382 4.57
FHLB advances............................... 2,196 69 6.28 2,996 91 6.07
-------- ------ -------- ------
Total interest-bearing liabilities...... 152,557 3,546 4.65 150,897 3,473 4.60
------ ------
Non-interest bearing liabilities............. 4,417 4,192
Stockholders' equity......................... 24,800 22,872
-------- --------
Total liabilities and stockholders'
equity................................. $181,774 $177,961
======== ========
Net interest income.......................... $3,302 $3,156
====== ======
Interest rate spread (5)..................... 3.10% 3.00%
Net interest margin (6)...................... 3.74% 3.62%
Ratio of average interest-earning assets to
average interest-bearing liabilities........ 115.87% 115.62%
</TABLE>
___________________
(1) Amounts are annualized.
(2) Includes loans held for sale. Also includes non-accrual loans with an
average balance of $284,000 and $145,000 for the six months ended March 31,
1998 and 1997, respectively.
(3) Includes FHLB stock.
(4) Includes non-interest-bearing deposits with an average balance of $1.1
million and $738,000 for the six months ended March 31, 1998 and 1997,
respectively.
(5) Yield on interest-earning assets less cost of interest-bearing liabilities.
(6) Net interest income divided by average interest-earning assets.
44
<PAGE>
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------- ----------------------------- -----------------------------
Interest Interest Interest
Average and Yield/ Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost Balance Dividends Cost
--------- --------- ------- --------- --------- ------- --------- --------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Net loans (1)........................ $140,827 $11,357 8.07% $146,012 $11,480 7.86% $156,291 $11,221 7.18%
Investment securities(2)............. 18,520 1,098 5.93 12,217 708 5.80 7,169 411 5.73
Mortgage-backed and related
securities.......................... 6,876 571 8.30 8,316 675 8.12 10,565 839 7.94
Federal funds sold and overnight
deposits............................ 8,868 472 5.32 8,663 466 5.38 6,116 352 5.76
-------- ------- -------- ------- -------- -------
Total interest-earning assets.... 175,091 13,498 7.71 175,208 13,329 7.61 180,141 12,823 7.12
Non-interest-earning assets........... 3,728 4,263 4,793
-------- -------- --------
Total assets..................... $178,819 $179,471 $184,934
======== ======== ========
Interest-bearing liabilities:
Deposits (3)......................... $148,006 6,824 4.61 $149,355 6,885 4.61 $151,194 6,413 4.24
FHLB advances........................ 2,597 161 6.20 3,057 187 6.08 7,786 469 6.01
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities..................... 150,603 6,985 4.64 152,412 7,072 4.64 158,980 6,882 4.33
------- ------- -------
Non-interest bearing liabilities...... 5,003 4,438 4,304
Stockholders' equity.................. 23,213 22,621 21,650
-------- -------- --------
Total liabilities and
stockholders'
equity........................... $178,819 $179,471 $184,934
======== ======== ========
Net interest income................... $ 6,513 $ 6,257 $ 5,941
======= ======= =======
Interest rate spread (4).............. 3.07% 2.97% 2.79%
Net interest margin (5)............... 3.72% 3.57% 3.30%
Ratio of average interest-earning
assets to
average interest-bearing liabilities. 116.26% 114.96% 113.31%
======== ======== ========
</TABLE>
- ---------------------------
(1) Includes loans held for sale. Also includes nonaccrual loans with an
average balance of $160,000, $111,000 and $414,000 for the years ended
September 30, 1997, 1996, and 1995, respectively.
(2) Includes FHLB stock.
(3) Includes non-interest-bearing deposits with an average balance of $759,000,
$457,000 and $428,000 for the years ended September 30, 1997, 1996, and
1995, respectively.
(4) Yield on interest-earning assets less cost of interest-bearing liabilities.
(5) Net interest income divided by average interest-earning assets.
45
<PAGE>
YIELDS EARNED AND RATES PAID
The following table sets forth at the date and for the periods indicated
the weighted average yields earned on the Bank's assets and the weighted average
rates paid on the Bank's liabilities, together with the Bank's interest rate
spread and net interest margin.
<TABLE>
<CAPTION>
Six Months
Ended
At March 31, Years Ended September 30,
March 31, ------------- ----------------------------
1998 1998 1997 1997 1996 1995
----------- ----- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Weighted average yield earned on:
Net loans...................................... 8.27% 8.08% 7.98% 8.07% 7.86% 7.18%
Investment securities (1)...................... 5.90 6.01 5.80 5.93 5.80 5.73
Mortgage-backed and related securities......... 8.23 8.28 8.18 8.30 8.12 7.94
Federal funds sold and overnight deposits...... 5.38 5.44 5.20 5.32 5.38 5.76
Total interest-earning assets................ 7.77 7.75 7.60 7.71 7.61 7.12
Weighted average rate paid on:
Deposits....................................... 4.59 4.62 4.57 4.61 4.61 4.24
FHLB advances.................................. 6.32 6.28 6.07 6.20 6.08 6.01
Total interest-bearing liabilities........... 4.66 4.65 4.60 4.64 4.64 4.33
Interest rate spread (spread between
weighted average rate earned on all interest-
earning assets and paid on all interest-
bearing liabilities)........................... 3.11 3.10 3.00 3.07 2.97 2.79
Net interest margin (net interest
income as a percentage of average
interest-earning assets)........................ N/A 3.74 3.62 3.72 3.57 3.30
</TABLE>
_______________
(1) Includes FHLB stock.
RATE/VOLUME ANALYSIS
The following table sets forth the effects of changing rates and volumes on
net interest income of the Bank. Information is provided with respect to (i)
effects on interest income attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) effects on interest income attributable to
changes in rate (changes in rate multiplied by prior volume); (iii) changes in
rate/volume (change in rate multiplied by change in volume); and (iv) the net
change (the sum of the prior columns).
46
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended March 31, Year Ended September 30, Year Ended September 30,
1998 Compared to 1997 1997 Compared to 1996 1996 Compared to 1995
Increase (Decrease) Due to Increase (Decrease) Due to Increase (Decrease) Due to
------------------------------- ---------------------------------- ---------------------------------
Rate/ Rate/ Rate/
Rate Volume Volume Net Rate Volume Volume Net Rate Volume Volume Net
----- -------- ------- ----- ----- -------- -------- ------- ------- ------- ------- ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Total net loans........... $ 69 $215 $ 3 $287 $296 $(409) $(11) $(124) $1,067 $(738) $(70) $ 259
Investment securities (1). 20 (72) (3) (55) 17 364 9 390 4 290 3 297
Mortgage-backed and
related securities....... 3 (37) -- (34) 16 (117) (3) (104) 19 (179) (4) (164)
Federal funds sold and
overnight deposits....... 13 8 -- 21 (5) 11 -- 6 (23) 147 (10) 114
---- ---- ------ ---- ---- ----- ---- ----- ------ ----- ---- -----
Total net change in
income on
interest-earning
assets.............. 105 114 -- 219 324 (151) (5) 168 1,067 (480) (81) 506
Interest-bearing
liabilities:
Interest-bearing deposits. 38 56 1 95 1 (62) -- (61) 557 (78) (7) 472
FHLB advances............. 3 (24) (1) (22) 3 (28) (1) (26) 6 (285) (3) (282)
---- ---- ------ ---- ---- ----- ---- ----- ------ ----- ---- -----
Total net change in
expense on
interest-bearing
liabilities......... 41 32 -- 73 4 (90) (1) (87) 563 (363) (10) 190
---- ---- ------ ---- ---- ----- ---- ----- ------ ----- ---- -----
Net change in net interest
income.................... $ 64 $ 82 $-- $146 $320 $ (61) $ (4) $ 255 $ 504 $(117) $(71) $ 316
==== ==== ====== ==== ==== ===== ==== ===== ====== ===== ==== =====
</TABLE>
_______________
(1) Includes FHLB stock.
47
<PAGE>
ASSET AND LIABILITY MANAGEMENT
QUANTITATIVE ASPECTS OF MARKET RISK. The Bank does not maintain a trading
account for any class of financial instrument nor does the Bank engage in
hedging activities or purchase high-risk derivative instruments. Furthermore,
the Bank is not subject to foreign currency exchange rate risk or commodity
price risk. For information regarding the sensitivity to interest rate risk of
the Bank's interest-earning assets and interest-bearing liabilities, see the
tables under "BUSINESS OF THE BANK -- Lending Activities -- Loan Maturity and
Repricing," "-- Investment Activities" and "-- Deposit Activities and Other
Sources of Funds -- Time Deposits by Maturities."
QUALITATIVE ASPECTS OF MARKET RISK. The Bank's principal financial
objective is to achieve long-term profitability while reducing its exposure to
fluctuating market interest rates. The Bank has sought to reduce the exposure
of its earnings to changes in market interest rates by attempting to manage the
mismatch between asset and liability maturities and interest rates. In order to
reduce the exposure to interest rate fluctuations, the Bank has developed
strategies to manage its liquidity, shorten its effective maturities of certain
interest-earning assets and increase the interest rate sensitivity of its asset
base. Management has sought to decrease the average maturity of its assets by
emphasizing the origination of adjustable-rate residential mortgage loans and
consumer loans, all of which are retained by the Bank for its portfolio. In
addition, long-term, fixed-rate single-family residential mortgage loans are
underwritten according to the guidelines of FANNIE MAE and FREDDIE MAC and
usually sold for cash in the secondary market. The retention of ARM loans,
which reprice at regular intervals, helps to ensure that the yield on the Bank's
loan portfolio will be sufficient to offset increases in the Bank's cost of
funds. However, periodic and lifetime interest rate adjustment limits may
prevent ARM loans from repricing to market interest rates during periods of
rapidly rising interest rates. The Bank does not use any hedging techniques to
manage the exposure of its assets to fluctuating market interest rates. The
Bank relies on retail deposits as its primary source of funds. Management
believes retail deposits, compared to brokered deposits, reduce the effects of
interest rate fluctuations because they generally represent a more stable source
of funds.
The Bank uses interest rate sensitivity analysis to measure its interest
rate risk by computing changes in NPV (net portfolio value) of its cash flows
from assets, liabilities and off-balance sheet items in the event of a range of
assumed changes in market interest rates. NPV represents the market value of
portfolio equity and is equal to the market value of assets minus the market
value of liabilities, with adjustments made for off-balance sheet items. This
analysis assesses the risk of loss in market risk sensitive instruments in the
event of a sudden and sustained 100 to 400 basis point increase or decrease in
market interest rates with no effect given to any steps that management might
take to counter the effect of that interest rate movement. Using data
compiled by the OTS, the Bank receives a report which measures interest rate
risk by modeling the change in NPV (net portfolio value) over a variety of
interest rate scenarios. This procedure for measuring interest rate risk was
developed by the OTS to replace the "gap" analysis (the difference between
interest-earning assets and interest-bearing liabilities that mature or reprice
within a specific time period).
48
<PAGE>
The following table is provided by the OTS and sets forth the change in the
Bank's NPV at March 31, 1998, based on OTS assumptions, that would occur in the
event of an immediate change in interest rates, with no effect given to any
steps that management might take to counteract that change.
<TABLE>
<CAPTION>
Basisoint ("bp") Estimated Change in
Change in Rates Net Portfolio Value
----------------- ---------------------
(in thousands)
<S> <C>
+400 (4,519)
+300 (2,627)
+200 (1,102)
+100 (138)
0 0
(100) (500)
(200) (1,410)
(300) (1,931)
(400) (1,779)
</TABLE>
The above table indicates that in the event of a sudden and sustained
increase or decrease in prevailing market interest rates, the Bank's NPV would
be expected to decrease. Based on the above table, the Bank would be more
adversely effected by a decrease in interest rates of 200 basis points or less
than by an increase in interest rates of 200 basis points or less. In the event
of an increase or decrease in interest rates of more than 200 basis points, the
above table indicates that the Bank would be more adversely effected by an
increase in interest rates. The Bank's NPV would be more adversely effected by
a sudden and sustained increase in interest rates of 200 basis points or more
because the Bank's ARM loans generally contain provisions that limit annual
interest rate increases to a maximum of 200 basis points.
Certain assumptions utilized by the OTS in assessing the interest rate risk
of savings associations within its region were utilized in preparing the
preceding table. These assumptions relate to interest rates, loan prepayment
rates, deposit decay rates, and the market values of certain assets under
differing interest rate scenarios, among others.
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the method of analysis presented in the foregoing table. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as ARM loans, have features which restrict
changes in interest rates on a short-term basis and over the life of the asset.
Further, in the event of a change in interest rates, expected rates of
prepayments on loans and early withdrawals from certificates could deviate
significantly from those assumed in calculating the table.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's principal sources of funds are proceeds from maturities of
investment securities, principal payments received on mortgage-backed and
related securities, loan repayments and deposits.
The primary investing activities of the Bank are originating and purchasing
loans and purchasing investments and mortgage-backed securities. Proceeds from
maturities of investment securities and principal payments received on mortgage-
backed and related securities provided $14.6 million of liquidity for the year
ended September 30, 1997, while loan repayments in excess of originations
provided $3.5 million. For the six months ended March 31, 1998, proceeds from
maturities of investment securities and principal payments received on mortgage-
backed and related securities totaled $13.8 million and loan repayments in
excess of originations totaled $5.4 million.
49
<PAGE>
The Bank's most significant financing activities are deposit accounts, FHLB
borrowings, taxes and insurance on behalf of borrowers, and the payment of
dividends. The repayment of FHLB borrowings of $800,000 and dividend payments
totaling $640,000 were the primary uses of cash during 1997. These cash
outflows were offset by net increases in deposits and escrow balances totaling
$927,000 during 1997. During the six months ended March 31, 1998, the Bank
repaid $300,000 of FHLB advances and paid dividends totaling $347,000, while the
net increase in deposits and escrow balances was $3.9 million.
Federal regulations require the Bank to maintain minimum levels of liquid
assets (i.e., cash and eligible investments). The required percentage has
varied from time to time based upon economic conditions and savings flows and is
currently 4% of the average daily balance of its net withdrawable savings
deposits and short-term borrowings. The Bank attempts to maintain levels of
liquidity at levels in excess of those required by regulation. Maintaining
levels of liquidity acts, in part, to reduce the Bank's balance sheet exposure
to interest rate risk. At March 31, 1998, the Bank's liquidity ratio (liquid
assets as a percentage of net withdrawable savings deposits and short-term
borrowings) was 20.0%.
The Bank must also maintain adequate levels of liquidity to ensure the
availability of funds to satisfy loan commitments and deposit withdrawals. At
March 31, 1998, the Bank had outstanding commitments to originate loans of $7.2
million and commitments to sell loans of $27.8 million. At the same time,
certificates of deposit which are scheduled to mature in one year or less
totaled $65.3 million. Based upon historical experience, management believes
the majority of maturing certificates of deposit will remain with the Bank. In
addition, management of the Bank believes that it can adjust the offering rates
of certificates of deposit to retain deposits in changing interest rate
environments. In the event that a significant portion of these deposits are not
retained by the Bank, the Bank would be able to utilize FHLB advances to fund
deposit withdrawals, which would result in an increase in interest expense to
the extent that the average rate paid on such advances exceeds the average rate
paid on deposits of similar duration.
Management believes its ability to generate funds internally will satisfy
its liquidity requirements. If the Bank requires funds beyond its ability to
generate them internally, it has the ability to borrow funds from the FHLB under
a blanket agreement which assigns all investments in FHLB stock as well as
qualifying first mortgage loans equal to 150% of the outstanding advances as
collateral to secure the amounts borrowed. At March 31, 1998, the Bank had
approximately $72.2 million available to it under the above-mentioned borrowing
arrangement. At March 31, 1998, the Bank had $1.9 million in advances from the
FHLB.
The Bank is required to maintain specific amounts of capital pursuant to
OTS regulations on minimal capital standards. As of March 31, 1998, the Bank
complied with all regulatory capital requirements as of that date with tangible,
core and risk-based capital ratios of 13.39%, 13.39% and 26.27%, respectively.
For a detailed discussion of regulatory capital requirements, see"REGULATION --
Federal Regulation of Savings Associations -- Capital Requirements." See also
"HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE."
YEAR 2000 ISSUES
The Year 2000 issue exists because many computer systems and applications
use two-digit date fields to designate a year. As the century date change
occurs, date-sensitive systems may recognize the year 2000 as 1900, or not at
all. This inability to recognize or properly treat the year 2000 may cause
systems to process financial and operational information incorrectly.
All of the material data processing of the Bank that could be affected by
this problem is provided by a third party service bureau. The Bank's service
bureau informed the Bank that it intends to complete its year 2000 adjustments
by October 1998 and to make its systems available for testing in November 1998.
The Bank has developed a plan and created a committee of the Board of Directors
to analyze how the year 2000 will impact its operations and to monitor the
status of its vendors. The Bank will continue to monitor its status as well as
its service providers' status in their efforts to become year 2000 compliant
The Bank does not believe that the costs associated with its actions and those
of its vendors will be material to the Bank. The Bank's service bureau will
make available certain software that will allow the Bank to test its critical
applications. The Bank plans on purchasing this software at a cost of $25,000
and plans
50
<PAGE>
to complete testing and system modifications by April 1999. Other internal costs
are not expected to exceed $100,000 and will consist primarily of accelerating
various hardware and purchased software upgrades which generally would have been
incurred in the normal course of business. The costs for accomplishing the
Bank's plans to complete the year 2000 modifications and testing processes are
based on management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of various
resources, third-party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved, and actual results could
differ from those plans. In the event the Bank's service bureau is unable to
fulfill its contractual obligations to the Bank, it could have a significant
adverse impact on the financial condition and results of operations of the Bank.
IMPACT OF ACCOUNTING PRONOUNCEMENTS AND REGULATORY POLICIES
COMPREHENSIVE INCOME. SFAS No. 130, "Reporting Comprehensive Income,"
issued in July 1997, establishes standards for reporting and presentation of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. It requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
presented with the same prominence as other financial statements. SFAS No. 130
requires that companies (i) classify items of other comprehensive income by
their nature in a financial statement and (ii) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the statement of financial condition.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
Comparative financial statements are required to be reclassified to reflect the
provisions of this statement. Adoption of SFAS No. 130 is not anticipated to
have a significant effect upon the presentation of the Holding Company's
financial statements.
SEGMENT INFORMATION. SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" establishes standards for the way public
business enterprises report information about operating segments and establishes
standards for related disclosures about products and services, geographic areas
and major customers. Operating segments are components of an enterprise about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance. Information required to be disclosed includes segment
profit or loss, certain specific revenue and expense items, segment assets and
certain other information. This statement is effective for the Holding Company
for financial statements issued for the fiscal year ending September 30, 1999.
Adoption of SFAS No. 131 is not anticipated to have a significant effect upon
the presentation of the Holding Company's financial statements.
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS.
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," issued in February 1998, standardizes disclosure requirements for
pensions and other postretirement benefits and requires additional disclosure on
changes in benefit obligations and fair values of plan assets in order to
facilitate financial analysis. SFAS No. 132 is effective for fiscal years
beginning after December 15, 1997, with earlier application encouraged.
Adoption of SFAS No. 132 is not anticipated to have a significant effect upon
the presentation of the Holding Company's financial statements.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. In June
1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments and requires that all derivatives be
recognized as either assets or liabilities in the statement of financial
position. Under this standard, all derivative instruments should be measured at
fair value. At the date of initial application, an entity may transfer any held-
to-maturity securities into the available-for-sale category or the trading
category although the Holding Company has no intention of doing so. An entity
will then be able in the future to designate a security transferred into the
available-for-sale category as a hedged item. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999; however, the
Holding Company intends to adopt this standard effective October 1, 1998.
Because the Bank does not invest in derivative instruments
51
<PAGE>
or enter into hedging transactions, adoption of this statement is not
anticipated to have a significant effect on the Holding Company's financial
position or results of operations.
EFFECT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related financial data presented
herein have been prepared in accordance with GAAP, which require the measurement
of financial position and operating results in terms of historical dollars,
without considering the change in the relative purchasing power of money over
time due to inflation. The impact of inflation is reflected in the increased
cost of the Bank's operations. Unlike most industrial companies, virtually all
the assets and liabilities of a financial institution are monetary in nature.
As a result, interest rates generally have a more significant impact on a
financial institution's performance than do general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services.
BUSINESS OF THE HOLDING COMPANY
GENERAL
The Holding Company was organized as a Delaware business corporation at the
direction of the Bank in May 1998 for the purpose of becoming the holding
company for the Bank upon completion of the conversion. As a result of the
conversion, the Bank will be a wholly-owned subsidiary of the Holding Company
and all of the issued and outstanding capital stock of the Bank will be owned by
the Holding Company.
BUSINESS
Prior to the conversion, the Holding Company has not and will not engage in
any significant activities other than of an organizational nature. Upon
completion of the conversion, the Holding Company's sole business activity will
be the ownership of the outstanding capital stock of the Bank. The Holding
Company also will hold a note receivable from the ESOP. In the future, the
Holding Company may acquire or organize other operating subsidiaries, although
there are no current plans, arrangements, agreements or understandings, written
or oral, to do so.
Initially, the Holding Company will neither own nor lease any property but
will instead use the premises, equipment and furniture of the Bank with the
payment of appropriate rental fees, as required by applicable law and
regulations.
Since the Holding Company will only hold the outstanding capital stock of
the Bank upon consummation of the conversion, the competitive conditions
applicable to the Holding Company will be the same as those confronting the
Bank. See "BUSINESS OF THE BANK -- Competition."
BUSINESS OF THE BANK
MARKET AREA
The Bank conducts its operations through five offices located throughout
the greater St. Louis area. Most of the Bank's depositors live in the areas
surrounding its branches and most of the Bank's loans are made to persons in
St. Louis, Missouri, St. Charles, Franklin, Jefferson and St. Louis Counties,
Missouri and Jersey, St. Clair, Monroe and Madison Counties, Illinois. The St.
Louis metropolitan statistical area is the 18th largest metropolitan area in the
United States and in December 1997 had a population of approximately 2.6
million.
Several major corporations are headquartered in the Bank's area, including
Anheuser-Busch, Brown Group, Edison Bros., Emerson Electric, A.G. Edwards,
General American Insurance Co., Kellwood, Laclede Gas, May
52
<PAGE>
Department Stores, Monsanto, Solutia, Enterprise Leasing, Ralston Purina, Trans
World Airlines, Pulitzer Publishing and Ameren U.E.
The Bank faces intense competition for deposits and loan originations from
the many financial institutions conducting business within its market area. See
"-- Competition" and "RISK FACTORS -- Competition."
LENDING ACTIVITIES
GENERAL. At March 31, 1998, loans receivable totaled $124.7 million, which
was 67.9% of total assets. At such date, loans held for sale totaled $21.7
million. The principal lending activity of the Bank is the origination and sale
of mortgage loans for the purpose of purchasing or refinancing, one- to four-
family residential property. To a significantly lesser extent, the Bank also
originates mortgage loans secured by commercial and multi-family real estate and
consumer loans. Most of the Bank's borrowers and the properties securing its
loans are located in the greater St. Louis metropolitan area.
53
<PAGE>
LOAN PORTFOLIO ANALYSIS. The following table sets forth the composition of
the Bank's loan portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
At March 31, -------------------------------------------------------
1998 1997 1996 1995
----------------- ----------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- ------- -------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
Conventional -
residential and
multi-family (1)......... $107,973 86.22% $114,300 87.34% $117,584 87.42% $128,854 86.44%
FHA and VA - residential
and multi-family (1)..... 9,399 7.51 10,745 8.21 11,845 8.81 14,912 10.00
Commercial................ 612 0.49 1,779 1.36 3,452 2.57 3,561 2.39
-------- ------ -------- ------ -------- ------ -------- ------
Total real estate loans. 117,984 94.21 126,824 96.91 132,881 98.79 147,327 98.83
Consumer and Other Loans:
Automobile loans.......... 6,307 5.04 3,352 2.56 1,115 0.83 1,205 0.81
Loans on savings accounts. 451 0.36 538 0.41 513 0.38 541 0.36
Other..................... 493 0.39 161 0.12 -- -- -- --
-------- ------ -------- ------ -------- ------ -------- ------
Total consumer and
other loans............ 7,251 5.79 4,051 3.09 1,628 1.21 1,746 1.17
-------- ------ -------- ------ -------- ------ -------- ------
Total loans.............. 125,235 100.00% 130,875 100.00% 134,509 100.00% 149,073 100.00%
====== ====== ====== ======
Less:
Loans in process........... 137 47 27 48
Unamortized loan
origination fees
(charges), net of direct
costs................... (300) (143) (41) 21
Unearned discounts......... -- -- -- 34
Allowance for loan losses.. 664 613 479 419
-------- -------- -------- --------
Total loans
receivable, net...... $124,734 $130,358 $134,044 $148,551
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
At September 30,
------------------------------------
1994 1993
----------------- -----------------
Amount Percent Amount Percent
-------- ------- -------- -------
(dollars in thousands)
<S> <C> <C> <C> <C>
Real Estate Loans:
Conventional -
residential and
multi-family (1)......... $136,520 86.19% $108,954 83.76%
FHA and VA - residential
and multi-family (1)..... 16,031 10.12 14,841 11.41
Commercial................ 4,222 2.67 4,539 3.49
-------- ------ -------- ------
Total real estate loans. 156,773 98.98 128,334 98.66
Consumer and Other Loans:
Automobile loans.......... 1,166 0.73 1,313 1.01
Loans on savings accounts. 452 0.29 429 0.33
Other..................... -- -- -- --
-------- ------ -------- ------
Total consumer and
other loans............ 1,618 1.02 1,742 1.34
-------- ------ -------- ------
Total loans.............. 158,391 100.00% 130,076 100.00%
====== ======
Less:
Loans in process........... 43 553
Unamortized loan
origination fees
(charges), net of direct
costs................... 109 278
Unearned discounts......... 38 50
Allowance for loan losses.. 477 245
-------- --------
Total loans
receivable, net...... $157,724 $128,950
======== ========
</TABLE>
- -------------------------
(1) Aggregate conventional and FHA and VA multi-family loan balances were $1.5
million, $1.1 million, $1.4 million, $2.6 million, $2.7 million and $2.9
million at March 31, 1998 and September 30, 1997, 1996, 1995, 1994 and
1993, respectively.
54
<PAGE>
RESIDENTIAL REAL ESTATE LENDING. The primary lending activity of the Bank
is the origination of mortgage loans to enable borrowers to purchase existing
homes or to refinance existing mortgage loans. To a much lesser extent, the
Bank also originates loans secured by multi-family residential property (five
units or more). At March 31, 1998, $117.3 million, or 93.7%, of the Bank's
total loan portfolio consisted of loans secured by residential and multi-family
real estate. Of this amount, $1.5 million was secured by multi-family real
estate. At March 31, 1998, 73.9% of the Bank's residential real estate loans
were subject to periodic interest rate adjustments and 26.1% were fixed-rate
loans.
The Bank is a direct endorsement lender with FHA. Consequently, the Bank's
FHA approved direct endorsement underwriters are authorized to approve or reject
FHA insured loans up to maximum amounts established by FHA. The Bank is also an
automatic lender with VA, which enables designated qualified Bank personnel to
approve or reject loans on behalf of VA. At March 31, 1998, the Bank had $9.4
million of FHA- or VA-insured loans. The Bank also participates in programs to
provide financing for low income housing through the MHDC.
The Bank offers a variety of ARM loan products at rates and terms
competitive with market conditions. The loan fees charged, interest rates and
other provisions of the Bank's ARM loans are determined by the Bank on the basis
of its own pricing criteria and market conditions. Interest rates and payments
on the Bank's ARM loans generally are adjusted annually to a rate typically
equal to 2.00% to 2.875% above the one-year constant maturity U.S. Treasury
index. The Bank currently offers ARM loans with initial rates below those which
would prevail under the foregoing computations, determined by the Bank based on
market factors and competitive rates for loans having similar features offered
by other lenders for such initial periods. The periodic interest rate cap (the
maximum amount by which the interest rate may be increased or decreased in a
given period) on the Bank's ARM loans is generally 2% per adjustment period and
the lifetime interest rate cap is generally 6% over the initial interest rate of
the loan. The Bank qualifies the borrower based on the borrower's ability to
repay the ARM loan based on the maximum interest rate at the first adjustment,
in the case of one-year ARM loans, and based on the initial interest rate in the
case of ARM loans that adjust after three or more years. The Bank does not
originate negative amortization loans. The terms and conditions of the ARM
loans offered by the Bank, including the index for interest rates, may vary from
time to time. The Bank believes that the annual adjustment feature of its ARM
loans also provides flexibility to meet competitive conditions as to initial
rate concessions while preserving the Bank's return on equity objectives by
limiting the duration of the initial rate concession.
The Bank also originates conventional fixed-rate mortgage loans on one- to
four- family residential properties. All fixed-rate products are underwritten
according to Freddie Mac and Fannie Mae standards so as to qualify for sale in
the secondary mortgage market. In recent years, as part of its asset/liability
management, the Bank has originated fixed-rate mortgage loans and sells these
loans through its correspondent relationships. If the Bank's future portfolio
needs change, the Bank may choose to retain more loans for its portfolio and/or
retaining servicing rights. Retaining fixed-rate loans in its portfolio would
subject the Bank to a higher degree of interest rate risk. See "RISK FACTORS -
Interest Rate Risk."
Occasionally, the Bank originates residential mortgage loans that do not
meet Freddie Mac and Fannie Mae standards for retention in its portfolio. The
Bank generally charges a higher interest rate to compensate for their non-
conforming features. At March 31, 1998, the Bank had approximately $5.7
million of such loans. The Bank also offers fixed-rate second mortgage loans
for terms of up to 15 years.
Borrower demand for ARM loans versus fixed-rate mortgage loans is a
function of the level of interest rates, the expectations of changes in the
level of interest rates and the difference between the initial interest rates
and fees charged for each type of loan. The relative amount of fixed-rate
mortgage loans and ARM loans that can be originated at any time is largely
determined by the demand for each in a competitive environment.
The retention of ARM loans in the Bank's loan portfolio helps reduce the
Bank's exposure to changes in the interest rates. There are, however,
unquantifiable credit risks resulting from the potential of increased costs due
to changed rates to be paid by the customer. It is possible that, during
periods of rising interest rates, the risk of default on ARM loans may increase
as a result of repricing and the increased costs to the borrower. Furthermore,
because the
55
<PAGE>
ARM loans originated by the Bank generally provide, as a marketing incentive,
for initial rates of interest below the rates which would apply were the
adjustment index used for pricing initially (discounting), these loans are
subject to increased risks of default or delinquency. Another consideration is
that although ARM loans allow the Bank to increase the sensitivity of its asset
base to changes in interest rates, the extent of this interest sensitivity is
limited by the periodic and lifetime interest rate adjustment limits. Because of
these considerations, the Bank has no assurance that yields on ARM loans will be
sufficient to offset increases in the Bank's cost of funds.
While fixed-rate single-family residential real estate loans are normally
originated with 15- or 30-year terms, and the Bank permits its ARM loans to be
assumed by qualified borrowers, such loans typically remain outstanding for
substantially shorter periods. This is because borrowers often prepay their
loans in full upon sale of the property pledged as security or upon refinancing
the original loan. In addition, substantially all mortgage loans in the Bank's
loan portfolio contain due-on-sale clauses providing that the Bank may declare
the unpaid amount due and payable upon the sale of the property securing the
loan. The Bank enforces these due-on-sale clauses to the extent permitted by
law and as business judgment dictates. Thus, average loan maturity is a
function of, among other factors, the level of purchase and sale activity in the
real estate market, prevailing interest rates and the interest rates payable on
outstanding loans.
The Bank requires title insurance insuring the status of its lien on all of
the real estate secured loans and also requires that the fire and extended
coverage casualty insurance (and, if appropriate, flood insurance) be maintained
in an amount at least equal to the outstanding loan balance.
The Bank's lending policies generally limit the maximum loan-to-value ratio
on mortgage loans secured by owner-occupied properties to 80% of the lesser of
the appraisal value or the purchase price, with the condition that mortgage
insurance is required on loans with loan-to-value ratios greater than 80%. In
the cases of loans guaranteed by FHA or VA, the Bank offers loans on loan-to-
value ratios of up to 97% and 100%, respectively.
The maximum financing on refinance loans is limited to 95% of the appraised
value and such loans require mortgage insurance above 80% loan-to-value.
The Bank obtains appraisals on all its real estate loans from outside
appraisers, but, in limited instances (i.e. loan amounts less than $100,000 or
loan-to-value ratios less than 55%), may waive its outside appraisal
requirement.
COMMERCIAL REAL ESTATE LOANS. The Bank engages in a limited amount of
commercial real estate lending. At March 31, 1998, commercial real estate loans
in the Bank's portfolio totaled $612,000 and consisted of 7 loans.
Loans secured by commercial real estate generally are larger and involve
greater risks than one- to four- family residential mortgage loans. Payments on
loans secured by such properties are often dependent on successful operation or
management of the properties. Repayment of such loans may be subject to a
greater extent to adverse conditions in the real estate market or the economy.
The Bank seeks to minimize these risks in a variety of ways, including limiting
the size of such loans and strictly scrutinizing the financial condition of the
borrower, the quality of the collateral and the management of the property
securing the loan. The Bank also obtains loan guarantees from financially
capable parties. Substantially all of the properties securing the Bank's
commercial estate loans are inspected by the Bank's lending personnel before the
loan is made. The Bank also obtains appraisals on each property in accordance
with applicable regulations.
CONSUMER AND OTHER LOANS. Historically, the Bank offered consumer loans
only as an accommodation to existing customers. In the second quarter of fiscal
1997, the Bank formed a consumer loan department in order to increase its
consumer lending activities. The Bank determined to increase its consumer
lending in order to better serve its customers and because consumer loans
generally have shorter-terms to maturity or repricing and higher interest rates
than mortgage loans.
At March 31, 1998, the Bank's consumer and other loans totaled
approximately $7.3 million, or 5.8% of the Bank's total loans. The Bank's
consumer and other loans consist primarily of automobile loans and, to a lesser
degree,
56
<PAGE>
savings account loans. In early 1997, the Bank initiated relationships
with automobile dealers, piano dealers and other large purchase retailers
located primarily in the Bank's market area as a means of attracting consumer
loans. The Bank intends to expand its line of consumer loans by offering home
equity lines of credit beginning in the third calendar quarter of 1998.
The Bank originates automobile loans primarily through dealer referrals.
All automobile loans, however, are made on a direct basis. Automobile loans are
secured by both new and used cars and light trucks made to the purchase price or
wholesale value as published by National Automobile Research "Black Book," if
pre-owned. New cars are financed for a period of up to 60 months while pre-
owned cars are financed for 48 months or less depending on the year and model.
Collision and comprehensive insurance coverage is required on all automobile
loans. At March 31, 1998, automobile loans amounted to $6.3 million, or 5.0% of
the Bank's total loans.
The Bank may make savings account loans for up to 100% of the depositor's
account balance. The interest rate is normally 2.0% above the rate paid on the
certificate of deposit account, and the account must be pledged as collateral to
secure the loan. Savings account loans are payable in monthly payments of
principal and interest or in a single payment. At March 31, 1998, total loans
on savings accounts amounted to $451,000, or 0.4% of the Bank's total loans.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured or secured by
rapidly depreciating assets such as automobiles. In such cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation. The remaining deficiency often does not
warrant further substantial collection efforts against the borrower beyond
obtaining a deficiency judgment. In addition, consumer loan collections are
dependent on the borrower's continuing financial stability, and thus are more
likely to be adversely affected by job loss, divorce, illness or personal
bankruptcy. Furthermore, the application of various Federal and state laws,
including Federal and state bankruptcy and insolvency laws, may limit the amount
which can be recovered on such loans. Such loans may also give rise to claims
and defenses by a consumer loan borrower against an assignee of such loans such
as the Bank, and a borrower may be able to assert against such assignee claims
and defenses that it has against the seller of the underlying collateral. At
March 31, 1998, the aggregate amount of consumer loans 90 days or more past due
was $31,000, which represents 0.43% of total consumer loans.
LOAN MATURITY AND REPRICING. The following table sets forth certain
information at March 31, 1998 regarding the dollar amount of loans maturing in
the Bank's portfolio based on their contractual terms to maturity, but does not
include scheduled payments or potential prepayments. Demand loans, loans having
no stated schedule of repayments and no stated maturity, and overdrafts are
reported as due in one year or less. Mortgage loans that have adjustable rates
are shown as maturing at their next repricing date. Loan balances are net of
loans-in-process.
<TABLE>
<CAPTION>
After After After
One Year 3 Years 5 Years
Within Through Through Through Beyond
One Year 3 Years 5 Years 10 Years 10 Years Total
-------- -------- ------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential real estate.. $66,015 $8,255 $ 8,917 $14,298 $19,750 $117,235
Commercial real estate... 382 -- 230 -- -- 612
Consumer and other....... 503 1,614 4,835 299 -- 7,251
------- ------ ------- ------- -------- --------
Total.................. $66,900 $9,869 $13,982 $14,597 $19,750 $125,098
======= ====== ======= ======= ======== ========
</TABLE>
57
<PAGE>
The following table sets forth, as of March 31, 1998, the dollar amount of
all loans due or repricing after March 31, 1999, which have fixed interest rates
and have floating or adjustable interest rates.
<TABLE>
<CAPTION>
Fixed- Floating- or
Rates Adjustable-Rates
------- ----------------
(in thousands)
<S> <C> <C>
Residential real estate........................ $29,072 $22,148
Commercial real estate......................... 230 --
Consumer and other............................. 6,748 --
------- --------
Total........................................ $36,050 $22,148
======= ========
</TABLE>
Scheduled contractual principal repayments of loans and mortgage-
backed securities do not reflect the actual life of such assets. The average
life of loans and mortgage-backed securities is substantially less than their
contractual terms because of prepayments. In addition, due-on-sale clauses on
loans generally give the Bank the right to declare loans 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, however, when current mortgage loan market
rates are substantially higher than rates on existing mortgage loans and,
conversely, decreases when rates on existing mortgage loans are substantially
higher than current mortgage loan market rates.
LOAN SOLICITATION AND PROCESSING. Loan applicants come through direct
solicitation by eight commissioned and two salaried loan representatives of the
Bank, as well as through referrals by realtors, financial planners, previous and
present customers and, to a far lesser extent, through print advertising
promotions. All types of loans may be originated in any of the Bank's offices,
though most loans are closed at the Bank's main office. Loans are serviced from
the Bank's main office.
Upon receipt of a loan application from a prospective borrower, a
credit report and other data are obtained to verify specific information
relating to the loan applicant's employment, income and credit standing. An
appraisal of the real estate offered as collateral generally is undertaken by a
fee appraiser approved by the Bank and licensed or certified by the State of
Missouri.
Loans in the amount of $400,000 or less may be approved by any one
member of the Bank's Loan Committee, which consists of the Bank's President,
Chief Financial Officer/Treasurer and Chief Lending Officer, and the
underwriting staff. Loans in excess of $400,000 must be approved by the Bank's
Executive Committee, which consists of Directors W. Donius, Hack and M. Donius.
Loan applicants are promptly notified of the decision of the Bank.
Interest rates are subject to change if the approved loan is not closed within
the time of the commitment, which usually is 60 to 90 days.
LOAN ORIGINATIONS, SALES AND PURCHASES. During the six months ended
March 31, 1998 and the years ended September 30, 1997 and 1996, the Bank's total
gross loan originations were $76.8 million, $95.7 million, and $74.9 million,
respectively.
In an effort to manage its interest rate risk position, the Bank
generally sells the fixed-rate mortgage loans that it originates. The sale of
loans in the secondary mortgage market reduces the Bank's risk that the interest
rates paid to depositors will increase while the Bank holds long-term, fixed-
rate loans in its portfolio. It also allows the Bank to continue to fund loans
when savings flows decline or funds are not otherwise available. Mortgage loans
generally have been sold with servicing released. Gains, net of origination
expense, from the sale of such loans are recorded at the time of sale.
Generally a loan is committed to be sold and a price for the loan is fixed at
the time the interest rate on
58
<PAGE>
the loan is fixed, which may be at the time the Bank issues a loan commitment or
at the time the loan closes. This eliminates the risk to the Bank that arise in
market interest rates will reduce the value of a mortgage before it can be sold.
Additionally, the Bank negotiates a best efforts delivery, which minimizes any
exposure from loans that do not close.
During the six months ended March 31, 1998, the Bank sold $44.5
million of residential mortgage loans to correspondent lenders, servicing
released, compared to $23.4 million in the first six months of fiscal 1997. The
Bank also securitized and sold $7.1 million of "first time home buyer" loans to
the MHDC, with servicing retained, during the six months ended March 31, 1998.
For the same period last year loan sales to the MHDC totaled $4.1 million. Loan
sales increased in the first half of fiscal 1998 as a result of low mortgage
interest rates that stimulated both the purchase money and refinance markets.
During the year ended September 30, 1997, the Bank's loan sales
totaled $63.5 million, which included $10.2 million of "first time home buyer"
loans securitized and sold, servicing retained, to the MDHC, as compared to
$55.9 million in loan sales during the year ended September 30, 1996. The loan
sales during 1996 consisted primarily of residential mortgage loans sold to
correspondent lenders, servicing released. The Bank attributes the increased
volume of loan sales during 1997 to its relationships with real estate brokers,
its perceived reputation for prompt service, and successful sales and marketing
strategies.
The Bank occasionally purchases real estate loans in the secondary
market subject to the Bank's underwriting standards. During the six months
ended March 31, 1998 and the year ended September 30, 1997, the Bank purchased
$0 and $305,000 of loans, respectively. Loans and participations purchased and
serviced by others were approximately $3.4 million at March 31, 1998. The
Bank's purchases in the secondary market are dependent upon the demand for
mortgage credit in the local market area and the inflow of funds from deposits.
At March 31, 1998, the Bank was servicing loans for others (GNMA and
MHDC) amounting to approximately $34.4 million. Servicing loans for others
generally consists of collecting mortgage payments, maintaining escrow accounts,
disbursing payments to investors and foreclosure processing. Loan servicing
income is recorded on the accrual basis and includes servicing fees from
investors. In April 1998, the Bank discontinued its historical practice of
retaining servicing on loans sold to MHDC due to a change in servicing policy by
MHDC.
59
<PAGE>
The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.
<TABLE>
<CAPTION>
Six Months
Ended March 31, Years Ended September 30,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Total gross loans, including loans held for sale,
at beginning of period........................... $145,189 $142,316 $142,316 $152,323 $160,900
Loans originated:
Residential real estate.......................... 71,864 36,712 91,536 73,856 44,684
Commercial real estate........................... -- 395 395 -- 1,150
Consumer and other............................... 4,918 509 3,748 1,027 1,254
-------- -------- -------- -------- --------
Total loans originated......................... 76,782 37,616 95,679 74,883 47,088
-------- -------- -------- -------- --------
Loans purchased:
Residential real estate.......................... -- 305 305 1,015 261
-------- -------- -------- -------- --------
Loans sold:
Total whole loans sold............................ (44,322) (23,439) (53,307) (49,691) (36,094)
Loans securitized and sold........................ (7,007) (4,110) (10,189) (6,255) (1,587)
-------- -------- -------- -------- --------
Mortgage loan principal repayments................. (16,074) (11,061) (24,308) (22,210) (14,040)
--------
Consumer loan repayments and all other............. (7,774) (2,815) (5,307) (7,749) (4,205)
-------- -------- -------- -------- --------
Net loan activity.................................. 1,605 (3,504) 2,873 (10,007) (8,577)
-------- -------- -------- -------- --------
Total gross loans, including loans held
for sale, at end of period....................... $146,794 $138,812 $145,189 $142,316 $152,323
======== ======== ======== ======== ========
</TABLE>
LOAN COMMITMENTS. The Bank issues commitments for fixed- and
adjustable-rate one- to four-family residential mortgage loans conditioned upon
the occurrence of certain events. Such commitments are made in writing on
specified terms and conditions and are honored for up to 60 to 90 days from the
date of loan approval. The Bank had outstanding loan commitments of
approximately $7.3 million at March 31, 1998, $5.2 million and $2.1 million
of which were at fixed and variable rates, respectively. See Note 13 of Notes
to Consolidated Financial Statements.
LOAN ORIGINATION AND OTHER FEES. The Bank, in some instances,
receives loan origination fees and discount "points." Loan fees and points are
a percentage of the principal amount of the mortgage loan which are charged to
the borrower for funding the loan. The amount of points charged by the Bank
varies, though the range generally is between 0% and 2%. Current accounting
standards require fees received (net of certain loan origination costs) for
originating loans to be deferred and amortized into interest income over the
contractual life of the loan. Net deferred fees or charges associated with
loans that are prepaid are recognized as income adjustments at the time of
prepayment. The Bank had $300,000 of net deferred mortgage loan charges at
March 31, 1998.
NONPERFORMING ASSETS AND DELINQUENCIES. When a mortgage loan borrower
fails to make a required payment when due, the Bank institutes collection
procedures. The first notice is mailed to the borrower 18 days after the
payment due date and, if necessary, a second written notice follows within 15
days thereafter. Attempts to contact the borrower by telephone generally begin
approximately 20 days after the payment due date. If a satisfactory response is
not obtained, continuous follow-up contacts are attempted until the loan has
been brought current. Before the 90th day of delinquency, attempts to interview
the borrower, preferably in person, are made to establish (i) the cause of the
delinquency, (ii) whether the cause is temporary, (iii) the attitude of the
borrower toward the debt, and (iv) a mutually
60
<PAGE>
satisfactory arrangement for curing the default. Also, in the case of second
mortgage loans, before the 60th day of delinquency, all superior lienholders are
contacted to determine (a) the status and unpaid principal balance of each
superior lien, (b) whether any mortgage constituting a superior lien has been
sold to any investor, and (c) whether the borrower is also delinquent under a
superior lien and what the affected lienholder intends to do to resolve the
delinquency.
If the borrower cannot be reached and does not respond to collection
efforts, a personal collection visit or property inspection is made and a
photograph of the exterior is taken. The physical condition and occupancy
status of the property is determined before recommending further servicing
action. Such inspection normally takes place on or about the 75th day of
delinquency. Generally, after 60 days into the delinquency procedure, the Bank
notifies the borrower that home ownership counseling is available for eligible
homeowners. In most cases, delinquencies are cured promptly; however, if by the
91st day of delinquency, or sooner if the borrower is chronically delinquent and
all reasonable means of obtaining payment on time have been exhausted,
foreclosure, according to the terms of the security instrument and applicable
law, is initiated.
When a consumer loan borrower fails to make a required payment on a
consumer loan by the payment due date, the Bank institutes collection
procedures. The first notice is mailed to the borrower 15 days following the
payment due date. A computer-generated collection report is received by the
Bank daily. The customer is contacted by telephone to ascertain the nature of
the delinquency. In most cases, delinquencies are cured promptly; however, if,
by the 45th day following the grace period of delinquency no progress has been
made, a written notice is mailed informing the borrowers of their right to cure
the delinquency within 20 days and of the Bank's intent to begin legal action if
the delinquency is not corrected. Depending on the type of property held as
collateral, the Bank either obtains a judgment in small claims court or takes
action to repossess the collateral.
Loans are placed on nonaccrual status when, in the opinion of
management, there is reasonable doubt as to the timely collectibility of
interest or principal. Nonaccrual loans are returned to accrual states when, in
the opinion of management, the financial position of the borrower indicates
there is no longer any reasonable doubt as to the timely collectibility of
interest or principal.
The Bank's Board of Directors is informed on a monthly basis as to the
status of all mortgage and consumer loans that are delinquent 30 days or more,
the status on all loans currently in foreclosure, and the status of all
foreclosed and repossessed property owned by the Bank.
61
<PAGE>
The following table sets forth information with respect to the Bank's
nonperforming assets at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
At March 31, -----------------------------------------
1998 1997 1996 1995 1994 1993
------------- ------- ------ ------- ------- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans accounted for on
a nonaccrual basis:
Residential real estate.......... $ 171 $ 214 $ 51 $ 214 $ 60 $ --
Commercial real estate........... 230 -- -- -- 1,303 --
Consumer and other............... 3 3 -- -- -- --
------ ------ ----- ------ ------ -----
Total........................ 404 217 51 214 1,363 --
------ ------ ----- ------ ------ -----
Accruing loans which are
contractually past due
90 days or more:
Residential real estate.......... 930 708 547 520 357 483
Commercial real estate........... -- 236 -- -- -- --
Consumer and other............... 31 20 22 14 -- --
------ ------ ----- ------ ------ -----
Total....................... 961 964 569 534 357 483
------ ------ ----- ------ ------ -----
Troubled debt restructurings....... 61 69 85 100 120 143
------ ------ ----- ------ ------ -----
Nonperforming loans(1)............. 1,426 1,250 705 848 1,840 626
Real estate owned (net)............ 52 -- 133 337 124 102
------ ------ ----- ------ ------ -----
Total nonperforming assets...... $1,478 $1,250 $ 838 $1,185 $1,964 $ 728
====== ====== ===== ====== ====== =====
Total loans delinquent 90 days or
more to net loans................ 0.66% 0.67% 0.40% 0.36% 0.22% 0.37%
Total loans delinquent 90 days or
more to total assets............. 0.52 0.54 0.32 0.29 0.19 0.26
Total nonperforming assets to
total assets..................... 0.80 0.70 0.47 0.65 1.03 0.40
</TABLE>
- -------------------
(1) Includes $177,000 of FHA/VA loans at March 31, 1998, the principal and
interest payments on which are fully insured.
Interest income that would have been recorded for the six months ended
March 31, 1998 and the year ended September 30, 1997 had nonaccruing and
restructured loans been current in accordance with their original terms and the
amount of interest included in interest income on such loans during such periods
was not significant.
REAL ESTATE OWNED. Real estate acquired by the Bank as a result of
foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned
until it is sold. When property is acquired it is recorded at the lower of its
cost, which is the unpaid principal balance of the related loan plus foreclosure
costs, or fair market value. Subsequent to foreclosure, the property is carried
at the lower of the foreclosed amount or fair value. Upon receipt of a new
appraisal and market analysis, the carrying value is written down through a
charge to income, if appropriate. At March 31, 1998, the Bank had $52,000 of
real estate owned (net), which consisted of two single family homes.
ASSET CLASSIFICATION. The OTS has adopted various regulations regarding
problem assets of savings institutions. The regulations require that each
insured institution review and classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, OTS examiners
have authority to identify problem
62
<PAGE>
assets and, if appropriate, require them to be classified. There are three
classifications for problem assets: substandard, doubtful and loss. Substandard
assets must 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 without establishment of a specific
reserve is not warranted. If an asset or portion thereof is classified loss, the
insured institution establishes specific allowances for loan losses for the full
amount of the portion of the asset classified loss. A portion of general loan
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
losses generally do not qualify as regulatory capital. OTS regulations also
require that assets that do not currently expose an institution to a sufficient
degree of risk to warrant classification as loss, doubtful or substandard but do
possess credit deficiencies or potential weakness deserving management's close
attention shall be designated "special mention" by either the institution or its
examiners.
The Bank's Chief Financial Officer/Treasurer, Executive Vice
President/Chief Operating Officer and collection department personnel meet
monthly to review all classified assets, to approve action plans developed to
resolve the problems associated with the assets and to review recommendations
for new classifications, any changes in classifications and recommendations for
reserves.
At March 31, 1998 and September 30, 1997, the aggregate amounts of the
Bank's classified assets were as follows:
<TABLE>
<CAPTION>
At March 31, 1998 At September 30, 1997
----------------- ---------------------
Real Real
Estate Estate
Loans Owned Loans Owned
------- -------- --------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Loss......... $ 5 $-- $ 4 --$
Doubtful..... -- -- -- --
Substandard.. 1,087 61 921 --
</TABLE>
At March 31, 1998, the Bank had no assets designated "special mention."
ALLOWANCE FOR LOAN LOSSES. In originating loans, the Bank recognizes
that losses will be experienced and that the risk of loss will vary with, among
other things, the type of loan being made, the creditworthiness of the borrower
over the term of the loan, general economic conditions and, in the case of a
secured loan, the quality of the security for the loan. The allowance method is
used in providing for loan losses: all loan losses are charged to the allowance
and all recoveries are credited to it. The allowance for loan losses is
established through a provision for loan losses charged to the Bank's income.
The provision for loan losses is based on management's periodic evaluation of
the Bank's past loan loss experience, known and inherent risks in the portfolio,
adverse situations which may affect the borrower's ability to repay, the
estimated value of any underlying collateral and current economic conditions.
At March 31, 1998, the Bank had an allowance for loan losses of
$664,000, which represented 0.45% of total loans. Management believes that the
amount maintained in the allowances will be adequate to absorb losses inherent
in the portfolio. Although management believes that it uses the best information
available to make such determinations, future adjustments to the allowance for
loan losses may be necessary and results of operations could be significantly
and adversely affected if circumstances differ substantially from the
assumptions used in making the determinations. While the Bank believes it has
established its existing allowance for loan losses in accordance with GAAP,
there can be no assurance that the Bank's regulators, in reviewing the Bank's
loan portfolio, will not request the Bank to increase significantly its
allowance for loan losses. In addition, because future events affecting
borrowers and collateral cannot be predicted with certainty, there can be no
assurance that the existing allowance for loan losses is adequate or that
63
<PAGE>
substantial increases will not be necessary should the quality of any loans
deteriorate as a result of the factors discussed above. Any material increase
in the allowance for loan losses may adversely affect the Bank's financial
condition and results of operations.
The following table sets forth an analysis of the Bank's allowance for
loan losses for the periods indicated.
<TABLE>
<CAPTION>
Six Months
Ended March 31, Year Ended September 30,
----------------- ---------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- ------- ------- ------- -------- -------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance at beginning of period....... $ 613 $ 479 $ 479 $ 419 $ 477 $ 245 $ 113
Provision for loan losses.............. 70 18 169 65 152 274 158
Charge-offs:
Residential real estate loans......... 21 37 38 17 92 42 26
Commercial real estate loans.......... -- -- -- -- 166 2 --
Consumer and other loans.............. 2 5 5 -- -- -- --
------ ------ ------ ------ ------ ------ ------
Total charge-offs.................... 23 42 43 17 258 44 26
Recoveries............................. 4 4 8 12 48 2 --
------ ------ ------ ------ ------ ------ ------
Net charge-offs........................ 19 38 35 5 210 42 26
------ ------ ------ ------ ------ ------ ------
Allowance at end of period............ $ 664 $ 459 $ 613 $ 479 $ 419 $ 477 $ 245
====== ====== ====== ====== ====== ====== ======
Ratio of allowance to total loans
outstanding at the end of the period.. 0.45% 0.33% 0.42% 0.34% 0.28% 0.30% 0.19%
Ratio of net charge-offs to
average loans outstanding
during the period..................... 0.01 0.03 0.02 -- 0.13 0.03 0.02
Allowance for loan losses to
nonperforming loans................... 46.56 63.31 49.04 67.93 49.44 25.93 39.14
</TABLE>
64
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated.
<TABLE>
<CAPTION>
At September 30,
At March 31, ----------------------------------
1998 1997 1996
---------------- ---------------- ----------------
% of % of % of
Loans Loans Loans
in Each in Each in Each
Category Category Category
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
------ -------- ------ -------- ------ --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential real estate
loans.................... $ 132 93.72% $ 98 95.54% $ 62 96.22%
Commercial real estate
loans.................... 34 0.49 37 1.36 -- 2.58
Consumer and other loans.. 93 5.79 94 3.10 6 1.20
Unallocated............... 405 N/A 384 N/A 411 N/A
----- ------ ----- ------ ----- ------
Total allowance for
loan losses........... $ 664 100.00% $ 613 100.00% $ 479 100.00%
===== ====== ===== ====== ===== ======
<CAPTION>
At September 30,
--------------------------------------------------
1995 1994 1993
--------------- ---------------- ---------------
% of % of % of
Loans Loans Loans
in Each in Each in Each
Category Category Category
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
------ -------- ------ -------- ------ -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential real estate
loans.................... $ 78 96.42% $ 41 96.31% $ 19 95.17%
Commercial real estate
loans.................... -- 2.40 197 2.67 39 3.49
Consumer and other loans.. 8 1.18 6 1.02 -- 1.34
Unallocated............... 333 N/A 233 N/A 187 N/A
---- ------ ---- ------ ---- ------
Total allowance for
loan losses........... $419 100.00% $477 100.00% $245 100.00%
==== ====== ==== ====== ==== ======
</TABLE>
65
<PAGE>
INVESTMENT ACTIVITIES
The Bank is permitted under applicable law to invest in various types
of liquid assets, including U.S. Treasury obligations, securities of various
federal agencies and of state and municipal governments, deposits at the FHLB-
Des Moines, certificates of deposit of federally insured institutions, certain
bankers' acceptances and federal funds. Subject to various restrictions,
savings institutions may also invest a portion of their assets in commercial
paper, corporate debt securities and mutual funds. Savings institutions like
the Bank are also required to maintain an investment in FHLB stock and a minimum
level of liquid assets. See "REGULATION" and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and
Capital Resources."
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires that investments be categorized as "held to maturity,"
"trading securities" or "available for sale," based on management's intent as to
the ultimate disposition of each security. SFAS No. 115 allows debt securities
to be classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold those securities to maturity. Securities that might be sold in response
to changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity." Debt and equity securities held for current resale are classified
as "trading securities." Such securities are reported at fair value, and
unrealized gains and losses on such securities would be included in earnings.
The Bank does not currently use or maintain a trading account. Debt and equity
securities not classified as either "held to maturity" or "trading securities"
are classified as "available for sale." Such securities are reported at fair
value, and unrealized gains and losses on such securities are excluded from
earnings and reported as a net amount in a separate component of equity. All
investment and mortgage-backed securities are classified as held-to-maturity.
The Bank maintains a portfolio of mortgage-backed and related
securities in the form of GNMA and Freddie Mac participation certificates. GNMA
certificates are guaranteed as to principal and interest by the full faith and
credit of the United States, while Freddie Mac certificates are guaranteed by
Freddie Mac. Mortgage-backed securities generally entitle the Bank to receive
a pro rata portion of the cash flows from an identified pool of mortgages. The
Bank has also invested in collaterized mortgage obligations ("CMOs"), which are
securities issued by special purpose entities generally collateralized by pools
of mortgage-backed securities. The cash flows from such pools are segmented and
paid in accordance with a predetermined priority to various classes of
securities issued by the entity. The Bank's CMOs are short-maturity tranches.
See Note 3 of Notes to Consolidated Financial Statements.
The Investment Committee, comprised of the Bank's President and Chief
Financial Officer/Treasurer, determines appropriate investments in accordance
with the Board of Directors' approved investment policies and procedures.
Investments are made following certain considerations, which include the Bank's
liquidity position and anticipated cash needs and sources (which in turn include
outstanding commitments, upcoming maturities, estimated deposits and anticipated
loan amortization and repayments). Further, the effect that the proposed
investment would have on the Bank's credit and interest rate risk, and risk-
based capital is given consideration during the evaluation. The interest rate,
yield, settlement date and maturity are also reviewed. The Bank purchases
investment securities to provide necessary liquidity for day-to-day operations.
The Bank has not purchased any mortgage-backed securities for several years.
66
<PAGE>
The following table sets forth the Bank's investment and mortgage-
backed securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
At March 31, -------------------------
1998 1997 1996 1995
------------ ------- -------- ------
(dollars in thousands)
<S> <C> <C> <C> <C>
Investment securities:
U.S. Treasury and
agency obligations........... $11,036 $16,068 $14,521 $5,488
Bankers acceptances............ -- -- 491 --
------- ------- ------- ------
Total investment securities.. $11,036 $16,068 $15,012 $5,488
======= ======= ======= ======
Mortgage-backed and related
securities:
GNMA........................... $ 4,187 $ 4,308 $ 4,682 $5,310
FHLMC.......................... 885 998 1,232 1,601
CMOs........................... 1,048 1,056 1,498 2,516
Other.......................... -- -- 12 16
------- ------- ------- ------
Total mortgage-backed and
related securities......... $ 6,120 $ 6,362 $ 7,424 $9,443
======= ======= ======= ======
FHLB stock....................... $ 1,638 $ 1,638 $ 1,638 $1,606
======= ======= ======= ======
</TABLE>
The following table sets forth the maturities and weighted average
yields of the securities in the Bank's investment and mortgage-backed securities
portfolios at March 31, 1998. Expected maturities of mortgage-backed securities
will differ from contractual maturities due to scheduled repayments and because
borrowers may have the right to call or prepay obligations with or without
prepayment penalties. At March 31, 1998, the Bank's portfolio included $5.0
million of callable securities with a weighted average rate of 6.01%. The
following table does not take into consideration the effects of scheduled
repayments or the effects of possible prepayments.
<TABLE>
<CAPTION>
Less Than One to Five to Over Ten
One Year Five Years Ten Years Years
-------------- -------------- ---------------- -----------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ------ ------ ------ ------ -------- ------ ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities:
U.S. Treasury and
agency obligations.......... $4,737 5.57% $6,299 6.00% -- -- -- --
====== ======
Mortgage-backed and
related securities:
GNMA.......................... -- -- $ 16 11.00% $ -- --% $4,171 8.35%
FHLMC......................... -- -- 55 9.17 213 8.25 617 10.06
CMOs.......................... -- -- -- -- -- -- 1,048 6.57
------ ------ ------
Total mortgage-backed
and related securities.. -- -- $ 71 9.58 $213 8.25 $5,836 8.23
====== ====== ======
</TABLE>
67
<PAGE>
Deposit Activities and Other Sources of Funds
GENERAL. Deposits and loan repayments are the major sources of the
Bank's funds for lending and other investment purposes. Scheduled loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are influenced significantly by general interest
rates and money market conditions. Borrowings from FHLB-Des Moines may be used
to compensate for reductions in the availability of funds from other sources.
The Bank had no other borrowing arrangements at March 31, 1998.
DEPOSIT ACCOUNTS. Substantially all of the Bank's depositors are
residents of the State of Missouri. Deposits are attracted from within the
Bank's market area through the offering of a broad selection of deposit
instruments, including checking accounts, negotiable order of withdrawal ("NOW")
accounts, money market deposit accounts, regular savings accounts, certificates
of deposit and retirement savings plans. Deposit account terms vary according
to the minimum balance required, the time periods the funds must remain on
deposit and the interest rate, among other factors. In determining the terms of
its deposit accounts, the Bank considers current market interest rates,
profitability to the Bank, matching deposit and loan products and its customer
preferences and concerns. The Bank generally reviews its deposit mix and
pricing weekly.
In the unlikely event the Bank is liquidated after the conversion,
depositors will be entitled to full payment of their deposit accounts before any
payment is made to the Holding Company as the sole stockholder of the Bank.
The following table sets forth information concerning the Bank's time
deposits and other interest-bearing deposits at March 31, 1998.
<TABLE>
<CAPTION>
Weighted
Average Percentage
Interest Minimum of Total
Rate Term Category Amount Balance Deposits
- -------- --------------- ----------------------------- -------- -------- -----------
(in thousands)
<C> <S> <C> <C> <C> <C>
-- None Non-interest-bearing $ 100 $ 1,545 1.00%
1.75 None NOW accounts 100 9,947 6.45
3.82 None Money market deposit accounts 2,500 11,988 7.78
2.50 None Savings accounts 100 25,796 16.74
Certificates of Deposit
-----------------------------
3.94 3 months Fixed-term, fixed-rate 2,500 378 0.25
4.78 6 months Fixed-term, fixed-rate 2,500 5,418 3.52
5.40 9 months Fixed-term, fixed-rate 2,500 11,640 7.55
5.13 12 months Fixed-term, fixed-rate 500 10,076 6.54
5.46 15 months Fixed-term, fixed-rate 500 4,038 2.62
5.66 18 months Fixed term, fixed-rate 500 11,756 7.63
5.38 24 months Fixed-term, fixed-rate 500 4,095 2.66
5.82 30 months Fixed-term, fixed-rate 500 13,070 8.48
5.37 36 months Fixed-term, fixed-rate 500 2,480 1.61
5.47 48 months Fixed-term, fixed-rate 500 4,938 3.20
5.98 60 months Fixed-term, fixed-rate 500 17,373 11.27
5.61 IRA 18 months 1,000 3,551 2.30
5.68 IRA 36 months Fixed-term, fixed-rate 1,000 225 0.15
5.94 IRA 60 months Fixed-term, fixed-rate 1,000 3,762 2.44
5.23 IRA 12 months Fixed-term, adjustable-rate 500 7,212 4.68
Various Jumbo certificates 100,000 4,828 3.13
-------- ------
$154,116 100.00%
======== ======
</TABLE>
68
<PAGE>
DEPOSIT FLOW. The following table sets forth the balances (inclusive
of interest credited) of deposits in the various types of accounts offered by
the Bank at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
At March 31, -----------------------------
1998 1997
----------------------------- -----------------------------
Percent Percent
of Increase of Increase
Amount Total (Decrease) Amount Total (Decrease)
-------- ------- ---------- -------- ------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest-bearing....... $ 1,545 1.00% $ 529 $ 1,016 0.68% $ 567
NOW checking............... 9,947 6.45 1,375 8,572 5.77 (41)
Regular savings accounts... 25,796 16.74 (187) 25,983 17.48 (1,890)
Money market deposit....... 11,988 7.78 2,294 9,694 6.52 952
Certificates which mature:
Within 1 year............ 65,334 42.40 2,271 63,063 42.41 4,924
After 1 year, but within
3 years................. 34,952 22.68 (1,421) 36,373 24.47 3,799
Certificate maturing
thereafter.............. 4,554 2.95 583 3,971 2.67 (7,463)
-------- ------ ------- -------- ------ -------
Total................. $154,116 100.00% $ 5,444 $148,672 100.00% $ 848
======== ====== ======= ======== ====== =======
<CAPTION>
At September 30,
-------------------------------------------------
1996 1995
----------------------------- ------------------
Percent Percent
of Increase of
Amount Total (Decrease) Amount Total
-------- ------- ---------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-interest-bearing....... $ 449 0.30% $ 76 $ 373 0.25%
NOW checking............... 8,613 5.83 (440) 9,053 5.98
Regular savings accounts... 27,873 18.86 (2,119) 29,992 19.80
Money market deposit....... 8,742 5.91 (259) 9,001 5.94
Certificates which mature:
Within 1 year............ 58,139 39.33 (1,636) 59,775 39.45
After 1 year, but within
3 years................. 32,574 22.04 3,904 28,670 18.92
Certificate maturing
thereafter.............. 11,434 7.73 (3,207) 14,641 9.66
-------- ------ ------- -------- ------
Total................. $147,824 100.00% $(3,681) $151,505 100.00%
======== ====== ======= ======== ======
</TABLE>
69
<PAGE>
The following table indicates the amount of the Bank's jumbo
certificates of deposit by time remaining until maturity as of March 31, 1998.
Jumbo certificates of deposit represent minimum deposits of $100,000 and are not
issued at premium interest rates.
<TABLE>
<CAPTION>
Maturity Period Amount
-------------------------------- --------------
(in thousands)
<S> <C>
Three months or less............ $ 724
Over three through six months... 1,117
Over six through twelve months.. 1,801
Over twelve months.............. 1,186
------
Total........................ $4,828
======
</TABLE>
TIME DEPOSITS BY RATES. The following table sets forth the certificates of
deposits in the Bank classified by rates as of the dates indicated.
<TABLE>
<CAPTION>
At September 30,
At March 31, ----------------------------
1998 1997 1996 1995
------------ -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
3.00 - 3.99%.. $ 579 $ 578 $ 888 $ 2,731
4.00 - 4.99... 5,911 7,062 10,839 19,218
5.00 - 5.99... 82,196 81,184 72,103 54,210
6.00 - 6.99... 11,392 9,795 13,371 21,553
7.00 - 7.99... 4,762 4,788 4,930 5,230
8.00 - 8.99... -- -- 16 127
9.00 - 9.99... -- -- -- 16
-------- -------- -------- --------
Total.. $104,840 $103,407 $102,147 $103,085
======== ======== ======== ========
</TABLE>
TIME DEPOSITS BY MATURITIES. The following table sets forth the amount and
maturities of time deposits at March 31, 1998.
<TABLE>
<CAPTION>
Amount Due
-------------------------------------------
Less Than 1-2 2-3 3-4 After
One Year Years Years Years 4 Years
--------- ------- ------ ------ -------
(in thousands)
<S> <C> <C> <C> <C> <C>
3.00 - 3.99%.. $ 579 $ -- $ -- $ -- $ --
4.00 - 4.99... 5,895 -- 16 -- --
5.00 - 5.99... 58,610 14,758 4,620 1,126 3,082
6.00 - 6.99... 244 7,037 3,903 139 69
7.00 - 7.99... 6 4,556 62 12 126
------- ------- ------ ------ ------
Total.. $65,334 $26,351 $8,601 $1,277 $3,277
======= ======= ====== ====== ======
</TABLE>
70
<PAGE>
DEPOSIT ACTIVITY. The following table sets forth the deposit activities of
the Bank for the periods indicated.
<TABLE>
<CAPTION>
Six Months Ended
March 31, Year Ended September 30,
------------------- -------------------------------------
1998 1997 1997 1996 1995
-------- --------- --------- ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Beginning balance.................... $148,672 $147,824 $147,824 $151,505 $152,828
-------- -------- -------- -------- --------
Net increase (decrease) before
interest credited................. 2,856 (658) (4,226) (8,712) (5,908)
Interest credited.................... 2,588 2,519 5,074 5,031 4,585
-------- -------- -------- -------- --------
Net increase (decrease) in deposits.. 5,444 1,861 848 (3,681) (1,323)
-------- -------- -------- -------- --------
Ending balance....................... $154,116 $149,685 $148,672 $147,824 $151,505
======== ======== ======== ======== ========
</TABLE>
The Bank, like many thrift institutions in the relatively low interest rate
environment, has had to compete for depositors' funds with non-traditional
deposit vehicles, such as annuities, mutual funds, municipal bonds and other
obligations. As a result of the higher yields available on such instruments,
there has been some disintermediation (i.e. an outflow of funds from the
institution) and, accordingly, a reduction in the Bank's deposits. During the
year ended September 30, 1997, the Bank used proceeds from maturing investment
securities, principal payments from mortgage-backed and related securities as
well as Federal funds sold and overnight deposits, rather than deposits and
other borrowings, in order to fund loans. Should disintermediation occur,
management believes that the Bank's borrowing capacity with the FHLB-Des Moines
at rates comparable to those associated with the outflow of funds should
preclude any significant negative impact on earnings.
BORROWINGS. The Bank has the ability to use advances from the FHLB-Des
Moines to supplement its supply of lendable funds and to meet deposit withdrawal
requirements. The FHLB-Des Moines functions as a central reserve bank providing
credit for savings and loan associations and certain other member financial
institutions. As a member, the Bank is required to own capital stock in the
FHLB-Des Moines and is authorized to apply for advances on the security of such
stock and certain of its mortgage loans and other assets (principally securities
which are obligations of, or guaranteed by, the U.S. Government) provided
certain creditworthiness standards have been met. Advances are made pursuant to
several different credit programs. Each credit program has its own interest
rate and range of maturities. Depending on the program, limitations on the
amount of advances are based on the financial condition of the member
institution and the adequacy of collateral pledged to secure the credit. At
March 31, 1998 had a borrowing capacity of $72.2 million based on available
collateral.
The following table sets forth certain information regarding the Bank's use
of FHLB advances during the periods indicated.
<TABLE>
<CAPTION>
Six Months Ended
March 31, Year Ended September 30,
------------------- ------------------------------
1998 1997 1997 1996 1995
------- ---------- ------- --------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Maximum balance at any month end.. $2,200 $3,000 $3,000 $3,500 $9,000
Average balance................... 2,198 2,996 2,597 3,057 7,786
Period end balance................ 1,900 2,200 2,200 3,000 5,000
Weighted average interest rate:
At end of period................ 6.32% 6.22% 6.22% 6.00% 6.29%
During the period............... 6.28 6.07 6.20 6.08 6.01
</TABLE>
71
<PAGE>
COMPETITION
The Bank faces intense competition in the attraction of savings deposits
(its primary source of lendable funds) and in the origination of loans. Its
most direct competition for savings deposits has historically come from other
thrift institutions, credit unions and from commercial banks located in its
market area. Particularly in times of high interest rates, the Bank has faced
additional significant competition for investors' funds from short-term money
market securities and other corporate and government securities. The Bank's
competition for loans comes principally from other thrift institutions,
commercial banks, mortgage banking companies and mortgage brokers.
PERSONNEL
As of March 31, 1998, the Bank had 72 full-time and 20 part-time employees
and eight commissioned loan representatives. The employees are not represented
by a collective bargaining unit and the Bank believes its relationship with its
employees is good.
SUBSIDIARY ACTIVITIES
The Bank has one subsidiary, Pulaski Service Corporation, which sells
insurance products and annuities. Federal savings associations generally may
invest up to 3% of their assets in service corporations, provided that any
amount in excess of 2% is used primarily for community, inner-city and community
development projects. At March 31, 1998, the Savings Bank's equity investment in
its subsidiary was $476,000, or 0.26% of total assets.
PROPERTIES
The following table sets forth the Bank's offices, as well as certain
additional information relating to these offices, as of March 31, 1998.
<TABLE>
<CAPTION>
Year Approximate
Location Opened Net Book Value (1) Owned/Leased Square Footage
- ---------------------------------- ------ ------------------ ------------- ---------------
(in thousands)
<S> <C> <C> <C> <C>
Main Office
- --------------
12300 Olive Boulevard 1978 $1,323 Owned 29,000 (4)
St. Louis, Missouri 63141-6434
Branch Offices
- --------------
6955 Parker Road at Highway 367 1968 32 Leased (2) 2,000
Florissant, Missouri 63033-5398
3760 South Grand Avenue 1967 213 Owned 3,500
St. Louis, Missouri 63118-3487
4225 Bayless Road 1971 47 Leased (3) 2,000
Marian Heights Plaza
St. Louis, Missouri 63123-7500
10756 Sunset Hills Plaza 1996 118 Leased (5) 2,400
St. Louis, Missouri 63127-1207
</TABLE>
- ----------------------------------
(1) Represents the net book value of land, buildings, furniture, fixtures and
equipment owned by the Bank.
72
<PAGE>
(2) Lease expires on November 30, 1998. OTS approval to relocate this office as
discussed under "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Operating Strategy" is pending.
(3) Lease expires on May 31, 2002.
(4) 6,888 square feet of which is leased to outside tenants.
(5) Lease expires on June 9, 2001.
LEGAL PROCEEDINGS
Periodically, there have been various claims and lawsuits involving the Bank,
such as claims to enforce liens, condemnation proceedings on properties in which
the Bank holds security interests, claims involving the making and servicing of
real property loans and other issues incident to the Bank's business. In the
opinion of management, after consultation with the Bank's legal counsel, no
significant loss is expected from any of such pending claims or lawsuits. Aside
from such pending claims and lawsuits which are incident to the conduct of the
Bank's ordinary business, the Bank is not a party to any material pending legal
proceedings.
MANAGEMENT OF THE HOLDING COMPANY
Directors will be elected by the stockholders of the Holding Company for
staggered three-year terms, or until their successors are elected and qualified.
The Holding Company's Board of Directors currently consists of seven persons
divided into three classes, each of which contains approximately one third of
the Board. One class, consisting of Messrs. William A. Donius and Robert A.
Ebel, has a term of office expiring at the first annual meeting of stockholders;
a second class, consisting of Messrs. Michael J. Donius, E. Douglas Britt and
Garland A. Dorn, has a term of office expiring at the second annual meeting of
stockholders; and a third class, consisting of Messrs. Thomas F. Hack and Dr.
Edward J. Howenstein, has a term of office expiring at the third annual meeting
of stockholders. If the Holding Company decides to implement the 1999 Option
Plan and the 1999 MRDP prior to the first anniversary of the conversion, the
Holding Company will not hold its first annual meeting of stockholders until at
least six months following consummation of the conversion so that it may obtain
approval of such plans in accordance with OTS regulations.
The executive officers of the Holding 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. The executive
officers of the Holding Company are:
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
William A. Donius President and Chief Executive Officer
Michael J. Donius Executive Vice President, Chief Operating Officer
and Secretary
Thomas F. Hack Chief Financial Officer and Treasurer
</TABLE>
Since the formation of the Holding Company, none of the executive officers,
directors or other personnel has received remuneration from the Holding Company.
Initially, no separate compensation will be paid for service as an executive
officer of the Holding Company. For information concerning the principal
occupations, employment and compensation of the directors and executive officers
of the Holding Company during the past five years, see "MANAGEMENT OF THE BANK -
- - Biographical Information."
73
<PAGE>
MANAGEMENT OF THE BANK
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of the Bank is presently composed of seven members
who are elected for terms of three years, approximately one-third of whom are
elected annually in accordance with the Bylaws of the Bank. The executive
officers of the Bank are elected annually by the Board of Directors and serve at
the Board's discretion. The following table sets forth information with respect
to the directors and executive officers of the Bank, all of whom will continue
to serve as directors and executive officers of the Bank and the Holding
Company.
DIRECTORS
<TABLE>
<CAPTION>
Current
Director Term
Name Age (1) Position Since Expires
- -------------------------- ------- -------------------------- -------- -------
<S> <C> <C> <C> <C>
E. Douglas Britt 71 Director 1993 1999
William A. Donius 39 President, Chief Executive 1997 1998
Officer and Director
Michael J. Donius 38 Executive Vice President, 1993 1999
Chief Operating Officer
and Director
Garland A. Dorn 66 Director 1995 1999
Robert A. Ebel 67 Director 1979 1998
Thomas F. Hack 54 Chief Financial Officer, 1985 2000
Treasurer and Director
Dr. Edward J. Howenstein 71 Director 1973 2000
</TABLE>
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
<TABLE>
<CAPTION>
Name Age (1) Position
- --------------------- ------- ---------------------
<S> <C> <C>
Beverly M. Kelley 56 Senior Vice President
Michael G. Flaton 49 Vice President
Victoria A. Konopka 52 Vice President
M. Brad Condon 48 Chief Lending Officer
- ----------------------
</TABLE>
(1) As of March 31, 1998.
DIRECTOR EMERITUS
Walter A. Donius serves as Director Emeritus of the Holding Company
and the Bank. Mr. Donius served as President of the Bank from 1971 until his
retirement on December 1, 1997 and as a director from 1955 until his retirement.
BIOGRAPHICAL INFORMATION
Set forth below is certain information regarding the directors and
executive officers of the Bank. Unless otherwise stated, each director and
executive officer has held his or her current occupation for the last five
years. There are no family relationships among the directors or executive
officers except that William and Michael Donius are brothers.
74
<PAGE>
E. Douglas Britt served as an officer and director of Prudential Savings
and Loan Association, St. Louis, Missouri from its inception in 1950 until 1982,
at which time he was elected Executive Vice President and director of St. Louis
Federal Savings and Loan Association, St. Louis, Missouri (the successor to
Prudential Savings and Loan Association following a merger). He served in those
capacities until his retirement in 1986. Mr. Britt served as President of the
Greater St. Louis Savings and Loan League and has been active in numerous
community and professional organizations. He also is a retired officer in the
U.S. Air Force.
William A. Donius has served as President of the Bank since December 1,
1997. He previously served as Senior Vice President from February 1997 to
December 1997, as Vice President from April 1995 to February 1997, and as
Director of Marketing from July 1992 to April 1995.
Michael J. Donius joined the Bank in 1988 and has served as Executive Vice
President and Chief Operating Officer since 1993 and as Secretary since 1994.
Prior to assuming his current positions, Mr. Donius served the Bank in various
capacities, including Vice President in charge of compliance and CRA.
Garland A. Dorn is President and Chief Executive Officer of Diagnostic
Rehabilitation Systems, Inc., St. Louis, Missouri, a medical equipment supplier.
Robert A. Ebel is Chairman of the Board and Chief Executive Officer of
Universal Printing Co., a commercial printer in St. Louis, Missouri.
Thomas F. Hack joined the Bank in 1967 and has served as the Treasurer
since 1974 and the Chief Financial Officer since 1993.
Dr. Edward J. Howenstein is a retired dentist.
Beverly M. Kelley joined the Bank in 1966 and became Senior Vice President
in 1977.
Michael G. Flaton joined the Bank in 1975 and has served as Vice President
of Savings since 1985.
Victoria A. Konopka joined the Bank on 1969 and has served as Vice
President of Human Resources since 1994.
M. Brad Condon joined the Bank in 1998 as Chief Lending Officer. From 1985
until joining the Bank, he served as Senior Vice President of Magna Group, Inc.
BENEFICIAL OWNERSHIP OF BANK COMMON STOCK BY DIRECTORS AND EXECUTIVE OFFICERS
Persons and groups who beneficially own in excess of 5% of the Bank's
common stock are required to file certain reports disclosing such ownership
pursuant to the Securities Exchange Act of 1934, as amended ("Exchange Act").
Based on such reports, the following table sets forth, as of March 31, 1998,
certain information as to those persons who were beneficial owners of more than
5% of the outstanding shares of Bank common stock. To the Bank's knowledge, no
other person or entity beneficially owned more than 5% of the Bank's outstanding
common stock at March 31, 1998.
The following table also sets forth, as of March 31, 1998, information as
to the shares of Bank common stock beneficially owned by (a) each director and
(b) all executive officers and directors of the Bank as a group. For
information regarding proposed non-binding purchases of Holding Company common
stock by the directors and officers and their anticipated stock ownership upon
consummation of the conversion, see "SHARES TO BE PURCHASED BY MANAGEMENT
PURSUANT TO SUBSCRIPTION RIGHTS."
75
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Percent of Shares
Name Beneficially Owned (1) Outstanding
- ----------------------------------- ----------------------- ------------------
<S> <C> <C> <C>
Beneficial Owners of More Than 5%
Pulaski Bancshares, M.H.C. 1,470,000 69.9%
Directors
E. Douglas Britt 13,961 (2) *
William A. Donius (3) 3,116 *
Michael J. Donius (4) 7,576 *
Garland A. Dorn 3,934 (5) *
Robert A. Ebel 24,500 (6) 1.1
Thomas F. Hack (7) 10,270 (8) *
Dr. Edward J. Howenstein 26,697 (9) 1.3
All executive officers and 112,622 5.3
directors as a group (10 persons)
</TABLE>
- --------------------------
* Less than 1%.
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to
be the beneficial owner, for purposes of this table, of any shares of Bank
common stock if he or she has voting and/or investment power with respect to
such security. The table includes shares owned by spouses, other immediate
family members in trust, shares held in retirement accounts or funds for the
benefit of the named individuals, and other forms of ownership, over which
shares the persons named in the table may possess voting and/or investment
power. Shares of unvested restricted stock granted under the Bank's 1994 MRDP,
as to which the holders have voting power but not investment power, are included
as follows: E. Douglas Britt, 360 shares; Michael J. Donius, 1,308 shares;Robert
A. Ebel, 480 shares ; Thomas F. Hack, 1,692 shares; Dr. Edward J. Howenstein,
480 shares; and all executive officers and directors as a group, 7,228 shares.
The amounts shown also include the following amounts of shares which the
indicated individuals have the right to acquire within 60 days of March 31, 1998
through the exercise of stock options granted pursuant to the Bank's 1994 Option
Plan: E. Douglas Britt, 1,080 shares; Michael J. Donius, 3,960 shares; Robert
A. Ebel, 1,800 shares; Thomas F. Hack, 40 shares; Dr. Edward J. Howenstein,
1,800 shares; and all executive officers and directors as a group, 15,592
shares.
(2) Includes 5,982 shares held by a trust of which Mr. Britt is a co-trustee.
(3) William A. Donius is also the President and Chief Executive Officer of the
Bank. On September 17, 1997, in connection with his appointment as President
and Chief Executive Officer, Mr. Donius was awarded options to acquire 9,200
shares of Bank common stock at an exercise price of $26.00 per share. Such
options vest ratably over a five-year period.
(4) Michael J. Donius is also Executive Vice President, Chief Operating Officer
and Secretary of the Bank.
(5) On September 17, 1997, Mr. Dorn was awarded options to acquire 1,000 shares
of Bank common stock at an exercise price of $26.00 per shares. Such options
vest ratably over a five-year period.
(6) Includes 20,000 shares held by a trust of which Mr. Ebel is a co-trustee
with his spouse and 1,500 shares held by his wife as joint tenant with their
children.
(7) Mr. Hack is also the Chief Financial Officer and Treasurer of the Bank.
(8) Includes 7,588 shares owned by Mr. Hack and his wife as joint tenants.
(9) Includes 2,499 shares held by a trust of which Dr. Howenstein is a co-
trustee with his spouse and 18,769 shares owned by his wife.
76
<PAGE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The business of the Bank is conducted through meetings and activities of
its Board of Directors and its committees. During the fiscal year ended
September 30, 1997, the Board of Directors held 12 regular meetings and no
director attended fewer than 75% of the total meetings of the Board of Directors
of the Bank and committees on which such director served.
The Bank has standing Executive, Audit, Nominating and Salary Committees,
among others.
The Executive Committee of the Board of Directors, which currently consists
of Directors W. Donius, Hack and M. Donius, meets as necessary, but at least
twice monthly, between meetings of the full Board of Directors. All significant
actions of the Executive Committee must be ratified by the full Board of
Directors. The Executive Committee met 30 times during the fiscal year ended
September 30, 1997.
The entire Board of Directors serves as the Audit Committee, and in that
capacity is responsible for developing and monitoring the Bank's audit program.
The Board selects the Bank's outside auditor and meets with them to discuss the
results of the annual audit and any related matters. The Board also receives
and reviews the reports and findings and other information presented to them by
the Bank's officers regarding financial reporting policies and practices. The
Board of Directors met once in its capacity as the Audit Committee during the
fiscal year ended September 30, 1997.
The full Board of Directors acts as the Nominating Committee for nomination
of members of the Board of Directors. The Board of Directors met once in its
capacity as the Nominating Committee during the fiscal year ended September 30,
1997 to select the nominees for election at the Annual Meeting held in January
1998.
The Salary Committee, currently consisting of Directors W. Donius, Ebel and
Howenstein, recommends annual salary levels for senior officers and compensation
for members of the Board of Directors. The Salary Committee met once during the
fiscal year ended September 30, 1997.
DIRECTORS' COMPENSATION
Directors receive a fee of $1,150 per month plus $275 for each board
meeting attended. A fee of $275 per committee meeting is paid to non-officer
directors. Directors also participate in the Bank's 1994 Option Plan and MRDP.
All options granted under the 1994 Option Plan and shares awarded under the 1994
MRDP vest ratably over a five year period.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following information is furnished for the
former Chief Executive Officer of the Bank and for each executive officer of the
Bank who received salary and bonus in excess of $100,000 during the year ended
September 30, 1997.
<TABLE>
<CAPTION>
Long-Term Compensation
-----------------------
Annual Compensation Awards
------------------------------------ -----------------------
Restricted Securities
Name and Fiscal Other Annual Stock Underlying All Other
Position Year Salary(1) Bonus Compensation Award Options(#) Compensation
- ------------------------ ------ ----------- --------- ------------ ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Walter A. Donius(2) 1997 $177,000 $11,271 -- $ -- -- $18,600(3)
Former Chief 1996 173,400 10,000 -- -- -- 17,700
Executive Officer, 1995 170,000 11,500 -- 59,730 9,600 17,400
President and
Chairman of the Board
Thomas F. Hack 1997 97,400 6,136 -- -- -- 18,600(3)
Chief Financial 1996 94,400 6,500 -- -- -- 17,700
Officer and Treasurer 1995 89,200 7,500 -- 46,530 8,400 17,400
</TABLE>
77
<PAGE>
- --------------
(1) Includes remuneration from Pulaski Service Corporation, the Bank's wholly-
owned subsidiary.
(2) Walter A. Donius retired from the positions of Chief Executive Officer,
President and Chairman of the Board of the Bank effective December 1, 1997.
The table does not reflect compensation received by the Bank's current
President and Chief Executive Officer, Mr. William A. Donius, since his
compensation did not exceed $100,000 during the year ended September 30,
1997.
(3) Includes directors' fees from the Bank and Pulaski Service Corporation.
Does not include certain additional benefits, the aggregate amounts of
which do not exceed the lesser of $50,000 or 10% of salary and bonus for
the named executive officers.
OPTION EXERCISE/VALUE TABLE. The following information is presented for
the year ended September 30, 1997 for the executive officers named in the
summary compensation table.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Number of Securities In-the-Money Options
Shares Underlying Unexercised Options at Fiscal Year End($)
Acquired on Dollar Value ------------------------------ --------------------------
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
----------- ------------ ------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Walter A. Donius 800 $12,500 3,040 5,760 $47,500 $102,500
Thomas F. Hack -- -- 3,360 5,040 52,500 78,750
</TABLE>
Employment Agreements. The MHC and the Bank currently maintain
employment agreements with Messrs. Wm. Donius, M. Donius and Hack. In
connection with the conversion, the Holding Company and the Bank (collectively,
the "Employers") will enter into three-year employment agreements with these
same individuals, which have substantially the same terms as and will replace
the existing agreements.
Under the employment agreements, the initial salary levels for Messrs.
Wm. Donius, M. Donius and Hack will be $135,000, $107,000 and $105,000,
respectively, which amounts will be paid by the Bank and may be increased at the
discretion of the Board of Directors. On each anniversary of the commencement
date of the employment agreements, the term of each agreement may be extended
for an additional year at the discretion of the Board. The agreement is
terminable by the Employers at any time, by the executive if the executive is
assigned duties inconsistent with his initial position, duties, responsibilities
and status, or upon the occurrence of certain events specified by federal
regulations. In the event that an executive's employment is terminated without
cause or upon the executive's voluntary termination in certain circumstances,
the Bank would be required to honor the terms of the agreement through the
expiration of the then current term, including payment of current cash
compensation and continuation of employee benefits.
The employment agreements also provide for severance payments and
other benefits in the event of involuntary termination of employment in
connection with any change in control of the Employers. Severance payments also
will be provided on a similar basis in connection with a voluntary termination
of employment where, subsequent to a change in control, an executive is assigned
duties inconsistent with his position, duties, responsibilities and status
immediately prior to such change in control. The term "change in control" is
defined in the agreement as having occurred when, among other things, (a) a
person other than the Holding Company purchases shares of the Holding Company's
common stock pursuant to a tender or exchange offer for such shares, (b) any
person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act)
is or becomes the beneficial owner, directly or indirectly, of securities of the
Holding Company representing 25% or more of the combined voting power of the
Holding Company's then outstanding securities, (c) the membership of the Board
of Directors changes as the result of a contested election, or (d) stockholders
of the Holding Company approve a merger, consolidation, sale or disposition of
all or substantially all of the Holding Company's assets, or a plan of partial
or complete liquidation.
78
<PAGE>
The maximum value of the severance benefits under the employment
agreements is 2.99 times the executive's average annual compensation during the
five-year period preceding the effective date of the change in control (the
"base amount"). The employment agreements provide that the value of the maximum
benefit may be distributed, at the executive's election, (i) in the form of a
lump sum cash payment equal to 2.99 times the executive's base amount or (ii) a
combination of a cash payment and continued coverage under the Employers'
health, life and disability programs for a 36-month period following the change
in control, the total present value of which does not exceed 2.99 times the
executive's base amount. Assuming that a change in control had occurred at
March 31, 1998 and that each executive elected to receive a lump sum cash
payment, Messrs. Wm. Donius, M. Donius and Hack would be entitled to payments of
approximately $261,000, $240,000 and $296,000, respectively. Section 280G of
the Internal Revenue Code provides that severance payments that equal or exceed
three times the individual's base amount are deemed to be "excess parachute
payments" if they are contingent upon a change in control. Individuals
receiving excess parachute payments are subject to a 20% excise tax on the
amount of such excess payments, and the Employers would not be entitled to
deduct the amount of such excess payments.
The employment agreements restrict the executive's right to compete
against the Employers for a period of one year from the date of termination of
the agreement if an executive's employment is terminated without cause, except
if such termination occurs after a change in control.
SEVERANCE AGREEMENTS. The MHC and the Bank currently maintain
severance agreements with M. Brad Condon, Chief Lending Officer of the Bank,
and Beverly M. Kelley, Senior Vice President of the Bank. In connection with
the conversion, the Holding Company and the Bank will enter into new severance
agreements with these individuals on substantially the same terms as the
existing agreements, which will be replaced by the new agreements.
The new severance agreements will have an initial term of two years.
On each anniversary of the commencement date of the severance agreements, the
term of each agreement may be extended for an additional year at the discretion
of the Board of the Bank. The severance agreements will provide for severance
payments and continuation of insured employee welfare benefits in the event of
involuntary termination of employment in connection with any change in control
of the Employers in the same manner as provided for in the employment
agreements. Severance payments and benefits also will be provided on a similar
basis in connection with a voluntary termination of employment where, subsequent
to a change in control, an officer is assigned duties inconsistent with his
position, duties, responsibilities and status immediately prior to such change
in control. The term "change in control" is defined in the agreement as having
occurred when, among other things, (a) a person other than the Holding Company
purchases shares of the Holding Company's common stock pursuant to a tender or
exchange offer for such shares, (b) any person (as such term is used in Sections
13(d) and 14(d)(2) of the Exchange Act) is or becomes the beneficial owner,
directly or indirectly, of securities of the Holding Company representing 25% or
more of the combined voting power of the Holding Company's then outstanding
securities, (c) the membership of the Board changes as the result of a contested
election, or (d) stockholders of the Holding Company approve a merger,
consolidation, sale or disposition of all or substantially all of the Holding
Company's assets, or a plan of partial or complete liquidation.
Assuming that a change in control had occurred at March 31, 1998, and
excluding any other benefits due under the severance agreements, the aggregate
value of the severance benefits payable to the two officers would have been
approximately $374,000.
BENEFITS
INSURANCE. Full-time employees are provided, with minimal contribution or
expense to them, with group plan insurance that covers hospitalization,
dependent coverage, long-term disability and life insurance. This insurance is
available generally and on the same basis to all full-time employees.
RETIREMENT PLAN. The Bank is a participant in the Financial Institutions
Retirement Fund, a multi-employer, non-contributory defined benefit retirement
plan ("Plan"). The following table indicates the annual retirement benefits
that would be payable under the Plan upon retirement at age 65 to a participant
electing to receive his retirement benefit
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in the standard form of benefit, assuming various specified levels of plan
compensation and various specified years of credited service. Under the Internal
Revenue Code, maximum annual benefits under the Plan are limited to $125,000 per
year for the 1998 calendar year.
<TABLE>
<CAPTION>
High-5 Years of Service
Average -------------------------------------------
Compensation 15 20 25 30 35
---------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$ 10,000 $ 2,250 $ 3,000 $ 3,750 $ 4,500 $ 5,250
20,000 4,500 6,000 7,500 9,000 10,500
30,000 6,750 9,000 11,250 13,500 15,750
40,000 9,000 12,000 15,000 18,000 21,000
50,000 11,250 15,000 18,750 22,500 26,250
60,000 13,500 18,000 22,500 27,000 31,500
70,000 15,750 21,000 26,250 31,500 36,750
80,000 18,000 24,000 30,000 36,000 42,000
90,000 20,250 27,000 33,750 40,500 47,250
100,000 22,500 30,000 37,500 45,000 52,500
110,000 24,750 33,000 41,250 49,500 57,750
</TABLE>
The Plan is a non-contributory, defined benefit plan which provides for
monthly payments to, or on behalf of, each covered employee. All full-time
employees are eligible to participate in the Plan after completion of one year
of service to the Bank (at least 1,000 hours of service in 12 consecutive
months) and the attainment of age 21. Benefits are based upon years of service
and salary excluding bonuses, fees, commissions, etc. Employees terminating
employment before they are 100% vested will have benefits reduced accordingly
based on the percentage they are vested. As of September 30, 1997, retired
President Walter Donius and Mr. Hack had 42 and 28 years of credited service,
respectively, under the Plan.
The normal retirement age is 65 and the early retirement age is before age
65, but after age 45. Normal retirement benefits are equal to the sum of (i)
1.5% multiplied by the years of service to the Bank and by the employees's
average base salary for the five highest consecutive years preceding retirement
up to the covered compensation level and (2) 2% multiplied by the years of
service to the Bank and by the employees's average base salary above the covered
compensation level for the five highest consecutive years preceding retirement.
If an employee elects early retirement, but defers the receipt of benefits until
age 65, the formula for computation of early retirement benefits is the same as
if the employee had retired at the normal retirement age. However, if the
employee elects early retirement benefits payable under the Plan the benefits
are equal to the benefits payable assuming retirement at age 65 reduced by
applying an early retirement factor based on age and vesting service when
payments begin. Payment may also be deferred to any time up to age 70, in which
case the retirement allowance payable at age 65 will be increased by .8% for
each month of deferment after age 65 (to a maximum increase of 48%). Under the
Plan, the Bank makes annual contributions to fund the benefits computed on an
actuarial basis.
Upon retirement, the regular form of benefit under the Plan is an annuity
payable in equal monthly installments for the life of the employee. Optional
annuity benefit forms may also be elected by the employee. Benefits under the
Plan are integrated with social security.
At July 1, 1997 (the date of the most recent Plan statement), the Plan was
over-funded by approximately $498,600.
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401(K) PLAN. The Bank maintains the Employees' Savings & Profit Sharing
Plan (the "401(k) Plan") for the benefit of eligible employees of the Bank. The
401(k) Plan is intended to be a tax-qualified plan under Sections 401(a) and
401(k) of the Code. Employees of the Bank who have completed 1,000 hours of
service during 12 consecutive months and who have attained age 21 are eligible
to participate in the 401(k) Plan. Participants may contribute up to 15% of
their annual compensation to the 401(k) Plan through a salary reduction
election. The Bank matches 50% of participant contributions to a maximum of 4%
of the participant's salary. In addition to employer matching contributions,
the Bank may contribute a discretionary amount to the 401(k) Plan in any plan
year which is allocated to individual participants in the proportion that their
annual compensation bears to the total compensation of all participants during
the plan year. To be eligible to receive a discretionary employer contribution,
the participant must complete 1,000 hours of service during the plan year and
remain employed by the Bank on the last day of the plan year. Participants are
at all times 100% vested in their 401(k) Plan accounts. For the year ended
September 30, 1997, the Bank incurred total contribution-related expenses of
approximately $37,500 in connection with the 401(k) Plan.
Generally, the investment of 401(k) Plan assets is directed by plan
participants. In connection with the conversion the participants will be able
to direct the investment of their 401(k) Plan account balance to purchase shares
of common stock. A participant in the 401(k) Plan who elects to purchase common
stock in the conversion through the 401(k) Plan will receive the same
subscription priority and will be subject to the same individual purchase
limitations as if the participant had elected to make such purchase using other
funds. See "THE CONVERSION -- Limitations on Purchases of Conversion Shares."
EMPLOYEE STOCK OWNERSHIP PLAN. The Board of Directors has authorized the
adoption by the Bank of an ESOP for employees of the Bank to become effective
upon the completion of the conversion. The ESOP is intended to satisfy the
requirements for an employee stock ownership plan under the Internal Revenue
Code and the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Full-time employees of the Holding Company and the Bank who have
been credited with at least 1,000 hours of service during a 12-month period and
who have attained age 20-1/2 will be eligible to participate in the ESOP.
In order to fund the purchase of up to 8% of the common stock to be sold in
the conversion, it is anticipated that the ESOP will borrow funds from the
Holding Company. Such loan will equal 100% of the aggregate purchase price of
the common stock. The loan to the ESOP will be repaid principally from the
Bank's contributions to the ESOP and dividends payable on common stock held by
the ESOP over the anticipated 15-year term of the loan. The interest rate for
the ESOP loan is expected to be the prime rate as published in The Wall Street
Journal on the closing date of the conversion. See "PRO FORMA DATA." To the
extent that the ESOP is unable to acquire 8% of the common stock sold in the
offering, it is anticipated that such additional shares may be acquired
following the conversion through open market purchases.
In any plan year, the Bank may make additional discretionary contributions
to the ESOP 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 or which constitute authorized but
unissued shares or shares held in treasury by Holding Company. The timing,
amount, and manner of such discretionary contributions will be affected by
several factors, including applicable 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 on a pro rata basis as the loan is repaid.
Discretionary contributions to the ESOP and shares released from the suspense
account will be allocated among participants on the basis of each participant's
proportional share of total compensation. Forfeitures will be reallocated among
the remaining plan participants.
Participants will vest in their accrued benefits under the ESOP at the rate
of 20% per year, beginning upon the completion of two years of service. A
participant is fully vested at retirement, in the event of disability or upon
termination of the ESOP. Benefits are distributable upon a participant's
retirement, early retirement, death, disability, or termination of employment.
The Bank's contributions to the ESOP are not fixed, so benefits payable under
the ESOP cannot be estimated.
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It is anticipated that members of the Bank's Board of Directors will serve
as trustees of the ESOP. Under the ESOP, the trustees must vote all allocated
shares held in the ESOP in accordance with the instructions of plan participants
and unallocated shares and allocated shares for which no instructions are
received must be voted in the same ratio on any matter as those shares for which
instructions are given.
Pursuant to Statement of Position 93-6, compensation expense for a
leveraged ESOP is recorded at the fair market value of the ESOP shares when
committed to be released to participants' accounts. See "PRO FORMA DATA."
If the ESOP purchases newly issued shares from the Holding Company, total
stockholders' equity would neither increase nor decrease. However, on a per
share basis, stockholders' equity and per share net earnings would decrease
because of the increase in the number of outstanding shares.
The ESOP will be subject to the requirements of ERISA and the regulations
of the IRS and the Department of Labor issued thereunder. The Bank intends to
request a determination letter from the IRS regarding the tax-qualified status
of the ESOP. Although no assurance can be given that a favorable determination
letter will be issued, the Bank expects that a favorable determination letter
will be received by the ESOP.
STOCK OPTION PLANS. Following its conversion to stock form, the Bank
adopted the 1994 Option Plan for the benefit of key employees and nonemployee
directors, pursuant to which 60,000 shares of Bank common stock were reserved
for issuance upon the exercise of stock options awarded thereunder. As of
March 31, 1998, stock options have been awarded with respect to all shares
reserved under the 1994 Stock Option Plan. The Holding Company will assume the
1994 Stock Option Plan in connection with the conversion, and appropriate
adjustments to the exercise price and the number of shares subject to stock
options outstanding under each plan will be made in accordance with the final
Exchange Ratio.
Following the conversion, the Holding Company's Board of Director intends
to adopt the 1999 Option Plan in order to attract and retain qualified
management personnel and nonemployee directors, to provide such key employees
and nonemployee directors with a proprietary interest in the Holding Company as
an incentive to contribute to the success of the Holding Company and the Bank,
and to reward officers and key employees for outstanding performance. The 1999
Option Plan will provide for the grant of incentive stock options ("ISOs")
intended to comply with the requirements of Section 422 of the Code and for
nonqualified stock options ("NQOs"). Upon receipt of stockholder approval of
the 1999 Option Plan, stock options may be granted to nonemployee directors and
key employees of the Holding Company and its subsidiaries. Options will be
granted at no cost to the recipient, although recipients will be required to
tender the exercise price upon the exercise of any option. Unless sooner
terminated, the 1999 Option Plan will continue in effect for a period of ten
years from the date the 1999 Option Plan is approved by stockholders. Under
current OTS regulations, the approval of a majority vote of the Holding
Company's outstanding shares is required prior to the implementation of the 1999
Option Plan within one year of the consummation of the conversion.
A number of authorized shares of common stock equal to 10% of the number of
shares sold in connection with the conversion will be reserved for future
issuance under the 1999 Option Plan (552,000 shares based on the issuance of
5,520,000 shares at the maximum of the Estimated Valuation Range). Shares
acquired upon exercise of options will be authorized but unissued shares or
treasury shares. In the event of a stock split, reverse stock split, stock
dividend, or similar event, the number of shares of common stock under the 1999
Option Plan, the number of shares to which any award relates and the exercise
price per share under any option may be adjusted by the Committee (as defined
below) to reflect the increase or decrease in the total number of shares of
common stock outstanding.
The 1999 Option Plan will be administered and interpreted by the Board of
Directors. Subject to applicable OTS regulations, the Board will determine
which nonemployee directors and key employees will be granted options, whether,
in the case of officers and employees, such options will be ISOs or NQOs, the
number of shares subject to each option, and the exercisability of such options.
All options granted to nonemployee directors will be NQOs. The per
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share exercise price of all options will equal at least 100% of the fair market
value of a share of common stock on the date the option is granted.
It is anticipated that all options granted under the 1999 Option Plan will
be granted subject to a vesting schedule whereby the options become exercisable
over a specified period following the date of grant. Under OTS regulations, if
the 1999 Option Plan is implemented within the first year following consummation
of the conversion the minimum vesting period will be five years. All unvested
options will be immediately exercisable in the event of the recipient's death or
disability. Unvested options also will be exercisable following a change in
control (as defined in the 1999 Option Plan) of the Holding Company or the Bank
to the extent authorized or not prohibited by applicable law or regulations.
OTS regulations currently provide that, if the 1999 Option Plan is implemented
prior to the first anniversary of the conversion, vesting may not be accelerated
upon a change in control of the Holding Company or the Bank.
Each stock option that is awarded to an officer or key employee will remain
exercisable at any time on or after the date it vests through the earlier to
occur of the tenth anniversary of the date of grant or three months after the
date on which the optionee terminates employment (one year in the event of the
optionee's termination by reason of death or disability), unless such period is
extended by the Board. Each stock option that is awarded to a nonemployee
director will remain exercisable through the earlier to occur of the tenth
anniversary of the date of grant or one year (two years in the event of a
nonemployee director's death or disability) following the termination of a
nonemployee director's service on the Board. Except as authorized by the Board,
all stock options are nontransferable except by will or the laws of descent or
distribution.
Under current provisions of the Internal Revenue Code, the federal tax
treatment of ISOs and NQOs is different. With respect to ISOs, an optionee who
satisfies certain holding period requirements will not recognize income at the
time the option is granted or at the time the option is exercised. If the
holding period requirements are satisfied, the optionee will generally recognize
capital gain or loss upon a subsequent disposition of the shares of common stock
received upon the exercise of a stock option. If the holding period
requirements are not satisfied, the difference between the fair market value of
the common stock on the date of grant and the option exercise price, if any,
will be taxable to the optionee at ordinary income tax rates. A federal income
tax deduction generally will not be available to the Holding Company as a result
of the grant or exercise of an ISO, unless the optionee fails to satisfy the
holding period requirements. With respect to NQOs, the grant of an NQO generally
is not a taxable event for the optionee and no tax deduction will be available
to the Holding Company. However, upon the exercise of an NQO, the difference
between the fair market value of the common stock on the date of exercise and
the option exercise price generally will be treated as compensation to the
optionee upon exercise, and the Holding Company will be entitled to a
compensation expense deduction in the amount of income realized by the optionee.
Although no specific award determinations have been made at this time, the
Holding Company and the Bank anticipate that if stockholder approval is obtained
it would provide awards to its directors and key employees to the extent and
under terms and conditions permitted by applicable regulations. Under current
OTS regulations, if the 1999 Option Plan is implemented within one year of the
consummation of the conversion, (i) no officer or employee may receive an award
of options covering in excess of 25%, (ii) no nonemployee director could receive
in excess of 5% and (iii) nonemployee directors, as a group, may not receive in
excess of 30% of the number of shares reserved for issuance under the 1999
Option Plan.
MANAGEMENT RECOGNITION AND DEVELOPMENT PLANs. Following its conversion to
stock form, the Bank adopted the 1994 MRDP for the benefit of key employees,
pursuant to which 24,000 shares of Bank Common Stock were reserved for issuance
in the form of restricted stock. As of September 30, 1997, all shares under the
1994 MRDP have been awarded, and such shares (including unvested shares) will be
converted into shares of Holding Company common stock based on the final
Exchange Ratio in the same manner as shares held by other public stockholders.
The Holding Company will assume and continue the 1994 MRDP in connection with
the conversion.
Following the conversion, the Holding Company's Board of Directors intends
to adopt the 1999 MRDP for non-employee directors, officers and employees of the
Holding Company and the Bank. The Board of Directors believes
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that adoption of the 1999 MRDP is important to the Bank's overall compensation
strategy, which emphasizes providing appropriate incentives to attract and
retain capable employees. Specifically, the adoption of the 1999 MRDP will
enable the Holding Company to provide participants with a proprietary interest
in the Holding Company as an incentive to contribute to the success of the
Holding Company.
The 1999 MRDP will be submitted to stockholders for approval at a meeting
following consummation of the conversion. The approval of a majority vote of the
Holding Company's stockholders is required prior to implementation of the 1999
MRDP within one year of the consummation of the conversion. The 1999 MRDP
expects to acquire a number of shares of common stock equal to 4% of the shares
sold in the offering (220,800 shares based on the sale of 5,520,000 shares at
the maximum of the Estimated Valuation Range). Such shares will be acquired on
the open market, if available, with funds contributed by the Bank to a trust
which the Holding Company may establish in conjunction with the 1999 MRDP ("1999
MRDP Trust") or from authorized but unissued shares or treasury shares of the
Holding Company.
The Board of Directors will administer the 1999 MRDP, members of which will
also serve as trustees of the 1999 MRDP Trust, if formed. The trustees will be
responsible for the investment of all funds contributed by the Bank to the 1999
MRDP Trust.
It is anticipated that shares of common stock granted pursuant to the 1999
MRDP will be in the form of restricted stock payable ratably over a five-year
period following the date of grant. Awards will be made at no cost to
recipients. During the period of restriction, all shares will be held in escrow
by the Holding Company or by the 1999 MRDP Trust. If a recipient terminates
employment for reasons other than death or disability, the recipient will
forfeit all rights to allocated shares that are then subject to restriction. In
the event of the recipient's death or disability, all restrictions will expire
and all allocated shares will become unrestricted. In addition, all allocated
shares will become unrestricted in the event of a change in control (as defined
in the 1999 MRDP) of the Holding Company to the extent authorized or not
prohibited by applicable law or regulations. Current OTS regulations, however,
do not permit accelerated vesting of 1999 MRDP awards in the event of a change
in control. 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 during
the years in which the shares vest.
The Board of Directors may terminate the 1999 MRDP at any time and, upon
termination, all unallocated shares of common stock will revert to the Holding
Company.
A recipient of a 1999 MRDP award in the form of restricted stock generally
will not recognize income upon an award of shares of common stock, and the
Holding Company will not be entitled to a federal income tax deduction, until
the termination of the restrictions. Upon such termination, the recipient will
recognize ordinary income in an amount equal to the fair market value of the
common stock at the time and the Holding Company will be entitled to a deduction
in the same amount after satisfying federal income tax withholding requirements.
However, the recipient may elect to recognize ordinary income in the year the
restricted stock is granted in an amount equal to the fair market value of the
shares at that time, determined without regard to the restrictions. In that
event, the Holding Company will be entitled to a deduction in such year and in
the same amount. Any gain or loss recognized by the recipient upon subsequent
disposition of the stock will be either a capital gain or capital loss.
Although no specific award determinations have been made, the Bank
anticipates that if stockholder approval is obtained it would provide awards to
its key employees to the extent permitted by applicable regulations. OTS
regulations currently provide that no individual officer or employee may receive
more than 25% and no individual non-employee director may receive more than 5%
(30% in the aggregate) of the shares reserved for issuance under any stock
compensation plan.
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TRANSACTIONS WITH THE BANK
Federal regulations require that all loans or extensions of credit by the
Bank to executive officers and directors must generally be made on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons (unless the loan or
extension of credit is made under a benefit program generally available to all
other employees and does not give preference to any insider over any other
employee) and must not involve more than the normal risk of repayment or present
other unfavorable features. The Bank's policy is not to make any new loans or
extensions of credit to the Bank's executive officers and directors at different
rates or terms than those offered to the general public. In addition, loans
made to a director or executive officer in an amount that, when aggregated with
the amount of all other loans to such person and his or her related interests,
are in excess of the greater of $25,000, or 5% of the Bank's capital and surplus
(up to a maximum of $500,000) must be approved in advance by a majority of the
disinterested members of the Board of Directors. See "REGULATION -- Federal
Regulation of the Bank -- Transactions with Affiliates." The aggregate amount
of loans by the Bank to its executive officers and directors and their
associates was $442,000 at March 31, 1998, or approximately 0.5% of the Holding
Company's pro forma stockholders' equity (based on the issuance of shares at the
maximum of the Estimated Valuation Range).
REGULATION
GENERAL
The Bank is subject to extensive regulation, examination and supervision by
the OTS as its chartering agency, and the FDIC, as the insurer of its deposits.
The activities of federal savings institutions are governed by the Home Owners'
Loan Act, as amended (the "HOLA") and, in certain respects, the Federal Deposit
Insurance Act ("FDIA") and the regulations issued by the OTS and the FDIC to
implement these statutes. These laws and regulations delineate the nature and
extent of the activities in which federal savings associations may engage.
Lending activities and other investments must comply with various statutory and
regulatory capital requirements. In addition, the Bank's relationship with its
depositors and borrowers is also regulated to a great extent, especially in such
matters as the ownership of deposit accounts and the form and content of the
Bank's mortgage documents. The Bank must file reports with the OTS and the FDIC
concerning its activities and financial condition in addition to obtaining
regulatory approvals prior to entering into certain transactions such as mergers
with, or acquisitions of, other financial institutions. There are periodic
examinations by the OTS and the FDIC to review the Bank's compliance with
various regulatory requirements. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves for regulatory purposes. Any change in such policies, whether by
the OTS, the FDIC or Congress, could have a material adverse impact on the Bank
and its operations.
FEDERAL REGULATION OF SAVINGS ASSOCIATIONS
OFFICE OF THRIFT SUPERVISION. The OTS is an office in the Department of
the Treasury subject to the general oversight of the Secretary of the Treasury.
The OTS generally possesses the supervisory and regulatory duties and
responsibilities formerly vested in the Federal Home Loan Bank Board. Among
other functions, the OTS issues and enforces regulations affecting federally
insured savings associations and regularly examines these institutions.
FEDERAL HOME LOAN BANK SYSTEM. The FHLB System, consisting of 12 FHLBs, is
under the jurisdiction of the Federal Housing Finance Board ("FHFB"). The
designated duties of the FHFB are to supervise the FHLBs, to ensure that the
FHLBs carry out their housing finance mission, to ensure that the FHLBs remain
adequately capitalized and able to raise funds in the capital markets, and to
ensure that the FHLBs operate in a safe and sound manner. The Bank, as a member
of the FHLB-Des Moines, is required to acquire and hold shares of capital stock
in the FHLB-Des Moines in an amount equal to the greater of (i) 1.0% of the
aggregate outstanding principal amount of residential mortgage loans, home
purchase contracts and similar obligations at the beginning of each year, or
(ii) 1/20 of its advances (i.e.,
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borrowings) from the FHLB-Des Moines. The Bank is in compliance with this
requirement with an investment in FHLB-Des Moines stock of $1.6 million at March
31, 1998. Among other benefits, the FHLB-Des Moines provides a central credit
facility primarily for member institutions. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It makes
advances to members in accordance with policies and procedures established by
the FHFB and the Board of Directors of the FHLB-Des Moines.
FEDERAL DEPOSIT INSURANCE CORPORATION. The FDIC is an independent federal
agency that insures the deposits, up to prescribed statutory limits, of
depository institutions. The FDIC currently maintains two separate insurance
funds: the Bank Insurance Fund ("BIF") and the SAIF. As insurer of the Bank's
deposits, the FDIC has examination, supervisory and enforcement authority over
the Bank.
The Bank's accounts are insured by the SAIF to the maximum extent permitted
by law. The Bank pays deposit insurance premiums based on a risk-based
assessment system established by the FDIC. Under applicable regulations,
institutions are assigned to one of three capital groups that 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, as 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 that until September 30, 1996 ranged from 0.23% for well capitalized,
financially sound institutions with only a few minor weaknesses to 0.31% for
undercapitalized institutions that pose a substantial risk of loss to the SAIF
unless effective corrective action is taken.
Pursuant to the Deposit Insurance Funds Act ("DIF Act"), which was enacted
on September 30, 1996, the FDIC imposed a special assessment on each depository
institution with SAIF-assessable deposits which resulted in the SAIF achieving
its designated reserve ratio. In connection therewith, the FDIC reduced the
assessment schedule for SAIF members, effective January 1, 1997, to a range of
0% to 0.27%, with most institutions, including the Bank, paying 0%. This
assessment schedule is the same as that for the BIF, which reached its
designated reserve ratio in 1995. In addition, since January 1, 1997, SAIF
members are charged an assessment of .065% of SAIF-assessable deposits for the
purpose of paying interest on the obligations issued by the Financing
Corporation ("FICO") in the 1980s to help fund the thrift industry cleanup.
BIF-assessable deposits will be charged an assessment to help pay interest on
the FICO bonds at a rate of approximately .013% until the earlier of
December 31, 1999 or the date upon which the last savings association ceases to
exist, after which time the assessment will be the same for all insured
deposits.
The DIF Act provides for the merger of the BIF and the SAIF into the
Deposit Insurance Fund on January 1, 1999, but only if no insured depository
institution is a savings association on that date. 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 associations. 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
operation of the Bank.
The FDIC may terminate the deposit insurance of any insured depository
institution 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 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 that could result in termination of the
deposit insurance of the Bank.
LIQUIDITY REQUIREMENTS. Under OTS regulations, each savings institution is
required to maintain an average daily balance of liquid assets (cash, certain
time deposits and savings accounts, bankers' acceptances, and specified U.S.
Government, state or federal agency obligations and certain other investments)
equal to a monthly average of not less than a specified percentage (currently
4.0%) of its net withdrawable accounts plus short-term borrowings. Monetary
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penalties may be imposed for failure to meet liquidity requirements. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
PROMPT CORRECTIVE ACTION. Under the FDIA, each federal banking agency is
required to implement a system of prompt corrective action for institutions that
it regulates. The federal banking agencies have promulgated substantially
similar regulations to implement this system of prompt corrective action. Under
the regulations, an institution shall be deemed to be (i) "well capitalized" if
it has a total risk-based capital ratio of 10.0% or more, has a Tier I risk-
based capital ratio of 6.0% or more, has a leverage ratio of 5.0% or more and is
not subject to specified requirements 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, has a Tier I risk-based capital ratio
of 4.0% or more, has a leverage 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%, has a Tier I risk-based capital ratio that is less than 4.0% or has a
leverage 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%, has a Tier I risk-based capital ratio that is less than 3.0%
or has a leverage 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%.
A federal banking agency may, after notice and an opportunity for a
hearing, 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 if the institution is in an unsafe or unsound condition or has received
in its most recent examination, and has not corrected, a less than satisfactory
rating for asset quality, management, earnings or liquidity. (The OTS may not,
however, reclassify a significantly undercapitalized institution as critically
undercapitalized.)
An institution generally must file a written capital restoration plan that
meets specified requirements, as well as a performance guaranty by each company
that controls the institution, with the 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. Immediately upon becoming undercapitalized, an
institution shall become subject to various mandatory and discretionary
restrictions on its operations.
At March 31, 1998, the Bank was categorized as "well capitalized" under the
prompt corrective action regulations of the OTS.
STANDARDS FOR SAFETY AND SOUNDNESS. The federal banking regulatory
agencies have prescribed, by regulation, standards for all insured depository
institutions relating to: (i) internal controls, information systems and
internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv)
interest rate risk exposure; (v) asset growth; (vi) asset quality; (vii)
earnings; and (viii) compensation, fees and benefits ("Guidelines"). The
Guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes impaired. If the OTS determines that the Bank fails to
meet any standard prescribed by the Guidelines, the agency may require the Bank
to submit to the agency an acceptable plan to achieve compliance with the
standard. OTS regulations establish deadlines for the submission and review of
such safety and soundness compliance plans.
QUALIFIED THRIFT LENDER TEST. All savings associations are required to
meet a qualified thrift lender ("QTL") test to avoid certain restrictions on
their operations. A savings institution that fails to become or remain a QTL
shall either convert to a national bank charter or be subject to the following
restrictions on its operations: (i) the Bank may not make any new investment or
engage in activities that would not be permissible for national banks; (ii) the
Bank may not establish any new branch office where a national bank located in
the savings institution's home state would not be able to establish a branch
office; (iii) the Bank shall be ineligible to obtain new advances from any FHLB;
and (iv) the payment of dividends by the Bank shall be subject to the rules
regarding the statutory and regulatory dividend restrictions applicable to
national banks. Also, beginning three years after the date on which the savings
institution ceases to be a QTL, the savings institution would be prohibited from
retaining any investment or engaging in any
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activity not permissible for a national bank and would be required to repay any
outstanding advances to any FHLB. In addition, within one year of the date on
which a savings association controlled by a company ceases to be a QTL, the
company must register as a bank holding company and become subject to the rules
applicable to such companies. A savings institution may requalify as a QTL if it
thereafter complies with the QTL test.
Currently, the QTL test requires that either an institution qualify as a
domestic building and loan association under the Internal Revenue Code or 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); FHLB stock; direct or indirect
obligations of the FDIC; and loans for educational purposes, loans to small
businesses and loans made through credit cards. 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 loans; and stock issued by Freddie Mac or Fannie Mae. 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 March
31, 1998, the Bank was in compliance with the QTL test.
CAPITAL REQUIREMENTS. Under OTS regulations a savings association must
satisfy three minimum capital requirements: core capital, tangible capital and
risk-based capital. Savings associations must meet all of the standards in
order to comply with the capital requirements.
OTS capital regulations establish a 3% core capital or leverage ratio
(defined as the ratio of core capital to adjusted total assets). Core capital
is defined to include common stockholders' equity, noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less (i) any intangible assets, except
for certain qualifying intangible assets; (ii) certain mortgage servicing
rights; and (iii) equity and debt investments in subsidiaries that are not
"includable subsidiaries," which is defined as subsidiaries engaged solely in
activities not impermissible for a national bank, engaged in activities
impermissible for a national bank but only as an agent for its customers, or
engaged solely in mortgage-banking activities. In calculating adjusted total
assets, adjustments are made to total assets to give effect to the exclusion of
certain assets from capital and to account appropriately for the investments in
and assets of both includable and non-includable subsidiaries. Institutions
that fail to meet the core capital requirement would be required to file with
the OTS a capital plan that details the steps they will take to reach
compliance. In addition, the OTS's prompt corrective action regulation provides
that a savings institution that has a leverage ratio of less than 4% (3% for
institutions receiving the highest CAMEL examination rating) will be deemed to
be "undercapitalized" and may be subject to certain restrictions. See "--
Federal Regulation of Savings Associations -- Prompt Corrective Action."
Savings associations also must maintain "tangible capital" not less than
1.5% of adjusted total assets. "Tangible capital" is defined, generally, as core
capital minus any "intangible assets" other than purchased mortgage servicing
rights.
Savings associations must maintain total risk-based capital equal to at
least 8% of risk-weighted assets. Total risk-based capital consists of the sum
of core and supplementary capital, provided that supplementary capital cannot
exceed core capital, as previously defined. Supplementary capital includes (i)
permanent capital instruments such as cumulative perpetual preferred stock,
perpetual subordinated debt and mandatory convertible subordinated debt, (ii)
maturing capital instruments such as subordinated debt, intermediate-term
preferred stock and mandatory convertible subordinated debt, subject to an
amortization schedule, and (iii) general valuation loan and lease loss
allowances up to 1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset held by
a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets. Assets not
included for
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purposes of calculating capital are not included in calculating
risk-weighted assets. The categories range from 0% for cash and securities that
are backed by the full faith and credit of the U.S. Government to 100% for
repossessed assets or assets more than 90 days past due. Qualifying residential
mortgage loans (including multi-family mortgage loans) are assigned a 50% risk
weight. Consumer, commercial, home equity and residential construction loans
are assigned a 100% risk weight, as are nonqualifying residential mortgage loans
and that portion of land loans and nonresidential construction loans that do not
exceed an 80% loan-to-value ratio. The book value of assets in each category is
multiplied by the weighing factor (from 0% to 100%) assigned to that category.
These products are then totaled to arrive at total risk-weighted assets. Off-
balance sheet items are included in risk-weighted assets by converting them to
an approximate balance sheet "credit equivalent amount" based on a conversion
schedule. These credit equivalent amounts are then assigned to risk categories
in the same manner as balance sheet assets and included risk-weighted assets.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with "above
normal" interest rate risk exposure would be subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements. A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
----
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point increase or
decrease in market interest rates divided by the estimated economic value of the
Bank's assets, as calculated in accordance with guidelines set forth by the OTS.
A savings association whose measured interest rate risk exposure exceeds 2% must
deduct an interest rate risk component in calculating its total capital under
the risk-based capital rule. The interest rate risk component is an amount
equal to one-half of the difference between the institution's measured interest
rate risk and 2%, multiplied by the estimated economic value of the Bank's
assets. That dollar amount is deducted from an association's total capital in
calculating compliance with its risk-based capital requirement. Under the rule,
there is a two quarter lag between the reporting date of an institution's
financial data and the effective date for the new capital requirement based on
that data. A savings association with assets of less than $300 million and
risk-based capital ratios in excess of 12% is not subject to the interest rate
risk component, unless the OTS determines otherwise. The rule also provides
that the Director of the OTS may waive or defer an association's interest rate
risk component on a case-by-case basis. Under certain circumstances, a savings
association may request an adjustment to its interest rate risk component if it
believes that the OTS-calculated interest rate risk component overstates its
interest rate risk exposure. In addition, certain "well-capitalized"
institutions may obtain authorization to use their own interest rate risk model
to calculate their interest rate risk component in lieu of the OTS-calculated
amount. The OTS has postponed the date that the component will first be
deducted from an institution's total capital.
See "HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE" for a table
that sets forth in terms of dollars and percentages the OTS tangible, core and
risk-based capital requirements, the Bank's historical amounts and percentages
at March 31, 1998 and pro forma amounts and percentages based upon the
assumptions stated therein.
LIMITATIONS ON CAPITAL DISTRIBUTIONS. OTS regulations impose uniform
limitations on the ability of all savings associations to engage in various
distributions of capital such as dividends, stock repurchases and cash-out
mergers. In addition, OTS regulations require the Bank to give the OTS 30 days'
advance notice of any proposed declaration of dividends, and the OTS has the
authority under its supervisory powers to prohibit the payment of dividends.
The regulation utilizes a three-tiered approach which permits various levels of
distributions based primarily upon a savings association's capital level.
A Tier 1 savings association has capital in excess of its capital
requirement (both before and after the proposed capital distribution). A Tier 1
savings association may make (without application but upon prior notice to, and
no objection made by, the OTS) capital distributions during a calendar year up
to 100% of its net income to date during the calendar year plus one-half its
surplus capital ratio (i.e., the amount of capital in excess of its requirement)
----
at the beginning of the calendar year or the amount authorized for a Tier 2
association. Capital distributions in excess of such amount require advance
notice to the OTS. A Tier 2 savings association has capital equal to or in
excess of its minimum capital requirement but below its requirement (both before
and after the proposed capital distribution). Such an association may make
(without application) capital distributions up to an amount equal to 75% of its
net income during
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the previous four quarters depending on how close the Bank is to meeting its
capital requirement. Capital distributions exceeding this amount require prior
OTS approval. Tier 3 associations are savings associations with capital below
the minimum capital requirement (either before or after the proposed capital
distribution). Tier 3 associations may not make any capital distributions
without prior approval from the OTS.
The Bank currently meets the criteria to be designated a Tier 1 association
and, consequently, could at its option (after prior notice to, and no objection
made by, the OTS) distribute up to 100% of its net income during the calendar
year plus 50% of its surplus capital ratio at the beginning of the calendar year
less any distributions previously paid during the year.
LOANS TO ONE BORROWER. Under the HOLA, savings institutions are generally
subject to the national bank limit on loans to one borrower. Generally, this
limit is 15% of the Bank's unimpaired capital and surplus, plus an additional
10% of unimpaired capital and surplus, if such loan is secured by readily-
marketable collateral, which is defined to include certain financial instruments
and bullion. The OTS by regulation has amended the loans to one borrower rule
to permit savings associations meeting certain requirements, including capital
requirements, to extend loans to one borrower in additional amounts under
circumstances limited essentially to loans to develop or complete residential
housing units. At March 31, 1998, the Bank's regulatory limit on loans to one
borrower was $3.7 million. At March 31, 1998, the Bank's largest aggregate
amount of loans to one borrower was $544,000.
ACTIVITIES OF ASSOCIATIONS AND THEIR SUBSIDIARIES. A savings association
may establish operating subsidiaries to engage in any activity that the savings
association may conduct directly and may establish service corporation
subsidiaries to engage in certain preapproved activities or, with approval of
the OTS, other activities reasonably related to the activities of financial
institutions. When a savings association establishes or acquires a subsidiary
or elects to conduct any new activity through a subsidiary that the Bank
controls, the savings association must notify the FDIC and the OTS 30 days in
advance and provide the information each agency may, by regulation, require.
Savings associations also must conduct the activities of subsidiaries in
accordance with existing regulations and orders.
The OTS may determine that the continuation by a savings association of its
ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the Bank or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings association to divest itself of control of the subsidiary. The FDIC
also may determine by regulation or order that any specific activity poses a
serious threat to the SAIF. If so, it may require that no SAIF member engage in
that activity directly.
TRANSACTIONS WITH AFFILIATES. Savings associations must comply with
Sections 23A and 23B of the Federal Reserve Act relative to transactions with
affiliates in the same manner and to the same extent as if the savings
association were a Federal Reserve member bank. A savings and loan holding
company, its subsidiaries and any other company under common control are
considered affiliates of the subsidiary savings association under the HOLA.
Generally, Sections 23A and 23B: (i) limit the extent to which the insured
association or its subsidiaries may engage in certain covered transactions with
an affiliate to an amount equal to 10% of such institution's capital and surplus
and place an aggregate limit on all such transactions with affiliates to an
amount equal to 20% of such capital and surplus, and (ii) require that all such
transactions be on terms substantially the same, or at least as favorable to the
institution or subsidiary, as those provided to a non-affiliate. The term
"covered transaction" includes the making of loans, the purchase of assets, the
issuance of a guarantee and similar types of transactions. Any loan or
extension of credit by the Bank to an affiliate must be secured by collateral in
accordance with Section 23A.
Three additional rules apply to savings associations: (i) a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank holding
companies; (ii) a savings association may not purchase or invest in securities
issued by an affiliate (other than securities of a subsidiary); and (iii) the
OTS may, for reasons of safety and soundness, impose more stringent restrictions
on savings associations but may not exempt transactions from or otherwise
abridge Section 23A or 23B. Exemptions from
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Section 23A or 23B may be granted only by the Federal Reserve, as is currently
the case with respect to all FDIC-insured banks.
The Bank's authority to extend credit to executive officers, directors and
10% shareholders, as well as entities controlled by such persons, is currently
governed by Sections 22(g) and 22(h) of the Federal Reserve Act, and Regulation
O thereunder. Among other things, these regulations require that such loans be
made on terms and conditions substantially the same as those offered to
unaffiliated individuals and not involve more than the normal risk of repayment.
Regulation O also places individual and aggregate limits on the amount of loans
the Bank may make to such persons based, in part, on the Bank's capital
position, and requires certain board approval procedures to be followed. The
OTS regulations, with certain minor variances, apply Regulation O to savings
institutions.
COMMUNITY REINVESTMENT ACT. Savings associations are also subject to the
provisions of the Community Reinvestment Act of 1977, which requires the
appropriate federal bank regulatory agency, in connection with its regular
examination of a savings association, to assess the saving association's record
in meeting the credit needs of the community serviced by the savings
association, including low and moderate income neighborhoods. The regulatory
agency's assessment of the savings association's record is made available to the
public. Further, such assessment is required of any savings association which
has applied, among other things, to establish a new branch office that will
accept deposits, relocate an existing office or merge or consolidate with, or
acquire the assets or assume the liabilities of, a federally regulated financial
institution.
SAVINGS AND LOAN HOLDING COMPANY REGULATIONS
HOLDING COMPANY ACQUISITIONS. The HOLA and OTS regulations issued
thereunder generally prohibit a savings and loan holding company, without prior
OTS approval, from acquiring more than 5% of the voting stock of any other
savings association or savings and loan holding company or controlling the
assets thereof. They 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 association not a subsidiary of such savings and loan
holding company, unless the acquisition is approved by the OTS.
HOLDING COMPANY ACTIVITIES. As a unitary savings and loan holding company,
the Holding Company generally is not subject to activity restrictions under the
HOLA. If the Holding Company acquires control of another savings association as
a separate subsidiary other than in a supervisory acquisition, it would become a
multiple savings and loan holding company. There generally are more
restrictions on the activities of a multiple savings and loan holding company
than on those of a unitary savings and loan holding company. The HOLA provides
that, among other things, no multiple savings and loan holding company or
subsidiary thereof which is not an insured association shall commence or
continue for more than two years after becoming a multiple savings and loan
association holding company or subsidiary thereof, any business activity other
than: (i) furnishing or performing management services for a subsidiary insured
institution, (ii) conducting an insurance agency or escrow business, (iii)
holding, managing, or liquidating assets owned by or acquired from a subsidiary
insured institution, (iv) holding or managing properties used or occupied by a
subsidiary insured institution, (v) acting as trustee under deeds of trust, (vi)
those activities previously directly authorized by regulation as of March 5,
1987 to be engaged in by multiple holding companies or (vii) those activities
authorized by the Federal Reserve Board as permissible for bank holding
companies, unless the OTS by regulation, prohibits or limits such activities for
savings and loan holding companies. Those activities described in (vii) above
also must be approved by the OTS prior to being engaged in by a multiple savings
and loan holding company.
QUALIFIED THRIFT LENDER TEST. The HOLA provides that any savings and loan
holding company that controls a savings association that fails the QTL test, as
explained under "-- Federal Regulation of Savings Associations -- Qualified
Thrift Lender Test," must, within one year after the date on which the Bank
ceases to be a QTL, register as and be deemed a bank holding company subject to
all applicable laws and regulations.
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TAXATION
FEDERAL TAXATION
GENERAL. Upon consummation of the conversion, the Holding Company and the
Bank will report their income on a fiscal year basis using the accrual method of
accounting and will be subject to federal income taxation in the same manner as
other corporations with some exceptions, including particularly the Bank's
reserve for bad debts discussed below. The following discussion of tax matters
is intended only as a summary and does not purport to be a comprehensive
description of the tax rules applicable to the Bank or the Holding Company. For
additional information regarding income taxes, see Note 9 of Notes to
Consolidated Financial Statements.
BAD DEBT RESERVE. Historically, savings institutions such as the Bank
which met certain definitional tests primarily related to their assets and the
nature of their business ("qualifying thrift") were permitted to establish a
reserve for bad debts and to make annual additions thereto, which may have been
deducted in arriving at their taxable income. The Bank's deductions with
respect to "qualifying real property loans," which are generally loans secured
by certain interest in real property, were computed using an amount based on the
Bank's actual loss experience, or a percentage equal to 8% of the Bank's taxable
income, computed with certain modifications and reduced by the amount of any
permitted additions to the non-qualifying reserve. Due to the Bank's loss
experience, the Bank generally recognized a bad debt deduction equal to 8% of
taxable income.
The thrift bad debt rules were revised by Congress in 1996. The new rules
eliminated the percentage of taxable income method for deducting additions to
the tax bad debt reserves for all thrifts for tax years beginning after December
31, 1995. These rules also required that all institutions recapture all or a
portion of their bad debt reserves added since the base year (last taxable year
beginning before January 1, 1988). For taxable years beginning after December
31, 1995, the Bank's bad debt deduction must be determined under the experience
method using a formula based on actual bad debt experience over a period of
years or, if the Bank is a "large" association (assets in excess of $500
million) on the basis of net charge-offs during the taxable year. The new rules
allowed an institution to suspend bad debt reserve recapture for the 1996 and
1997 tax years if the institution's lending activity for those years is equal to
or greater than the institutions average mortgage lending activity for the six
taxable years preceding 1996 adjusted for inflation. For this purpose, only
home purchase or home improvement loans are included and the institution can
elect to have the tax years with the highest and lowest lending activity removed
from the average calculation. If an institution is permitted to postpone the
reserve recapture, it must begin its six year recapture no later than the 1998
tax year. The unrecaptured base year reserves will not be subject to recapture
as long as the institution continues to carry on the business of banking. In
addition, the balance of the pre-1988 bad debt reserves continues to be subject
to provisions of present law referred to below that require recapture of the
pre-1988 bad debt reserve in the case of certain excess distributions to
shareholders.
DISTRIBUTIONS. To the extent that the Bank makes "nondividend
distributions" to the Holding Company, such distributions will be considered to
result in distributions from the balance of its bad debt reserve as of
December 31, 1987 (or a lesser amount if the Bank's loan portfolio decreased
since December 31, 1987) and then from the supplemental reserve for losses on
loans ("Excess Distributions"), and an amount based on the Excess Distributions
will be included in the Bank's taxable income. Nondividend distributions include
distributions in excess of the Bank's current and accumulated earnings and
profits, distributions in redemption of stock and distributions in partial or
complete liquidation. However, dividends paid out of the Bank's current or
accumulated earnings and profits, as calculated for federal income tax purposes,
will not be considered to result in a distribution from the Bank's bad debt
reserve. The amount of additional taxable income created from an Excess
Distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if, after the
Conversion, the Bank makes a "nondividend distribution," then approximately one
and one-half times the Excess Distribution would be includable in gross income
for federal income tax purposes, assuming a 34% corporate income tax rate
(exclusive of state and local taxes). See "REGULATION" and "DIVIDEND POLICY" for
limits on the payment of dividends by the Bank. The Bank does not intend to pay
dividends that would result in a recapture of any portion of its tax bad debt
reserve.
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CORPORATE ALTERNATIVE MINIMUM TAX. The Code imposes a tax on alternative
minimum taxable income ("AMTI") at a rate of 20%. The excess of the tax bad
debt reserve deduction using the percentage of taxable income method over the
deduction that would have been allowable under the experience method is treated
as a preference item for purposes of computing the AMTI. In addition, only 90%
of AMTI can be offset by net operating loss carryovers. AMTI is increased by an
amount equal to 75% of the amount by which the Bank's adjusted current earnings
exceeds its AMTI (determined without regard to this preference and prior to
reduction for net operating losses). For taxable years beginning after December
31, 1986, and before January 1, 1996, an environmental tax of 0.12% of the
excess of AMTI (with certain modification) over $2.0 million is imposed on
corporations, including the Bank, whether or not an Alternative Minimum Tax is
paid.
DIVIDENDS-RECEIVED DEDUCTION. The Holding Company may exclude from its
income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends-received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Holding Company and the Bank will not file a consolidated tax
return, except that if the Holding Company or the Bank owns more than 20% of the
stock of a corporation distributing a dividend, then 80% of any dividends
received may be deducted.
AUDITS. The Bank's federal income tax returns have been audited through
the tax year ended September 30, 1994 without material adjustment.
STATE TAXATION
MISSOURI TAXATION. Missouri-based thrift institutions, such as the Bank,
are subject to a special financial institutions tax, based on net income without
regard to net operating loss carryforwards, at the rate of 7% of net income.
This tax is in lieu of certain other state taxes on thrift institutions, on
their property, capital or income, except taxes on tangible personal property
owned by the Bank and held for lease or rental to others and on real estate,
contributions paid pursuant to the Unemployment Compensation Law of Missouri,
social security taxes, sales taxes and use taxes. In addition, the Bank is
entitled to credit against this tax all taxes paid to the State of Missouri or
any political subdivision, except taxes on tangible personal property owned by
the Bank and held for lease or rental to others and on real estate,
contributions paid pursuant to the Unemployment Compensation Law of Missouri,
social security taxes, sales and use taxes, and taxes imposed by the Missouri
Financial Institutions Tax Law. Missouri thrift institutions are not subject to
the regular corporate income tax.
The Bank's state income tax returns havebeen audited through the tax year
ended September 30, 1994 without material adjustment.
DELAWARE. As a Delaware holding company not earning income in Delaware,
the Holding Company is exempt from Delaware corporate income tax, but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.
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THE CONVERSION
THE OTS HAS APPROVED THE PLAN OF CONVERSION SUBJECT TO ITS APPROVAL BY THE
MEMBERS OF THE MHC AND THE STOCKHOLDERS OF THE BANK ENTITLED TO VOTE THEREON AND
TO THE SATISFACTION OF CERTAIN OTHER CONDITIONS IMPOSED BY THE OTS IN ITS
APPROVAL. OTS APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF
THE PLAN OF CONVERSION.
GENERAL
On April 15, 1998, the Boards of Directors of the MHC and the Bank
unanimously adopted the Plan of Conversion, which was subsequently amended on
July 21, 1998, pursuant to which the Bank will convert from the mutual holding
company form of organization to the stock holding company form of organization.
THE FOLLOWING DISCUSSION OF THE PLAN OF CONVERSION IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE PLAN OF CONVERSION, WHICH IS ATTACHED AS EXHIBIT A TO BOTH
THE MHC'S PROXY STATEMENT AND THE BANK'S PROXY STATEMENT, AND WHICH IS AVAILABLE
TO BOTH MEMBERS OF THE MHC AND STOCKHOLDERS OF THE BANK UPON REQUEST. The Plan
of Conversion is also filed as an exhibit to the Registration Statement. See
"ADDITIONAL INFORMATION." The OTS has approved the Plan of Conversion, subject
to its approval by the members of the MHC and the stockholders of the Bank and
to the satisfaction of certain other conditions.
Pursuant to the Plan of Conversion, (i) the MHC will convert from a
federally-chartered mutual holding company to a federally-chartered interim
stock savings bank (Interim A) and simultaneously merge with and into the Bank
and (ii) an interim federal stock savings bank (Interim B) will be formed as a
wholly-owned subsidiary of the Holding Company and Interim B will merge with and
into the Bank. As a result of the merger of Interim A with and into the Bank,
the MHC will cease to exist and the shares of Bank common stock held by the MHC
will be canceled. As a result of the merger of Interim B with and into the Bank,
the Bank will become a wholly owned subsidiary of the Holding Company and the
common stock of the Bank will be converted into common stock of the Holding
Company pursuant to the Exchange Ratio, which will result in the holders of such
shares owning in the aggregate approximately 26.63% of the outstanding Holding
Company common stock before giving effect to (a) the payment of cash in lieu of
issuing fractional shares and (b) any shares of common stock purchased by the
Bank's stockholders in this offering.
As part of the conversion, the Holding Company is offering shares of its
common stock in the Subscription Offering to holders of subscription rights in
the following order of priority: (i) Eligible Account Holders (depositors of the
Bank with $50.00 or more on deposit as of the close of business on March 31,
1997); (ii) Supplemental Eligible Account Holders (depositors of the Bank with
$50.00 or more on deposit as of the close of business on June 30, 1998); and
(iii) Other Members (depositors of the Bank as of the close of business on July
31, 1998 and borrowers of the Bank with loans outstanding as of the close of
business on May 11, 1994, which continue to be outstanding as of the close of
business on July 31, 1998).
Concurrently with the Subscription Offering, any shares of common stock not
subscribed for in the Subscription Offering may be offered for sale in the
Direct Community Offering to members of the general public, with priority being
given first to stockholders of the Bank as of the close of business on the
Voting Record Date (who are not Eligible Account Holders, Supplemental Eligible
Account Holders or Other Members) and then to natural persons and trusts of
natural persons residing in the Local Community. Shares of common stock not
sold in the Subscription Offering and the Direct Community Offering may be
offered in the Syndicated Community Offering. Regulations require that the
Direct Community Offering and the Syndicated Community Offering be completed
within 45 days after completion of the fully extended Subscription Offering
unless extended by the Bank or the Holding Company with the approval of the
regulatory authorities. If the Syndicated Community Offering is determined not
to be feasible because of market conditions or otherwise, the Board of Directors
of the Bank will consult with the regulatory authorities to determine an
appropriate alternative method for selling the unsubscribed shares of common
stock. The Plan of
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Conversion provides that the conversion must be completed within 24 months after
the date of the approval of the Plan of Conversion by the members of the MHC.
No sales of common stock may be completed, either in the Subscription
Offering, Direct Community Offering or Syndicated Community Offering unless the
Plan of Conversion is approved by the members of the MHC and the stockholders of
the Bank. The completion of this offering, however, is subject to market
conditions and other factors beyond the Bank's control. No assurance can be
given as to the length of time after approval of the Plan of Conversion by the
members of the MHC and the stockholders of the Bank that will be required to
complete the Direct Community Offering or Syndicated Community Offering or other
sale of the shares of common stock. If delays are experienced, significant
changes may occur in the estimated pro forma market value of the MHC and the
Bank, as converted, together with corresponding changes in the net proceeds
realized by the Holding Company from the sale of its common stock.
Orders for shares of common stock will not be filled until at least
$40,800,000 of common stock has been subscribed for or sold and the OTS approves
the final valuation and the conversion closes. If the conversion is not
completed within 45 days after the last day of the fully extended Subscription
Offering and the OTS consents to an extension of time to complete the
conversion, subscribers will be given the right to increase, decrease or rescind
their subscriptions. Unless an affirmative indication is received from
subscribers that they wish to continue to subscribe for shares, the funds will
be returned promptly, together with accrued interest at the Bank's passbook rate
from the date payment is received until the funds are returned to the
subscriber. If such period is not extended, or, in any event, if the conversion
is not completed, all withdrawal authorizations will be terminated and all funds
received will be promptly returned together with accrued interest at the Bank's
passbook rate from the date payment is received until the conversion is
terminated.
PURPOSES OF CONVERSION
The MHC, 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 Holding 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 holding company form of organization will provide the
Holding Company with the ability to diversify the Holding Company's and the
Bank's business activities through acquisition of or mergers with both stock
savings institutions and commercial banks, as well as other companies. Although
there are no current arrangements, understandings or agreements regarding any
such opportunities, the Holding Company will be in a position after the
conversion, subject to regulatory limitations and the Holding Company's
financial position, to take advantage of any such opportunities that may arise.
In their decision to pursue the conversion, the Boards of Directors of the
MHC and the Bank considered various regulatory uncertainties associated with the
mutual holding company structure including the ability to waive dividends in the
future as well as the general uncertainty regarding a possible elimination of
the federal savings association charter.
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 the Bank and Holding Company and by enhancing their future
access to capital markets, their ability to diversify into other financial
services related activities, and their ability to provide services to the
public.
The conversion also will result in a larger number of shares of Holding
Company common stock to be outstanding as compared to the number of outstanding
shares of Bank common stock, which will increase the likelihood of the
development of an active and liquid trading market for the common stock. See
"MARKET FOR COMMON STOCK." In addition, the conversion will permit the Holding
Company to engage in stock repurchases without adverse federal income tax
consequences. The Bank cannot repurchase its common stock without triggering
adverse federal income tax consequences. Currently, the Holding Company has no
specific plans regarding any stock repurchases.
An additional benefit of the conversion will be an increase in the
accumulated earnings and profits of the Bank for federal income tax purposes.
When the Bank (as a mutual institution) transferred substantially all of its
assets and
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liabilities to its stock savings bank successor in the MHC reorganization, its
accumulated earnings and profits tax attribute was not able to be transferred to
the Bank because no tax-free reorganization was involved. Accordingly, this tax
attribute was retained by the Bank when it converted its charter to that of the
MHC, even though the underlying retained earnings were transferred to the Bank.
The conversion has been structured to re-unite the accumulated earnings and
profits tax attribute retained by the MHC in the MHC reorganization with the
retained earnings of the Bank by merging the MHC with and into the Bank in a
tax-free reorganization. This transaction will increase the Bank's ability to
pay dividends to the Holding Company in the future. See "DIVIDEND POLICY."
If the Bank 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 amount sold in the MHC
reorganization. Management believed that it was advisable to profitably invest
the proceeds raised in the MHC reorganization prior to raising the larger amount
of capital that would have been raised at one time in a standard conversion. A
standard conversion in 1994 also would have immediately eliminated all aspects
of the mutual form of organization.
In light of the foregoing, the Boards of Directors of the MHC and the Bank
believe that the conversion is in the best interests of the MHC and the Bank,
their respective members and stockholders, and the communities served by the
Bank.
EFFECTS OF CONVERSION ON DEPOSITORS AND BORROWERS OF THE BANK
GENERAL. Prior to the conversion, each depositor in the Bank has both a
deposit account in the institution and a pro rata ownership interest in the net
worth of the MHC based upon the balance in his or her account, which interest
may only be realized in the event of a liquidation of the MHC. 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
or her account receives a portion or all of the balance in the account but
nothing for his or her ownership interest in the net worth of the MHC, which is
lost to the extent that the balance in the account is reduced.
Consequently, the depositors of the Bank normally have no way to realize
the value of their ownership interest in the MHC, which has realizable value
only in the unlikely event that the MHC 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 MHC after other claims are paid.
Upon consummation of the conversion, permanent nonwithdrawable capital
stock will be created to represent the ownership of the net worth of the Holding
Company. The common stock 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 deposit and/or loan account(s)
the seller may hold in the Bank.
CONTINUITY. The conversion will not interrupt the Bank's normal business
of accepting deposits and making loans. The Bank will continue to be subject to
regulation by the OTS and the FDIC. After the conversion, the Bank will
continue to provide services for depositors and borrowers under current policies
by its present management and staff.
The directors and officers of the Bank at the time of the conversion will
continue to serve as directors and officers of the Bank after the conversion.
The directors and officers of the Holding Company consist of individuals
currently serving as directors and officers of the MHC and the Bank, and they
will retain their positions in the Holding Company after the conversion.
EFFECT ON THE BANK'S COMMON STOCK. Under the Plan of Conversion, upon
consummation of the conversion, each share of the Bank's common stock held by
the Bank's public stockholders will be converted into shares of Holding Company
common stock based upon the Exchange Ratio without any further action on the
part of the holder thereof.
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Upon surrender of certificates representing shares of Bank common stock, Holding
Company common stock will be issued in exchange for such shares. See "--
Delivery and Exchange of Stock Certificates."
Upon consummation of the conversion, the public stockholders of the Bank
will become stockholders of the Holding Company. For a description of certain
changes in the rights of stockholders as a result of the conversion, see
"COMPARISON OF STOCKHOLDERS' RIGHTS."
VOTING RIGHTS. Presently, depositors and borrowers of the Bank are members
of, and have voting rights in, the MHC as to all matters requiring membership
action. Upon completion of the conversion, the MHC will cease to exist and all
voting rights in the Bank will be vested in the Holding Company as the sole
stockholder of the Bank. Exclusive voting rights with respect to the Holding
Company will be vested in the holders of the Holding Company's common stock.
Depositors and borrowers of the Bank will not have voting rights in the Holding
Company after the conversion, except to the extent that they become stockholders
of the Holding Company.
SAVINGS ACCOUNTS AND LOANS. The Bank's savings accounts, account balances
and existing FDIC insurance coverage of savings accounts will not be affected by
the conversion. Furthermore, the conversion will not affect the loan accounts,
loan balances or obligations of borrowers under their individual contractual
arrangements with the Bank.
TAX EFFECTS. The Bank has received an opinion from Breyer & Aguggia LLP,
Washington, D.C., that the conversion will constitute a nontaxable
reorganization under Section 368(a)(1)(A) of the Internal Revenue Code. This
opinion covers all of the material tax consequences of the conversion. The
opinion provides that:
(i) the conversion of the MHC from a mutual holding company to a
federally-chartered interim stock savings bank (Interim A) and its
simultaneous merger with and into the Bank, with the Bank as the
surviving entity, will qualify as a reorganization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code;
(ii) no gain or loss will be recognized by the Bank upon the receipt of
the assets of the MHC in such merger;
(iii) the merger of Interim B with and into the Bank, with the Bank as
the surviving entity, will qualify as a reorganization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code;
(iv) no gain or loss will be recognized by Interim B upon the transfer of
its assets to the Bank;
(v) no gain or loss will be recognized by the Bank upon the receipt of
the assets of Interim B;
(vi) no gain or loss will be recognized by the Holding Company upon the
receipt of Bank common stock solely in exchange for Holding Company
common stock;
(vii) no gain or loss will be recognized by the Bank's public stockholders
upon the receipt of shares of the Holding Company's common stock in
exchange for their shares of Bank common stock;
(viii) the basis of the shares of common stock of the Holding Company to be
received by the Bank's public stockholders will be the same as the
basis of the shares of common stock of the Bank surrendered in
exchange therefor, before giving effect to any payment of cash in
lieu of fractional shares;
(ix) the holding period of the shares of Holding Company common stock to
be received by the Bank's public stockholders will include the
holding period of the Bank common stock, provided that the shares of
Bank common stock were held as a capital asset on the date of the
exchange;
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(x) no gain or loss will be recognized by the Holding Company upon the
sale of shares of its common stock in this offering;
(xi) 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 the Bank following the
conversion, interests in the liquidation account and nontransferable
subscription rights to purchase common stock, but only to the extent
of the value, if any, of the subscription rights; and
(xii) the tax basis to the holders of shares of common stock purchased in
this offering will be the amount paid therefor, and the holding
period for the shares of common stock will begin on the date of
consummation of this offering, if purchased through the exercise of
Subscription Rights, and on the day after the date of purchase, if
purchased in the Direct Community Offering or the Syndicated
Community Offering.
Unlike a private letter ruling issued by the IRS, an opinion of counsel is
not binding on the IRS and the IRS could disagree with the conclusions reached
therein. In the event of such disagreement, no assurance can be given that the
conclusions reached in an opinion of counsel would be sustained by a court if
contested by the IRS.
Based upon past rulings issued by the IRS, the opinion provides that the
receipt of subscription rights by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members under the Plan of Conversion will be
taxable to the extent, if any, that the subscription rights are deemed to have a
fair market value. RP Financial, a financial consulting firm retained by the
Bank, whose findings are not binding on the IRS, has issued a letter indicating
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 shares of
the common stock at a price equal to its estimated fair market value, which will
be the same price paid by purchasers in the Direct Community Offering for
unsubscribed shares of common stock. If the subscription rights are deemed to
have a fair market value, the receipt of such rights may only be taxable to
those Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members who exercise their subscription rights. The Bank could also recognize a
gain on the distribution of such subscription rights. Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members are encouraged to
consult with their own tax advisors as to the tax consequences in the event the
subscription rights are deemed to have a fair market value.
The Bank has also received an opinion from Breyer & Aguggia LLP, that,
assuming the conversion does not result in any federal income tax liability to
the Bank, its account holders, or the Holding Company, implementation of the
Plan of Conversion will not result in any Missouri tax liability to such
entities or persons.
The opinion of Breyer & Aguggia LLP and the letter from RP Financial are
filed as exhibits to the Registration Statement. See "ADDITIONAL INFORMATION."
THE PRECEDING DISCUSSION SUMMARIZES THE MATERIAL TAX CONSEQUENCES OF THE
CONVERSION. PROSPECTIVE INVESTORS, HOWEVER, ARE URGED TO CONSULT WITH THEIR OWN
TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO
THEM.
LIQUIDATION ACCOUNT. In the unlikely event of a complete liquidation of
the MHC, each depositor of the Bank would receive his or her pro rata share of
any assets of the MHC 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 or her deposit account was to the total value of
all deposit accounts in the Bank at the time of liquidation. After the
conversion, each depositor, in the event of a complete liquidation of the Bank,
would have a claim as a creditor of the same general priority as the claims of
all other general creditors of the Bank. However, except as described below,
his or her claim would be solely in the amount of the balance in his or her
deposit account plus accrued interest. Each stockholder would not have an
interest in the value or assets of the Bank or the Holding Company above that
amount.
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The Plan of Conversion 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 MHC plus the greater of (i)
the Bank's retained earnings of $15.2 million at December 31, 1993, the date of
the latest statement of financial condition contained in the final offering
circular utilized in the MHC reorganization, or (ii) 69.81% of the Bank's total
stockholders' equity as reflected in its latest statement of financial condition
contained in the final Prospectus utilized in this offering. As of the date of
this Prospectus, the initial balance of the liquidation account would be $22.2
million. Each Eligible Account Holder and Supplemental Eligible Account Holder,
if he or she were to continue to maintain his or her deposit account at the
Bank, would be entitled, upon a complete liquidation of the Bank after the
conversion to an interest in the liquidation account prior to any payment to the
Holding Company as the sole stockholder of the Bank. 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 the Bank at the close of business
on March 31, 1997 or June 30, 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 or her deposit accounts based on
the proportion that the balance of each such deposit account on the Eligibility
Record Date (March 31, 1997) or the Supplemental Eligibility Record Date (June
30, 1998), as the case may be, bore to the balance of all deposit accounts in
the Bank on such date.
If, however, on any September 30 annual closing date of the Bank,
commencing September 30, 1998, the amount in any deposit account is less than
the amount in such deposit account on March 31, 1997 or June 30, 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 Holding Company as the sole stockholder of the Bank.
EXCHANGE OF BANK COMMON STOCK
As part of the conversion, each share of Bank common stock held by the MHC
(1,470,000 shares, or 69.81% of the outstanding shares, as of the date of this
prospectus) will be canceled and each share of Bank common stock held by the
Bank's public stockholders (635,840 shares, or 30.19% of the outstanding shares,
as of the date of this Prospectus) will be exchanged for shares of Holding
Company common stock. The number of shares of Holding Company common stock to
be issued to the Bank's public stockholders will be based on an Exchange Ratio
that will result in the Bank's public stockholders owning in the aggregate
approximately 26.8663% of the outstanding shares of Holding Company common stock
before giving effect to any (i) payment of cash in lieu of issuing fractional
shares of Holding Company common stock and (ii) shares purchased by the Bank's
public stockholders in the offering. As required by the OTS, the aggregate
ownership interest of the Bank's public stockholders has been adjusted downward
to reflect assets held by the MHC and the waiver of certain dividends by the
MHC. The final Exchange Ratio will be based on the percentage ownership
interest of the Bank's public stockholders in the Bank and the number of shares
sold in this offering and not on the market value of Bank common stock.
Accordingly, the value of the shares of Holding Company common stock to be
received for each share of Bank common stock may be less than the market value
of Bank common stock at the time of exchange. See "-- Stock Pricing and Number
of Shares to be Issued in the Conversion."
Pursuant to OTS regulations, holders of Bank common stock do not have
dissent and appraisal rights with respect to the conversion because the Bank's
common stock is listed on The Nasdaq Stock Market. Accordingly, the exchange of
each share of Bank common stock for shares of Holding Company common stock is
mandatory. DO NOT SEND YOUR CERTIFICATES FOR EXCHANGE AT THIS TIME. The
Holding Company will mail exchange instructions and a transmittal letter to each
stockholder of the Bank to his or her address of record after the consummation
of the conversion. See "-- Delivery and Exchange of Stock Certificates --
Shares Issued in Exchange for Bank Common Stock."
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THE SUBSCRIPTION, DIRECT COMMUNITY AND SYNDICATED COMMUNITY OFFERINGS
SUBSCRIPTION OFFERING. In accordance with the Plan of Conversion,
nontransferable subscription rights to purchase shares of common stock have been
issued to persons and entities entitled to purchase the common stock in the
Subscription Offering. The amount of the common stock which these parties may
purchase will be subject to the availability of the common stock for purchase
under the categories set forth in the Plan of Conversion. Subscription
priorities have been established for the allocation of stock to the extent that
the common stock is available. These priorities are as follows:
Category 1: Eligible Account Holders. Each depositor with $50.00 or more
on deposit at the Bank as of the close of business on March 31, 1997 will
receive nontransferable Subscription Rights to subscribe for up to the greater
of 40,000 shares of common stock, one-tenth of one percent of the total offering
of common stock or 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of common stock to be issued
by a fraction of which the numerator is the amount of qualifying deposit of the
Eligible Account Holder and the denominator is the total amount of qualifying
deposits of all Eligible Account Holders. If the exercise of subscription
rights in this category results in an oversubscription, shares of common stock
will be allocated among subscribing Eligible Account Holders so as to permit
each Eligible Account Holder, to the extent possible, to purchase a number of
shares sufficient to make such person's total allocation equal 100 shares or the
number of shares actually subscribed for, whichever is less. Thereafter,
unallocated shares will be allocated among subscribing Eligible Account Holders
proportionately, based on the amount of their respective qualifying deposits as
compared to total qualifying deposits of all subscribing Eligible Account
Holders. Subscription rights received by officers and directors in this
category based on their increased deposits in the Bank in the one year period
preceding March 31, 1997 are subordinated to the subscription rights of other
Eligible Account Holders.
Category 2: ESOP. The Plan of Conversion provides that the ESOP shall
receive nontransferable subscription rights to purchase up to 8% of the shares
of common stock sold in the conversion. The ESOP intends to purchase 8% of the
shares of common stock sold in the conversion. In the event the number of
shares offered in the conversion is increased above the maximum of the Estimated
Valuation Range, the ESOP shall have a priority right to purchase any such
shares exceeding the maximum of the Estimated Valuation Range up to an aggregate
of 8% of the common stock sold in the conversion. If the ESOP's subscription is
not filled in its entirety, the ESOP may purchase shares in the open market or
may purchase shares directly from the Holding Company.
Category 3: Supplemental Eligible Account Holders. Each depositor with
$50.00 or more on deposit as of the close of business on June 30, 1998 will
receive nontransferable subscription rights to subscribe for up to the greater
of 40,000 shares of common stock, one-tenth of one percent of the total offering
of common stock or 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of common stock to be issued
by a fraction of which the numerator is the amount of qualifying deposits of the
Supplemental Eligible Account Holder and the denominator is the total amount of
qualifying deposits of all Supplemental Eligible Account Holders. If the
exercise of Subscription Rights in this category results in an oversubscription,
shares of common stock will be allocated among subscribing Supplemental Eligible
Account Holders so as to permit each Supplemental Eligible Account Holder, to
the extent possible, to purchase a number of shares sufficient to make his or
her total allocation equal 100 shares or the number of shares actually
subscribed for, whichever is less. Thereafter, unallocated shares will be
allocated among subscribing Supplemental Eligible Account Holders
proportionately, based on the amount of their respective qualifying deposits as
compared to total qualifying deposits of all subscribing Supplemental Eligible
Account Holders.
Category 4: Other Members. Each depositor of the Bank as of the close of
business on the Voting Record Date (July 31, 1998) and each borrower with a loan
outstanding as of the close of business on May 11, 1994, which continues to be
outstanding as of the close of business on the Voting Record Date, will receive
nontransferable subscription rights to purchase up 40,000 shares of common stock
or one-tenth of one percent of the total offering of common stock to the extent
shares are available following subscriptions by Eligible Account Holders and
Supplemental Eligible Account
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Holders. In the event of an oversubscription in this category, the available
shares will be allocated proportionately based on the amount of the respective
subscriptions.
SUBSCRIPTION RIGHTS ARE NONTRANSFERABLE. PERSONS SELLING OR OTHERWISE
TRANSFERRING THEIR RIGHTS TO SUBSCRIBE FOR COMMON STOCK IN THE SUBSCRIPTION
OFFERING OR SUBSCRIBING FOR COMMON STOCK ON BEHALF OF ANOTHER PERSON WILL BE
SUBJECT TO FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER SANCTIONS AND
PENALTIES IMPOSED BY THE OTS OR ANOTHER AGENCY OF THE U.S. GOVERNMENT. EACH
PERSON EXERCISING SUBSCRIPTION RIGHTS WILL BE REQUIRED TO CERTIFY THAT HE OR SHE
IS PURCHASING SUCH SHARES SOLELY FOR HIS OR HER OWN ACCOUNT AND THAT HE OR SHE
HAS NO AGREEMENT OR UNDERSTANDING WITH ANY OTHER PERSON FOR THE SALE OR TRANSFER
OF SUCH SHARES. ONCE TENDERED, SUBSCRIPTION ORDERS CANNOT BE REVOKED WITHOUT
THE CONSENT OF THE BANK AND THE HOLDING COMPANY.
The Holding Company and the Bank will make reasonable attempts to provide a
prospectus and related offering materials to holders of subscription rights.
However, the Subscription Offering and all subscription rights under the Plan of
Conversion will expire at 12:00 Noon, Eastern Time, on the Expiration Date,
whether or not the Bank has been able to locate each person entitled to such
subscription rights. ORDERS FOR COMMON STOCK IN THE SUBSCRIPTION OFFERING
RECEIVED IN HAND BY THE BANK AFTER THE EXPIRATION DATE WILL NOT BE ACCEPTED.
The Subscription Offering may be extended by the Holding Company and the Bank up
to October 5, 1998 without the OTS's approval. OTS regulations require that the
Holding Company complete the sale of common stock within 45 days after the close
of the Subscription Offering, unless extended by the OTS. If the Direct
Community Offering and the Syndicated Community Offerings are not completed
within such period all funds received will be promptly returned with interest at
the Bank's passbook rate and all withdrawal authorizations will be canceled. If
regulatory approval of an extension of the time period has been granted, all
subscribers will be notified of such extension and of the duration of any
extension that has been granted, and will be given the right to increase,
decrease or rescind their orders. If an affirmative response to any
resolicitation is not received by the Holding Company from a subscriber, the
subscriber's order will be rescinded and all funds received will be promptly
returned with interest (or withdrawal authorizations will be canceled). No
single extension can exceed 90 days.
DIRECT COMMUNITY OFFERING. Concurrently with the Subscription Offering,
the common stock will be offered by the Holding Company to certain members of
the general public in a Direct Community Offering, with preference given first
to the Bank's public stockholders as of the close of business on the Voting
Record Date (who are not eligible to subscribe for shares of common stock in the
Subscription Offering) and then to natural persons and trusts of natural persons
residing in the Local Community. Purchasers in the Direct Community Offering
are eligible to purchase up to 40,000 shares of common stock. In the event an
insufficient number of shares are available to fill orders in the Direct
Community Offering, the available shares will be allocated on a pro rata basis
determined by the amount of the respective orders. The Direct Community
Offering will terminate on the Expiration Date, unless extended by the Holding
Company and the Bank, with approval of the OTS if necessary. If regulatory
approval of an extension beyond 45 days after the close of the Subscription
Offering has been granted, all subscribers will be notified of such extension
and of the duration of any extension that has been granted, and will be given
the right to increase, decrease or rescind their orders. If an affirmative
response to any resolicitation is not received by the Holding Company from a
subscriber, the subscriber's order will be rescinded and all funds received will
be promptly returned with interest. THE RIGHT OF ANY PERSON TO PURCHASE SHARES
IN THE DIRECT COMMUNITY OFFERING IS SUBJECT TO THE ABSOLUTE RIGHT OF THE HOLDING
COMPANY AND THE BANK TO ACCEPT OR REJECT SUCH PURCHASES IN WHOLE OR IN PART. IF
AN ORDER IS REJECTED IN PART, THE PURCHASER DOES NOT HAVE THE RIGHT TO CANCEL
THE REMAINDER OF THE ORDER. THE HOLDING COMPANY PRESENTLY INTENDS TO TERMINATE
THE DIRECT COMMUNITY OFFERING AS SOON AS IT HAS RECEIVED ORDERS FOR ALL SHARES
AVAILABLE FOR PURCHASE IN THE CONVERSION.
If all of the common stock offered in the Subscription Offering is
subscribed for, no common stock will be available for purchase in the Direct
Community Offering and all funds submitted pursuant to the Direct Community
Offering will be promptly refunded with interest.
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SYNDICATED COMMUNITY OFFERING. The Plan of Conversion provides that, if
necessary, all shares of common stock not purchased in the Subscription Offering
and Direct Community Offering, if any, may be offered for sale to certain
members of the general public in a Syndicated Community Offering through a
syndicate of registered broker-dealers to be formed and managed by Webb acting
as agent of the Holding Company. THE HOLDING COMPANY AND THE BANK HAVE THE
RIGHT TO REJECT ORDERS, IN WHOLE OR IN PART, IN THEIR SOLE DISCRETION IN THE
SYNDICATED COMMUNITY OFFERING. Neither Webb nor any registered broker-dealer
shall have any obligation to take or purchase any shares of the common stock in
the Syndicated Community Offering; however, Webb has agreed to use its best
efforts in the sale of shares in the Syndicated Community Offering.
Shares of common stock sold in the Syndicated Community Offering also will
be sold at the $10.00 purchase price. See "-- Stock Pricing, Exchange Ratio and
Number of Shares to be Issued." No person will be permitted to subscribe for
more than 40,000 shares of common stock in the Syndicated Community Offering.
See "-- Plan of Distribution and Selling Commissions" for a description of the
commission to be paid to the selected dealers and to Webb.
Webb may enter into agreements with selected dealers to assist in the sale
of shares in the Syndicated Community Offering. During the Syndicated Community
Offering, selected dealers may only solicit indications of interest from their
customers to place orders with the Holding Company as of a certain date ("Order
Date") for the purchase of shares of common stock. When and if Webb and the
Holding Company believe that enough indications of interest and orders have been
received in the Subscription Offering, the Direct Community Offering and the
Syndicated Community Offering to consummate the conversion, Webb will request,
as of the Order Date, selected dealers to submit orders to purchase shares for
which they have received indications of interest from their customers. Selected
dealers will send confirmations to such customers on the next business day after
the Order Date. Selected dealers may debit the accounts of their customers on a
date which will be three business days from the Order Date ("Settlement Date").
Customers who authorize selected dealers to debit their brokerage accounts are
required to have the funds for payment in their account on but not before the
Settlement Date. On the Settlement Date, selected dealers will remit funds to
the account that the Holding Company established for each selected dealer. Each
customer's funds so forwarded to the Holding Company, along with all other
accounts held in the same title, will be insured by the FDIC up to the
applicable $100,000 legal limit. After payment has been received by the Holding
Company from selected dealers, funds will earn interest at the Bank's passbook
rate until the completion of this offering. At the completion of the
conversion, the funds received in this offering will be used to purchase the
shares of common stock ordered. The shares issued in the conversion cannot and
will not be insured by the FDIC or any other government agency. In the event
the conversion is not consummated as described above, funds with interest will
be returned promptly to the selected dealers, who, in turn, will promptly credit
their customers' brokerage accounts.
The Syndicated Community Offering may terminate no more than 45 days after
the close of the Subscription Offering, unless extended by the Holding Company
and the Bank, with approval of the OTS.
In the event the Bank is unable to find purchasers from the general public
for all unsubscribed shares, other purchase arrangements will be made by the
Board of Directors of the Bank, if feasible. Such other arrangements will be
subject to the approval of the OTS. The OTS may grant one or more extensions of
this offering period, provided that (i) no single extension exceeds 90 days,
(ii) subscribers are given the right to increase, decrease or rescind their
subscriptions during the extension period, and (iii) the extensions do not go
more than two years beyond the date on which the members approved the Plan of
Conversion. If the conversion is not completed within 45 days after the close
of the Subscription Offering, either all funds received will be returned with
interest (and withdrawal authorizations canceled) or, if the OTS has granted an
extension of time, all subscribers will be given the right to increase, decrease
or rescind their subscriptions at any time prior to 20 days before the end of
the extension period. If an extension of time is obtained, all subscribers will
be notified of such extension and of their rights to modify their orders. If an
affirmative response to any resolicitation is not received by the Holding
Company from a subscriber, the subscriber's order will be rescinded and all
funds received will be promptly returned with interest (or withdrawal
authorizations will be canceled).
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If purchasers cannot be found for an insignificant residue of unsubscribed
shares from the general public, other purchase arrangements will be made by the
Boards of Directors of the Bank and the Holding Company, if possible. Such
other purchase arrangements will be subject to the approval of the OTS and may
provide for purchases for investment purposes by directors, officers, their
associates and other persons in excess of the limitations provided in the Plan
of Conversion and in excess of the proposed director purchases set forth herein,
although no such purchases are currently intended. If such other purchase
arrangements cannot be made, the Plan of Conversion will terminate.
PERSONS IN NON-QUALIFIED STATES. The Holding Company and the Bank 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 of Conversion reside. However, the Holding Company and the Bank 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 (i) a small number of persons otherwise eligible to subscribe for shares
of common stock reside in such state or (ii) the Holding Company or the Bank
determines that compliance with the securities laws of such state would be
impracticable for reasons of cost or otherwise, including but not limited to a
request or requirement that the Holding Company and the Bank or their officers,
directors or trustees register as a broker, dealer, salesman or selling agent,
under the securities laws of such state, or a request or requirement to register
or otherwise qualify the Subscription Rights or common stock for sale or submit
any filing with respect thereto in such state. Where the number of persons
eligible to subscribe for shares in one state is small, the Holding Company and
the Bank will base their decision as to whether or not to offer the common stock
in such state on a number of factors, including the size of accounts held by
account holders in the state, the cost of reviewing the registration and
qualification requirements of the state (and of actually registering or
qualifying the shares) or the need to register the Holding Company, its
officers, directors or employees as brokers, dealers or salesmen.
PLAN OF DISTRIBUTION AND SELLING COMMISSIONS
The Holding Company and the Bank have retained Webb to consult with and to
advise the Bank and the Holding Company, and to assist the Holding Company on a
best efforts basis, in the distribution of the common stock in the Subscription
Offering and Direct Community Offering. The services that Webb will provide
include, but are not limited to (i) training the employees of the Bank who will
perform certain ministerial functions in the Subscription Offering and the
Direct Community Offering regarding the mechanics and regulatory requirements of
the stock offering process, (ii) managing the Bank's stock information center by
assisting interested stock subscribers and by keeping records of all stock
orders, (iii) preparing marketing materials, and (iv) assisting in the
solicitation of proxies from the MHC's members and the stockholders of the Bank.
For its services, Webb will receive a management fee of $40,000 and a success
fee of 0.8% of the aggregate purchase price of the shares sold in the
Subscription Offering and the Direct Community Offering, excluding shares
purchased by the ESOP and officers, directors and employees of the Bank, or
members of their immediate families. The management fee will be applied to the
success fee. If selected broker-dealers are used to assist in the sale of the
common stock in the Syndicated Community Offering, Webb will be paid a fee of up
to 5.5% of the aggregate purchase price of the shares sold by such broker-
dealers and Webb will pay to such broker-dealers an amount competitive with
gross underwriting commissions then charged for comparable amounts of stock sold
at a comparable price per share in a similar market environment. The Holding
Company and the Bank have agreed to reimburse Webb for its out-of-pocket
expenses up to $10,000 and its legal fees up to $35,000. The Holding Company
and the Bank have also agreed to indemnify Webb against certain claims and
liabilities under the federal securities laws, including those in connection
with material misstatements or omissions from this prospectus or otherwise
arising from the use of this prospectus (except for claims and liabilities
arising out of Webb's bad faith or gross negligence), and will contribute to
payments Webb may be required to make in connection with any such claims or
liabilities.
DESCRIPTION OF SALES ACTIVITIES
The Common Stock will be offered in the Subscription Offering and Direct
Community Offering principally by the distribution of this prospectus and
through activities conducted at the Bank's stock information center at its main
office facility. The stock information center is expected to operate during
normal business hours throughout the Subscription Offering and Direct Community
Offering. It is expected that at any particular time one or more Webb
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employees will be working at the stock information center. Stock information
center personnel will be responsible for mailing materials relating to the
offering, responding to questions regarding the conversion and the offering and
processing stock orders.
The management and employees of the Holding Company and the Bank may
participate in this offering in clerical capacities, providing administrative
support in effecting sales transactions or answering questions of a mechanical
nature relating to the proper execution of the order form. Management of the
Holding Company and the Bank may answer questions regarding the respective
businesses of the Holding Company and the Bank. Other questions of prospective
purchasers, including questions as to the advisability or nature of the
investment, will be directed to registered representatives. The management and
employees of the Holding Company and the Bank have been instructed not to
solicit offers to purchase common stock or to provide advice regarding the
purchase of common stock. None of the employees or directors who participate in
this offering will receive any special compensation or other remuneration for
such activities.
None of the Holding Company and Bank personnel participating in the
Subscription and Direct Community Offering are registered or licensed as a
broker or dealer or an agent of a broker or dealer. Holding Company and Bank
personnel will assist in the above-described sales activities pursuant to an
exemption from registration as a broker or dealer provided by Rule 3a4-1
promulgated under the Exchange Act. Rule 3a4-1 generally provides that an
"associated person of an issuer" of securities shall not be deemed a broker
solely by reason of participation in the sale of securities of such issuer if
the associated person meets certain conditions. Such conditions include, but
are not limited to, that the associated person participating in the sale of an
issuer's securities not be compensated in connection therewith at the time of
participation, that such person not be associated with a broker or dealer and
that such person observe certain limitations on his participation in the sale of
securities. For purposes of this exemption, "associated person of an issuer" is
defined to include any person who is a director, officer or employee of the
issuer or a company that controls, is controlled by or is under common control
with the issuer.
PROCEDURE FOR PURCHASING SHARES IN THE SUBSCRIPTION AND DIRECT COMMUNITY
OFFERINGS
To ensure that each purchaser receives a prospectus at least 48 hours prior
to the Expiration Date in accordance with Rule 15c2-8 under 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 in accordance with Rule 15c2-8. Order
forms will only be distributed with a prospectus. The Bank will accept for
processing only orders submitted on original order forms. The Bank is not
obligated to accept orders submitted on photocopied or telecopied order forms.
ORDERS CANNOT AND WILL NOT BE ACCEPTED WITHOUT THE EXECUTION OF THE
CERTIFICATION APPEARING ON THE REVERSE SIDE OF THE ORDER FORM.
To purchase shares in the Subscription Offering, an executed order form
with the required full payment for each share subscribed for, or with
appropriate authorization for withdrawal of full payment from the subscriber's
deposit account with the Bank (which may be given by completing the appropriate
blanks in the order form), must be received by the Bank by 12:00 Noon, Central
Time, on the Expiration Date. Order forms which are not received by such time
or are executed defectively or are received without full payment (or without
appropriate withdrawal instructions) are not required to be accepted. The
Holding Company and the Bank have the right to waive or permit the correction of
incomplete or improperly executed order forms, but do not represent that they
will do so. Pursuant to the Plan of Conversion, the interpretation by the
Holding Company and the Bank of the terms and conditions of the Plan of
Conversion and of the order form will be final. In order to purchase shares in
the Direct Community Offering, the order form, accompanied by the required
payment for each share subscribed for, must be received by the Bank prior to the
time the Direct Community Offering terminates, which is expected to be at 12:00
Noon on the Expiration Date. Once received, an executed order form may not be
modified, amended or rescinded without the consent of the Bank unless the
conversion has not been completed within 45 days after the end of the
Subscription Offering, unless such period has been extended.
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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 (March 31, 1997) and/or the Supplemental Eligibility Record Date
(June 30, 1998) and/or the Voting Record Date (July 31, 1998) must list all
accounts on the order form giving all names in each account, the account number
and the approximate account balance as of such date. Failure to list an account
could result in fewer shares being allocated in the event of an oversubscription
than if all accounts had been disclosed.
Full payment for subscriptions may be made (i) in cash if delivered in
person at the Bank's stock information center, (ii) by check, bank draft, or
money order, or (iii) by authorization of withdrawal from deposit accounts
maintained with the Bank. Appropriate means by which such withdrawals may be
authorized are provided on the order form. No wire transfers will be accepted.
Interest will be paid on payments made by cash, check, bank draft or money order
at the Bank's passbook rate from the date payment is received until the
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 (unless the
certificate matures after the date of receipt of the order form but prior to
closing, in which case funds will earn interest at the passbook rate from the
date of maturity until consummation 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. At the completion of the
conversion, the funds received in this offering will be used to purchase the
shares of common stock ordered. THE SHARES OF COMMON STOCK ISSUED IN THE
CONVERSION CANNOT AND WILL NOT BE INSURED BY THE FDIC OR ANY OTHER GOVERNMENT
AGENCY. If the conversion is not consummated for any reason, all funds
submitted will be promptly refunded with interest as described above.
If a subscriber authorizes the Bank to withdraw the amount of the aggregate
purchase price from his or her deposit account, the Bank will do so as of the
effective date of the conversion, though the account must contain the full
amount necessary for payment at the time the subscription order is received.
The Bank 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
canceled at the time of the withdrawal, without penalty, and the remaining
balance will earn interest at the Bank's 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 common stock
subscribed for at the $10.00 purchase price upon consummation of the conversion,
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 Holding
Company to lend to the ESOP, at such time, the aggregate purchase price of the
shares for which it subscribed.
IRAs maintained in the Bank do not permit investment in the common stock.
A depositor interested in using his or her IRA funds to purchase common stock
must do so through a self-directed IRA. Since the Bank does not offer such
accounts, it will allow such a depositor to make a trustee-to-trustee transfer
of the IRA funds to a trustee offering a self-directed IRA program with the
agreement that such funds will be used to purchase the Holding Company's common
stock in the offering. There will be no early withdrawal or IRS interest
penalties for such transfers. The new trustee would hold the common stock in a
self-directed account in the same manner as the Bank now holds the depositor's
IRA funds. An annual administrative fee may be payable to the new trustee.
Depositors interested in using funds in a Bank IRA to purchase common stock
should contact the stock information center as soon as possible so that the
necessary forms may be forwarded for execution and returned prior to the
Expiration Date. In addition, the provisions of ERISA and IRS regulations
require that officers, directors and 10% shareholders who use self-directed IRA
funds to purchase shares of common stock in the Subscription Offering, make such
purchases for the exclusive benefit of IRAs.
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STOCK PRICING, EXCHANGE RATIO AND NUMBER OF SHARES TO BE ISSUED
Federal regulations and the Plan of Conversion require that the purchase
price of the common stock be based on the appraised pro forma market value of
the MHC and the Bank, as converted (i.e., taking into account the expected
----
receipt of proceeds from the sale of securities in the conversion), as
determined on the basis of an independent valuation. The Bank has 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 fee
of $35,000 plus out-of-pocket expenses, together with a fee of $7,500 plus out-
of-pocket expenses for the preparation of a business plan and other services
performed in connection with the Holding Company's holding company application
to the OTS. The Bank has 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 Consolidated Financial
Statements. RP Financial also considered the following factors, among others:
the present and projected operating results and financial condition of the
Holding Company, the Bank and the MHC and the economic and demographic
conditions in the Bank's existing market area; certain historical, financial and
other information relating to the Bank; a comparative evaluation of the
operating and financial statistics of the Bank with those of other similarly
situated publicly-traded companies located in Missouri and other regions of the
United States; the aggregate size of this offering of the Holding Company's
common stock; the impact of the conversion on the Bank's capital and earnings
potential; the proposed dividend policy of the Holding Company and the Bank; and
the trading market for the Bank common stock and securities of comparable
companies and general conditions in the market for such securities.
On the basis of the foregoing, RP Financial has advised the Holding
Company, the Bank and the MHC that, in its opinion, as of July 24, 1998 the
estimated pro forma market value of the MHC and the Bank, as converted, ranged
from $55,608,560 to $86,520,370. Because the Bank's public stockholders will
continue to hold approximately the same aggregate percentage ownership interest
in the Holding Company as they currently hold in the Bank (before giving effect
to the payment of cash in lieu of issuing fractional shares and any shares of
common stock purchased in this offering by the Bank's stockholders), the
appraisal was multiplied by 73.1437%, which represents the MHC's percentage
interest in the Bank adjusted upward for assets held by the MHC and the waiver
by the MHC of dividends paid by the Bank. The resulting amount represents an
offering range of $40,800,000 to $55,200,000. Based on such valuation, the
Boards of Directors of the Holding Company and the Bank determined that the
shares of common stock would be sold at $10.00 per share, resulting in a range
of 4,080,000 to 5,520,000 shares of common stock being offered and a range of
1,480,856 to 2,003,510 shares being issued in exchange for the shares of the
Bank's common stock. Upon consummation of the conversion, the shares sold in
this offering and the shares issued in exchange for Bank common stock will
represent approximately 73.37% and 26.63%, respectively, of the Holding
Company's total outstanding shares. The aggregate ownership interest of the
Bank's public stockholders was adjusted downward because the OTS determined that
a portion of the dividends waived by the MHC are excess and should dilute the
public stockholders' ownership interest.
The Boards of Directors of the Holding Company, the Bank and the MHC
reviewed RP Financial's appraisal report, including the methodology and the
assumptions used by RP Financial, and determined that the Estimated Valuation
Range was reasonable and adequate. The Boards of Directors of the Holding
Company, the Bank and the MHC also established the formula for determining the
Exchange Ratio. Based upon such formula and the Estimated Valuation Range, the
Exchange Ratio will range from a minimum of 2.3290 to a maximum of 3.1510, with
a midpoint of 2.7400. Based upon these Exchange Ratios, the Holding Company
expects to issue between 1,480,856 and 2,003,510 shares of Holding Company
common stock to the holders of Bank common stock at 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 Holding Company, the Bank
and the MHC or market conditions generally. If the appraisal is
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updated to below $55,608,560 or above $86,520,370 (the maximum of the Estimated
Valuation Range, as adjusted by 15%), such appraisal will be filed with the SEC
by post-effective amendment.
If, upon completion of the Subscription and Direct Community Offerings, at
least the minimum number of shares are subscribed for, RP Financial, after
taking into account factors similar to those involved in its prior appraisal,
will determine its estimate of the pro forma market value of the Bank and the
MHC as converted, as of the close of the Subscription Offering and Direct
Community Offering.
No sale of the shares will take place unless prior thereto RP Financial
confirms to the OTS that, to the best of RP Financial's knowledge and judgment,
nothing of a material nature has occurred that would cause it to conclude that
the actual total purchase price on an aggregate basis was incompatible with its
estimate of the total pro forma market value of the Bank and the MHC as
converted at the time of the sale. If, however, the facts do not justify such a
statement, the offering or other sale may be canceled, a new Estimated Valuation
Range and price per share set and new Subscription, Direct Community and
Syndicated Community Offerings held. Under such circumstances, subscribers
would have the right to modify or rescind their subscriptions and to have their
subscription funds returned promptly with interest and holds on funds authorized
for withdrawal from deposit accounts would be released or reduced.
Depending upon market and financial conditions, the number of shares sold
may be more or less than the range in number of shares discussed herein. In the
event the total amount of shares sold is less than 4,080,000 or more than
6,348,000 (15% above the maximum of the Estimated Valuation Range), for
aggregate gross proceeds of less than $40,800,000 or more than $63,480,000,
subscription funds will be returned promptly with interest to each subscriber
unless he indicates otherwise. In the event a new valuation range is established
by RP Financial, such new range will be subject to approval by the OTS.
In formulating its appraisal, RP Financial relied upon the truthfulness,
accuracy and completeness of all documents the Bank furnished to it. RP
Financial also considered financial and other information from regulatory
agencies, other financial institutions, and other public sources, as
appropriate. While RP Financial believes this information to be reliable, RP
Financial does not guarantee the accuracy or completeness of such information
and did not independently verify the financial statements and other data
provided by the Bank and the Holding Company or independently value the assets
or liabilities of the Bank and the Holding Company. THE APPRAISAL BY RP
FINANCIAL IS NOT INTENDED TO BE, AND MUST NOT BE INTERPRETED AS, A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF VOTING TO APPROVE THE PLAN
OF CONVERSION OR OF PURCHASING SHARES OF COMMON STOCK. MOREOVER, BECAUSE THE
APPRAISAL IS NECESSARILY BASED ON MANY FACTORS WHICH CHANGE FROM TIME TO TIME,
THERE IS NO ASSURANCE THAT PERSONS WHO PURCHASE SUCH SHARES IN THE CONVERSION
WILL LATER BE ABLE TO SELL SHARES THEREAFTER AT PRICES AT OR ABOVE THE PURCHASE
PRICE.
The appraisal report of RP Financial has been filed as an exhibit to this
Registration Statement and Application for Conversion of which this prospectus
is a part and is available for inspection in the manner set forth under
"ADDITIONAL INFORMATION."
LIMITATIONS ON PURCHASES OF SHARES OF COMMON STOCK
The Plan of Conversion provides for certain limitations to be placed upon
the purchase of common stock by eligible subscribers and others in the
conversion. Each subscriber must subscribe for a minimum of 25 shares of common
stock. The Plan of Conversion provides for the following purchase limitations:
(i) No person may purchase in either the Subscription Offering, Direct
Community Offering or Syndicated Community Offering more than 40,000
shares of common stock; and
(ii) The maximum number of shares of common stock which may be subscribed
for or purchased in all categories in the conversion by any person,
together with any associate or any group of persons acting
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in concert, when combined with any shares received in exchange for
Bank common stock, shall not exceed 125,000 shares.
For purposes of the Plan of Conversion, the directors are not deemed to be
acting in concert solely by reason of their Board membership. Pro rata
reductions within each subscription rights category will be made in allocating
shares to the extent that the maximum purchase limitations are exceeded.
BECAUSE OTS POLICY REQUIRES THE MAXIMUM PURCHASE LIMITATION TO INCLUDE
SHARES TO BE ISSUED TO THE BANK'S PUBLIC STOCKHOLDERS IN EXCHANGE FOR THEIR BANK
COMMON STOCK, CERTAIN OF THE BANK'S STOCKHOLDERS MAY BE LIMITED IN THEIR ABILITY
TO PURCHASE SHARES IN THIS OFFERING, OR MAY EVEN BE PREVENTED FROM PURCHASING
SHARES OF COMMON STOCK. EXCEPT AS MAY BE REQUIRED BY THE OTS, NONE OF THE
BANK'S PUBLIC STOCKHOLDERS WILL BE REQUIRED TO SELL OR DIVEST ANY HOLDING
COMPANY COMMON STOCK OR BE LIMITED IN RECEIVING ANY HOLDING COMPANY COMMON STOCK
EVEN IF THEIR PERCENTAGE OWNERSHIP OF BANK COMMON STOCK WHEN CONVERTED INTO
SHARES OF HOLDING COMPANY COMMON STOCK PURSUANT TO THE EXCHANGE RATIO WOULD
EXCEED AN APPLICABLE PURCHASE LIMITATION.
The Boards of Directors of the Bank and the MHC may, in their sole
discretion, increase the maximum purchase limitation set forth above up to 9.99%
of the shares of common stock sold in the conversion, provided that orders for
shares which exceed 5% of the shares of common stock sold in the conversion may
not exceed, in the aggregate, 10% of the shares sold in the conversion. If the
maximum purchase limitation is changed, subscribers will be notified in writing.
The Bank and the MHC do not intend to increase the maximum purchase limitation
unless market conditions are such that an increase in the maximum purchase
limitation is necessary to sell a number of shares in excess of the minimum of
the Estimated Valuation Range. If the Boards of Directors decide to increase
the purchase limitation above, persons who subscribed for the maximum number of
shares of common stock will be, and other large subscribers in the discretion of
the Holding Company and the Bank may be, given the opportunity to increase their
subscriptions accordingly, subject to the rights and preferences of any person
who has priority subscription rights.
The term "acting in concert" is defined in the Plan of Conversion to mean
(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. In general, a person who acts in concert with another party shall
also be deemed to be acting in concert with any person who is also acting in
concert with that other party.
The term "associate" of a person is defined in the Plan of Conversion to
mean (i) any corporation or organization (other than the Bank or a majority-
owned subsidiary of the Bank) of which such person is an officer or partner or
is, directly or indirectly, the beneficial owner of 10% or more of any class of
equity securities; (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity (excluding tax-qualified employee plans); 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
Bank or any of its parents or subsidiaries. For example, a corporation of which
a person serves as an officer would be an associate of such person and,
therefore, all shares purchased by such corporation would be included with the
number of shares which such person could purchase individually under the above
limitations.
The term "officer" is defined in the Plan of Conversion to mean an
executive officer of the Holding Company, the Bank or the MHC, including its
Chief Executive Officer, President, Executive Vice Presidents, Senior Vice
Presidents, Vice Presidents in charge of principal business functions, Secretary
and Controller.
Shares purchased in the conversion will be freely transferable, except for
shares purchased by directors and officers of the Bank and the Holding Company
and by NASD members. See "-- Restrictions on Transferability by Directors and
Officers and NASD Members."
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DELIVERY AND EXCHANGE OF STOCK CERTIFICATES
SHARES PURCHASED IN THIS OFFERING. Certificates representing shares of
Holding Company common stock will be mailed by the Holding Company's transfer
agent to the persons entitled thereto at the addresses of such persons appearing
on the order form as soon as practicable following the consummation of the
conversion. Any undeliverable certificates will be held by the Holding Company
until claimed by persons legally entitled thereto or otherwise disposed of
according to applicable law. Purchasers of shares of Holding Company common
stock may be unable to sell such shares until certificates are available and
delivered to them.
SHARES ISSUED IN EXCHANGE FOR BANK COMMON STOCK. After the consummation of
the conversion, each holder of a certificate(s) theretofore evidencing issued
and outstanding shares of Bank common stock (other than the MHC), upon surrender
of the same to an agent, duly appointed by the Holding Company, which is
anticipated to be the transfer agent for the common stock ("Exchange Agent"),
shall be entitled to receive in exchange therefor a certificate(s) representing
the number of full shares of Holding Company common stock into which such shares
have been converted based on the Exchange Ratio, and cash in lieu of any
fractional shares. The Exchange Agent shall mail 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 offering and the procedure for surrendering to the Exchange Agent such
certificates in exchange for a certificate(s) evidencing Holding Company common
stock and cash in lieu of any fractional shares. YOU SHOULD NOT FORWARD
CERTIFICATES FOR BANK COMMON STOCK TO THE BANK OR THE EXCHANGE AGENT UNTIL YOU
HAVE RECEIVED THE TRANSMITTAL LETTER.
No holder of a certificate theretofore representing shares of the Bank
common stock shall be entitled to receive any dividends on the Holding Company
common stock until the certificate representing such shares is surrendered in
exchange for certificates representing shares of Holding Company common stock.
In the event that dividends are declared and paid by the Holding Company in
respect of common stock after the consummation of the conversion, but before
surrender of certificates representing shares of Bank 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 Bank common stock.
After the consummation of the conversion, the Holding Company shall be entitled
to treat certificates representing shares of Bank common stock as evidencing
ownership of the number of full shares of common stock into which the shares of
Bank 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 Holding Company shall not be obligated to deliver a certificate(s)
representing shares of common stock to which a holder of Bank common stock would
otherwise be entitled as a result of the conversion until such holder surrenders
the certificate(s) representing the shares of Bank 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 Holding
Company. If any certificate evidencing shares of common stock is to be issued
in a name other than that in which the certificate evidencing Bank 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.
RESTRICTIONS ON REPURCHASE OF STOCK
Pursuant to OTS regulations, OTS-regulated savings associations (and their
holding companies) may not for a period of three years from the date of an
institution's mutual-to-stock conversion repurchase any of its common stock from
any person, except in the event of (i) an offer made to all of its stockholders
to repurchase the common stock on a pro rata basis, approved by the OTS; or (ii)
the repurchase of qualifying shares of a director; or (iii) a purchase in the
open market by a tax-qualified or non-tax-qualified employee stock benefit plan
in an amount reasonable and
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appropriate to fund the plan. Furthermore, repurchases of any common stock are
prohibited if the effect thereof would cause the association's regulatory
capital to be reduced below (a) the amount required for the liquidation account
or (b) the regulatory capital requirements imposed by the OTS. Repurchases are
generally prohibited during the first year following conversion. Upon ten days'
written notice to the OTS, and if the OTS does not object, an institution may
make open market repurchases of 5% of its outstanding common stock during years
two and three following the conversion, provided that certain regulatory
conditions are met and that the repurchase would not adversely affect the
financial condition of the association. Any repurchases of common stock by the
Holding Company, therefore, would be subject to these regulatory restrictions
unless the OTS would provide otherwise.
RESTRICTIONS ON TRANSFERABILITY BY DIRECTORS AND OFFICERS AND NASD MEMBERS
Shares of common stock purchased in this offering by directors and officers
of the Holding Company may not be sold for a period of one year following
consummation of the conversion, except in the event of the death of the
stockholder or in any exchange of the common stock in connection with a merger
or acquisition of the Holding Company. Shares of common stock received by
directors or officers through the ESOP or the 1999 MRDP or upon exercise of
options issued pursuant to the exercise of stock options or purchased subsequent
to the conversion are not subject to this restriction. Accordingly, shares of
common stock issued by the Holding Company to directors and officers shall bear
a legend giving appropriate notice of the restriction and, in addition, the
Holding Company will give appropriate instructions to the transfer agent for the
Holding Company's common stock with respect to the restriction on transfers.
Any shares issued to directors and officers as a stock dividend, stock split or
otherwise with respect to restricted common stock shall be subject to the same
restrictions.
Purchases of outstanding shares of common stock of the Holding Company by
directors, executive officers (or any person who was an executive officer or
director of the Bank after adoption of the Plan of Conversion ) and their
associates during the three-year period following 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 Holding Company's
outstanding common stock or to the purchase of stock pursuant to the exercise of
stock options.
The Holding Company has filed with the SEC a registration statement under
the Securities Act for the registration of the common stock to be issued
pursuant to the conversion. This registration does not cover the resale of such
shares. Shares of common stock purchased by persons who are not affiliates of
the Holding Company may be resold without registration. Shares purchased by an
affiliate of the Holding Company will be subject to the resale restrictions of
Rule 144 under the Securities Act. If the Holding Company meets the current
public information requirements of Rule 144 under the Securities Act, each
affiliate of the Holding Company who complies with the other conditions of Rule
144 (including those that require the affiliate's sale to be aggregated with
those of certain other persons) would be able to sell in the public market,
without registration, a number of shares not to exceed, in any three-month
period, the greater of (i) 1% of the outstanding shares of the Holding Company
or (ii) the average weekly volume of trading in such shares during the preceding
four calendar weeks. Provision may be made in the future by the Holding Company
to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.
Under guidelines of the NASD, members of the NASD and their associates are
subject to certain restrictions on the transfer of securities purchased in
accordance with subscription rights and to certain reporting requirements upon
purchase of such securities.
COMPARISON OF STOCKHOLDERS' RIGHTS
As a result of the conversion, stockholders of the Bank will become
stockholders of the Holding Company, a Delaware corporation. There are certain
differences in stockholder rights arising from distinctions between the Bank's
Federal Stock Charter and Bylaws and the Holding Company's Certificate of
Incorporation and Bylaws and from distinctions between laws with respect to
federally chartered savings institutions and Delaware law.
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The discussion herein is not intended to be a complete statement of the
differences affecting the rights of stockholders, but rather summarizes the
material differences affecting the rights of stockholders. The discussion
herein is qualified in its entirety by reference to the Certificate of
Incorporation and Bylaws of the Holding Company and the Delaware law. See
"ADDITIONAL INFORMATION" for procedures for obtaining a copy of the Holding
Company's Certificate of Incorporation and Bylaws.
ISSUANCE OF CAPITAL STOCK. Pursuant to applicable laws and regulations,
the MHC is required to own not less than a majority of the outstanding Bank
common stock. There will be no such restriction applicable to the Holding
Company following consummation of the conversion.
The Holding Company's Certificate of Incorporation does not contain
restrictions on the issuance of shares of capital stock to directors, officers
or controlling persons of the Holding Company, whereas the Bank's Federal Stock
Charter restricts such issuance to general public offerings, or if qualifying
shares, to directors, unless the share issuance or the plan under which they
would be issued has been approved by a majority of the total votes eligible to
be cast at a legal stockholders' meeting. Thus, stock-related compensation
plans, such as stock option plans, could be adopted by the Holding Company
without stockholder approval and shares of Holding Company capital stock could
be issued directly to directors or officers without stockholder approval. The
Bylaws of the NASD, however, generally require corporations with securities
which are quoted on the Nasdaq National Market to obtain stockholder approval of
most stock compensation plans for directors, officers and key employees of the
corporation. Moreover, although generally not required, stockholder approval of
stock related compensation plans may be sought in certain instances in order to
qualify such plans for favorable federal income tax and securities law treatment
under current laws and regulations. The Holding Company plans to submit the
stock compensation plans discussed herein to its stockholders for approval.
VOTING RIGHTS. Neither the Bank's Federal Stock Charter or Bylaws nor the
Holding Company's Certificate of Incorporation or Bylaws currently provide for
cumulative voting in elections of directors. For additional information
regarding voting rights, see "RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY
- -- Anti-takeover Provisions -- Limitation on Voting Rights" below.
PAYMENT OF DIVIDENDS. The ability of the Bank to pay dividends on its
capital stock is restricted by OTS regulations and by federal income tax
considerations related to savings institutions such as the Bank. See
"REGULATION -- Federal Regulation of the Bank -- Capital Requirements" and
"TAXATION." Although the Holding Company is not subject to these restrictions as
a Delaware corporation, such restrictions will indirectly affect the Holding
Company because dividends from the Bank will be a primary source of funds of the
Holding Company for the payment of dividends to stockholders of the Holding
Company.
Certain restrictions generally imposed on Delaware corporations may also
have an impact on the Holding Company's ability to pay dividends. Delaware law
generally provides that the Holding Company is limited to paying dividends in an
amount equal to the excess of its net assets (total assets minus total
liabilities) over its statutory capital or, if no such excess exists, equal to
its net profits for the current year and/or the immediately preceding fiscal
year.
BOARD OF DIRECTORS. The Bank's Federal Stock Charter and Bylaws and the
Holding Company's Certificate of Incorporation and Bylaws each require the Board
of Directors of the Bank and the Holding Company to be divided into three
classes as nearly equal in number as possible and that the members of each class
shall be elected for a term of three years and until their successors are
elected and qualified, with one class being elected annually.
Under the Bank's Bylaws, any vacancies in the Board of Directors of the
Bank may be filled by the affirmative vote of a majority of the remaining
directors although less than a quorum of the Board of Directors. Persons
elected by the directors of the Bank to fill vacancies may only serve until the
next annual meeting of stockholders. Under the Holding Company's Certificate of
Incorporation, any vacancy occurring in the Board of Directors of the Holding
Company, including any vacancy created by reason of an increase in the number of
directors, may be filled by the remaining directors, and any director so chosen
shall hold office for the remainder of the term to which the director has been
elected and until his or her successor is elected and qualified.
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Under the Bank's Bylaws, any director may be removed for cause by the
holders of a majority of the outstanding voting shares. The Holding Company's
Certificate of Incorporation provides that any director may be removed for cause
by the holders of at least 80% of the outstanding voting shares of the Holding
Company.
LIMITATIONS ON LIABILITY. The Holding Company's Certificate of
Incorporation provides that the directors of the Holding Company shall not be
personally liable for monetary damages to the Holding Company for actions as
directors, except for liabilities that involve a breach of the director's duty
of loyalty to the Holding Company or its stockholders, acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, or authorization of unlawful payment of dividends or unlawful stock
purchase or redemption. This provision might, in certain instances, discourage
or deter shareholders or management from bringing a lawsuit against directors
for a breach of their duties even though such an action, if successful, might
have benefitted the Holding Company.
Currently, federal law does not permit federally chartered savings
institutions such as the Bank to limit the personal liability of directors in
the manner provided by Delaware law and the laws of many other states.
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The Bank's
Federal Stock Charter and Bylaws do not contain any provision relating to
indemnification of directors and officers of the Bank. Under current OTS
regulations, however, the Bank will indemnify its directors, officers and
employees for any costs incurred in connection with any litigation involving any
such person's activities as a director, officer or employee if such person
obtains a final judgment on the merits in his or her favor. In addition,
indemnification is permitted in the case of a settlement, a final judgment
against such person or final judgment other than on the merits, if a majority of
disinterested directors determine that such person was acting in good faith
within the scope of his or her employment as he or she could reasonably have
perceived it under the circumstances and for a purpose he or she could
reasonably have believed under the circumstances was in the best interest of the
Bank or its stockholders. The Bank also is permitted to pay ongoing expenses
incurred by a director, officer or employee if a majority of disinterested
directors concludes that such person may ultimately be entitled to
indemnification. Before making any indemnification payment, the Bank is
required to notify the OTS of its intention and such payment cannot be made if
the OTS objects thereto.
The officers, directors, agents and employees of the Holding Company are
indemnified with respect to certain actions pursuant to the Holding Company's
Certificate of Incorporation, which complies with Delaware law regarding
indemnification. Delaware law allows the Holding Company to indemnify the
aforementioned persons for expenses, settlements, judgments and fines in suits
in which such person has made a party by reason of the fact that he or she is or
was an agent of the Holding Company. No such indemnification may be given if
the acts or omissions of the person are adjudged to be in violation of law, if
such person is liable to the corporation for an unlawful distribution, or if
such person personally received a benefit to which he or she was not entitled.
SPECIAL MEETINGS OF STOCKHOLDERS. The Holding Company's Certificate of
Incorporation provides that special meetings of the stockholders of the Holding
Company may be called only by the board of directors or an authorized committee
thereof. The Bank's Federal Stock Charter provides that, until May 11, 1999
(i.e., five years after the consummation of the MHC reorganization), special
- -----
meetings of the Bank's stockholders may only be called by the Board of
Directors. Thereafter, special meetings may be called by the Chairman,
President, a majority of the Board of Directors or the holders of not less than
a majority of the outstanding capital stock of the Bank entitled to vote at the
meeting.
STOCKHOLDER NOMINATIONS AND PROPOSALS. The Bank's Bylaws generally provide
that stockholders may submit nominations for election as director at an annual
meeting of stockholders and any new business to be taken up at such a meeting by
filing such in writing with the Bank at least thirty days before the date of any
such meeting.
The Holding Company's Bylaws generally provide that any stockholder
desiring to make a nomination for the election of directors or a proposal for
new business at a meeting of stockholders must submit written notice to the
Holding Company at least 30 days and not more than 60 days in advance of the
meeting, together with certain information relating to the nomination or new
business. However, if less than 31 days notice of the meeting is given,
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stockholders must submit such written notice no later than the tenth day
following the date on which notice of the meeting is mailed to stockholders.
Failure to comply with these advance notice requirements will preclude such
nominations or new business from being considered at the meeting.
STOCKHOLDER ACTION WITHOUT A MEETING. The Bylaws of the Bank provide that
any action to be taken or which may be taken at any annual or special meeting of
stockholders may be taken if a consent in writing, setting forth the actions so
taken, is given by the holders of all outstanding shares entitled to vote. The
Holding Company's Certificate of Incorporation specifically denies the authority
of stockholders to act without a meeting.
STOCKHOLDER'S RIGHT TO EXAMINE BOOKS AND RECORDS. A federal regulation
which is applicable to the Bank provides that stockholders may inspect and copy
specified books and records of a federally chartered savings institution after
proper written notice for a proper purpose. Delaware law similarly provides
that a stockholder may inspect books and records upon written demand stating the
purpose of the inspection, if such purpose is reasonably related to such
person's interest as a stockholder.
LIMITATIONS ON ACQUISITIONS OF VOTING STOCK AND VOTING RIGHTS. The Bank's
Federal Stock Charter provides that until May 11, 1999 no person shall directly
or indirectly offer to acquire or acquire the beneficial ownership of more than
10% of the issued and outstanding shares of any class of an equity security of
the Bank. In the event that shares are acquired in violation of this
restriction, all shares beneficially owned by any 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
stockholders for a vote. The Holding Company's Certificate of Incorporation
provides certain limitations on the ability of a person who owns in excess of
10% of the Holding Company's outstanding shares of common stock to vote shares
in excess of such limit. See "RESTRICTIONS ON ACQUISITION OF THE HOLDING
COMPANY -- Anti-takeover Provisions -- Limitation on Voting Rights."
MERGERS, CONSOLIDATIONS AND SALES OF ASSETS. A federal regulation requires
the approval of two-thirds of the Board of Directors of the Bank and the holders
of two-thirds of the outstanding stock of the Bank entitled to vote thereon for
mergers, consolidations and sales of all or substantially all of the Bank's
assets. Such regulation permits the Bank to merge with another corporation
without obtaining the approval of its stockholders if: (i) it does not involve
an interim savings institution; (ii) the Bank's Federal Stock Charter is not
changed; (iii) each share of the Bank's stock outstanding immediately prior to
the effective date of the transaction is to be an identical outstanding share or
a treasury share of the Bank after such effective date; and (iv) either: (A) no
shares of voting stock of the Bank and no securities convertible into such stock
are to be issued or delivered under the plan of combination or (B) the
authorized unissued shares or the treasury shares of voting stock of the Bank to
be issued or delivered under the plan of combination, plus those initially
issuable upon conversion of any securities to be issued or delivered under such
plan, do not exceed 15% of the total shares of voting stock of the Bank
outstanding immediately prior to the effective date of the transaction.
The Holding Company's Certificate of Incorporation requires the approval of
the holders of at least 80% of the Holding Company's outstanding shares of
voting stock to approve certain "Business Combinations" (as defined therein)
involving a "Related Person" (as defined therein) except in cases where the
proposed transaction has been approved in advance by a majority of those members
of the Holding Company's Board of Directors who are unaffiliated with the
Related Person and were directors prior to the time when the Related Person
became a Related Person. Under Delaware law, absent this provision, business
combinations, including mergers, consolidations and sales of substantially all
of the assets of a corporation must, subject to certain exceptions, be approved
by the vote of the holders of a majority of the outstanding shares of common
stock of the Holding Company and any other affected class of stock. One
exception under Delaware law to the majority approval requirement applies to
stockholders owning 15% or more of the common stock of a corporation for a
period of less than three years. See "RESTRICTIONS ON ACQUISITION OF THE
HOLDING COMPANY -- Anti-takeover Provisions -- Stockholder Vote Required to
Approve Certain Business Combinations."
The Holding Company's Certificate of Incorporation requires the Holding
Company's Board of Directors to consider certain factors in addition to the
amount of consideration to be paid when evaluating certain business
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combinations or a tender or exchange offer. These additional factors include:
(i) the social and economic effects of the transaction; (ii) the business and
financial condition and earnings prospects of the acquiring person or entity;
and (iii) the competence, experience, and integrity of the acquiring person or
entity and its management.
DISSENTERS' RIGHTS OF APPRAISAL. OTS regulations generally provide that a
stockholder of a federally chartered savings institution that engages in a
merger, consolidation or sale of all or substantially all of its assets shall
have the right to demand from such institution payment of the fair or appraised
value of his or her stock in the institution, subject to specified procedural
requirements. This regulation also provides, however, that the stockholders of
a federally chartered savings institution with stock which is listed on a
national securities exchange or quoted on The Nasdaq Stock Market are not
entitled to dissenters' rights in connection with a merger involving such
savings institution if the stockholder is required to accept only "qualified
consideration" for his or her stock, which is defined to include cash, shares of
stock of any institution or corporation which at the effective date of the
merger will be listed on a national securities exchange or quoted on the Nasdaq
National Market or any combination of such shares of stock and cash.
Under Delaware law, appraisal rights are available for the shares of any
class or series of stock of a corporation that is a party to a merger or
consolidation, other than a merger of a parent corporation and a 90% or more
owned subsidiary. However, stockholders generally will not have appraisal
rights if the corporation's stock is listed on a national securities exchange or
the Nasdaq National Market or is held of record by more than 2,000 holders, or
if stockholder approval is not required by Delaware law for the corporate
action.
AMENDMENT OF GOVERNING INSTRUMENTS. No amendment of the Bank's Federal
Stock Charter may be made unless it is first proposed by the Board of Directors
of the Bank, then preliminarily approved by the OTS, and thereafter approved by
the holders of a majority of the total votes eligible to be cast at a legal
meeting. The Holding Company's Certificate of Incorporation may be amended by
the vote of the holders of a majority of the outstanding shares of Holding
Company Common stock, except that the provisions of the Certificate of
Incorporation governing certain matters may not be repealed, altered, amended or
rescinded except by the vote of the holders of at least 80% of the outstanding
shares of the Holding Company. See "RESTRICTIONS ON ACQUISITION OF THE HOLDING
COMPANY -- Anti-takeover Provisions -- Amendment of Certificate of Incorporation
and Bylaws."
The Bylaws of the Bank may be amended by a majority vote of the full Board
of Directors of the Bank or by a majority vote of the votes cast by the
stockholders of the Bank at any legal meeting. The Holding Company's Bylaws may
only be amended by a majority vote of the Board of Directors of the Holding
Company or by the holders of at least 80% of the outstanding stock by the
Holding Company.
RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY
The following discussion is a summary of certain provisions of federal law
and regulations and Delaware corporate law, as well as the Certificate of
Incorporation and Bylaws of the Holding Company, relating to stock ownership and
transfers, the Board of Directors and business combinations, all of which may be
deemed to have "anti-takeover" effects. The description of these provisions is
necessarily general and reference should be made to the actual law and
regulations and to the Certificate of Incorporation and Bylaws of the Holding
Company contained in the Registration Statement filed with the SEC. See
"ADDITIONAL INFORMATION" as to how to obtain a copy of these documents.
CONVERSION REGULATIONS
OTS regulations prohibit any person from making an offer, announcing an
intent to make an offer or participating in any other arrangement to purchase
stock or acquiring stock or subscription rights in a converting institution (or
its holding company) from another person prior to completion of its conversion.
Further, without the prior written approval of the OTS, no person may make such
an offer or announcement of an offer to purchase shares or actually acquire
shares in the converting institution (or its holding company) for a period of
three years from the date
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of the completion of the conversion if, upon the completion of such offer,
announcement or acquisition, that person would become the beneficial owner of
more than 10% of the outstanding stock of the institution (or its holding
company). The OTS has defined "person" to include any individual, group acting
in concert, corporation, partnership, association, joint stock company, trust,
unincorporated organization or similar company, a syndicate or any other group
formed for the purpose of acquiring, holding or disposing of securities of an
insured institution. However, offers made exclusively to an association (or its
holding company) or an underwriter or member of a selling group acting on the
converting institution's (or its holding company's) behalf for resale to the
general public are excepted. The regulation also provides civil penalties for
willful violation or assistance in any such violation of the regulation by any
person connected with the management of the converting institution (or its
holding company) or who controls more than 10% of the outstanding shares or
voting rights of a converting or converted institution (or its holding company).
CHANGE OF CONTROL REGULATIONS
Under the Change in Bank Control Act, no person may acquire control of an
insured federal savings and loan association or its parent holding company
unless the OTS has been given 60 days' prior written notice and has not issued a
notice disapproving the proposed acquisition. In addition, OTS regulations
provide that no company may acquire control of a savings association without the
prior approval of the OTS. Any company that acquires such control becomes a
"savings and loan holding company" subject to registration, examination and
regulation by the OTS.
Control, as defined under federal law, means ownership, control of or
holding irrevocable proxies representing more than 25% of any class of voting
stock, control in any manner of the election of a majority of the savings
association's directors, or a determination by the OTS that the acquiror has the
power to direct, or directly or indirectly to exercise a controlling influence
over, the management or policies of the institution. Acquisition of more than
10% of any class of a savings association's voting stock, if the acquiror also
is subject to any one of eight "control factors," constitutes a rebuttable
determination of control under the regulations. Such control factors include
the acquiror being one of the two largest stockholders. The determination of
control may be rebutted by submission to the OTS, prior to the acquisition of
stock or the occurrence of any other circumstances giving rise to such
determination, of a statement setting forth facts and circumstances which would
support a finding that no control relationship will exist and containing certain
undertakings. The regulations provide that persons or companies which acquire
beneficial ownership exceeding 10% or more of any class of a savings
association's stock must file with the OTS a certification form that the holder
is not in control of such institution, is not subject to a rebuttable
determination of control and will take no action which would result in a
determination or rebuttable determination of control without prior notice to or
approval of the OTS, as applicable. There are also rebuttable presumptions in
the regulations concerning whether a group "acting in concert" exists, including
presumed action in concert among members of an "immediate family."
The OTS may prohibit an acquisition of control if it finds, among other
things, that (i) the acquisition 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 the public to permit the acquisition of
control by such person.
ANTI-TAKEOVER PROVISIONS
A number of provisions of the Holding Company's Certificate 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 Holding Company's Certificate of Incorporation and
Bylaws and regulatory provisions relating to stock ownership and transfers, the
Board of Directors and business combinations, 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 Holding 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 incumbent Board of
Directors or management of the Holding
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Company more difficult. The following description of certain of the provisions
of the Certificate of Incorporation and Bylaws of the Holding Company is
necessarily general and reference should be made in each case to such
Certificate of Incorporation and Bylaws, which are incorporated herein by
reference. See "ADDITIONAL INFORMATION" as to where to obtain a copy of these
documents.
LIMITATION ON VOTING RIGHTS. The Certificate of Incorporation of the
Holding Company provides that in no event shall any record owner of any
outstanding common stock which is beneficially owned, directly or indirectly, by
a person who beneficially owns in excess of 10% of the then outstanding shares
of common stock (the "Limit") be entitled or permitted to any vote in respect of
the shares held in excess of the Limit, unless permitted by a resolution adopted
by a majority of the board of directors. Beneficial ownership is determined
pursuant to Rule 13d-3 of the General Rules and Regulations of the Exchange Act
and includes shares beneficially owned by such person or any of his or her
affiliates (as defined in the Certificate of Incorporation), shares which such
person or his or her affiliates have the right to acquire upon the exercise of
conversion rights or options and shares as to which such person and his or her
affiliates have or share investment or voting power, but shall not include
shares beneficially owned by the ESOP or directors, officers and employees of
the Bank or Holding Company or shares that are subject to a revocable proxy and
that are not otherwise beneficially, or deemed by the Holding Company to be
beneficially, owned by such person and his or her affiliates.
BOARD OF DIRECTORS. The Board of Directors of the Holding Company is
divided into three classes, each of which shall contain approximately one-third
of the whole number of the members of the Board. The members of each class
shall be elected for a term of three years, with the terms of office of all
members of one class expiring each year so that approximately one-third of the
total number of directors are elected each year. The Certificate of
Incorporation provides that any vacancy occurring in the Board, including a
vacancy created by an increase in the number of directors, shall be filled by a
vote of two-thirds of the directors then in office and any director so chosen
shall hold office for a term expiring at the annual meeting of stockholders at
which the term of the class to which the director has been chosen expires. 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 Holding Company. The
Certificate of Incorporation of the Holding Company provides that a director may
be removed from the Board of Directors prior to the expiration of his or her
term only for cause and only upon the vote of 80% of the outstanding shares of
voting stock. In the absence of this provision, the vote of the holders of a
majority of the shares could remove the entire Board, but only with cause, and
replace it with persons of such holders' choice.
CUMULATIVE VOTING, SPECIAL MEETINGS AND ACTION BY WRITTEN CONSENT. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, the Certificate of Incorporation provides that special
meetings of stockholders of the Holding Company may be called only by the Board
of Directors of the Holding Company and that stockholders may take action only
at a meeting and not by written consent.
AUTHORIZED SHARES. The Certificate of Incorporation authorizes the
issuance of 25,000,000 shares of common stock and 1,000,000 shares of preferred
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 Holding
Company's Board of Directors with as much flexibility as possible to effect,
among other transactions, financings, acquisitions, stock dividends, stock
splits, restricted stock grants and the exercise of stock options. However,
these additional authorized shares may also be used by the Board of Directors,
consistent with fiduciary duties, to deter future attempts to gain control of
the Holding 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 tender offer, merger or other transaction by which a third party seeks
control of the Holding Company, and thereby assist members of management to
retain their positions. The Holding Company's Board currently has no plans for
the issuance of additional shares, other than the issuance of shares of common
stock in connection with its stock benefit plans.
116
<PAGE>
STOCKHOLDER VOTE REQUIRED TO APPROVE CERTAIN BUSINESS COMBINATIONS. The
Certificate of Incorporation requires the approval of the holders of at least
80% of the Holding Company's outstanding shares of voting stock to approve
certain "Business Combinations" (as defined therein) involving a "Related
Person" (as defined therein) except in cases where the proposed transaction has
been approved in advance by a majority of those members of the Holding Company's
Board of Directors who are unaffiliated with the Related Person and were
directors prior to the time when the Related Person became a Related Person.
The term "Related Person" is defined to include any individual, corporation,
partnership or other entity (other than the Holding Company or its subsidiary)
which owns beneficially or controls, directly or indirectly, 10% or more of the
outstanding shares of voting stock of the Holding Company or an affiliate of
such person or entity. This provision of the Certificate of Incorporation
applies to any "Business Combination," which is defined to include: (i) any
merger or consolidation of the Holding Company with or into any Related Person;
(ii) any sale, lease, exchange, mortgage, transfer, or other disposition of 25%
or more of the assets of the Holding Company or combined assets of the Holding
Company and its subsidiaries to a Related Person; (iii) any merger or
consolidation of a Related Person with or into the Holding Company or a
subsidiary of the Holding Company; (iv) any sale, lease, exchange, transfer, or
other disposition of 25% or more of the assets of a Related Person to the
Holding Company or a subsidiary of the Holding Company; (v) the issuance of any
securities of the Holding Company or a subsidiary of the Holding Company to a
Related Person; (vi) the acquisition by the Holding Company or a subsidiary of
the Holding Company of any securities of a Related Person; (vii) any
reclassification of common stock of the Holding Company or any recapitalization
involving the common stock of the Holding Company; or (viii) any agreement or
other arrangement providing for any of the foregoing.
Under Delaware law, absent this provision, business combinations, including
mergers, consolidations and sales of substantially all of the assets of a
corporation must, subject to certain exceptions, be approved by the vote of the
holders of a majority of the outstanding shares of common stock of the Holding
Company and any other affected class of stock. One exception under Delaware law
to the majority approval requirement applies to stockholders owning 15% or more
of the common stock of a corporation for a period of less than three years.
Such 15% stockholder, in order to obtain approval of a business combination,
must obtain the approval of two-thirds of the outstanding stock, excluding the
stock owned by such 15% stockholder, or satisfy other requirements under
Delaware law relating to board of director approval of his or her acquisition of
the shares of the Holding Company. The increased stockholder vote required to
approve a business combination may have the effect of foreclosing mergers and
other business combinations which a majority of stockholders deem desirable and
placing the power to prevent such a merger or combination in the hands of a
minority of stockholders.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS. Amendments to the
Holding Company's Certificate of Incorporation must be approved by a majority
vote of its Board of Directors and also by a majority of the outstanding shares
of its voting stock, provided, however, that an affirmative vote of at least 80%
of the outstanding voting stock entitled to vote (after giving effect to the
provision limiting voting rights) is required to amend or repeal certain
provisions of the Certificate of Incorporation, including the provision limiting
voting rights, the provisions relating to approval of certain business
combinations, calling special meetings, the number and classification of
directors, director and officer indemnification by the Holding Company and
amendment of the Holding Company's Bylaws and Certificate of Incorporation. The
Holding Company's Bylaws may be amended by its Board of Directors, or by a vote
of 80% of the total votes eligible to be voted at a duly constituted meeting of
stockholders.
STOCKHOLDER NOMINATIONS AND PROPOSALS. The Certificate of Incorporation of
the Holding Company requires a stockholder who intends to nominate a candidate
for election to the Board of Directors, or to raise new business at a
stockholder meeting to give not less than 30 nor more than 60 days' advance
notice to the Secretary of the Holding Company. The notice provision requires a
stockholder who desires to raise new business to provide certain information to
the Holding Company concerning the nature of the new business, the stockholder
and the stockholder's interest in the business matter. Similarly, a stockholder
wishing to nominate any person for election as a director must provide the
Holding Company with certain information concerning the nominee and the
proposing stockholder.
PURPOSE AND TAKEOVER DEFENSIVE EFFECTS OF THE HOLDING COMPANY'S CERTIFICATE
OF INCORPORATION AND BYLAWS. The Board of Directors of the Association believes
that the provisions described above are prudent and will
117
<PAGE>
reduce the Holding Company's vulnerability to takeover attempts and certain
other transactions that have not been negotiated with and approved by its Board
of Directors. These provisions will also assist the Holding Company and the
Association in the orderly deployment of the conversion proceeds into productive
assets during the initial period after the conversion. The Board of Directors
believes these provisions are in the best interest of the Bank and the Holding
Company and its stockholders. In the judgment of the Board of Directors, the
Holding Company's Board will be in the best position to determine the true value
of the Holding 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 interest of the Holding Company and its stockholders to
encourage potential acquirors to negotiate directly with the Board of Directors
of the Holding Company and that these provisions will encourage such
negotiations and discourage hostile takeover attempts. It is also the view of
the Board of Directors that these provisions should not discourage persons from
proposing a merger or other transaction at a price reflective of the true value
of the Holding Company and that is in the best interest of all stockholders.
Attempts to acquire control of financial institutions and their holding
companies have recently become increasingly common. Takeover attempts that have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms that may be less favorable than
might otherwise be available. A transaction that is negotiated and approved by
the Board of Directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value of the Holding
Company for its stockholders, with due consideration given to matters such as
the management and business of the acquiring corporation and maximum strategic
development of the Holding Company's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above the current
market prices, such offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
that is under different management and whose objectives may not be similar to
those of the remaining stockholders. The concentration of control, which could
result from a tender offer or other takeover attempt, could also deprive the
Holding Company's remaining stockholders of benefits of certain protective
provisions of the Exchange Act, if the number of beneficial owners became less
than 300, thereby allowing for deregistration under the Exchange Act.
Despite the belief of the Bank and the Holding Company as to the benefits
to stockholders of these provisions of the Holding Company's Certificate of
Incorporation and Bylaws, these provisions may also have the effect of
discouraging a future takeover attempt that would not be approved by the Holding
Company's Board, but pursuant to 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
any opportunity to do so. Such provisions will also render the removal of the
Holding Company's Board of Directors and of management more difficult. The
Board of Directors of the Bank and the Holding Company, however, have concluded
that the potential benefits outweigh the possible disadvantages.
Following the conversion, pursuant to applicable law and, if required,
following the approval by stockholders, the Holding Company may adopt additional
anti-takeover charter provisions or other devices regarding the acquisition of
its equity securities that would be permitted for a Delaware business
corporation.
The cumulative effect of the restriction on acquisition of the Holding
Company contained in the Certificate of Incorporation and Bylaws of the Holding
Company and in Federal and Delaware law may be to discourage potential takeover
attempts and perpetuate incumbent management, even though certain stockholders
of the Holding Company may deem a potential acquisition to be in their best
interests, or deem existing management not to be acting in their best interests.
118
<PAGE>
DESCRIPTION OF CAPITAL STOCK OF THE HOLDING COMPANY
GENERAL
The Holding Company is authorized to issue 25,000,000 shares of common
stock having a par value of $.01 per share and 1,000,000 shares of preferred
stock having a par value of $.01 per share. Each share of the Holding Company's
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 common stock, in accordance with the Plan of Conversion, all such
stock will be duly authorized, fully paid and nonassessable.
THE COMMON STOCK OF THE HOLDING COMPANY WILL REPRESENT NONWITHDRAWABLE
CAPITAL, WILL NOT BE AN ACCOUNT OF ANY TYPE, AND WILL NOT BE INSURED BY THE FDIC
OR ANY OTHER GOVERNMENT AGENCY.
COMMON STOCK
DIVIDENDS. The Holding Company can pay dividends out of statutory surplus
or from certain net profits if, as and when declared by its Board of Directors.
The payment of dividends by the Holding Company is subject to limitations which
are imposed by law and applicable regulation. See "DIVIDEND POLICY" and
"REGULATION." The holders of common stock of the Holding Company will be
entitled to receive and share equally in such dividends as may be declared by
the Board of Directors of the Holding Company out of funds legally available
therefor. If the Holding Company issues preferred stock, the holders thereof
may have a priority over the holders of the common stock with respect to
dividends.
STOCK REPURCHASES. The Plan of Conversion and OTS regulations place
certain limitations on the repurchase of the Holding Company's capital stock.
See "THE CONVERSION -- Restrictions on Repurchase of Stock" and "USE OF
PROCEEDS."
VOTING RIGHTS. The holders of common stock of the Holding Company will
possess exclusive voting rights in the Holding Company. They will elect the
Holding Company's Board of Directors and act on such other matters as are
required to be presented to them under Federal law or as are otherwise presented
to them by the Board of Directors. Except as discussed in "RESTRICTIONS ON
ACQUISITION OF THE HOLDING COMPANY," 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 Holding Company issues preferred stock,
holders of preferred stock may also possess voting rights. Certain matters
require a vote of 80% of the outstanding shares entitled to vote thereon. See
"RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY."
As a federal stock savings bank, corporate powers and control of the Bank
are vested in the Board of Directors, who elect the officers of the Bank and who
fill any vacancies on the Board of Directors as it exists upon conversion.
Subsequent to conversion, voting rights will be vested exclusively in the owners
of the shares of capital stock of the Bank, all of which will be owned by the
Holding Company, and voted at the direction of the Holding Company's Board of
Directors. Consequently, the holders of the Holding Company's common stock will
not have direct control of the Bank.
LIQUIDATION. In the event of any liquidation, dissolution or winding up of
the Bank, the Holding Company, as holder of the Bank's capital stock would be
entitled to receive, after payment or provision for payment of all debts and
liabilities of the Bank (including all deposit accounts and accrued interest
thereon) and after distribution of the balance in the special liquidation
account to Eligible Account Holders and Supplemental Eligible Account Holders
(see "THE CONVERSION"), all assets of the Bank available for distribution. In
the event of liquidation, dissolution or winding up of the Holding Company, the
holders of its 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
Holding Company available for distribution. If the Holding Company issues
preferred stock, the holders thereof may have a priority over the holders of the
common stock in the event of liquidation or dissolution.
119
<PAGE>
PREEMPTIVE RIGHTS. Holders of the common stock of the Holding Company will
not be entitled to preemptive rights with respect to any shares that may be
issued. The common stock is not subject to redemption.
PREFERRED STOCK
Preferred stock may be issued with such designations, powers, preferences
and rights 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 that 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. None of the
shares of the authorized preferred stock will be issued in the conversion and
there are no plans to issue preferred stock.
RESTRICTIONS ON ACQUISITION
Acquisitions of the Holding Company are restricted by provisions in its
Certificate of Incorporation and Bylaws and by the rules and regulations of
various regulatory agencies. See "REGULATION" and "RESTRICTIONS ON ACQUISITION
OF THE HOLDING COMPANY."
EFFECT OF RECEIVERSHIP ON THE COMMON STOCK
In the event of the receivership of the Bank, the FDIC, as receiver, shall,
by operation of law, succeed to, among other things, all the rights, titles,
powers and privileges of the Bank and its stockholder, the Holding Company. As
provided by the procedures and priorities applicable to receiverships of the
Savings institutions, the holders of the common stock would be entitled to
receive any funds remaining after all depositors, creditors, other claimants
(other than holders of stock ranking junior to or on a parity with the common
stock) and administrative expenses are paid.
TRANSFER AGENT AND REGISTRAR
Registrar and Transfer Company is the transfer agent and registrar for
shares of the Common stock.
REGISTRATION REQUIREMENTS
The Holding Company has registered the common stock with the SEC pursuant
to Section 12(g) of the Exchange Act and will not deregister its common stock
for a period of at least three years following the completion of the conversion.
As a result of such registration, the proxy solicitation and tender offer rules,
insider trading reporting and restrictions, annual and periodic reporting and
other requirements of the Exchange Act will apply.
LEGAL AND TAX OPINIONS
The legality of the common stock has been passed upon for the Holding
Company by Breyer & Aguggia LLP, Washington, D.C. The federal and Missouri tax
consequences of the conversion have been opined upon by Breyer & Aguggia LLP.
Breyer & Aguggia LLP has consented to the references herein to its opinions.
Certain legal matters will be passed upon for Webb by Armstrong, Teasdale,
Schlafly & Davis, St. Louis, Missouri.
EXPERTS
The consolidated financial statements of the Bank as of September 30, 1997
and 1996 and for each of the years in the three-year period ended September 30,
1997 have been included herein and in the Registration Statement in reliance
upon the report of Deloitte & Touche LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
120
<PAGE>
RP Financial has consented to the publication herein of the summary of its
report to the Bank setting forth its opinion as to the estimated pro forma
market value of the MHC and the Bank, as converted, and its letter with respect
to subscription rights and to the use of its name and statements with respect to
it appearing herein.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a Registration Statement on Form
S-1 (File No. 333-56465) under the Securities Act with respect to the common
stock offered in the conversion. This prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. You may read
and copy such information at the SEC's public reference room in Washington, D.C.
You can request copies of those documents, upon payment of a duplicating fee, by
writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. The Registration
Statement also is available through the SEC's World Wide Web site on the
Internet (http://www.sec.gov).
The MHC has filed with the OTS an Application for Approval of Conversion,
which includes proxy materials for the special meetings of the members of the
MHC and the stockholders of the Bank. This prospectus omits certain information
contained in such Application. The Application, including the proxy materials,
exhibits and certain other information that are a part thereof, may be
inspected, without charge, at the offices of the OTS, 1700 G Street, N.W.,
Washington, D.C. 20552 and at the office of the Regional Director of the OTS at
the OTS Midwest Regional Office, 122 W. John Carpenter Freeway, Suite 600,
Irving, Texas 75039.
121
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pulaski Bank, A Federal Savings Bank and Subsidiaries
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets as of
March 31, 1998 (unaudited) and September 30, 1997 and 1996.... F-2
Consolidated Statements of Operations for the
Six Months Ended March 31, 1998 and 1997 (unaudited) and the
Years Ended September 30, 1997, 1996 and 1995................. 36
Consolidated Statements of Stockholders' Equity
Six Months Ended March 31, 1998 (unaudited) and the
Years Ended September 30, 1997, 1996 and 1995................. F-3
Consolidated Statements of Cash Flows for the
Six Months Ended March 31, 1998 and 1997 (unaudited) and the
Years Ended September 30, 1997, 1996 and 1995................. F-4
Notes to Consolidated Financial Statements..................... F-6
</TABLE>
* * *
All schedules are omitted as the required information either is not
applicable or is included in the Consolidated Financial Statements or related
Notes.
Separate financial statements for the MHC have not been included herein
because the MHC has no material assets other than shares of Bank common stock
(which will be canceled as part of the conversion) and no significant
liabilities (contingent or otherwise), revenues or expenses, and has not engaged
in any significant activities to date.
Separate financial statements for the Holding Company have not been
included herein because the Holding Company, which has engaged in only
organizational activities to date, has no significant assets, liabilities
(contingent or otherwise), revenues or expenses.
122
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Pulaski Bank, A Federal Savings Bank:
We have audited the accompanying consolidated balance sheets of Pulaski Bank, A
Federal Savings Bank and subsidiaries (the "Bank") as of September 30, 1997 and
1996, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended September 30,
1997. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Bank as of September 30, 1997
and 1996, and the results of its operations and its cash flows for each of the
three years in the period ended September 30, 1997, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Bank
changed its method of accounting for mortgage servicing rights, effective
October 1, 1996, to conform with Statement of Financial Accounting Standards
No. 122.
/s/ DELOITTE & TOUCHE LLP
St. Louis, Missouri
November 7, 1997
F-1
<PAGE>
PULASKI BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 (UNAUDITED) AND SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
MARCH 31,
1998 SEPTEMBER 30,
------------------------------------
ASSETS (UNAUDITED) 1997 1996
<S> <C> <C> <C>
Cash and amounts due from depository institutions $ 2,028,113 $ 1,248,294 $ 2,022,158
Federal funds sold and overnight deposits 12,000,000 5,000,000 7,000,000
------------- ------------- -------------
Total cash and cash equivalents 14,028,113 6,248,294 9,022,158
Investment securities (market value $11,043,506, $16,071,484 and
$14,966,800, respectively) (Note 2) 11,035,768 16,068,191 15,011,923
Mortgage-backed and related securities - at cost (market value
$6,408,547, $6,647,107 and $7,645,805, respectively) (Note 3) 6,119,764.00 6,361,708 7,424,060
Loans held for sale 21,695,321 14,384,480 7,209,570
Loans receivable, net of allowance for loan losses of $664,422,
$612,852 and $478,804, respectively (Notes 4 and 8) 124,734,487 130,358,537 134,044,087
Federal Home Loan Bank stock - at cost 1,638,000 1,638,000 1,638,000
Real estate acquired in settlement of loans, net of allowance
for losses of $9,221, $-0- and $38,725, respectively (Note 5) 52,251 133,436
Premises and equipment - net (Note 6) 1,733,323 1,808,809 1,700,064
Accrued interest receivable:
Investment securities 80,198 140,225 110,005
Mortgage-backed securities 46,834 49,468 58,696
Loans 871,845 925,708 884,198
Other 1,883 882 1,767
Other assets 1,591,098 1,434,430 1,574,303
------------- ------------- -------------
TOTAL $ 183,628,885 $ 179,418,732 $ 178,812,267
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits (Note 7) $ 154,115,542 $ 148,672,221 $ 147,824,430
Advances from Federal Home Loan Bank of Des Moines (Note 8) 1,900,000 2,200,000 3,000,000
Advance payments by borrowers for taxes and insurance (Note 4) 1,552,170 3,113,093 3,055,223
Accrued interest payable 258,732 262,833 261,462
Other liabilities 1,153,491 1,312,695 2,166,745
------------- ------------- -------------
Total liabilities 158,979,935 155,560,842 156,307,860
============= ============= =============
COMMITMENTS AND CONTINGENCIES (Notes 12 and 13)
STOCKHOLDERS' EQUITY:
Preferred stock - $1.00 par value per share, authorized 10,000,000
shares; none issued or outstanding
Common stock - $1.00 par value per share, authorized 20,000,000
shares; 2,105,840, 2,094,800 shares and 2,094,000 shares
issued and outstanding, respectively 2,105,840 2,094,800 2,094,000
Additional paid-in capital 5,255,358 5,132,238 5,117,826
Unearned MRDP shares (Note 11) (101,200) (128,800) (184,000)
Retained earnings, substantially restricted (Note 10) 17,388,952 16,759,652 15,476,581
------------- ------------- -------------
Total stockholders' equity 24,648,950 23,857,890 22,504,407
------------- ------------- -------------
TOTAL $ 183,628,885 $ 179,418,732 $ 178,812,267
============= ============= =============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-2
<PAGE>
PULASKI BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND YEARS ENDED SEPTEMBER 30, 1997,
1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNEARNED
MANAGEMENT
RECOGNITION
NUMBER OF ADDITIONAL AND
SHARES COMMON PAID-IN DEVELOPMENT RETAINED
OUTSTANDING STOCK CAPITAL PLAN SHARES EARNINGS TOTAL
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
OCTOBER 1, 1994 2,070,000 $ 2,070,000 $ 4,865,826 $ - $ 14,392,429 $ 21,328,255
Award of Management
Recognition and Develop-
ment Plan shares 24,000 24,000 252,000 (276,000)
Amortization of Management
Recognition and Develop-
ment Plan shares 36,800 36,800
Dividends ($.80 per share)* (494,400) (494,400)
Net income 1,225,490 1,225,490
--------- ----------- ----------- ---------- ------------ ------------
BALANCE,
SEPTEMBER 30, 1995 2,094,000 2,094,000 5,117,826 (239,200) 15,123,519 22,096,145
Amortization of Management
Recognition and Develop-
ment Plan shares 55,200 55,200
Dividends ($0.85 per share)* (530,400) (530,400)
Net income 883,462 883,462
--------- ----------- ----------- ---------- ------------ ------------
BALANCE,
SEPTEMBER 30, 1996 2,094,000 2,094,000 5,117,826 (184,000) 15,476,581 22,504,407
Stock option exercised 800 800 14,412 15,212
Amortization of Management
Recognition and Development
Plan shares 55,200 55,200
Dividends ($1.03 per share)* (639,820) (639,820)
Net income 1,922,891 1,922,891
--------- ----------- ----------- ---------- ------------ ------------
BALANCE,
SEPTEMBER 30, 1997 2,094,800 2,094,800 5,132,238 (128,800) 16,759,652 23,857,890
Dividends ($.55 per share)* (347,254) (347,254)
Stock options exercised 11,040 11,040 123,120 134,160
Amortization of management
recognition and development
plan shares 27,600 27,600
Net income 976,553 976,553
--------- ----------- ----------- ---------- ------------ ------------
BALANCE, MARCH 31, 1998 2,105,840 $ 2,105,840 $ 5,255,358 $ (101,200) $ 17,388,951 $ 24,648,949
========= =========== =========== ========== ============ ============
</TABLE>
*Pulaski Bancshares. M.H.C. ("Holding Company"), which owns 1,470,000 shares of
stock in the Bank, waived receipt thereby reducing the actual dividend payment
to the amounts shown above. The accumulated waived dividends at March 31, 1998
were $4,961,250. Upon completion of the conversion, all shares of the Holding
Company will be publicly owned, and the restriction and availability of waived
dividends will terminate.
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PULASKI BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED) AND YEARS ENDED SEPTEMBER
- ------------------------------------------------------------------------------
30, 1997, 1996 AND 1995
- -----------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
-----------------------------------
1998 1997
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 976,553 $ 894,413
------------- --------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, amortization and accretion:
Premises and equipment 141,055 125,315
Management Recognition and Development Plan
stock awards 27,600 27,600
Loan fees, discounts and premiums - net (58,337) (110,177)
Provision for loan losses 69,523 18,481
Provision for losses on real estate acquired in
settlement of loans 15,998 14,723
Gains on sales of real estate acquired in settlement
of loans (15,676)
Originations of loans for sale to
correspondent lenders (58,639,358) (29,537,786)
Proceeds from sales of loans to
correspondent lenders 51,609,255 27,450,555
Gains on sales of loans (280,738) (157,043)
Deferred taxes 11,526 241,787
Changes in other assets and liabilities (215,976) (1,239,455)
------------- --------------
Net adjustments (7,319,452) (3,181,676)
------------- --------------
Net cash (used in) provided by
operating activities (6,342,899) (2,287,263)
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 13,545,000 7,500,000
Purchases of investment securities and Federal
Home Loan Bank stock (8,412,722) (11,023,826)
Principal payments received on mortgage-backed
and related securities 242,998 556,831
Loan purchases
Loan repayments - net 5,397,604 5,047,984
Proceeds from sales of real estate acquired in
settlement of loans 46,103 58,936
Net additions to premises and equipment (65,569) (199,140)
------------- --------------
Net cash provided by investing activities 10,753,414 1,940,785
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits $ 5,443,321 1,860,270
Proceeds from Federal Home Loan Bank advances
Repayment of Federal Home Loan Bank advances (300,000) (800,000)
Net increase (decrease) in advance payments by
borrowers for taxes and insurance (1,560,923) (1,642,189)
Common stock issued under Stock Option Plan and
related tax benefit 134,160
Dividends declared on common stock (347,254) (312,000)
------------- --------------
Net cash used in financing activities 3,369,304 (893,919)
------------- --------------
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,922,891 $ 883,462 $ 1,225,490
------------ ------------- -------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, amortization and accretion:
Premises and equipment 270,254 206,205 233,911
Management Recognition and Development Plan
stock awards 55,200 55,200 36,800
Loan fees, discounts and premiums - net (228,781) (236,288) (27,355)
Provision for loan losses 169,176 64,700 151,358
Provision for losses on real estate acquired in
settlement of loans 14,653 50,023 133,627
Gains on sales of real estate acquired in settlement
of loans (4,694) (44,447) (24,745)
Originations of loans for sale to
correspondent lenders (70,365,167) (59,795,458) (36,848,195)
Proceeds from sales of loans to
correspondent lenders 63,598,438 56,063,054 36,160,662
Gains on sales of loans (408,180) (214,054) (66,662)
Deferred taxes 435,066 (562,061) (37,244)
Changes in other assets and liabilities (1,231,160) 1,132,706 (577,729)
------------- ------------- -------------
Net adjustments (7,695,195) (3,280,420) (865,572)
------------- ------------- -------------
Net cash (used in) provided by
operating activities (5,772,304) (2,396,958) 359,918
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 13,500,000 5,997,700 3,000,000
Purchases of investment securities and Federal
Home Loan Bank stock (14,333,318) (15,320,866) (1,658,600)
Principal payments received on mortgage-backed
and related securities 1,070,115 2,022,252 2,244,310
Loan purchases (261,000)
Loan repayments - net 3,511,481 14,164,754 7,888,888
Proceeds from sales of real estate acquired in
settlement of loans 126,436 475,479 1,333,000
Net additions to premises and equipment (378,999) (392,410) (83,891)
------------- ------------- -------------
Net cash provided by investing activities 3,495,715 6,946,909 12,462,707
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 847,891 (3,680,444) (1,323,191)
Proceeds from Federal Home Loan Bank advances 1,000,000
Repayment of Federal Home Loan Bank advances (800,000) (2,000,000) (8,000,000)
Net increase (decrease) in advance payments by
borrowers for taxes and insurance 79,442 (198,698) (60,331)
Common stock issued under Stock Option Plan and
related tax benefit 15,212
Dividends declared on common stock (639,820) (530,400) (494,400)
------------- ------------- -------------
Net cash used in financing activities (497,275) (6,409,542) (8,877,922)
------------- ------------- -------------
</TABLE>
F-4
<PAGE>
PULASKI BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED) AND YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended
March 31, Years Ended September 30,
------------------------------ ----------------------------------------------------
1998 1997 1997 1996 1995
(Unaudited)
<S> <C> <C> <C> <C> <C>
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS 7,779,819 $ (1,240,397) $ (2,773,864) $ (1,859,591) $ 3,944,703
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR 6,248,294 9,022,158 9,022,158 10,881,749 6,937,046
---------- ---------- ---------- ----------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $14,028,113 $ 7,781,761 $ 6,248,294 $ 9,022,158 $10,881,749
============= ============= ============= ============= ============
ADDITIONAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest on deposits $ 3,480,848 $ 3,396,361 $ 6,822,800 $ 6,884,066 $ 6,352,107
Interest on advances from the
Federal Home Loan Bank 69,230 90,983 160,594 187,239 468,983
Income taxes 690,814 106,190 486,190 930,000 537,472
NONCASH INVESTING ACTIVITIES:
Real estate acquired in settlement of loans 114,352 5,138 2,959 277,590 1,425,003
Award of Management Recognition and
Development
Plan shares 276,000
</TABLE>
See accompanying notes to the consolidated financial statements. (Concluded)
F-5
<PAGE>
PULASKI BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED) AND
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pulaski Bank, A Federal Savings Bank (the "Bank") was founded in 1922 as a
Missouri chartered savings and loan association and is headquartered in St.
Louis County, Missouri. Pursuant to a Plan of Reorganization and Stock
Issuance in Connection with Formation of a Mutual Holding Company adopted by
the Bank's Board of Directors on November 17, 1993, and subsequently amended,
the Bank reorganized as the Missouri chartered capital stock savings and loan
association subsidiary of Pulaski Bancshares, M.H.C. ("Holding Company"), a
Federally-chartered mutual holding company ("Reorganization"). The
Reorganization was completed on May 11, 1994 through the issuance by the Bank
of 2,070,000 shares of common stock, of which 1,470,000 shares were issued to
the Holding Company and 600,000 shares were issued to depositors and
borrowers of the Bank.
On May 10, 1995, the Bank received conditional approval from the Office of
Thrift Supervision ("OTS") to convert from a Missouri-chartered stock savings
and loan association to a Federally-chartered stock savings bank. The
charter conversion was conditioned upon the approval of the Bank's minority
stockholders (other than Pulaski Bancshares, M.H.C.). At a special meeting
of Stockholders held June 19, 1995, the charter conversion was approved by
the stockholders and became effective. The Bank changed its name to "Pulaski
Bank, A Federal Savings Bank" as part of the charter conversion.
The accounting and reporting policies and practices of the Bank and
subsidiaries conform to generally accepted accounting principles and to
prevailing practices within the thrift industry. A summary of the Bank's
significant accounting policies follows:
UNAUDITED INTERIM FINANCIAL STATEMENTS - The interim consolidated financial
statements as of March 31, 1998 and for the six months ended March 31, 1998
and 1997 and the related footnote information are unaudited. Such unaudited
interim financial statements have been prepared in accordance with the
requirements for presentation of interim financial statements and are in
accordance with generally accepted accounting principles. In the opinion of
management, the accompanying unaudited consolidated financial statements
contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial position as of March 31, 1998 and
the results of operations and cash flows for the six month periods ended
March 31, 1998 and 1997. The results of operations for the six months ended
March 31, 1998 are not necessarily indicative of results that may be expected
for any other interim period or for the full year.
NATURE OF OPERATIONS - The Bank is a community-oriented financial institution
that provides traditional financial services through the operation of five
full service branches within St. Louis City and County. The Bank is engaged
primarily in the business of attracting deposits from the general public and
using these and other funds to originate one- to four-family residential
mortgage loans within the Bank's lending market area. The Bank is an
approved lender/servicer for the Federal Housing Administration ("FHA") and
the Veterans Administration ("VA"), as well as for the Missouri Housing
Development Commission (a government agency established to provide home
buying opportunities for lower income
F-6
<PAGE>
first time home buyers) ("MHDC"). The Bank is also an approved
seller/servicer for the Government National Mortgage Association ("GNMA").
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of Pulaski Bank, A Federal Savings Bank, its
wholly-owned subsidiary Pulaski Service Corporation and Pulaski Service
Corporation's wholly-owned subsidiary Pulaski Real Estate Co. All
significant intercompany balances and transactions have been eliminated.
Pulaski Real Estate Co. was liquidated and dissolved during the year ended
September 30, 1997. This transaction did not have a significant impact on
the consolidated financial statements.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - 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 that
affect the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. The provision for
loan losses is a significant estimate reported within the financial
statements.
CASH EQUIVALENTS - For purposes of reporting cash flows, cash and cash
equivalents include cash and amounts due from depository institutions,
federal funds sold, and overnight deposits. Generally, federal funds are
sold for a one-day period.
INVESTMENT AND MORTGAGE-BACKED AND RELATED SECURITIES - Investment and
mortgage-backed and related securities are classified as held-to-maturity and
are stated at cost, adjusted for amortization of premiums and accretion of
discounts, as management has both the intent and ability to hold them to
maturity. Such premiums and discounts are amortized and accreted utilizing
the level yield method. Gains and losses from sales are determined on a
specific identification method. Effective October 1, 1994, the Bank adopted
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Debt and Equity Securities. All investments and mortgage-backed securities
were classified as held-to-maturity.
LOANS HELD FOR SALE - Loans held for sale are carried at the lower of cost or
market. These loans are generally sold on a servicing released basis and are
covered by investor commitments. Accordingly, market values for such loans
are based on commitment prices. Gains or losses on loan sales are recognized
at the time of sale and are determined by the difference between net sales
proceeds and the principal balance of the loans sold, adjusted for net
deferred loan fees. Loan origination and commitment fees, net of certain
direct loan origination costs, are deferred until the sale of the loan.
LOANS - Loans are stated at the principal amounts outstanding adjusted for
premiums and discounts. Premiums and discounts are amortized and accreted
using the level yield method.
Interest on loans is accrued based upon the principal amounts outstanding.
The Bank's policy is to discontinue the accrual of interest income on any
loan when, in the opinion of management, there is reasonable doubt as to the
timely collectibility of interest or principal. Non-accrual loans are
returned to accrual status when, in the opinion of management, the financial
position of the borrower indicates there is no longer any reasonable doubt as
to the timely collectibility of interest or principal.
Loan origination and commitment fees, net of certain direct loan origination
costs, are deferred and amortized to interest income using the level yield
method.
F-7
<PAGE>
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is increased by
charges to income and decreased by charge-offs (net of recoveries). Management's
periodic evaluation of the adequacy of the allowance is based on the Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations which may affect the borrower's ability to repay, the estimated value
of any underlying collateral and current economic conditions.
REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS - Real estate acquired in settlement
of loans is initially recorded on an individual asset basis at the lower of (1)
fair value minus estimated cost to sell or (2) cost, with any writedown charged
to the allowance for loan losses. If, subsequent to foreclosure, the fair value
of the real estate acquired through foreclosure is determined to have declined
based upon periodic evaluations by management, valuation allowances are
established through a charge to income. Subsequent increases in the fair value
are recorded through a reversal of the valuation allowance, but not below zero.
Costs relating to the development or improvement of real estate owned are
capitalized, whereas those relating to and maintaining the property are charged
to expense.
PREMISES AND EQUIPMENT - Premises and equipment are stated at cost, less
accumulated depreciation. Depreciation charged to operations is primarily
computed utilizing the straight-line method over the estimated useful lives of
the related assets. Estimated lives range from 3 to 45 years for buildings and
improvements and 5 to l0 years for furniture and equipment.
INCOME TAXES - Deferred income taxes are determined using an asset or liability
approach that requires the recognition of deferred tax assets or liabilities
based upon temporary differences in the tax basis of an asset or liability and
its related financial statement balance. The deferred tax asset or liability is
calculated using the enacted tax rates expected to apply in the period in which
the deferred asset or liability is expected to be settled or realized.
EARNINGS PER SHARE - Basic earnings per share are determined by dividing net
income for the period by the weighted average number of common shares. Diluted
earnings per share considers the effects of dilution of earnings after
consideration of the stock options outstanding under the Bank's Stock Option
Plan.
A summary of the weighted average number of shares and weighted average number
of shares and common equivalent shares follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31, YEARS ENDED SEPTEMBER 30,
---------------------------------- ---------------------------------------------------
1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Weighted average
number of shares 2,097,509 2,094,092 2,094,092 2,094,000 2,086,833
Common equivalent
shares 33,444 11,475 16,860 8,874 9,218
--------- --------- --------- --------- ---------
Weighted average
number of shares
and common
equivalent shares 2,130,953 2,105,567 2,110,860 2,102,874 2,096,051
========= ========= ========= ========= =========
</TABLE>
MORTGAGE SERVICING RIGHTS - On October 1, 1996, the Bank adopted the provisions
of Statement of Financial Accounting Standards No. 122, Accounting for Mortgage
Servicing Rights ("SFAS 122"). Effective December 31, 1996, SFAS 122 was
superseded by Statement of Financial Accounting
F-8
<PAGE>
Standards No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities ("SFAS 125"). SFAS 125 did not
materially change the accounting of mortgage servicing rights under SFAS
122 but provided a broader umbrella on the accounting and reporting
standards for transfers and servicing of financial assets and
extinguishments of liabilities.
For the six months ended March 31, 1998 and 1997 and for the year ended
September 30, 1997, approximately $119,000, $92,000 and $194,000 of
mortgage servicing rights were capitalized, respectively. The fair value of
the mortgage servicing rights were based upon the present value of
estimated expected future cash flows valuation technique and in some
instances fair value. The discount rate utilized was commensurate with the
risks inherent in the portfolio and the average portfolio life was based
upon relative industry statistics and the Bank's historic prepayment rate.
The cost of mortgage servicing rights is amortized in proportion to, and
over the period of estimated net servicing revenues. Impairment of mortgage
servicing rights is assessed based on the fair value of the rights. A
valuation allowance has not been established as the amortized cost
approximates fair value.
RECLASSIFICATIONS - Certain amounts included in the 1995, 1996 and 1997
consolidated financial statements have been reclassified to conform to the
1998 presentation.
2. INVESTMENT SECURITIES
Investment securities are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998 (UNAUDITED)
----------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Government and Agency
debt obligations $11,035,768 $18,985 $(11,247) $11,043,506
================= ============= ============= =================
Weighted average rate at end
of period 5.81%
=================
SEPTEMBER 30, 1997
----------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
U.S. Government and Agency debt
obligations $16,068,191 $27,288 $(23,995) $16,071,484
================= ============= ============= =================
Weighted average rate at end of
period 5.88%
=================
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Bankers acceptances $ 490,725 $ - $ - $ 490,725
U.S. Government and Agency debt
obligations 14,521,198 2,381 (47,504) 14,476,075
------------ ------- --------- -------------
$ 15,011,923 $ 2,381 $ (47,504) $ 14,966,800
============ ======= =========== =============
Weighted average rate at end of
period
5.74%
============
</TABLE>
The amortized cost and market values of debt securities by contractual
maturity, are as follows:
<TABLE>
<CAPTION>
AT MARCH 31, 1998 AT SEPTEMBER 30, 1997
--------------------------------------- ---------------------------------------
AMORTIZED MARKET AMORTIZED MARKET
TERM TO MATURITY COST VALUE COST VALUE
<S> <C> <C> <C> <C>
Less than 1 year $ 4,736,533 $ 4,732,881 $ 9,403,409 $ 9,383,935
1 year - 5 years 6,299,235 6,310,625 6,664,782 6,687,549
------------- ------------- ------------- -------------
TOTAL $ 11,035,768 $ 11,043,506 $ 16,068,191 $ 16,071,484
============= ============= ============= =============
</TABLE>
3. MORTGAGE-BACKED AND RELATED SECURITIES
Mortgage-backed and related securities are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998 (UNAUDITED)
-------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage
Corporation pass-through
certificates $ 884,471 $ 59,922 $ - $ 944,393
Government National Mortgage
Association pass-through
securities 4,187,394 203,073 4,390,467
Collateralized mortgage obligations 1,047,899 25,788 1,073,687
----------- --------- ------- -----------
Total $ 6,119,764 $ 288,783 $ - $ 6,408,547
=========== ========= ======= ===========
Weighted average rate at end of period 8.23%
===========
</TABLE>
The Bank's investment in collateralized mortgage obligations are primarily
backed by the Federal Home Loan Mortgage Corporation.
At March 31, 1998, the Federal Home Loan Mortgage Corporation pass-through
certificates were all fixed rate with a weighted average yield of 9.57%.
The Government National Mortgage Association pass-through securities
consisted of $3,601,784 at fixed rates and $585,610 at variable rates with
a
F-10
<PAGE>
weighted average yield of 8.36%. The collateralized mortgage obligations
consisted of $1,047,899 at variable rates with a weighted average yield of 6.57%
with weighted average lives of 4.35 years.
<TABLE>
<CAPTION>
September 30, 1997
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage
Corporation pass-through
certificates $ 997,968 $ 63,756 $ -- $ 1,061,724
Government National Mortgage
Association pass-through
securities 4,308,192 193,812 4,502,004
Collateralized mortgage obligations 1,055,548 28,125 (294) 1,083,379
------------ ------------ -------- ------------
Total $ 6,361,708 $ 285,693 $ (294) $ 6,647,107
============ ============ ======== ============
Weighted average rate at end of period 8.24 %
============
</TABLE>
At September 30, 1997, the Federal Home Loan Mortgage Corporation pass-through
certificates were all fixed rate with a weighted average yield of 9.56%. The
Government National Mortgage Association pass-through securities consisted of
$3,680,894 at fixed rates and $627,298 at variable rates with a weighted average
yield of 8.35%. The collateralized mortgage obligations consisted of $1,055,548
at variable rates with a weighted average yield of 6.53% with weighted average
lives of 5.22 years.
<TABLE>
<CAPTION>
September 30, 1996
-------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage
Corporation pass-through
certificates $ 1,231,675 $ 74,737 $ - $ 1,306,412
Government National Mortgage
Association pass-through
securities 4,682,284 130,772 (8,819) 4,804,237
Collateralized mortgage obligations 1,498,015 26,259 (1,204) 1,523,070
Other 12,086 12,086
----------- --------- --------- ------------
Total $ 7,424,060 $ 231,768 $ (10,023) $ 7,645,805
=========== ========= ========= ============
Weighted average rate at end of period 8.17 %
===========
</TABLE>
F-11
<PAGE>
4. LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998 SEPTEMBER 30,
-----------------------------------
(UNAUDITED) 1997 1996
<S> <C> <C> <C>
Loans secured by residential real estate:
Conventional $ 107,972,923 $ 113,959,269 $ 117,583,928
FHA/VA 9,398,869 10,745,031 11,844,879
------------- ------------- -------------
117,371,792 124,704,300 129,428,807
Commercial real estate loans 612,096 2,120,129 3,452,282
Consumer loans 7,251,034 4,051,414 1,627,524
------------- ------------- -------------
125,234,922 130,875,843 134,508,613
Less:
Deferred loan (costs) fees (300,692) (142,768) (41,406)
Loans-in-process 136,705 47,222 27,128
Allowance for loan losses 664,422 612,852 478,804
------------- ------------- -------------
Total $ 124,734,487 $ 130,358,537 $ 134,044,087
============= ============= =============
Weighted average rate at end of period 8.27 % 8.34 % 8.02 %
==== ==== ====
</TABLE>
Substantially all of the loans secured by residential real estate
represent one-to four-family residential property. Loans secured by multi-
family residential property approximated $1.5 million, $1.1 million and
$1.4 million at March 31, 1998, September 30, 1997 and September 30, 1996,
respectively.
The adjustable rate loans have interest rate adjustment limitations and
are generally indexed to the one year Constant Maturity U.S. Treasury
rate. Future market factors may affect the correlation of the interest
rate adjustment with the rates the Bank pays on the short-term deposits
that have been primarily utilized to fund these loans.
F-12
<PAGE>
The Bank has granted loans to officers and directors. Changes in loans to
officers and directors are summarized as follows:
<TABLE>
<S> <C>
Balance, October 1, 1995 $ 220,320
Additions -
Repayments and reclassifications (149,411)
---------
Balance, September 30, 1996 70,909
Additions 239,106
Repayments and reclassifications (1,494)
---------
Balance, September 30, 1997 308,521
Additions 234,753
Repayments and reclassifications (101,042)
---------
Balance, March 31, 1998 $ 442,232
=========
</TABLE>
Activity in the allowance for loan losses for the six months ended March 31,
1998 and 1997 and for the years ended September 30, 1997, 1996 and 1995 follows:
<TABLE>
<CAPTION>
Six Months Ended March 31, Years Ended September 30,
------------------------------ ------------------------------------------------
1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $ 612,852 $ 478,804 $ 478,804 $ 418,968 $ 477,319
Provision charged to expense 69,523 18,481 169,176 64,700 151,358
Charge-offs (23,180) (42,487) (43,915) (17,057) (257,980)
Recoveries 5,227 4,000 8,787 12,193 48,271
--------- --------- --------- --------- ---------
Balance, end of period $ 664,422 $ 458,798 $ 612,852 $ 478,804 $ 418,968
========= ========= ========= ========= =========
</TABLE>
Nonaccrual loans for which interest has been reduced totaled approximately
$404,000, $217,000, $51,000 and $214,000 at March 31, 1998 and September 30,
1997, 1996 and 1995, respectively. Interest income recognized on impaired loans
was not significant for the six months ended March 31, 1998 and 1997 or for the
years ended September 30, 1997, 1996 and 1995. Similarly, the difference between
interest that would have been recognized under the original terms of nonaccrual
and renegotiated loans and interest actually recognized on such loans were not
significant.
At March 31, 1998 and 1997, the Bank was servicing loans for others amounting to
approximately $34,400,000 and $23,983,000, respectively. At September 30, 1997,
1996 and 1995, such loans approximated $28,972,000, $20,659,000 and $16,286,000,
respectively. Servicing loans for others generally consists of collecting
mortgage payments, maintaining escrow accounts, disbursing payments to investors
and foreclosure processing. Loan servicing income is recorded on the accrual
basis and includes servicing fees from investors and certain charges collected
from borrowers. In connection with these loans serviced for others, the Bank
held borrowers' escrow balances of $394,000, $294,000 and $247,000 at September
30, 1997, 1996 and 1995, respectively. Escrow balances at March 31, 1998 totaled
$177,000.
The Bank originates certain loans for resale to correspondent lenders. Loans
sold to correspondent lenders during the six months ended March 31, 1998 and
1997 totaled $44.5 million and $23.4 million, respectively. During 1997, 1996
and 1995, the Bank sold whole loans to correspondent lenders totaling
F-13
<PAGE>
$53.4 million, $49.8 million and $34.6 million, respectively. The Bank
also originates loans for sale to the MHDC. These loans are then pooled
and securitized as GNMA mortgaged-backed securities and sold to MHDC. The
Bank retains servicing of these loans. During the six months ended March
31, 1998 and 1997, the Bank securitized and sold loans to MHDC totaling
$7.1 million and $4.1 million, respectively. During 1997, 1996 and 1995,
the Bank securitized and sold loans to MHDC totaling $10.2 million, $6.3
million and $1.6 million.
5. REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS
Real estate acquired in settlement of loans is summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
----------------------
1998 1997 1996
<S> <C> <C> <C>
Acquired in settlement of loans $ 61,472 $ - $ 172,161
Allowance for losses (9,221) (38,725)
-------- ---- ---------
Total $ 52,251 $ - $ 133,436
======== ==== =========
</TABLE>
Activity in the allowance for losses on real estate owned is summarized as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
------------------------ -------------------------------------
1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $ - $ 38,725 $ 38,725 $ 59,453 $ 21,843
Provision charged to expense 15,998 14,723 14,653 50,023 133,627
Charge-offs (6,777) (41,038) (53,378) (70,751) (96,017)
------- ------- -------- -------- --------
Balance, end of period $ 9,221 $ 12,410 $ - $ 38,725 $ 59,453
======= ======== ======== ======== ========
</TABLE>
6. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
-------------- ------------------------------
1998 1997 1996
<S> <C> <C> <C>
Land $ 439,886 $ 439,886 $ 439,886
Office buildings and improvements 2,368,182 2,358,188 2,223,748
Furniture and equipment 1,188,499 1,311,090 1,365,059
----------- ----------- -----------
3,996,567 4,109,164 4,028,693
Less accumulated depreciation (2,263,244) (2,300,355) (2,328,629)
----------- ----------- -----------
Total $ 1,733,323 $ 1,808,809 $ 1,700,064
=========== =========== ===========
</TABLE>
F-14
<PAGE>
7. DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------------------
MARCH 31, 1998 1997 1996
------------------------- ----------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
INTEREST INTEREST INTEREST
AMOUNT RATE AMOUNT RATE AMOUNT RATE
<S> <C> <C> <C> <C> <C> <C>
Transaction accounts:
Noninterest-bearing checking $ 1,544,784 - % $ 1,015,942 - % $ 448,721 - %
Interest-bearing checking 9,946,781 1.75 8,571,965 2.00 8,612,773 2.00
Money market 11,988,306 3.82 9,693,561 3.78 8,742,290 3.60
------------ ------------ ------------
Total transaction accounts 23,479,871 2.69 19,281,468 2.79 17,803,784 2.74
------------ ------------ ------------
Passbook savings account 25,795,849 2.50 25,983,346 2.50 27,873,378 2.50
------------ ------------ ------------
Certificates of deposit:
3.00% to 3.99% 578,927 3.94 577,558 3.94 888,009 3.95
4.00% to 4.99% 5,910,820 4.78 7,062,476 4.78 10,839,013 4.68
5.00% to 5.99% 82,196,282 5.42 81,184,023 5.43 72,102,875 5.36
6.00% to 6.99% 11,391,636 6.22 9,794,905 6.26 13,371,658 6.42
7.00% to 7.99% 4,762,157 7.03 4,788,445 7.03 4,930,052 7.07
8.00% to 8.99% 15,661 8.02
------------ ------------ ------------
Total certificates of deposit 104,839,822 5.54 103,407,407 5.53 102,147,268 5.50
------------ ------------ ------------
Total $154,115,542 4.59 $148,672,221 4.64 $147,824,430 4.60
============ ============ ============
</TABLE>
The aggregate amount of jumbo certificates of deposit with a minimum
principal amount of $100,000 was approximately $4,828,000, $4,974,000 and
$4,670,000 at March 31, 1998, September 30, 1997 and 1996, respectively.
Jumbo certificates of deposit are not issued at premium rates. Deposits in
excess of $100,000 are not federally insured.
The scheduled maturities of certificates of deposit follows:
<TABLE>
<CAPTION>
MARCH 31, 1998 SEPTEMBER 30, 1997
---------------------------- ------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
MATURE WITHIN AMOUNT RATE AMOUNT RATE
<S> <C> <C> <C> <C>
One year $ 65,334,551 5.31 % $ 63,063,243 5.29 %
Two years 26,350,592 5.97 22,632,981 5.66
Three years 8,601,016 5.81 13,739,992 6.34
Four years 1,276,633 5.37 2,510,930 5.52
Five years 3,141,486 5.76 1,240,020 5.77
Thereafter 135,544 7.08 220,241 6.93
------------- -------------
Total $ 104,839,822 5.54 % $ 103,407,407 5.53 %
============= =============
</TABLE>
F-15
<PAGE>
A summary of interest expense on deposits for the six months ended March
31, 1998 and 1997 and for the years ended September 30, 1997, 1996 and 1995
follows:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
-------------------------------- -------------------------------------------------
1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Transaction accounts $ 298,491 $ 248,525 $ 514,021 $ 563,623 $ 516,429
Savings and certificates
of deposit accounts 3,178,255 3,133,190 6,310,150 6,321,656 5,896,774
----------- ----------- ----------- ----------- -----------
TOTAL $ 3,476,746 $ 3,381,715 $ 6,824,171 $ 6,885,279 $ 6,413,203
=========== =========== =========== =========== ===========
</TABLE>
8. ADVANCES FROM FEDERAL HOME LOAN BANK OF DES MOINES
Advances from the Federal Home Loan Bank of Des Moines ("FHLB") are
summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
--------------------------- -------------------------- ------------------------------
INTEREST INTEREST INTEREST
MATURITY DATE AMOUNT RATE AMOUNT RATE AMOUNT RATE
<S> <C> <C> <C> <C> <C> <C>
March 31, 1997 $ - - % $ - - % $ 400,000 5.34 %
March 31, 1997 400,000 5.42
March 31, 1998 300,000 5.60 300,000 5.60
March 31, 1999 300,000 5.93 300,000 5.93 300,000 5.93
March 31, 2000 300,000 6.15 300,000 6.15 300,000 6.15
March 30, 2001 300,000 6.35 300,000 6.35 300,000 6.35
March 29, 2002 500,000 6.40 500,000 6.40 500,000 6.40
March 31, 2003 500,000 6.57 500,000 6.57 500,000 6.57
----------- ----------- -----------
$ 1,900,000 $ 2,200,000 $ 3,000,000
=========== =========== ===========
</TABLE>
The Bank has the ability to borrow funds from the FHLB under a blanket
agreement which assigns all investments in FHLB stock as well as
qualifying first mortgage loans equal to 150% of the outstanding balance
as collateral to secure the amounts borrowed. At March 31, 1998 and at
September 30, 1997, the Bank had approximately $72,000,000 and
$78,000,000, respectively, in borrowing capacity available to it under the
above-mentioned borrowing arrangement.
9. INCOME TAXES
Income tax (benefits) expense is summarized as follows
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
----------------------------- ----------------------------------------------
1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Current $ 545,460 $ 704,620 $ 589,520 $ 932,035 $ 650,724
Deferred (11,526) (241,787) 435,066 (562,061) (37,244)
--------- --------- ----------- --------- ---------
TOTAL $ 533,934 $ 462,833 $ 1,024,586 $ 369,974 $ 613,480
========== ========= =========== ========= =========
</TABLE>
F-16
<PAGE>
Income tax expense for the years ended September 30, 1997, 1996 and 1995 and
March 31, 1997 and 1998 differs from that computed at the Federal statutory rate
of 34 percent as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- ------------------------- -----------------------------
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory Federal
income tax rate $ 1,002,142 34.0 % $ 426,168 34.0 % $ 625,250 34.0 %
Increase (decrease)
resulting from:
State taxes 94,606 3.2 29,462 2.4 73,279 4.0
Other (72,162) (2.4) (85,656) (6.9) (85,049) (4.6)
------------ ------ --------- ------ --------- ------
Total $ 1,024,586 34.8 % $ 369,974 29.5 % $ 613,480 33.4 %
============ ====== ========= ====== ========= ======
<CAPTION>
Six Months Ended March 31,
--------------------------------------------------------
1998 1997
--------------------------- ----------------------------
Amount % Amount %
<S> <C> <C> <C> <C>
Tax at statutory Federal income tax rate $ 513,566 34.0 % $ 461,464 34.0 %
Increase (decrease) resulting from:
State taxes 42,294 2.8 42,414 3.2
Other (21,926) (1.5) (41,045) (3.1)
---------- ------ ---------- ------
Total $ 533,934 35.3 % $ 462,833 34.1 %
========== ====== ========== ======
</TABLE>
The components of deferred tax assets and liabilities follows:
<TABLE>
<CAPTION>
March 31, September 30,
---------------- ----------------------------------
1998 1997 1996
<S> <C> <C> <C>
Deferred tax assets:
Bad debt reserve $ 255,450 $ 223,756 $ 141,783
Deferred loan fees 48,212 61,732 88,769
Premises and equipment 322,972 312,269 333,502
Management Recognition and Development
Plan stock awards 37,720 37,720 37,720
SAIF recapitalization 414,143
Supplemental retirement plan 108,379 103,412 95,948
Other 31,004 31,130 15,967
----------- ----------- ----------
Total deferred tax assets 803,737 770,019 1,127,832
Deferred tax liabilities:
FHLB stock dividends 166,431 166,431 166,431
Mortgage servicing rights 122,497 77,253
----------- ---------- ----------
Total deferred tax liabilities 288,928 243,684 166,431
----------- ----------- ----------
Net deferred tax assets $ 514,809 $ 526,335 $ 961,401
========== ========== ==========
</TABLE>
F-17
<PAGE>
10. REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a
direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain off-
balance-sheet items as calculated under regulatory accounting practices. The
Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures that have been established by regulation to ensure
capital adequacy require the Bank to maintain minimum capital amounts and
ratios (set forth in the table below). The Bank's primary regulatory agency,
the OTS, requires that the Bank maintain minimum ratios of tangible capital
(as defined in the regulations) of 1.5%, core capital (as defined) of 3%,
and total risk-based capital (as defined) of 8%. The Bank is also subject to
prompt corrective action capital requirement regulations set forth by the
FDIC. The FDIC requires the Bank to maintain minimum of total and Tier I
capital (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier I capital (as defined) to average assets (as defined).
Management believes, as of March 31, 1998 and September 30, 1997, that the
Bank meets all capital adequacy requirements to which it is subject.
As of March 31, 1998 and September 30, 1997 and 1996, the most recent
notification from the OTS categorized the Bank as "well capitalized" under
the regulatory framework for prompt corrective action. To be categorized as
"well capitalized" the Bank must maintain minimum total risk-based, Tier I
risk-based, Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the Bank's category.
F-18
<PAGE>
<TABLE>
<CAPTION>
TO BE CATEGORIZED AS
"WELL CAPITALIZED"
UNDER PROMPT
FOR CAPITAL CORRECTIVE ACTION
ACTUAL ADEQUACY PURPOSES PROVISIONS
--------------------- -------------------- ----------------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1998:
Tangible capital (to total assets) $ 24,589 13.39 % $ 2,754 1.50 % N/A N/A
Core capital (to total assets) 24,589 13.39 % 5,507 3.00 % N/A N/A
Total risk-based capital (to risk-
weighted assets) 25,248 26.27 % 7,608 8.00 % $ 9,610 10.00 %
Tier I risk-based capital (to risk-
weighted assets) 24,589 25.59 % N/A N/A 5,766 6.00 %
Tier I leverage capital (to average
assets) 24,589 13.49 % N/A N/A 9,112 5.00 %
As of September 30, 1997:
Tangible capital (to total assets) 23,839 13.29 % 2,691 1.50 % N/A N/A
Core capital (to total assets) 23,839 13.29 % 5,382 3.00 % N/A N/A
Total risk-based capital (to risk-
weighted assets) 24,448 28.74 % 6,804 8.00 % $ 8,506 10.00 %
Tier I risk-based capital (to risk-
weighted assets) 23,839 28.03 % N/A N/A 5,103 6.00 %
Tier I leverage capital (to average
assets) 23,839 13.33 % N/A N/A 8,941 5.00 %
As of September 30, 1996:
Tangible capital (to total assets) 22,504 12.59 % 2,682 1.50 % N/A N/A
Core capital (to total assets) 22,504 12.59 % 5,364 3.00 % N/A N/A
Total risk-based capital (to risk-
weighted assets) 22,976 29.41 % 6,249 8.00 % 7,811 10.00 %
Tier I risk-based capital (to risk-
weighted assets) 22,504 28.81 % N/A N/A 4,687 6.00 %
Tier I leverage capital (to average
assets) 22,504 12.54 % N/A N/A 8,974 5.00 %
</TABLE>
A reconciliation of stockholders' equity and regulatory risk-based capital
follows (dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
--------------- ---------------------------
1998 1997 1996
<S> <C> <C> <C>
Stockholders' equity $ 24,649 $ 23,858 $ 22,504
Less disallowed mortgage servicing rights (60) (19) -
-------- -------- --------
Tangible capital 24,589 23,839 22,504
General valuation allowances 659 609 472
-------- -------- --------
Regulatory risk-based capital $ 25,248 $ 24,448 $ 22,976
======== ======== ========
</TABLE>
The OTS has issued a final regulation adding an interest rate risk component to
the risk-based capital standards (the "final IRR rule"). Institutions with a
greater than normal interest rate exposure must take a deduction from the total
capital available to meet their risk-based capital requirement. That deduction
is equal to one-half of the difference between the institution's actual measured
exposure and the normal level of exposure as defined by the regulation. Savings
institutions such as the Bank, with less than $300,000,000 in assets and risk-
based capital in excess of 12% are not subject to the final IRR rule.
F-19
<PAGE>
OTS regulations permit the Holding Company to waive receipt of dividends
from the Bank with prior OTS approval. Under the provisions of the notice of
intent to waive dividends approved by the OTS, the cumulative amount of such
waived dividends constitutes restricted retained earnings and is available
for declaration as a dividend solely to the Holding Company. Such dividends
must be considered as having been paid by the Bank in evaluating any
proposed dividend under OTS capital distribution regulations. In the event
that the Holding Company undertakes a mutual-to-stock conversion, the
appraisal submitted in connection with the conversion application must take
into account the amount of dividends waived by the Holding Company. As of
March 31, 1998 and September 30, 1997, the cumulative amount of dividends
waived by the Holding Company and restricted by the above provisions was
approximately $4,961,250 and $4,152,750, respectively. Upon completion of
the Plan of Conversion (see Note 16), all shares of the Holding Company will
be publicly owned, and the restriction and availability of waived dividends
will terminate. The Bank cannot pay cash dividends in excess of the higher
of (i) net income to date during the calendar year plus one-half of surplus
capital over regulatory capital or amounts which would result in the Bank
not maintaining adequate capital requirements imposed by the OTS or (ii) 75%
of net income over the most recent four-quarter period.
On September 30, 1996, the Deposit Insurance Fund Act ("DIF Act") was
enacted into law. Among other things, the DIF Act authorizes the FDIC to
impose a special one-time assessment on each depository institution with
SAIF-assessable deposits so that the SAIF may achieve its designated reserve
ratio. The Bank's assessment was $1,010,105 on a pre-tax basis and is
reflected in the accompanying statement of income for the year ended
September 30, 1996. In addition, the DIF Act provides for the merger of the
BIF and the SAIF on January 1, 1999, but only if no insured depository
institution is a savings association on that date. 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 associations. 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 the Bank.
11. EMPLOYEE BENEFITS
The 1994 Management Recognition and Development Plan ("MRDP") was adopted on
January 18, 1995. The MRDP is administered by the Board of Directors of the
Bank. Collectively, the Board reserved 24,000 shares of the Bank's common
stock for award pursuant to the MRDP, all of which have been awarded and
will vest over a five-year period beginning on January 18, 1995. The value
of the common stock contributed to the MRDP is being amortized to
compensation expense over the vesting period. Such compensation expense
amounted to $27,600 for the six months ended March 31, 1998 and 1997 and
$55,200, $55,200 and $38,600 during the years ended September 30, 1997, 1996
and 1995, respectively.
During 1996, the Bank executed a Supplemental Retirement Benefit agreement
for its then chief executive officer. Under the terms of the agreement, the
officer is to receive $2,473 monthly, commencing upon retirement, for a
total of 15 years. The net present value of these payments is reflected in
other liabilities and totaled $264,300, $252,000 and $234,000 at March 31,
1998 and September 30, 1997 and 1996, respectively. Compensation expense
under this plan totaled $19,500 and $8,915 for the six months ended March
31, 1998 and 1997, respectively, and $18,200 and $234,000 for the years
ended September 31, 1997 and 1996, respectively.
Substantially all full-time salaried employees are included in a trusteed,
defined benefit pension plan. The benefits contemplated by the plan are
funded through payments to the Financial Institutions
F-20
<PAGE>
Retirement Fund, which operates as a multiemployer plan. Statement of
Financial Accounting Standards No. 87 ("SFAS 87") Employers Accounting for
Pensions requires that an employer participating in a multiemployer plan
recognize as net pension cost the amount of the required contribution for
the period and as a liability the amount of any contributions which are due
and unpaid. During the six months ended March 31, 1998 and 1997 and during
the years ended September 30, 1997, 1996 and 1995, the Bank was not required
to make any contributions to the plan because it was fully funded and
accordingly, no pension expense was required to be recorded. At March 30,
1998 and at September 30, 1997 and 1996, the Bank had no liability for
contributions due and unpaid.
Effective July 1, 1995, the Bank established a 401(k) savings plan for
eligible employees. The Bank has historically matched 50% of each
participant's contribution up to a maximum of 4%. The Bank's contributions
to this plan approximated $17,400 for the six months ended March 31, 1998
and 1997 and $37,476, $36,700 and $7,859 for the years ended September 30,
1997, 1996 and 1995, respectively.
In connection with the Plan of Reorganization, the Bank has entered into
three year employment agreements with certain members of management. Under
the agreements, the Bank will pay the members their initial base salaries
which may be increased at the discretion of the Board of Directors.
Additionally, the agreements provide for severance payments if employment is
terminated following a change in control. These payments will be equal to
2.99 times their average annual compensation paid during the five years
immediately preceding the change in control.
Effective October 1, 1996, the Bank adopted Statement of Financial
Accounting Standard No. 123, Accounting for Stock-Based Compensation. As
permitted by the standard, the Bank has elected to continue following the
guidance of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, for measurement and recognition of stock-based
transactions with employees.
On January 18, 1995, the Board of Directors established the Stock Option
Plan (the "Plan") and reserved 60,000 shares of the Bank's common stock to
be awarded under the Plan. On January 25, 1995, the Board granted 49,800
shares to certain officers, employees and directors at an exercise price of
$11.88 per share. The remaining shares were granted on October 15, 1997 at
an exercise price of $25.63. The options vest 20% each year from the date of
grant and expire no later than ten years from the date of grant. Had
compensation cost for the Bank's stock-based compensation been determined
based on fair value at the grant dates for the awards, the Bank's net income
and earnings per share would not be materially different than that which has
been reported.
F-21
<PAGE>
A summary of the status of the Bank's Stock Option Plan follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE REMAINING
EXERCISE CONTRACTUAL EXERCISABLE OUTSTANDING
PRICE LIFE SHARES SHARES
<S> <C> <C> <C> <C>
October 1, 1994:
Granted $ 11.88 - - 49,800
Exercised -
------
September 30, 1995 11.88 9.33 49,800
Granted -
Exercised -
------
September 30, 1996 11.88 8.33 9,960 49,800
Granted -
Exercised 11.88 (800)
----
September 30, 1997 11.88 7.33 19,120 49,000
Granted 25.63 10,200
Exercised 11.88 (11,040)
-------
March 31, 1998 14.79 6.83 13,860 48,160
======
</TABLE>
12. CONTINGENCIES
The Bank is a defendant in legal actions arising from normal business
activities. Management, after consultation with general counsel, believes
that the resolution of these actions will not have any material adverse
effect on the Bank's consolidated financial statements.
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 associations 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. Included in such proposed legislation may be provisions imposing
material limitations on the non-banking activities of federal savings
associations. 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 the Bank.
13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK
The Bank is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its
customers in the way of commitments to extend credit. Commitments to
extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. The Bank evaluates each customer's
creditworthiness on a case-by-case basis.
F-22
<PAGE>
At September 30, 1997 and 1996, the Bank had commitments net of noncash
portion of refinanced loans to originate loans of approximately $4,982,000
and $4,620,000, respectively, of which approximately $2,772,000 and
$1,931,000 were at fixed rates. Such commitments at March 31, 1998 totaled
$7,276,000 of which approximately $5,216,000 were at fixed rates. Interest
rates on loan commitments range from 5.5% to 11.75% at March 31, 1998 and
September 30, 1997.
Substantially all of the Bank's loans are to borrowers located in St.
Louis, Missouri and the surrounding counties.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
Disclosures About Fair Value of Financial Instruments. The estimated fair
value amounts have been determined by the Bank using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts the Bank could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.
Approximate carrying values and estimated fair values are summarized as
follows:
<TABLE>
<CAPTION>
MARCH 31, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------------------ -------------------------------------------------------------
APPROXIMATE ESTIMATED APPROXIMATE ESTIMATED APPROXIMATE ESTIMATED
CARRYING FAIR CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE VALUE VALUE
ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 14,028,000 14,028,000 $ 6,284,000 $ 6,284,000 $ 9,022,000 $ 9,022,000
Bankers Acceptances 491,000 491,000
Investment securities 11,036,000 11,043,000 16,068,000 16,071,000 14,521,000 14,476,000
Mortgage-backed and related
securities 6,120,000 6,409,000 6,362,000 6,647,000 7,424,000 7,646,000
Loans:
Loans held for sale 21,695,000 21,934,000 14,384,000 14,559,000 7,209,000 7,355,000
Loans receivable (net of
allowance for loan losses of
$664,422, $612,852
and $478,804, respectively) 124,734,000 127,154,000 130,359,000 133,476,000 134,044,000 136,752,000
Mortgage servicing rights 299,000 299,000 188,000 188,000
LIABILITIES:
Transaction accounts 23,480,000 23,480,000 19,281,000 19,281,000 17,804,000 17,804,000
Passbook savings accounts 25,796,000 25,796,000 25,983,000 25,983,000 27,873,000 27,873,000
Certificates of deposit 104,840,000 104,708,000 103,407,000 103,232,000 102,147,000 101,594,000
Advances from Federal Home Loan Bank 1,900,000 1,900,000 2,200,000 2,188,000 3,000,000 2,950,000
</TABLE>
Cash and cash equivalents, bankers acceptances, mortgage servicing rights,
transaction accounts and passbook savings are shown at their face value.
The fair value of investment and mortgage-backed and related securities is
based on quoted market prices and prices obtained from independent pricing
services. The fair value of loans and advances from Federal Home Loan Bank
is estimated based on present values using applicable risk-adjusted
spreads to the U.S. Treasury curve to approximate current interest rates
applicable to each category of such financial instruments. The fair value
of loans held for sale is estimated using current investor commitment
prices.
No adjustment was made to the interest rates for changes in credit of
performing loans for there are no known credit concerns. Management
segregates loans in appropriate risk categories. Management
F-23
<PAGE>
believes that the risk factor embedded in the interest rates along with the
general reserves applicable to the performing loan portfolio results in a
fair valuation of such loans.
The fair value estimates presented herein are based on pertinent information
available to management. Although management is not aware of any factors
that would significantly affect the estimated fair value amounts, such
amounts have not been comprehensively revalued for purposes of these
financial statements and, therefore, current estimates of fair value may
differ significantly from the amounts presented herein.
15. PROSPECTIVE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 130, Reporting of Comprehensive Income and SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information. Both
statements are effective for financial statements for periods beginning
after December 15, 1997. Statement No. 130 establishes standards for
reporting and display of comprehensive income in a full set of general
purpose financial statements. An enterprise shall continue to display an
amount for net income but will also be required to display other
comprehensive income, which includes other changes in equity. Statement No.
131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements.
It also establishes standards for related disclosures about products and
services, geographic areas, and major customers.
SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement
Benefits, was issued in February 1998. This statement standardizes
disclosure requirements for pensions and other postretirement benefits and
requires additional disclosure on changes in benefit obligations and fair
values of plan assets in order to facilitate financial analysis. SFAS No.
132 is effective for fiscal years beginning after December 15, 1997, with
earlier application encouraged.
Adoption of these statements is not anticipated to have a significant effect
upon the presentation of the Bank's financial statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statements establishes accounting
and reporting standards for derivative instruments and requires that all
derivatives be recognized as either assets or liabilities in the statement
of financial position. Under this standard, all derivative instruments
should be measured at fair value. Although the Bank has no intention of
doing so, SFAS 133 allows an entity to transfer at the date of application
of this statement any held-to-maturity securities into the available-for-
sale category or the trading category. An entity would then be able in the
future to designate a security transferred into the available-for-sale
category as a hedged item. SFAS No. 133 is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999; however, the Bank will early
adopt this standard effective October 1, 1998. Because the Bank does not
invest in derivative instruments or enter into hedging transactions,
adoption of this statement is not anticipated to have a significant effect
on the Holding Company's financial position or results of operations.
16. PLAN OF CONVERSION AND STOCK ISSUANCE - SUBSEQUENT EVENT (UNAUDITED)
On April 15, 1998, the Board of Directors adopted a Plan of Conversion and
Agreement and Plan of Reorganization (the "Plan") to convert Pulaski
Bancshares, M.H.C. from a federal mutual holding
F-24
<PAGE>
company to a Delaware corporation to become the parent company of the Bank.
The new Delaware corporation will exchange certain shares of its common stock
for the outstanding common stock of the Bank and will issue and offer for
sale certain additional shares of its common stock. The additional shares of
common stock of the new Delaware corporation will be offered to eligible
account holders of the Bank as of March 31, 1997, who will receive
nontransferable subscription rights to purchase these shares, as well as
certain other persons as provided for in the Plan. The amount and pricing of
the proposed stock offering will be based on an independent appraisal of the
Bank.
In connection with the proposed transaction, an application will be filed
with the Office of Thrift Supervision and a registration statement with the
U.S. Securities and Exchange Commission with respect to the reorganization
and common stock offering. After receipt of the required regulatory
approvals, the Plan will be submitted to the members of Pulaski Bancshares,
M.H.C. for approval by at least a majority of the votes eligible to be cast
at a special meeting and will also be submitted to Bank's stockholders for
approval at a special meeting. The transaction is expected to be completed
during the fourth quarter of fiscal 1998. Costs related 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 the stock. As of March
31, 1998, deferred costs relating to the conversion were not material. If
the conversion is terminated, these deferred costs will be expensed to
operations.
* * * * * *
F-25
<PAGE>
GLOSSARY
ARM loans Adjustable-rate mortgage loans.
Direct Community Offering The offering of shares of the common stock
to the general public with preference given
first to the public stockholders of the Bank
and second to natural persons and trusts of
natural persons who are residents of the
Bank's Local Community.
Eligible Account Holders Holders of savings accounts at the Bank with
balances of at least $50 as of March 31,
1997.
ESOP Employee Stock Ownership Plan to be
implemented by the Bank in the conversion.
Exchange Act The Securities Exchange Act of 1934, as
amended.
Expiration Date September 18, 1998, the date on which the
Subscription Offering ends.
FASB Financial Accounting Standards Board.
FDIC Federal Deposit Insurance Corporation.
FHLB Federal Home Loan Bank.
Fannie Mae Federal National Mortgage Association.
Freddie Mac Federal Home Loan Mortgage Corporation.
GAAP Generally accepted accounting principles.
GNMA Government National Mortgage Association.
IRA Individual Retirement Account.
IRS Internal Revenue Service.
Local Community St. Louis, Missouri; St. Charles, Jefferson,
Franklin and St. Louis Counties, Missouri;
and Jersey, St. Clair, Monroe and Madison
Counties, Illinois.
MHDC Missouri Housing Development Commission.
NASD National Association of Securities Dealers,
Inc.
Other Members Depositors of the Bank as of July 31, 1998
and borrowers of the Bank as of May 11, 1994
whose loans continue to be outstanding as of
July 31, 1998.
G-1
<PAGE>
OTS Office of Thrift Supervision of the United
States Department of the Treasury.
Plan of Conversion The plan of conversion adopted by the Bank,
pursuant to which the conversion is being
undertaken.
RP Financial RP Financial, LC., the firm the Bank engaged
to prepare the appraisal of its estimated
pro forma market value in the conversion and
to advise the Bank about its business plan.
SAIF Savings Association Insurance Fund.
SEC Securities and Exchange Commission.
Securities Act The Securities Act of 1933, as amended.
SFAS Statement of Financial Accounting Standards.
Subscription Offering The offering of shares of the common stock,
in order to priority, to Eligible Account
Holders, the ESOP, Supplemental Eligible
Account Holders and Other Members.
Supplemental Eligible Holders of accounts at the Bank with
Account Holders balances of at least $50 as of June 30,
1998.
Syndicated Community Offering The offering of shares of the common stock
to the general public by a group of selected
dealers.
VA Veteran's Administration
G-2
<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 Pulaski Financial Corp. or Pulaski Bank, A Federal Savings Bank.
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 or 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 Pulaski Financial Corp. or Pulaski Bank, A Federal
Savings Bank since any of the dates as of which information is furnished herein
or since the date hereof.
[Logo for Pulaski Financial Corp.]
(Proposed Holding Company for
Pulaski Bank, A Federal Savings Bank)
4,080,000 to 6,348,000 Shares of
Common Stock
----------------
Prospectus
----------------
CHARLES WEBB & COMPANY,
a Division of Keefe, Bruyette & Woods, Inc.
August __, 1998
UNTIL THE LATER OF SEPTEMBER 15, 1998, OR 25 DAYS AFTER COMMENCEMENT OF THE
SYNDICATED COMMUNITY OFFERING OF COMMON STOCK, IF ANY, ALL DEALERS THAT BUY,
SELL OR TRADE THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING,
MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS'
OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
G-3
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution*
<TABLE>
<CAPTION>
<S> <C>
Legal fees and expenses..................... $210,000
Securities marketing firm legal fees........ 35,000
Securities marketing firm expenses.......... 10,000
EDGAR, printing, copying, postage, mailing.. 150,000
Appraisal/business plan fees and expenses... 45,000
Accounting fees............................. 150,000
Data processing fees and expenses........... 10,000
SEC filing fee.............................. 32,000
OTS filing fee.............................. 8,400
Blue sky legal fees and expenses............ 2,000
Other....................................... 25,600
--------
Total................................... $678,000
========
</TABLE>
*Estimated.
In addition to the above expenses, Charles Webb & Company will receive a
fee of 0.80% of the aggregate purchase price of the shares of common stock sold
in the Subscription Offering and the Direct Community Offering, excluding shares
purchased by the ESOP and by officers and directors of the Bank and their
associates. See "THE CONVERSION AND REORGANIZATION -- Plan of Distribution and
Selling Commissions."
Item 14. Indemnification of Officers and Directors
Article XVI of the Certificate of Incorporation of Pulaski Financial Corp.
requires indemnification of directors, officers and employees to the fullest
extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law sets forth
circumstances under which directors, officers, employees and agents may be
insured or indemnified against liability which they may incur in their
capacities:
145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE.--(a) A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at
II-1
<PAGE>
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this section. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
incurred by him any such capacity, or arising out of his status as such, whether
or not the corporation would have the power to indemnify him against such
liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agents, so that any
person who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
II-2
<PAGE>
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Item 15. Recent Sales of Unregistered Securities.
Not Applicable
Item 16. Exhibits and Financial Statement Schedules
The exhibits filed as part of this Registration Statement are as follows:
<TABLE>
<CAPTION>
(a) List of Exhibits
<S> <C> <C>
1.1 - Form of proposed Agency Agreement among Pulaski Financial Corp., Pulaski Bank, a Federal Savings
Bank, Pulaski Bancshares, M.H.C. and Charles Webb & Company (a)
1.2 - Engagement Letter with Pulaski Bank, A Federal Savings Bank and Charles Webb & Company (a)
2 - Amended Plan of Conversion and Agreement and Plan of Reorganization of Pulaski Bancshares,
M.H.C. and Pulaski Bank, A Federal Savings Bank (a)
3.1 - Certificate of Incorporation of Pulaski Financial Corp. (a)
3.2 - Bylaws of Pulaski Financial Corp. (a)
4 - Form of Certificate for Common Stock (a)
5 - Opinion of Breyer & Aguggia LLP regarding legality of securities registered (a)
8.1 - Tax Opinion of Breyer & Aguggia LLP (a)
8.2 - Opinion of RP Financial, LC. as to the value of subscription rights (a)
10.1 - Proposed Form of Employment Agreement for Executive Officers (a)
10.2 - Proposed Form of Severance Agreement for Senior Officers (a)
10.3 - Pulaski Bank, A Federal Savings Bank 401(k) Plan (a)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
(a) List of Exhibits
<S> <C> <C>
10.4 - Proposed Form of Employee Stock Ownership Plan (a)
21 - Subsidiaries of Pulaski Financial Corp. (a)
23.1 - Consent of Deloitte & Touche LLP
23.2 - Consent of Breyer & Aguggia LLP as to its Tax Opinion (a)
23.3 - Consent of RP Financial, LC. (a)
23.4 - Consent of Breyer & Aguggia LLP (a)
24 - Power of Attorney (a)
99.1 - Order Form (a)
99.2 - Solicitation and Marketing Materials
99.3 - Appraisal Agreement with RP Financial, LC. (a)
99.4 - Updated Appraisal Report of RP Financial, LC. (P)
99.5 - Proxy Statement for Special Meeting of Members of Pulaski Bancshares, M.H.C.
99.6 - Proxy Statement for Special Meeting of Stockholders of Pulaski Bank, A Federal Savings Bank
- ---------------------
</TABLE>
(a) Previously filed.
(P) Filed in paper pursuant to a continuing hardship exemption granted under
Rule 202 of Regulation S-T.
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended ("Securities Act");
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) Include any additional or changed material information on the plan
of distribution.
II-4
<PAGE>
(2) For determining liability under the Securities Act, treat each post-
effective amendment as a new registration statement of the securities offered,
and the offering of the securities at that time shall be the initial bona fide
offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) The undersigned registrant hereby undertakes to provide the underwriter
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
(5) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act, and is therefore, unenforceable. In the event that a
claim for indemnification against liabilities (other than the payment by the
small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amended Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in St. Louis, Missouri
on the 5th day of August 1998.
PULASKI FINANCIAL CORP.
By: /s/ William A. Donius
-------------------------------------
William A. Donius
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amended Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ William W. Donius President, Chief Executive Officer August 5, 1998
- ---------------------------------------- and Director (Principal Executive
William A. Donius Officer)
/s/ Thomas F. Hack Chief Financial Officer, Treasurer August 5, 1998
- ------------------------------------------ and Director (Principal Financial and
Thomas F. Hack Accounting Officer)
/s/ Michael J. Donius Executive Vice President, August 5, 1998
- ------------------------------------------
Michael J. Donius Chief Operating Officer and Director
/s/ Robert A. Ebel* Director August 5, 1998
- ------------------------------------------
Robert A. Ebel
/s/ E. Douglas Britt* Director August 5, 1998
- ------------------------------------------
E. Douglas Britt
/s/ Garland A. Dorn* Director August 5, 1998
- ----------------------------------------
Garland A. Dorn
/s/ Dr. Edward J. Howenstein* Director August 5, 1998
- ----------------------------------
Dr. Edward J. Howenstein
</TABLE>
* By power of attorney dated June 9, 1998.
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C>
1.1 - Form of proposed Agency Agreement among Pulaski Financial Corp., Pulaski Bank, A Federal Savings
Bank, Pulaski Bancshares, M.H.C. and Charles Webb & Company (a)
1.2 - Engagement Letter between Pulaski Bank, A Federal Savings Bank and Charles Webb & Company (a)
2 - Amended Plan of Conversion and Agreement and Plan of Reorganization of Pulaski Bank, A Federal
Savings Bank and Pulaski Bancshares, M.H.C. (a)
3.1 - Certificate of Incorporation of Pulaski Financial Corp. (a)
3.2 - Bylaws of Pulaski Financial Corp. (a)
4 - Form of Certificate for Common Stock (a)
5 - Opinion of Breyer & Aguggia LLP regarding legality of securities registered (a)
8.1 - Tax Opinion of Breyer & Aguggia LLP (a)
8.2 - Opinion of RP Financial, LC. as to the value of subscription rights (a)
10.1 - Proposed Form of Employment Agreement for Executive Officers (a)
10.2 - Proposed Form of Severance Agreement for Senior Officers (a)
10.3 - Pulaski Bank, A Federal Savings Bank 401(k) Plan (a)
10.4 - Proposed Form of Employee Stock Ownership Plan (a)
21 - Subsidiaries of Pulaski Financial Corp. (a)
23.1 - Consent of Deloitte & Touche LLP
23.2 - Consent of Breyer & Aguggia LLP as to its Tax Opinion (a)
23.3 - Consent of RP Financial, LC. (a)
23.4 - Consent of Breyer & Aguggia LLP (a)
24 - Power of Attorney (a)
99.1 - Order Form (a)
99.2 - Solicitation and Marketing Materials
99.3 - Appraisal Agreement with RP Financial, LC. (a)
99.4 - Updated Appraisal Report of RP Financial, LC. (P)
99.5 - Proxy Statement for Special Meeting of Members of Pulaski Bancshares, M.H.C.
99.6 - Proxy Statement for Annual Meeting of Stockholders of Pulaski Bank, A Federal Savings Bank
- ---------------------
</TABLE>
(a) Previously filed.
(P) Filed in paper pursuant to a continuing hardship exemption granted under
Rule 202 of Regulation S-T.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors
Pulaski Financial Corp.
St. Louis, Missouri
We consent to the use in this Amendment No. 2 to the Registration Statement of
Pulaski Financial Corp. on Form S-1 of our report dated November 7, 1997,
relating to the consolidated financial statements of Pulaski Bank, A Federal
Savings Bank and Subsidiaries, which appears in the Prospectus constituting part
of such Registration Statement. We also consent to the reference to us under
the heading "Experts" contained in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
St. Louis, Missouri
August 4, 1998
<PAGE>
EXHIBIT 99.2
[LOGO OF KBW] [LOGO]
CHARLES WEBB & COMPANY
a Division of
KEEFE, BRUYETTE & WOODS, INC.
TO MEMBERS AND FRIENDS OF PULASKI BANK AND PULASKI BANCSHARES, M.H.C.
- --------------------------------------------------------------------------------
Charles Webb & Company, a Division of Keefe, Bruyette & Woods, Inc., a member of
the National Association of Securities Dealers, Inc. ("NASD"), is pleased to
announce that Pulaski Bancshares, M.H.C. is converting to stock form and Pulaski
Bank (the "Bank") is reorganizing as a wholly-owned subsidiary of a newly-formed
stock holding company named Pulaski Financial Corp. (the "Holding Company"). In
conjunction with the conversion the Holding Company for the Bank, is offering
shares of common stock in a subscription offering and direct community offering
to certain depositors and borrowers of the Bank, the Bank's Employee Stock
Ownership Plan, and members of the general public pursuant to a Plan of
Conversion and Agreement and Plan of Reorganization.
At the request of the Holding Company, we are enclosing materials explaining the
conversion and your opportunity to invest in shares of the Holding Company's
common stock. Please read the enclosed prospectus carefully. The Holding
Company has asked us to forward these documents to you in view of certain
requirements of the securities laws in your state.
If you have any questions, please visit our Stock Information Center at 12300
Olive Boulevard, St. Louis, Missouri or feel free to call the Stock Information
Center at (314) 878-5200.
Very truly yours,
Charles Webb & Company
a Division of Keefe, Bruyette & Woods, Inc.
THE SHARES OF COMMON STOCK BEING OFFERED IN THE CONVERSION ARE NOT SAVINGS
ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR
ANY OTHER GOVERNMENTAL AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
- -------------------Investment Bankers and Financial Advisors--------------------
<PAGE>
(RECEIPT OF ORDER LETTER PULASKI FINANCIAL CORP. LETTERHEAD)
DATE
NAME
ADDRESS TAX I.D. NUMBER XXX-XX-XXX
CITY, STATE, ZIP
RECEIPT OF ORDER
This letter is to acknowledge receipt of your order to purchase common stock
offered by Pulaski Financial Corp. Please check the following information
carefully to ensure that we have entered your order correctly. Your order has
been assigned a prioritized category described below. Acceptance of your order
and the shares of stock you actually receive will be subject to the allocation
provisions of the Plan of Conversion, as well as other conditions and
limitations described in the Prospectus.
Our records indicate the following:
Number of Shares Ordered: _________
Purchase Price Per Share: $10.00
Total Order Amount: $________
Date Order Received: __/__/__
Order Number: _________
Category Assigned: _________
Category Description
--------------------
1. Eligible Account Holders - Depositors as of March 31, 1997 with
$50.00 or more on deposit
2. Employee Stock Ownership Plan (ESOP)
3. Supplemental Eligible Account Holders - Depositors as of
June 30, 1998 with $50.00 or more on deposit
4. Other Eligible Members Depositors as of July 31, 1998 and
borrowers of the Bank as of May 11, 1994 whose loans continue to
be outstanding as of July 31, 1998.
5. Public Stockholder of the Bank
6. Local Community Permanent resident of St. Louis, Missouri; St.
Charles, Jefferson, Franklin and St. Louis Counties, Missouri;
and Jersey, St. Clair, Monroe and Madison Counties, Illinois.
7. General Community
If this does not agree with your records or if you have any questions, please
call our Stock Information Center at (314) 878-5200. Thank you for your order.
Sincerely,
William A. Donius
President
<PAGE>
Date
Dear Member:
We are pleased to announce that Pulaski Bancshares, M.H.C. is converting to
stock form and Pulaski Bank (the "Bank") is reorganizing as a wholly-owned
subsidiary of a newly-formed stock holding company (the "Conversion and
Reorganization"). In conjunction with the Conversion and Reorganization,
Pulaski Financial Corp. (the "Holding Company"), the newly-formed corporation
that will serve as a holding company for the Bank, is offering shares of common
stock in a subscription offering and direct community offering to certain
depositors and borrowers of the Bank, to the Bank Employee Stock Ownership Plan,
and members of the general public, pursuant to a Plan of Conversion and
Agreement and Plan of Reorganization (the "Plan of Conversion").
Unfortunately, the Holding Company is unable to either offer or sell its common
stock to you because the small number of eligible subscribers in your
jurisdiction makes registration or qualification of the common stock under the
securities laws of your jurisdiction impractical, for reasons of cost or
otherwise. Accordingly, this letter should not be considered an offer to sell
or a solicitation of an offer to buy the common stock of the Holding Company.
However, you have the right to vote on the Plan of Conversion at the Special
Meeting of Members on September 28, 1998. Therefore, enclosed is a proxy card,
a Proxy Statement (which includes the Notice of the Special Meeting), a
Prospectus (which is provided solely as an accompaniment to the Proxy Statement)
and a return envelope for your proxy card.
I invite you to attend the Special Meeting on September 28, 1998. However,
whether or not you are able to attend, please complete the enclosed proxy card
and return it in the enclosed envelope.
Sincerely,
William A. Donius
President
THE SHARES OF COMMON STOCK BEING OFFERED IN THE CONVERSION ARE NOT SAVINGS
ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR
ANY OTHER GOVERNMENTAL AGENCY.
<PAGE>
Dear Friend:
We are pleased to announce that Pulaski Bancshares, M.H.C. is converting to
stock form and Pulaski Bank (the "Bank") is reorganizing as a wholly-owned
subsidiary of a newly-formed stock holding company anmed Pulaski Financial Corp.
(the "Holding Company"). In conjunction with the conversion the Holding Company
is offering shares of common stock in a subscription offering and direct
community offering to certain depositors and borrowers of the Bank, the Bank's
Employee Stock Ownership Plan, and members of the general public pursuant to a
Plan of Conversion and Agreement and Plan of Reorganization (the "Plan of
Conversion").
Because we believe you may be interested in learning more about the Holding
Company's common stock as a potential investment, we are sending you the
following materials that describe the stock offering. Please read these
materials carefully before you submit a Stock Order and Certification Form.
. PROSPECTUS: This document provides detailed information about the
operations of the Holding Company, the Bank and the proposed stock
offering.
. QUESTIONS AND ANSWERS: Key questions and answers about the stock
offering are found in this pamphlet.
. STOCK ORDER AND CERTIFICATION FORM: This form is used to purchase
stock by returning it with your payment in the enclosed business
reply envelope. The deadline for ordering stock is 12:00 Noon,
Central Time, on September 18, 1998.
You have the opportunity to buy stock directly from the Holding Company without
commission or fee. If you have additional questions regarding the Plan of
Conversion and stock offering, please call us at (314) 878-5200 Monday through
Friday 8:30 a.m. to 5:00 p.m., or stop by the Stock Information Center at 12300
Olive Boulevard, St. Louis, Missouri.
We are pleased to offer you this opportunity to become a charter shareholder of
Pulaski Financial Corp.
Sincerely,
William A. Donius
President
THE SHARES OF COMMON STOCK BEING OFFERED IN THE CONVERSION ARE NOT SAVINGS
ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR
ANY OTHER GOVERNMENTAL AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
<PAGE>
Dear Member:
We are pleased to announce that Pulaski Bancshares, M.H.C. (the "MHC") is
converting to stock form and Pulaski Bank (the "Bank") is reorganizing as a
wholly-owned subsidiary of a newly-formed stock holding company named Pulaski
Financial Corp. (the "Holding Company"). In conjunction with conversion the
holding company is offering shares of common stock in a subscription offering
and direct community offering to certain depositors and borrowers of the Bank,
the Bank's Employee Stock Ownership Plan, and members of the general public
pursuant to a Plan of Conversion and Agreement and Plan of Reorganization (the
"Plan of Conversion").
To accomplish the Conversion and Reorganization, we need your participation in
an important vote. Enclosed is a proxy statement describing the Plan of
Conversion and your voting and subscription rights. The Plan of Conversion has
been approved by the Office of Thrift Supervision and now must be approved by
you. YOUR VOTE IS VERY IMPORTANT.
Enclosed, as part of the proxy material, is your proxy card. This proxy card
should be signed and returned to us prior to the Special Meeting of Members on
September 28, 1998. Please take a moment to sign the enclosed proxy card and
return it to us in the postage-paid envelope provided. FAILURE TO VOTE HAS THE
SAME EFFECT AS VOTING AGAINST THE PLAN OF CONVERSION.
The Boards of Directors of the MHC and the Bank believe that the conversion is
in the best interests of the MHC and its members and the Bank and its
stockholders. Please remember:
. Your deposit accounts at the Bank will continue to be insured up to
the maximum legal limit by the Federal Deposit Insurance Corporation
("FDIC").
. There will be no change in the balance, interest rate, or maturity of
any deposit or loan accounts because of the conversion.
. You have a right, but no obligation, to buy stock before it is
offered to the public.
. Like all stock, stock issued in this offering will not be insured by
the FDIC.
Enclosed are materials describing the stock offering, including a Prospectus.
We urge you to read the Prospectus carefully before submitting your Stock Order
and Certification Form. If you are interested in purchasing common stock, you
must submit your Stock Order and Certification Form and payment prior to 12:00
Noon, Central Time, on September 18, 1998.
If you have additional questions regarding the stock offering, please call us at
(314) 878-5200, Monday through Friday 8:30 a.m. to 5:00 p.m., or stop by the
Stock Information Center located at 12300 Olive Boulevard, St. Louis, Missouri.
Sincerely,
William A. Donius
President
THE SHARES OF COMMON STOCK BEING OFFERED IN THE CONVERSION ARE NOT SAVINGS
ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR
ANY OTHER GOVERNMENTAL AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
<PAGE>
(Stockholder Letter Street holders - 2nd mailing-Pulaski Bank Letterhead)
Dear Stockholder:
Under separate cover on this date, we forwarded to you information regarding the
Plan of Conversion and Agreement and Plan of Reorganization of Pulaski Bank (the
"Bank") and Pulaski Bancshares, M.H.C. (the "MHC") and the concurrent offering
of common stock by Pulaski Financial Corp. (the "Holding Company").
As a result of certain requirements, we could not forward a Stock Order and
Certification Form with the other packet of materials. They are enclosed
herein.
The deadline for ordering the Holding Company's common stock is at 12:00 Noon,
Central Time, on September 18, 1998.
Should you have additional questions regarding the conversion and stock
offering, please call the Stock Information Center at (314) 878-5200, Monday
through Friday from 8:30 a.m. to 5:00 p.m., Central Time, or stop by the Stock
Information Center at 12300 Olive Boulevard, St. Louis, Missouri.
Sincerely,
William A. Donius
President
THE SHARES OF COMMON STOCK BEING OFFERED IN THE CONVERSION ARE NOT SAVINGS
ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR
ANY OTHER GOVERNMENTAL AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
<PAGE>
(Stockholder Letter STREET HOLDERS- Pulaski Bank letterhead)
Dear Stockholder:
We are pleased to inform you that the Boards of Directors of Pulaski Bank (the
"Bank") and Pulaski Bancshares, M.H.C. (the "MHC") have adopted a Plan of
Conversion and Agreement and Plan of Reorganization (the "Plan of Conversion")
whereby the MHC will convert to stock form and the Bank will be reorganized as a
wholly-owned subsidiary of a newly-formed stock holding company named Pulaski
Financial Corp. (the "Holding Company"). Pursuant to the Plan of Conversion,
stockholders of the Bank (other than the MHC) will be issued shares of common
stock of the Holding Company in exchange for their shares of the Bank common
stock (the "Exchange"). In addition to the shares of common stock to be issued
in the Exchange, the Company is also offering shares of common stock to the
MHC's members, the Bank's stockholders and members of the public. Consummation
of the Plan of Conversion is subject to (i) the approval of the members of the
MHC, (ii) the approval of the stockholders of the Bank and (iii) regulatory
approval.
We are asking stockholders of the Bank as of July 31, 1998, the voting record
date, to vote FOR the Plan of Conversion. If you and/or members of your family
hold stock in different names, you may receive more than one proxy mailing.
Please vote all proxy cards received and return them today in the enclosed
postage-paid envelope. Your vote FOR the Plan of Conversion will not obligate
you to buy any stock in the conversion. A Proxy Statement relating to the
conversion is enclosed.
We have enclosed the following materials which will help you learn more about
investing in the Holding Company's common stock. Please read and review the
materials carefully before making an investment decision.
. PROSPECTUS: This document provides detailed information about the
operations of the Holding Company, the Bank and the proposed stock
offering.
. QUESTIONS AND ANSWERS BROCHURE: Key questions and answers about the
stock offering are found in this pamphlet.
. STOCK ORDER AND CERTIFICATION FORM: This form is used to purchase
stock by signing and returning it with your payment in the enclosed
business reply envelope. The deadline for ordering stock is 12:00
Noon, Central Time, on September 18, 1998. YOU MAY OBTAIN A STOCK
ORDER AND CERTIFICATION FORM FROM YOUR BROKER OR BY CONTACTING THE
STOCK INFORMATION CENTER.
We are inviting our loyal depositors, existing stockholders, and local community
members to become stockholders of the Holding Company. Through this offering
you have the opportunity to buy stock directly from the Holding Company without
commission or fee.
Should you have additional questions regarding the conversion and stock
offering, please call the Stock Information Center at (314) 878-5200, Monday
through Friday 8:30 a.m. to 5:00 p.m. or stop by the Stock Information Center at
12300 Olive Boulevard, St. Louis, Missouri.
Sincerely,
William A. Donius
President
THE SHARES OF COMMON STOCK BEING OFFERED IN THE CONVERSION ARE NOT SAVINGS
ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR
ANY OTHER GOVERNMENTAL AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
<PAGE>
(Stockholder Letter REGISTERED HOLDERS- Pulaski Bank letterhead)
Dear Stockholder:
We are pleased to inform you that the Boards of Directors of Pulaski Bank (the
"Bank") and Pulaski Bancshares, M.H.C. (the "MHC") have adopted a Plan of
Conversion and Agreement and Plan of Reorganization (the "Plan of Conversion")
whereby the MHC will convert to stock form and the Bank will be reorganized as a
wholly-owned subsidiary of a newly-formed stock holding company named Pulaski
Financial Corp. (the "Holding Company"). Pursuant to the Plan of Conversion,
stockholders of the Bank (other than the MHC) will be issued shares of common
stockof the Holding Company in exchange for their shares of the Bank common
stock (the "Exchange"). In addition to the shares of common stock to be issued
in the Exchange, the Company is also offering shares of common stock to the
MHC's members, the Bank's stockholders and members of the public. Consummation
of the Plan of Conversion is subject to (i) the approval of the members of the
MHC, (ii) the approval of the stockholders of the Bank and (iii) regulatory
approval.
We are asking stockholders of the Bank as of July 31, 1998, the voting record
date, to vote FOR the Plan of Conversion. If you and/or members of your family
hold stock in different names, you may receive more than one proxy mailing.
Please vote all proxy cards received and return them today in the enclosed
postage-paid envelope. This will not prevent you from voting in person at the
meeting, but will assure that your vote is counted if you are unable to attend.
Your vote FOR the Plan of Conversion will not obligate you to buy any stock in
the conversion. A Proxy Statement relating to the conversion is enclosed.
We have enclosed the following materials which will help you learn more about
investing in the Holding Company's common stock. Please read and review the
materials carefully before making an investment decision.
. PROSPECTUS: This document provides detailed information about the
operations of the Holding Company, the Bank and the proposed stock
offering.
. QUESTIONS AND ANSWERS BROCHURE: Key questions and answers about the
stock offering are found in this pamphlet.
. STOCK ORDER AND CERTIFICATION FORM: This form is used to purchase
stock by signing and returning it with your payment in the enclosed
business reply envelope. The deadline for ordering stock is 12:00
Noon, Central Time, on September 18, 1998.
We invite our loyal customers, existing stockholders and local community members
to become charter stockholders of the Holding Company. Through this offering
you have the opportunity to buy stock directly from the Holding Company without
commission or fee.
Should you have additional questions regarding the Conversion and Reorganization
and stock offering, please call the Stock Information Center at (314) 878-5200,
Monday through Friday 8:30 a.m. to 5:00 p.m., or stop by the Stock Information
Center at 12300 Olive Bouelvard, St. Louis, Missouri.
Sincerely,
William A. Donius
President
THE SHARES OF COMMON STOCK BEING OFFERED IN THE CONVERSION ARE NOT SAVINGS
ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR
ANY OTHER GOVERNMENTAL AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
<PAGE>
Date
Dear Prospective Investor:
We are pleased to announce that Pulaski Bancshares, M.H.C. is converting to
stock form and Pulaski Bank (the "Bank") is reorganizing as a wholly-owned
subsidiary of a newly-formed stock holding company named Pulaski Financial Corp.
(the "Holding Company"). In conjunction with the conversion the Holding Company
is offering shares of common stock in a subscription offering and direct
community offering. The sale of stock in connection with the conversion will
enable the Bank to raise additional capital to support and enhance its current
operations.
We have enclosed the following materials that will help you learn more about the
stock offering of the Holding Company. Please read and review the materials
carefully before you submit a Stock Order and Certification Form.
. PROSPECTUS: This document provides detailed information about the
operations of the Holding Company, the Bank and the proposed stock
offering.
. QUESTIONS AND ANSWERS: Key questions and answers about the stock
offering are found in this pamphlet.
. STOCK ORDER AND CERTIFICATION FORM: This form is used to purchase
stock by returning it with your payment in the enclosed business
reply envelope. The deadline for ordering stock is 12:00 Noon,
Central Time, on September 18, 1998.
We invite our loyal customers and local community members to become charter
shareholders of the Holding Company. Through this offering you have the
opportunity to buy stock directly from the Holding Company, without commission
or fee. The board of directors and management of the Bank and the MHC fully
support the stock offering.
If you have additional questions regarding the Conversion and Reorganization and
stock offering, please call us at (314) 878-5200, Monday through Friday 8:30
a.m. to 5:00 p.m., or stop by the Stock Information Center located at 12300
Olive Boulevard, St. Louis, Missouri.
Sincerely,
William A. Donius
President
THE SHARES OF COMMON STOCK BEING OFFERED IN THE CONVERSION ARE NOT SAVINGS
ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR
ANY OTHER GOVERNMENTAL AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
<PAGE>
FACTS ABOUT CONVERSION AND REORGANIZATION
The Boards of Directors of Pulaski Bank, ("Pulaski Bank" or the "Bank") and
Pulaski Bancshares, M.H.C. (the "MHC") unanimously adopted a Plan of Conversion
and Agreement and Plan of Reorganization (the "Plan") to convert the MHC to
stock form and reorganize Pulaski Bank as a wholly-owned subsidiary of a newly-
formed stock company (the "Conver-sion").
This brochure answers some of the most frequently asked questions about the Plan
and about your opportunity to invest in Pulaski Financial Corp., (the "Holding
Company" or "Pulaski Financial"), the newly formed company that will serve as
the holding company for Pulaski Bank following the Conversion.
Investment in the stock of the Holding Company involves certain risks. For a
discussion of these risks, other factors, and a complete description of the
stock offering, investors are urged to read the accompanying Prospectus,
especially the discussion under the heading "Risk Factors".
WHY IS PULASKI BANK CONVERTING TO THE STOCK HOLDING COMPANY STRUCTURE?
- --------------------------------------------------------------------------------
The stock holding company structure is a more common form of ownership than the
mutual holding company structure and offers the ability to diversify the Bank's
business activities. The Conversion will increase both the capital base of the
Bank and the number of outstanding shares, which will increase the likelihood of
the development of an active and liquid market for the common stock of the
Holding Company.
WILL THE PLAN AFFECT ANY OF MY DEPOSIT ACCOUNTS OR LOANS?
- --------------------------------------------------------------------------------
No. The Plan will not effect the balance or terms of any savings account or
loan, and your deposits will continue to be federally insured by the Federal
Deposit Insurance Corporation ("FDIC") to the maximum legal limit. YOUR SAVINGS
ACCOUNT IS NOT BEING CONVERTED TO STOCK.
WHO IS ELIGIBLE TO PURCHASE STOCK IN THE SUBSCRIPTION OFFERING AND DIRECT
COMMUNITY OFFERING?
- --------------------------------------------------------------------------------
Depositors and borrowers of Pulaski Bank as of certain dates, the Bank's
Employee Stock Ownership Plan, Pulaski Bank's public shareholders and certain
members of the general public, subject to the priorities described in the
Prospectus.
HOW MANY SHARES OF STOCK ARE BEING OFFERED AND AT WHAT PRICE?
- --------------------------------------------------------------------------------
Pulaski Financial is offering up to 6,900,000 shares of common stock, subject to
adjustment up to 7,935,500 shares, at a price of $10.00 per share through the
Prospectus.
I AM AN EXISTING STOCKHOLDER. HOW WILL MY STOCK BE TREATED?
- --------------------------------------------------------------------------------
The outstanding shares of common stock of the Bank will be exchanged for shares
of common stock of the Holding Company. Depending upon where the offering
closes in the Estimated Valuation Range, each share of Bank common stock will be
converted into 2.9456 to 3.9852 shares of the Holding Company common stock.
HOW MANY SHARES MAY I BUY?
- --------------------------------------------------------------------------------
The minimum order is 25 shares. No person may purchase more than 40,000 shares.
No person, either alone or with associates or persons acting in concert, may
purchase shares in an amount that when combined with shares received in exchange
for Bank common stock, exceeds 125,000 shares.
DO MEMBERS HAVE TO BUY SHARES OF STOCK?
- --------------------------------------------------------------------------------
No. However, if a member of the MHC is also a stockholder of the Bank, his or
her shares of Bank stock will be converted automatically into shares of Holding
Company common stock.
HOW DO I ORDER SHARES?
- --------------------------------------------------------------------------------
You must complete the enclosed Stock Order Form and Certification Form.
Instructions for completing your Stock Order and Certification Form are
contained in this packet. Your order must be received by 12:00 Noon, Central
Time, on September 18, 1998.
HOW MAY I PAY FOR MY SHARES?
- --------------------------------------------------------------------------------
First, you may pay by check, cash or money order. Interest will be paid by
Pulaski Bank on these funds at the current passbook rate from the day the funds
are received until the completion or termination of the conversion. Second, you
may authorize us to withdraw funds from your Pulaski Bank account or certificate
of deposit for the amount of funds you specify for payment. You will not have
access to these funds from the day we receive your order until completion or
termination of the conversion. Pulaski Bank will waive any early withdrawal
penalties on certificate accounts used to purchase stock.
CAN I PURCHASE SHARES USING FUNDS IN MY PULASKI BANK IRA ACCOUNT?
- --------------------------------------------------------------------------------
Yes, but special arrangements must be made before you may do so. Please call
our Stock Information Center for additional information at least one week before
the Expiration Date. The Bank will waive the early withdrawal penalty for IRAs.
<PAGE>
WILL THE STOCK BE INSURED?
- --------------------------------------------------------------------------------
No. Like any other common stock, the Holding Company's common stock will not be
insured.
WILL DIVIDENDS BE PAID ON THE STOCK?
- --------------------------------------------------------------------------------
The Board of Directors of the Holding Company intends to pay cash dividends on
the common stock following consummation of the conversion. However no
assurances can be given that such dividends will be paid, or if paid, will
continue.
HOW WILL THE STOCK BE TRADED?
- --------------------------------------------------------------------------------
The Company has received conditional approval to list the common stock on the
Nasdaq National Market System under the symbol "PULB". However, no assurance
can be given that an active and liquid market will develop or, if developed,
will be maintained.
MUST I PAY A COMMISSION?
- --------------------------------------------------------------------------------
No. You will not be charged a commission or fee on the purchase of common stock
in the conversion.
SHOULD I VOTE?
- --------------------------------------------------------------------------------
Yes. Your "YES" vote is very important!
PLEASE VOTE, SIGN AND RETURN ALL PROXY CARDS!
WHY DID I GET SEVERAL PROXY CARDS?
- --------------------------------------------------------------------------------
If you have more than one account, you could receive more than one proxy card
for the MHC's Special Meeting of Members, depending on the ownership structure
of your accounts. If you own shares of common stock of the Bank in more than
one account, you could receive more than one proxy card for the Bank's Special
Meeting of Stockholders.
HOW MANY VOTES DO I HAVE?
- --------------------------------------------------------------------------------
Your proxy card(s) show(s) the number of votes you have. Every member of the
MHC entitled to vote may cast one vote for each $100, or fraction thereof, on
deposit at the Bank as of the voting record date, up to a maximum of 1,000
votes. Each stockholder of the Bank is entitled to cast one vote for each share
held as of the voting record date. These voting rights are established by the
respective charter of the MHC and the Bank.
MAY I VOTE IN PERSON AT THE SPECIAL MEETING OF MEMBERS AND/OR THE MEETING OF
STOCKHOLDERS?
- --------------------------------------------------------------------------------
Yes, but we would still like you to sign and mail your proxy today. If you
decide to revoke your proxy you may do so by giving notice at the appropriate
meeting.
FOR ADDITIONAL INFORMATION YOU MAY CALL OUR STOCK INFORMATION CENTER BETWEEN
9:00 A.M. AND 5:00 P.M. MONDAY THROUGH FRIDAY.
- --------------------------------------------------------------------------------
STOCK INFORMATION CENTER
(314) 878-5200
- --------------------------------------------------------------------------------
PULASKI FINANCIAL CORP.
12300 Olive Boulevard
St. Louis, Missouri 63141
STOCK OFFERING QUESTIONS AND ANSWERS
PULASKI FINANCIAL CORP.
THE STOCK OFFERED IN THE CONVERSION IS NOT A DEPOSIT OR ACCOUNT AND IS NOT
FEDERALLY INSURED OR GUARANTEED. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
<PAGE>
(Dear Stockholder Dark blue sky)
Date
Dear Shareholder:
We are pleased to announce that Pulaski Bancshares, M.H.C. is converting to
stock form and Pulaski Bank (the "Bank") is reorganizing as a wholly-owned
subsidiary of a newly-formed stock corporation (the "Conversion and
Reorganization"). In conjunction with the Conversion and Reorganization,
Pulaski Financial Corp., (the "Holding Company"), the newly-formed corporation
that will serve as the holding company for the Bank, is offering shares of
common stock in a subscription offering and direct community offering.
Unfortunately, the Holding Company is unable to either offer or sell its common
stock to you because the small number of eligible subscribers in your
jurisdiction makes registration or qualification of the common stock under the
securities laws of your jurisdiction impractical, for reasons of cost or
otherwise. Accordingly, this letter should not be considered an offer to sell
or a solicitation of an offer to buy the common stock of the Holding Company.
However, you have the right to vote on the Plan of Conversion and Agreement and
Plan of Reorganization at the Special Meeting of Members on September 28, 1998.
Therefore, enclosed is a proxy card, a Proxy Statement (which includes the
Notice of the Special Meeting), a Prospectus (which is provided solely as an
accompaniment to the Proxy Statement) and a return envelope for your proxy card.
I invite you to attend the Special Meeting on September 28, 1998. However,
whether or not you are able to attend, please complete the enclosed proxy card
and return it in the enclosed envelope.
Sincerely,
William A. Donius
President
THE SHARES OF COMMON STOCK BEING OFFERED IN THE CONVERSION AND REORGANIZATION
ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
<PAGE>
PULASKI FINANCIAL CORP.
Stock Ownership Guide and Stock Order Form Instructions
STOCK ORDER FORM INSTRUCTIONS
- --------------------------------------------------------------------------------
ITEM 1 AND 2 - Fill in the number of shares that you wish to purchase and the
total payment due. The amount due is determined by multiplying the number of
shares ordered by the subscription price of $10.00 per share. The minimum
purchase is 25 shares. The maximum purchase for any person is 40,000 shares.
In addition, no person, either alone or together with associates or persons
acting in concert, may purchase shares in an amount that when combined with
shares received in exchange for Bank common stock, exceeds 125,000 shares.
Pulaski Financial Corp. reserves the right to reject the subscription of any
order received in the Direct Community Offering, if any, in whole or in part.
ITEM 3 - Payment for shares may be made in cash (only if delivered by you in
person), by check, bank draft or money order payable to Pulaski Financial Corp.
DO NOT MAIL CASH. Your funds will earn interest at Pulaski Bank's current
passbook rate.
ITEM 4 - To pay by withdrawal from a savings account or certificate at Pulaski
Bank, insert the account number(s) and the amount(s) you wish to withdraw from
each account. If more than one signature is required to withdraw, each must
sign in the signature box on the front of this form. To withdraw from an
account with checking privileges, please write a check. Pulaski Bank will
waive any applicable penalties for early withdrawal from certificate accounts.
A hold will be placed on the account(s) for the amount(s) you show. Payments
will remain in account(s) until the stock offering closes. If a partial
withdrawal reduces the balance of a certificate account to less than the
applicable minimum, the remaining balance will thereafter earn interest at the
passbook rate.
ITEM 5 - Please check this box to indicate whether you are a director, officer
or employee of Pulaski Bank or a member of such person's immediate family
ITEM 6 - Please check this box if you or any associate (as defined on the
reverse side of the Stock Order Form) or person acting in concert with you has
submitted another order for shares and complete the reverse side of the Stock
Order Form.
ITEM 7 - Please check the appropriate box if you were:
a) A depositor with $50.00 or more on deposit at Pulaski Bank as of
March 31, 1997. Enter information below for all deposit accounts
that you had at Pulaski Bank on March 31, 1997.
b) A depositor with $50.00 or more on deposit at Pulaski Bank as of
June 30, 1998, but is not an Eligible Account Holder. Enter
information below for all deposit accounts that you had at
Pulaski Bank on June 30, 1998.
c) A depositor at Pulaski Bank as of July 31, 1998, but are not an
Eligible Account Holder or Supplemental Eligible Account Holder
or a borrower of Pulaski Bank as of May 11, 1994 whose loan
continues to be outstanding as of July 31, 1998, but are not an
Eligible Account Holder or Supplemental Eligible Account Holder.
d) A shareholder of Pulaski Bank as of July 31, 1998.
e) A permanent resident of St. Louis, Missouri; St. Charles,
Jefferson, Franklin and St. Louis Counties, Missouri; and
Jersey, St. Clair, Monroe and Madison Counties, Illinois.
f) General Community
ITEM 8 - The stock transfer industry has developed a uniform system of
shareholder registrations that we will use in the issuance of Pulaski Financial
Corp. common stock. Please complete this section as fully and accurately as
possible, and be certain to supply your social security or Tax I.D. number(s)
and your daytime and evening phone numbers. We will need to call you if we can
not execute you order as given. If you have any questions regarding the
registration of your stock, please consult your legal advisor. Subscription
rights are not transferable. If you are a qualified member, to protect your
priority over other purchasers as described in the Prospectus, you must take
ownership in at least one of the account holder's names.
STOCK OWNERSHIP GUIDE
- --------------------------------------------------------------------------------
INDIVIDUAL - The Stock is to be registered in an individual's name only. You
may not list beneficiaries for this ownership
JOINT TENANTS - Joint tenants with rights of survivorship identifies two or more
owners. When stock is held by joint tenants with rights of survivorship,
ownership automatically passes to the surviving joint tenant(s) upon the death
of any joint tenant. You may not list beneficiaries for this ownership.
TENANTS IN COMMON - Tenants in common may also identify two or more owners.
When stock is to be held by tenants in common, upon the death of one co-tenant,
ownership of the stock will be held by the surviving co-tenant(s) and by the
heirs of the deceased co-tenant. All parties must agree to the transfer or sale
of shares held by tenants in common. You may not list beneficiaries for this
ownership.
UNIFORM GIFT TO MINORS - For residents of many states, stock may by held in the
name of a custodian for the benefit of a minor under the Uniform Gift to Minors
Act. For residents in other states, stock may be held in a similar type of
ownership under the Uniform Transfer to Minors Act of the individual state. For
either ownership, the minor is the actual owner of the stock with the adult
custodian being responsible for the investment until the child reaches legal
age. Only one custodian and one minor may be designated.
Instructions: On the first name line, print the first name, middle initial and
last name of the custodian, with the abbreviation "CUST" after the name. Print
the first name, middle initial and last name of the minor on the second name
line. USE THE MINOR'S SOCIAL SECURITY NUMBER.
CORPORATION/PARTNERSHIP - Corporation/Partnerships may purchase stock. Please
provide the Corporation/Partnership's legal name and Tax I.D. To have depositor
rights, the Corporation/Partnership must have an account in the legal name.
Please contact the Stock Information Center to verify depositor rights and
purchase limitations.
INDIVIDUAL RETIREMENT ACCOUNT - Individual Retirement Account ("IRA") holders
may make stock purchases from their deposits through a prearranged "trustee-to-
trustee" transfer. Stock may only be held in a self-directed IRA. Pulaski Bank
does not offer a self-directed IRA. Please contact the Stock Information Center
if you have any questions about your IRA account.
FIDUCIARY/TRUST - Generally, fiduciary relationships (such as Trusts, Estates,
Guardianships, etc.) are established under a form of trust agreement or pursuant
to a court order. Without a legal document establishing a fiduciary
relationship, your stock may not be registered in a fiduciary capacity.
Instructions: On the first name line, print the first name, middle initial and
last name of the fiduciary if the fiduciary is an individual. If the fiduciary
is a corporation, list the corporate title on the first name line. Following
the name, print the fiduciary title such as trustee, executor, personal
representative, etc. On the second name line, print the name of the maker ,
donor or testator or the name of the beneficiary. Following the name, indicate
the type of legal document establishing the fiduciary relationship (agreement,
court order, etc.). In the blank after "Under Agreement Dated", fill in the
date of the document governing the relationship. The date of the document need
not be provided for a trust created by a will.
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EXHIBIT 99.5
PULASKI BANCSHARES, M.H.C.
12300 OLIVE BOULEVARD
ST. LOUIS, MISSOURI 63141
(314) 878-2210
NOTICE OF SPECIAL MEETING OF MEMBERS
TO BE HELD ON SEPTEMBER 28, 1998
Notice is hereby given that a special meeting ("Special Meeting") of
members of Pulaski Bancshares, M.H.C. ("MHC") will be held at 12300 Olive
Boulevard, St. Louis, Missouri, on Monday, September 28, 1998, at 3:00 p.m.,
Central Time. Business to be taken up at the Special Meeting shall be:
(1) To approve a Plan of Conversion from Mutual Holding Company to Stock
Holding Company and Agreement and Plan of Reorganization ("Plan of
Conversion") adopted by the MHC and Pulaski Bank, A Federal Savings
Bank ("Bank"), pursuant to which (i) the MHC will convert to a
federally chartered interim stock savings bank and merge into the
Bank, with the Bank being the surviving institution, (ii) the Bank and
a newly formed federally chartered interim stock savings bank will
merge, with the Bank being the surviving institution and becoming a
wholly-owned subsidiary of a newly formed stock corporation named
Pulaski Financial Corp. (the "Holding Company") and (iii) the Holding
Company will sell shares of its common stock to the public and issue
shares of its common stock in exchange for shares of the Bank's common
stock, all on and subject to the terms and conditions contained
therein.
(2) To consider and vote upon any other matters that may lawfully come
before the Special Meeting.
Note: As of the date of mailing of this Notice, the Board of Directors is
not aware of any other matters that may come before the Special Meeting.
The members entitled to vote at the Special Meeting shall be those members
of the MHC at the close of business on July 31, 1998, and who continue as
members until the Special Meeting, and should the Special Meeting be, from time
to time, adjourned to a later time, until the final adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
MICHAEL J. DONIUS
Secretary
St. Louis, Missouri
August 21, 1998
PLEASE SIGN AND RETURN PROMPTLY EACH PROXY CARD YOU RECEIVE IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. THIS WILL ASSURE NECESSARY REPRESENTATION AT THE SPECIAL
MEETING, BUT WILL NOT PREVENT YOU FROM VOTING IN PERSON IF YOU SO DESIRE. THE
PROXY IS SOLICITED ONLY FOR THIS SPECIAL MEETING (AND ANY ADJOURNMENTS THEREOF)
AND WILL NOT BE USED FOR ANY OTHER MEETING. YOU MAY REVOKE YOUR WRITTEN PROXY
BY WRITTEN INSTRUMENT DELIVERED TO MICHAEL J. DONIUS, SECRETARY, PULASKI
BANCSHARES, M.H.C., AT THE ABOVE ADDRESS AT ANY TIME PRIOR TO OR AT THE SPECIAL
MEETING.
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PULASKI BANCSHARES, M.H.C.
12300 OLIVE BOULEVARD
ST. LOUIS, MISSOURI 63141
(314) 878-2210
PROXY STATEMENT
YOUR PROXY, IN THE FORM ENCLOSED, IS SOLICITED BY THE BOARD OF DIRECTORS OF
PULASKI BANCSHARES, M.H.C. FOR USE AT A SPECIAL MEETING OF MEMBERS TO BE HELD ON
MONDAY, SEPTEMBER 28, 1998, AND ANY ADJOURNMENT OF THAT MEETING, FOR THE
PURPOSES SET FORTH IN THE FOREGOING NOTICE OF SPECIAL MEETING. YOUR BOARD OF
DIRECTORS AND MANAGEMENT URGE YOU TO VOTE FOR THE PLAN OF CONVERSION.
PURPOSE OF MEETING -- SUMMARY
A special meeting of members ("Special Meeting") of Pulaski Bancshares,
M.H.C. ("MHC") will be held at 12300 Olive Boulevard, St. Louis, Missouri, on
Monday, September 28, 1998, at 3:00 p.m., Central Time, for the purpose of
considering and voting upon a Plan of Conversion from Mutual Holding Company to
Stock Holding Company and Agreement and Plan of Reorganization ("Plan of
Conversion"), which, if approved by a majority of the total votes of the members
eligible to be cast, will permit Pulaski Bank, A Federal Savings Bank ("Bank")
to become a subsidiary of Pulaski Financial Corp. ("Holding Company"), a newly
organized Delaware corporation formed by the Bank. The reorganization of the
Bank and the acquisition of control of the Bank by the Holding Company are
collectively referred to herein as the "conversion."
Pursuant to the MHC's Federal Mutual Holding Company Charter, depositors of
the Bank and borrowers of the Bank with a loan outstanding as of May 11, 1994
and for as long as such loan remains outstanding are members of the MHC.
Members entitled to vote on the Plan of Conversion are members of the MHC as of
July 31, 1998 ("Voting Record Date") who continue as members until the Special
Meeting, and should the Special Meeting be, from time to time, adjourned to a
later time, until the final adjournment thereof. The conversion requires the
approval of not less than a majority of the total votes eligible to be cast at
the Special Meeting.
Pursuant to the Plan of Conversion, (i) the MHC will convert from a
federally-chartered mutual holding company to a federally-chartered interim
stock savings bank (i.e. Interim A) and simultaneously merge with and into the
----
Bank, pursuant to which the MHC will cease to exist and the shares of common
stock of the Bank held by the MHC will be canceled, and (ii) a newly formed,
federally chartered interim stock savings bank ("Interim B") will then merge
with and into the Bank. As a result of the merger of Interim B with and into
the Bank, the Bank will become a wholly owned subsidiary of the Holding Company
and the shares of Bank common stock held by persons other than the MHC will be
converted into shares of common stock of the Holding Company pursuant to a ratio
("Exchange Ratio"), which will result in the holders of such shares owning in
the aggregate approximately 26.63% of the outstanding Holding Company common
stock before giving effect to (a) the payment of cash in lieu of issuing
fractional shares and (b) any shares of Holding Company common stock purchased
by the Bank's stockholders in the offering.
As part of the Plan of Conversion, nontransferable rights to subscribe for
shares of common stock have been granted, in order of priority, to (i)
depositors with $50.00 or more on deposit at the Bank as of March 31, 1997
("Eligible Account Holders"), (ii) the Bank's employee stock ownership plan
("ESOP"), a tax-qualified employee benefit plan, (iii) depositors with $50.00 or
more on deposit at the Bank as of June 30, 1998 ("Supplemental Eligible Account
Holders"), and (iv) depositors of the Bank (other than Eligible Account Holders
and Supplemental Eligible Account Holders) as of July 31, 1998 ("Voting Record
Date"), and borrowers of the Bank with loans outstanding as of May 11, 1994
which continue to be outstanding as of the Voting Record Date ("Other Members"),
subject to the priorities and purchase limitations set forth in the Plan of
Conversion ("Subscription Offering").
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Concurrently, but subject to the prior rights of subscription rights
holders, the Holding Company is offering the shares of common stock for sale to
members of the general public through a direct community offering ("Direct
Community Offering") with preference given first to public stockholders of the
Bank (who are not Eligible Account Holders, Supplemental Eligible Account
Holders or Other Members) and then to natural persons and trusts of natural
persons who are permanent residents of St. Louis, Missouri; St. Charles,
Jefferson, Franklin and St. Louis Counties, Missouri; and Jersey, St. Clair,
Monroe and Madison Counties, Illinois ("Local Community"). Any shares not
subscribed for in the Subscription Offering or purchased in the Direct Community
Offering may be offered to eligible members of the general public on a best
efforts basis by a selling group of broker-dealers managed by Charles Webb &
Company ("Webb") in a syndicated community offering ("Syndicated Community
Offering"). The Holding Company and the Bank reserve the right, in their
absolute discretion, to accept or reject, in whole or in part, any or all orders
in the Direct Community Offering or Syndicated Community Offering either at the
time of receipt of an order or as soon as practicable following the termination
of the offering. If an order is rejected in part, the purchaser does not have
the right to cancel the remainder of the order.
PULASKI BANCSHARES, M.H.C.
The MHC is the federally chartered mutual holding company of the Bank. The
MHC was formed in May 1994 as a result of the reorganization of the Bank into a
federally chartered mutual holding company. The members of the MHC consist of
depositors of the Bank and those current borrowers of the Bank who had loans
outstanding as of the consummation date of the MHC reorganization (May 11,
1994). The MHC's sole business activity is holding 1,470,000 shares of the
Bank's common stock, which represents 69.81% of the outstanding shares. As part
of the conversion, the MHC will convert into an interim stock savings bank and
merge into the Bank, with the Bank as the surviving entity. As a result of this
merger, the MHC will cease to exist. The MHC's main office is located at 12300
Olive Boulevard, St. Louis, Missouri and its telephone number is (314) 878-2210.
PULASKI BANK, A FEDERAL SAVINGS BANK
The Bank was founded in 1922 as a Missouri-chartered mutual savings and
loan association. In 1994, in connection with the formation of the MHC, the
Bank converted to a Missouri-chartered capital stock savings and loan
association. In 1995, the Bank converted to a federally chartered stock savings
bank and adopted the name Pulaski Bank, A Federal Savings Bank. The Bank's main
office is located at 12300 Olive Boulevard, St. Louis, Missouri 63141 and its
telephone number is (314) 878-2210.
The Bank is regulated by the Office of Thrift Supervision ("OTS") and the
Federal Deposit Insurance Corporation. The Bank's deposits have been federally-
insured by the FDIC since 1947 and are currently insured by the FDIC under the
Savings Association Insurance Fund. The Bank has been a member of the Federal
Home Loan Bank-System since 1946.
The Bank's strategy is to operate as an independent, retail financial
institution dedicated to financing home ownership and other consumer needs in
St. Louis and the surrounding area. At March 31, 1998, the Bank operated five
offices in the St. Louis area and had total assets of $183.6 million, deposits
of $154.1 million and stockholders' equity of $24.6 million. At that date,
$117.4 million, or 93.7%, of the Bank's loans were residential mortgage loans
and $7.3 million, or 5.8%, of the Bank's loans were consumer loans. In recent
years, as part of its asset/liability management, the Bank has sold most of the
fixed-rate loans that it has originated. Loan sales for the six months ended
March 31, 1998 and the year ended September 30, 1998 totaled $51.3 million and
$63.4 million, respectively.
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PULASKI FINANCIAL CORP.
The Bank formed the Holding Company under Delaware law in May 1998 for the
purpose of owning all of the Bank's capital stock following completion of the
conversion. The Holding Company has applied for and expects to receive approval
of the OTS to become a savings and loan holding company by acquiring the capital
stock of the Bank in the conversion. Before the completion of the conversion,
the Holding Company will not have any material assets or liabilities and it will
not conduct any business other than business related to the conversion. After
the conversion, the Holding Company's primary assets will be all of the capital
stock of the Bank, the loan that the Holding Company intends to make to the
Bank's ESOP and the net proceeds remaining from the sale of its common stock
after contributing 50% of the net proceeds to the Bank and funding the ESOP
loan. Initially, the primary activity of the Holding Company will be to direct,
plan and coordinate the Bank's business activities. In the future, the Holding
Company might become an operating company or acquire or organize other operating
subsidiaries, including other financial institutions, although it currently has
no specific plans or agreements to do so. The Holding Company's main office is
located at 12300 Olive Boulevard, St. Louis, Missouri 63141 and its telephone
number is (314) 878-2210.
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
The MHC's Board of Directors has fixed the close of business on July 31,
1998 as the record date for the determination of members entitled to notice of
and to vote at the Special Meeting. All holders of savings or other authorized
accounts of the Bank, and borrowers of the Bank with loans outstanding as of May
11, 1994 and for as long as such loans remain outstanding, are members of the
Bank under its current charter. All members of record as of the close of
business on the Voting Record Date who continue to be members on the date of the
Special Meeting or any adjournment thereof will be entitled to vote at the
Special Meeting or such adjournment.
Each eligible depositor member will be entitled at the Special Meeting to
cast one vote for each $100, or fraction thereof, of the aggregate withdrawal
value of all of the depositor's savings accounts in the Bank as of the Voting
Record Date. Borrowers with loans outstanding as of May 11, 1994, which
continue to be outstanding as of the Voting Record Date will be entitled to cast
one vote for the period of time such borrowings remain in existence. No member
is entitled to cast more than 1,000 votes. Any number of members present and
voting, represented in person or by proxy, at the Special Meeting will
constitute a quorum.
Approval of the Plan of Conversion will require the affirmative vote of a
majority of the total outstanding votes of the MHC's members eligible to be cast
at the Special Meeting. As of the Voting Record Date for the Special Meeting,
there were approximately _________ votes eligible to be cast, of which _________
votes may be cast by depositor members and ___ votes may be cast by borrower
members.
PROXIES
Members may vote at the Special Meeting or any adjournment thereof in
person or by proxy. Enclosed is a proxy which may be used by any eligible
member to vote on the Plan of Conversion. All properly executed proxies
received by management will be voted in accordance with the instructions
indicated thereon by the members giving such proxies. If no instructions are
given, such proxies will be voted in favor of the Plan of Conversion. If any
other matters are properly presented at the Special Meeting and may properly be
voted on, all proxies will be voted on such matters in accordance with the best
judgment of the proxy holders named therein. If the enclosed proxy is returned,
it may be revoked at any time before it is voted by written notice to the
Secretary of the MHC, by submitting a later dated proxy, or by attending and
voting in person at the Special Meeting. The proxies being solicited are only
for use at the Special Meeting and at any and all adjournments thereof and will
not be used for any other meeting. Management is not aware of any other
business to be presented at the Special Meeting.
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The trustees for individual retirement accounts at the Bank, will vote in
favor of the Plan of Conversion, unless the beneficial owner executes and
returns the enclosed proxy for the Special Meeting or attends the Special
Meeting and votes in person.
To the extent necessary to permit approval of the Plan of Conversion,
proxies may be solicited by officers, directors or regular employees of the MHC,
in person, by telephone or through other forms of communication. Such persons
will be reimbursed by the MHC for their reasonable out-of-pocket expenses
incurred in connection with such solicitation. If necessary, the Special
Meeting may be adjourned to an alternative date.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE PLAN
OF CONVERSION. VOTING IN FAVOR OF THE PLAN OF CONVERSION WILL NOT OBLIGATE ANY
VOTER TO PURCHASE ANY COMMON STOCK.
THE CONVERSION
THE OTS HAS APPROVED THE PLAN OF CONVERSION SUBJECT TO ITS APPROVAL BY THE
MEMBERS OF THE MHC AND THE STOCKHOLDERS OF THE BANK ENTITLED TO VOTE THEREON AND
TO THE SATISFACTION OF CERTAIN OTHER CONDITIONS IMPOSED BY THE OTS IN ITS
APPROVAL. OTS APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF
THE PLAN OF CONVERSION.
GENERAL
On April 15, 1998, the Boards of Directors of the MHC and the Bank
unanimously adopted the Plan of Conversion, which was subsequently amended on
July 21, 1998, pursuant to which the Bank will convert from the mutual holding
company form of organization to the stock holding company form of organization.
THE FOLLOWING DISCUSSION OF THE PLAN OF CONVERSION IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE PLAN OF CONVERSION, WHICH IS ATTACHED AS EXHIBIT A HERETO.
The OTS has approved the Plan of Conversion, subject to its approval by the
members of the MHC and the stockholders of the Bank and to the satisfaction of
certain other conditions.
Pursuant to the Plan of Conversion, (i) the MHC will convert from a
federally-chartered mutual holding company to a federally-chartered interim
stock savings bank (Interim A) and simultaneously merge with and into the Bank
and (ii) an interim federal stock savings bank (Interim B) will be formed as a
wholly-owned subsidiary of the Holding Company and Interim B will merge with and
into the Bank. As a result of the merger of Interim A with and into the Bank,
the MHC will cease to exist and the shares of Bank common stock held by the MHC
will be cancelled. As a result of the merger of Interim B with and into the
Bank, the Bank will become a wholly owned subsidiary of the Holding Company and
the common stock of the Bank will be converted into common stock of the Holding
Company pursuant to the Exchange Ratio, which will result in the holders of such
shares owning in the aggregate approximately 26.63% of the outstanding Holding
Company common stock before giving effect to (a) the payment of cash in lieu of
issuing fractional shares and (b) any shares of common stock purchased by the
Bank's stockholders in the offering.
As part of the conversion, the Holding Company is offering shares of its
common stock in the Subscription Offering to holders of subscription rights in
the following order of priority: (i) Eligible Account Holders (depositors of the
Bank with $50.00 or more on deposit as of the close of business on March 31,
1997); (ii) Supplemental Eligible Account Holders (depositors of the Bank with
$50.00 or more on deposit as of the close of business on June 30, 1998); and
(iii) Other Members (depositors of the Bank as of the close of business on July
31, 1998 and borrowers of the Bank with loans outstanding as of the close of
business on May 11, 1994, which continue to be outstanding as of the close of
business on July 31, 1998).
Concurrently with the Subscription Offering, any shares of common stock not
subscribed for in the Subscription Offering may be offered for sale in the
Direct Community Offering to members of the general public, with
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priority being given first to stockholders of the Bank as of the close of
business on the Voting Record Date (who are not Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members) and then to natural
persons and trusts of natural persons residing in the Local Community. Shares of
common stock not sold in the Subscription Offering and the Direct Community
Offering may be offered in the Syndicated Community Offering. Regulations
require that the Direct Community Offering and the Syndicated Community Offering
be completed within 45 days after completion of the fully extended Subscription
Offering unless extended by the Bank or the Holding Company with the approval of
the regulatory authorities. If the Syndicated Community Offering is determined
not to be feasible because of market conditions or otherwise, the Board of
Directors of the Bank will consult with the regulatory authorities to determine
an appropriate alternative method for selling the unsubscribed shares of common
stock. The Plan of Conversion provides that the conversion must be completed
within 24 months after the date of the approval of the Plan of Conversion by the
members of the MHC.
No sales of common stock may be completed, either in the Subscription
Offering, Direct Community Offering or Syndicated Community Offering unless the
Plan of Conversion is approved by the members of the MHC and the stockholders of
the Bank. The completion of the offering, however, is subject to market
conditions and other factors beyond the Bank's control. No assurance can be
given as to the length of time after approval of the Plan of Conversion by the
members of the MHC and the stockholders of the Bank that will be required to
complete the Direct Community Offering or Syndicated Community Offering or other
sale of the shares of common stock. If delays are experienced, significant
changes may occur in the estimated pro forma market value of the MHC and the
Bank, as converted, together with corresponding changes in the net proceeds
realized by the Holding Company from the sale of its common stock.
Orders for shares of common stock will not be filled until at least
$40,800,000 of common stock has been subscribed for or sold and the OTS approves
the final valuation and the conversion closes. If the conversion is not
completed within 45 days after the last day of the fully extended Subscription
Offering and the OTS consents to an extension of time to complete the
conversion, subscribers will be given the right to increase, decrease or rescind
their subscriptions. Unless an affirmative indication is received from
subscribers that they wish to continue to subscribe for shares, the funds will
be returned promptly, together with accrued interest at the Bank's passbook rate
from the date payment is received until the funds are returned to the
subscriber. If such period is not extended, or, in any event, if the conversion
is not completed, all withdrawal authorizations will be terminated and all funds
received will be promptly returned together with accrued interest at the Bank's
passbook rate from the date payment is received until the conversion is
terminated.
PURPOSES OF CONVERSION
The MHC, 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 Holding 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 holding company form of organization will provide the
Holding Company with the ability to diversify the Holding Company's and the
Bank's business activities through acquisition of or mergers with both stock
savings institutions and commercial banks, as well as other companies. Although
there are no current arrangements, understandings or agreements regarding any
such opportunities, the Holding Company will be in a position after the
conversion, subject to regulatory limitations and the Holding Company's
financial position, to take advantage of any such opportunities that may arise.
In their decision to pursue the conversion, the Board of Directors of the
MHC and the Bank considered various regulatory uncertainties associated with the
mutual holding company structure including the ability to waive dividends in the
future as well as the general uncertainty regarding a possible elimination of
the federal savings association charter.
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 the Bank and Holding Company and by enhancing their future
access to capital markets, their ability to diversify into other financial
services related activities, and their ability to provide services to the
public.
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The conversion also will result in a larger number of shares of Holding
Company common stock to be outstanding as compared to the number of outstanding
shares of Bank common stock, which will increase the likelihood of the
development of an active and liquid trading market for the common stock. In
addition, the conversion will permit the Holding Company to engage in stock
repurchases without adverse federal income tax consequences. The Bank cannot
repurchase its common stock without triggering adverse federal income tax
consequences. Currently, the Holding Company has no specific plans regarding
any stock repurchases.
An additional benefit of the conversion will be an increase in the
accumulated earnings and profits of the Bank for federal income tax purposes.
When the Bank (as a mutual institution) transferred substantially all of its
assets and liabilities to its stock savings bank successor in the MHC
reorganization, its accumulated earnings and profits tax attribute was not able
to be transferred to the Bank because no tax-free reorganization was involved.
Accordingly, this tax attribute was retained by the Bank when it converted its
charter to that of the MHC, even though the underlying retained earnings were
transferred to the Bank. The conversion has been structured to re-unite the
accumulated earnings and profits tax attribute retained by the MHC in the MHC
reorganization with the retained earnings of the Bank by merging the MHC with
and into the Bank in a tax-free reorganization. This transaction will increase
the Bank's ability to pay dividends to the Holding Company in the future.
If the Bank 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 amount sold in the MHC
reorganization. Management believed that it was advisable to profitably invest
the proceeds raised in the MHC reorganization prior to raising the larger amount
of capital that would have been raised at one time in a standard conversion. A
standard conversion in 1994 also would have immediately eliminated all aspects
of the mutual form of organization.
In light of the foregoing, the Boards of Directors of the MHC and the Bank
believe that the conversion is in the best interests of the MHC and the Bank,
their respective members and stockholders, and the communities served by the
Bank.
EFFECTS OF CONVERSION ON DEPOSITORS AND BORROWERS OF THE BANK
GENERAL. Prior to the conversion, each depositor in the Bank has both a
deposit account in the institution and a pro rata ownership interest in the net
worth of the MHC based upon the balance in his or her account, which interest
may only be realized in the event of a liquidation of the MHC. 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
or her account receives a portion or all of the balance in the account but
nothing for his or her ownership interest in the net worth of the MHC, which is
lost to the extent that the balance in the account is reduced.
Consequently, the depositors of the Bank normally have no way to realize
the value of their ownership interest in the MHC, which has realizable value
only in the unlikely event that the MHC 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 MHC after other claims are paid.
Upon consummation of the conversion, permanent nonwithdrawable capital
stock will be created to represent the ownership of the net worth of the Holding
Company. The common stock 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 deposit and/or loan account(s)
the seller may hold in the Bank.
CONTINUITY. The conversion will not interrupt the Bank's normal business
of accepting deposits and making loans. The Bank will continue to be subject to
regulation by the OTS and the FDIC. After the conversion, the Bank
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will continue to provide services for depositors and borrowers under current
policies by its present management and staff.
The directors and officers of the Bank at the time of the conversion will
continue to serve as directors and officers of the Bank after the conversion.
The directors and officers of the Holding Company consist of individuals
currently serving as directors and officers of the MHC and the Bank, and they
will retain their positions in the Holding Company after the conversion.
EFFECT ON THE BANK'S COMMON STOCK. Under the Plan of Conversion, upon
consummation of the conversion, each share of the Bank's common stock held by
the Bank's public stockholders will be converted into shares of Holding Company
common stock based upon the Exchange Ratio without any further action on the
part of the holder thereof. Upon surrender of certificates representing shares
of Bank common stock, Holding Company common stock will be issued in exchange
for such shares.
VOTING RIGHTS. Presently, depositors and borrowers of the Bank are members
of, and have voting rights in, the MHC as to all matters requiring membership
action. Upon completion of the conversion, the MHC will cease to exist and all
voting rights in the Bank will be vested in the Holding Company as the sole
stockholder of the Bank. Exclusive voting rights with respect to the Holding
Company will be vested in the holders of the Holding Company's common stock.
Depositors and borrowers of the Bank will not have voting rights in the Holding
Company after the conversion, except to the extent that they become stockholders
of the Holding Company.
SAVINGS ACCOUNTS AND LOANS. The Bank's savings accounts, account balances
and existing FDIC insurance coverage of savings accounts will not be affected by
the conversion. Furthermore, the conversion will not affect the loan accounts,
loan balances or obligations of borrowers under their individual contractual
arrangements with the Bank.
TAX EFFECTS. The Bank has received an opinion from Breyer & Aguggia LLP,
Washington, D.C., that the conversion will constitute a nontaxable
reorganization under Section 368(a)(1)(A) of the Internal Revenue Code. Among
other things, the opinion provides that:
(i) the conversion of the MHC from a mutual holding company to a
federally-chartered interim stock savings bank (Interim A) and its
simultaneous merger with and into the Bank, with the Bank as the
surviving entity, will qualify as a reorganization within the meaning
of Section 368(a)(1)(A) of the Internal Revenue Code;
(ii) no gain or loss will be recognized by the Bank upon the receipt of
the assets of the MHC in such merger;
(iii) the merger of Interim B with and into the Bank, with the Bank as
the surviving entity, will qualify as a reorganization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code;
(iv) no gain or loss will be recognized by Interim B upon the transfer of
its assets to the Bank;
(v) no gain or loss will be recognized by the Bank upon the receipt of
the assets of Interim B;
(vi) no gain or loss will be recognized by the Holding Company upon the
receipt of Bank common stock solely in exchange for Holding Company
common stock;
(vii) no gain or loss will be recognized by the Bank's public
stockholders upon the receipt of shares of the Holding Company's
common stock in exchange for their shares of Bank common stock;
7
<PAGE>
(viii) the basis of the shares of common stock of the Holding Company to
be received by the Bank's public stockholders will be the same as
the basis of the shares of common stock of the Bank surrendered in
exchange therefor, before giving effect to any payment of cash in
lieu of fractional shares;
(ix) the holding period of the shares of Holding Company common stock to
be received by the Bank's public stockholders will include the
holding period of the Bank common stock, provided that the shares
of Bank common stock were held as a capital asset on the date of
the exchange;
(x) no gain or loss will be recognized by the Holding Company upon the
sale of shares of its common stock in this offering;
(xi) 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 the Bank following the
conversion, interests in the liquidation account and
nontransferable subscription rights to purchase common stock, but
only to the extent of the value, if any, of the subscription
rights; and
(xii) the tax basis to the holders of shares of common stock purchased in
this offering will be the amount paid therefor, and the holding
period for the shares of common stock will begin on the date of
consummation of this offering, if purchased through the exercise of
Subscription Rights, and on the day after the date of purchase, if
purchased in the Direct Community Offering or the Syndicated
Community Offering.
Unlike a private letter ruling issued by the IRS, an opinion of counsel is
not binding on the IRS and the IRS could disagree with the conclusions reached
therein. In the event of such disagreement, no assurance can be given that the
conclusions reached in an opinion of counsel would be sustained by a court if
contested by the IRS.
Based upon past rulings issued by the IRS, the opinion provides that the
receipt of subscription rights by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members under the Plan of Conversion will be
taxable to the extent, if any, that the subscription rights are deemed to have a
fair market value. RP Financial, LC., a financial consulting firm retained by
the Bank, whose findings are not binding on the IRS, has issued a letter
indicating 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 shares of the common stock at a price equal to its estimated fair
market value, which will be the same price paid by purchasers in the Direct
Community Offering for unsubscribed shares of common stock. If the subscription
rights are deemed to have a fair market value, the receipt of such rights may
only be taxable to those Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members who exercise their subscription rights. The Bank
could also recognize a gain on the distribution of such subscription rights.
Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members are encouraged to consult with their own tax advisors as to the tax
consequences in the event the subscription rights are deemed to have a fair
market value.
The Bank has also received an opinion from Breyer & Aguggia LLP, that,
assuming the conversion does not result in any federal income tax liability to
the Bank, its account holders, or the Holding Company, implementation of the
Plan of Conversion will not result in any Missouri tax liability to such
entities or persons.
THE PRECEDING DISCUSSION SUMMARIZES THE MATERIAL TAX CONSEQUENCES OF THE
CONVERSION. PROSPECTIVE INVESTORS, HOWEVER, ARE URGED TO CONSULT WITH THEIR OWN
TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO
THEM.
LIQUIDATION ACCOUNT. In the unlikely event of a complete liquidation of
the MHC, each depositor of the Bank would receive his or her pro rata share of
any assets of the MHC remaining after payment of claims of all creditors.
8
<PAGE>
Each depositor's pro rata share of such remaining assets would be in the same
proportion as the value of his or her deposit account was to the total value of
all deposit accounts in the Bank at the time of liquidation. After the
conversion, each depositor, in the event of a complete liquidation of the Bank,
would have a claim as a creditor of the same general priority as the claims of
all other general creditors of the Bank. However, except as described below, his
or her claim would be solely in the amount of the balance in his or her deposit
account plus accrued interest. Each stockholder would not have an interest in
the value or assets of the Bank or the Holding Company above that amount.
The Plan of Conversion 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 MHC plus the greater of (i)
the Bank's retained earnings of $15.2 million at December 31, 1993, the date of
the latest statement of financial condition contained in the final offering
circular utilized in the MHC reorganization, or (ii) 69.81% of the Bank's total
stockholders' equity as reflected in its latest statement of financial condition
contained in the final Prospectus utilized in this offering. As of the date of
this Prospectus, the initial balance of the liquidation account would be $22.2
million. Each Eligible Account Holder and Supplemental Eligible Account Holder,
if he or she were to continue to maintain his or her deposit account at the
Bank, would be entitled, upon a complete liquidation of the Bank after the
conversion to an interest in the liquidation account prior to any payment to the
Holding Company as the sole stockholder of the Bank. 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 the Bank at the close of business
on March 31, 1997 or June 30, 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 or her deposit accounts based on
the proportion that the balance of each such deposit account on the Eligibility
Record Date (March 31, 1997) or the Supplemental Eligibility Record Date
(June 30, 1998), as the case may be, bore to the balance of all deposit
accounts in the Bank on such date.
If, however, on any September 30 annual closing date of the Bank,
commencing September 30, 1998, the amount in any deposit account is less than
the amount in such deposit account on March 31, 1997 or June 30, 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 Holding Company as the sole stockholder of the Bank.
REVIEW OF OTS ACTION
Any person aggrieved by a final action of the OTS which approves, with or
without conditions, or disapproves a plan of conversion pursuant to 12 C.F.R.
Part 563b may obtain review of such action by filing in the court of appeals of
the United States for the circuit in which the principal office or residence of
such person is located, or in the United States Court of Appeals for the
District of Columbia, a written petition praying that the final action of the
OTS be modified, terminated or set aside. Such petition must be filed within 30
days after the publication of notice of such final action in the Federal
Register, or 30 days after the mailing by the applicant of the notice to members
as provided for in 12 C.F.R. Section 563b.6(c), whichever is later. The further
procedure for review is as follows: A copy of the petition is forthwith
transmitted to the OTS by the clerk of the court and thereupon the OTS files in
the court the record in the proceeding, as provided in Section 2112 of Title 28
of the United States Code. Upon the filing of the petition, the court has
jurisdiction, which upon the filing of the record is exclusive, to affirm,
modify, terminate, or set aside in whole or in part, the final action of the
OTS. Review of such proceedings is as provided in Chapter 7 of Title 5 of the
United States Code. The judgment and decree of the court is final, except that
they are subject to review by the United States Supreme Court upon certiorari as
provided in Section 1254 of Title 28 of the United States Code.
9
<PAGE>
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a Registration Statement on Form
S-1 (File No. 333-56465) under the Securities Act with respect to the common
stock offered in the conversion. The prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. You may read
and copy such information at the SEC's public reference room in Washington, D.C.
You can request copies of those documents, upon payment of a duplicating fee, by
writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. The Registration
Statement also is available through the SEC's World Wide Web site on the
Internet (http://www.sec.gov).
The MHC has filed with the OTS an Application for Approval of Conversion.
The accompanying Prospectus omits certain information contained in such
Application. The Application, including exhibits and certain other information
that are a part thereof, may be inspected, without charge, at the offices of the
OTS, 1700 G Street, N.W., Washington, D.C. 20552 and at the office of the
Regional Director of the OTS at the OTS Midwest Regional Office, 122 W. John
Carpenter Freeway, Suite 600, Irving, Texas 75039.
Copies of the Holding Company's Articles of Incorporation and Bylaws may be
obtained by written request to the Bank.
All persons eligible to vote at the Special Meeting should review both this
Proxy Statement and the accompanying Prospectus carefully. However, no person
is obligated to purchase any Common Stock. For additional information, you may
call the Stock Information Center at (314) __________.
BY ORDER OF THE BOARD OF DIRECTORS
MICHAEL J. DONIUS
Secretary
St. Louis, Missouri
August 21, 1998
YOUR BOARD OF DIRECTORS URGES YOU TO CONSIDER CAREFULLY THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT AND THE PROSPECTUS AND, WHETHER OR NOT YOU
PLAN TO BE PRESENT IN PERSON AT THE SPECIAL MEETING, TO FILL IN, DATE, SIGN AND
RETURN THE ENCLOSED PROXY CARD(S) AS SOON AS POSSIBLE TO ASSURE THAT YOUR VOTES
WILL BE COUNTED. THIS WILL NOT PREVENT YOU FROM VOTING IN PERSON IF YOU ATTEND
THE SPECIAL MEETING. YOU MAY REVOKE YOUR PROXY BY WRITTEN INSTRUMENT DELIVERED
TO THE SECRETARY OF THE BANK AT ANY TIME PRIOR TO OR AT THE SPECIAL MEETING OR
BY ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS IN THOSE
JURISDICTIONS IN WHICH IT IS LAWFUL TO MAKE SUCH OFFER.
10
<PAGE>
EXHIBIT 99.6
PULASKI BANK, A FEDERAL SAVINGS BANK
12300 OLIVE BOULEVARD
ST. LOUIS, MISSOURI 63141
(314) 878-2210
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 28, 1998
- --------------------------------------------------------------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders ("Special
Meeting") of Pulaski Bank, A Federal Savings Bank ("Bank") will be held at the
main office of the Bank, 12300 Olive Boulevard, St. Louis, Missouri, on Monday,
September 28, 1998, at 4:00 p.m., Central Time, for the following purpose:
1. To consider and vote upon a proposal to approve a Plan of Conversion
from Mutual Holding Company to Stock Holding Company and Agreement and
Plan of Reorganization ("Plan of Conversion") adopted by Pulaski
Bancshares, M.H.C. (the "MHC") and the Bank, pursuant to which (i) the
MHC will convert to a federally chartered interim stock savings bank
and merge into the Bank, with the Bank being the surviving
institution, (ii) the Bank and a newly formed federally chartered
interim stock savings bank will merge, with the Bank being the
surviving institution and becoming a wholly-owned subsidiary of a
newly formed stock corporation named Pulaski Financial Corp. (the
"Holding Company") and (iii) the Holding Company will sell shares of
its common stock to the public and issue shares of its common stock in
exchange for shares of the Bank's common stock, all on and subject to
the terms and conditions contained therein; and
2. To consider and act upon such other matters as may properly come
before the Special Meeting or any adjournments thereof.
NOTE: The Board of Directors is not aware of any other business to come
before the Special Meeting.
Any action may be taken on any one of the foregoing proposals at the
Special Meeting on the date specified above, or on any date or dates to which,
by original or later adjournment, the Special Meeting may be adjourned.
Pursuant to the Bank's Bylaws, the Board of Directors has fixed the close of
business on July 31, 1998 as the record date for the determination of the
stockholders entitled to notice of and to vote at the Special Meeting and any
adjournments thereof.
Please complete and sign the enclosed form of Proxy, which is solicited by
the Board of Directors, and mail it promptly in the enclosed envelope. The
Proxy will not be used if you attend the Special Meeting and vote in person.
BY ORDER OF THE BOARD OF DIRECTORS
MICHAEL J. DONIUS
Secretary
St. Louis, Missouri
August 21, 1998
===============================================================================
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE YOUR BANK THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO INSURE A QUORUM. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES.
================================================================================
<PAGE>
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PROXY STATEMENT
OF
PULASKI BANK, A FEDERAL SAVINGS BANK
12300 OLIVE BOULEVARD
ST. LOUIS, MISSOURI 63141
(314) 878-2210
- --------------------------------------------------------------------------------
SPECIAL MEETING OF STOCKHOLDERS
SEPTEMBER 28, 1998
- --------------------------------------------------------------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Pulaski Bank, A Federal Savings Bank
("Bank") to be used at the Special Meeting of Stockholders (as may be adjourned
or postponed, the "Special Meeting") of the Bank. The Special Meeting will be
held at the Bank's main office, 12300 Olive Boulevard, St. Louis, Missouri, on
Monday, September 28, 1998, at 4:00 p.m., Central Time. The accompanying Notice
of Special Meeting of Stockholders and this Proxy Statement are being first
mailed to stockholders on or about August 21, 1998.
- -------------------------------------------------------------------------------
VOTING AND PROXY PROCEDURE
- -------------------------------------------------------------------------------
Stockholders Entitled to Vote. Stockholders of record as of the close of
business on July 31, 1998 are entitled to one vote for each share of common
stock ("Common Stock") of the Bank then held. As of July 31, 1998, the Bank had
2,105,840 shares of Common Stock issued and outstanding of which 1,470,000 were
owned by Pulaski Bancshares, M.H.C. ("MHC"), the Bank's mutual holding company.
Quorum. The presence, in person or by proxy, of at least a majority of the
total number of outstanding shares of Common Stock entitled to vote is necessary
to constitute a quorum at the Special Meeting. Abstentions will be counted as
shares present and entitled to vote at the Special Meeting for purposes of
determining the existence of a quorum. Broker non-votes (i.e., shares held by
----
brokers or nominees as to which instructions have not been received and the
broker or nominee does not have discretionary voting power) will be considered
shares present and will be included in determining whether a quorum is present.
SINCE THE MHC OWNS MORE THAN 50% OF THE OUTSTANDING SHARES OF COMMON STOCK, THE
BANK IS GUARANTEED TO ACHIEVE A QUORUM.
Voting. The Board of Directors solicits proxies so that each stockholder
has the opportunity to vote on the proposals to be considered at the Special
Meeting. When a proxy card is returned properly signed and dated the shares
represented thereby will be voted in accordance with the instructions on the
proxy card. If a stockholder of record attends the Special Meeting, he or she
may vote by ballot. Where no instructions are indicated, proxies will be voted
in accordance with the recommendations of the Board of Directors. The Board
recommends a vote FOR approval of the Plan of Conversion.
Stockholders may vote for a proposal, against a proposal or may abstain
from voting. Adoption of the Plan of Conversion will require the affirmative
vote of (i) the holders of at least two-thirds of the outstanding shares of
Common Stock, and (ii) the holders of at least a majority of the outstanding
shares of Common Stock present in person or by proxy at the Special Meeting
(other than those held by the MHC) and entitled to vote. SINCE THE MHC OWNS
MORE THAN TWO-THIRDS OF THE OUTSTANDING SHARES OF COMMON STOCK, THE BANK IS
GUARANTEED TO RECEIVE THE FIRST REQUIRED APPROVAL. Abstentions will have the
same effect as a vote "against" approval of the Plan of Conversion. Broker non-
votes will have the same effect as a vote "against" adoption of the Plan of
Conversion with respect to the approval of the conversion by the holders of at
least two-thirds of the outstanding shares of Common Stock and will have no
effect on the voting with respect to the adoption of the Plan of Conversion by a
majority of the shares (other than those held by the MHC) present and entitled
to vote.
<PAGE>
Revocation of a Proxy. Stockholders who execute proxies retain the right
to revoke them at any time before they are voted. Proxies may be revoked by
written notice delivered in person or mailed to the Secretary of the Bank or by
filing a later proxy prior to a vote being taken on a particular proposal at the
Special Meeting. Attendance at the Special Meeting will not automatically
revoke a proxy, but a stockholder in attendance may request a ballot and vote in
person, thereby revoking a prior granted proxy.
- --------------------------------------------------------------------------------
PROPOSAL I -- APPROVAL OF PLAN OF CONVERSION
- --------------------------------------------------------------------------------
On April 15, 1998, the Boards of Directors of the MHC and the Bank
unanimously adopted the Plan of Conversion, which was subsequently amended on
July 21, 1998, pursuant to which the Bank will convert from the mutual holding
company form of organization to the stock holding company form of organization.
THE FOLLOWING DISCUSSION OF ALL MATERIAL ASPECTS OF THE PLAN OF CONVERSION IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PLAN OF CONVERSION, WHICH IS
ATTACHED HERETO AS EXHIBIT A. The OTS has approved the Plan of Conversion
subject to its approval by the members of the MHC and the stockholders of the
Bank and subject to the satisfaction of certain other conditions imposed by the
OTS in its approval. All capitalized terms not defined herein shall have the
meanings set forth in the Holding Company's Prospectus dated August ___, 1998, a
copy of which is being delivered herewith.
Pursuant to the Plan of Conversion, (i) the MHC will convert from a
federally-chartered mutual holding company to a federally-chartered interim
stock savings bank ("Interim A") and simultaneously merge with and into the Bank
and (ii) an interim federal stock savings bank ("Interim B") will be formed as a
wholly-owned subsidiary of the Holding Company and will merge with and into the
Bank. As a result of the merger of Interim A with and into the Bank, the MHC
will cease to exist and the shares of Bank common stock held by the MHC will be
canceled. As a result of the merger of Interim B with and into the Bank, the
Bank will become a wholly owned subsidiary of the Holding Company and the common
stock of the Bank will be converted into common stock of the Holding Company
pursuant to the Exchange Ratio, which will result in the holders of such shares
owning in the aggregate approximately 26.63% of the outstanding Holding Company
common stock before giving effect to (a) the payment of cash in lieu of issuing
fractional shares and (b) any shares of common stock purchased by the Bank's
stockholders in the offering.
As part of the conversion, the Holding Company is offering shares of common
stock in the Subscription Offering to holders of Subscription Rights in the
following order of priority: (i) Eligible Account Holders (depositors of the
Bank with $50.00 or more on deposit as of the close of business on March 31,
1997); (ii) Supplemental Eligible Account Holders (depositors of the Bank with
$50.00 or more on deposit as of the close of business on June 30, 1998); and
(iii) Other Members (depositors of the Bank as of the close of business on July
31, 1998 and borrowers of the Bank with loans outstanding as of the close of
business on May 11, 1994, which continue to be outstanding as of the close of
business on July 31, 1998).
Concurrently with the Subscription Offering, any shares not subscribed for
in the Subscription Offering may be offered for sale in the Direct Community
Offering to members of the general public, with priority being given first to
stockholders of the Bank as of the close of business on the Voting Record Date
(who are not Eligible Account Holders, Supplemental Eligible Account Holders or
Other Members) and then to natural persons and trusts of natural persons
residing in the Local Community. Shares of common stock not sold in the
Subscription Offering and the Direct Community Offering may be offered in the
Syndicated Community Offering. Regulations require that the Direct Community
Offering and Syndicated Community Offering be completed within 45 days after
completion of the fully extended Subscription Offering unless extended by the
Bank or the Holding Company with the approval of the regulatory authorities. If
the Syndicated Community Offering is determined not to be feasible, the Board of
Directors of the Bank will consult with the regulatory authorities to determine
an appropriate alternative method for selling the unsubscribed shares of common
stock. The Plan of Conversion provides that the conversion must be completed
within 24 months after the date of the approval of the Plan of Conversion by the
members of the MHC.
2
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF PLAN OF
CONVERSION.
- --------------------------------------------------------------------------------
INCORPORATION BY REFERENCE
- --------------------------------------------------------------------------------
Each person receiving this Proxy Statement is also receiving the Prospectus
of Pulaski Financial Corp. dated August __, 1998. Although such Prospectus is
incorporated herein by reference, this Proxy Statement does not constitute an
offer to sell or a solicitation of an offer to buy the common stock of the
Holding Company. Such offer and solicitation is made only by the Prospectus in
such jurisdictions where it is lawful to do so.
The Bank urges each recipient of this Proxy Statement to read carefully the
sections of the Prospectus that describe the following:
(i) the conversion (see "THE CONVERSION" in the Prospectus);
(ii) the business of the Holding Company and the Bank (see "BUSINESS OF THE
HOLDING COMPANY" and "BUSINESS OF THE BANK" in the Prospectus);
(iii) the reasons for the conversion and management's belief that the
conversion is in the best interests of the Bank and its stockholders (see
"THE CONVERSION -- Purposes of Conversion" in the Prospectus);
(iv) employment agreements, severance agreements, and stock benefit plans
that the Bank and/or the Holding Company intend to implement in connection
with the conversion (see "MANAGEMENT OF THE BANK" in the Prospectus);
(v) the common stock of the Holding Company (see "DESCRIPTION OF CAPITAL
STOCK OF THE HOLDING COMPANY" in the Prospectus);
(vi) the historical capitalization of the Bank and the pro forma
capitalization of the Holding Company (see "CAPITALIZATION" in the
Prospectus);
(vii) the historical and pro forma capital compliance of the Bank (see
"HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE" in the Prospectus);
(viii) pro forma financial information with respect to the conversion (see
"PRO FORMA DATA" in the Prospectus);
(ix) the Holding Company and the Bank's respective intended use of proceeds
of the offering (see "USE OF PROCEEDS" in the Prospectus);
(x) the Holding Company's proposed dividend policy (See "DIVIDEND POLICY"
in the Prospectus);
(xi) restrictions on the acquisition of the Holding Company, including
anti-takeover provisions in the Holding Company's Certificate of
Incorporation and Bylaws (see "RESTRICTIONS ON THE ACQUISITION OF THE
HOLDING COMPANY" in the Prospectus);
(xii) a comparison of the rights of the holders of the Bank's common stock
and rights of the holders of the Holding Company's common stock (see
"COMPARISON OF STOCKHOLDERS' RIGHTS" in the Prospectus); and
<PAGE>
(xiii) the consolidated financial statements of the Bank appearing in the
Prospectus.
- --------------------------------------------------------------------------------
OTHER MATTERS
- --------------------------------------------------------------------------------
The Board of Directors of the Bank is not aware of any business to come
before the Special Meeting other than those matters described above in this
Proxy Statement. However, if any other matters should properly come before the
Special Meeting, it is intended that executed proxies in the accompanying form
will be voted in respect thereof in accordance with the judgment of the person
or persons voting the proxies.
The cost of solicitation of proxies will be borne by the Bank. In addition
to solicitations by mail, directors, officers and regular employees of the Bank
may solicit proxies personally or by telecopier or telephone without additional
compensation.
BY ORDER OF THE BOARD OF DIRECTORS
MICHAEL J. DONIUS
Secretary
St. Louis, Missouri
August 21, 1998
4
