<PAGE>
As filed with the Securities and Exchange Commission on February 3, 1999
Registration No. 333-69191
==============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 2 TO THE
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PFSB BANCORP, INC.
( Name of Small Business Issuer in its Certificate of Incorporation)
MISSOURI 6035 31-627743
(State or Other (Primary Standard Industrial (IRS Employer
Jurisdiction of Classification Code Number) Identification No.)
Incorporation or
Organization)
123 W. Lafayette Street 123 W. Lafayette Street
Palmyra, Missouri 63461 Palmyra, Missouri 63461
(573) 769-2134 (573) 769-2134
(Address and Telephone (Address of Principal
Number of Principal Place of Business or
Executive Offices) Intended Principal
Place of Business)
Eldon R. Mette
Executive Vice President and Director
Palmyra Saving and Building Association, F.A.
123 W. Lafayette Street
Palmyra, Missouri 63461
(573) 769-2134
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Paul M. Aguggia, Esquire
Victor L. Cangelosi, Esquire
Muldoon, Murphy & Faucette LLP
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
(202) 362-0840
Approximate Date Of Proposed Sale To 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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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 Amount to Proposed Proposed Maximum Amount of
Securities to be Registered be Registered Maximum Aggregate Offering Registration Fee
Offering Price Price (1)
Per Unit
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock
$.01 par Value 859,625 Shares $10.00 $8,596,250 (2)
========================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) The Registration fee of $2,758 was previously paid upon the initial
filing of the Form SB-2 on December 18, 1998.
The Registrant Hereby Amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE>
Interests in
Palmyra Saving and Building Association, F.A.
Employees' Savings and Profit-Sharing Plan
and
Offering of 32,178 Shares of
PFSB Bancorp, Inc.
Common Stock ($.01 Par Value)
This prospectus supplement relates to the offer and sale to participants in
the Palmyra Saving and Building Association, F.A. Employees' Savings and Profit-
Sharing Plan of participation interests and shares of common stock of PFSB
Bancorp.
The Board of Directors of Palmyra Savings has adopted a plan that will
convert the structure of Palmyra Savings from a mutual savings institution to a
stock savings institution. As part of the conversion, PFSB Bancorp has been
established to acquire all of the stock of Palmyra Savings and simultaneously
offer PFSB Bancorp common stock to the public under certain purchase priorities
in the plan of conversion. Savings Plan participants are now permitted to
direct the trustee of the Savings Plan to use their current account balances to
subscribe for and purchase shares of PFSB Bancorp common stock through the PFSB
Bancorp Stock Fund. Based upon the value of the Savings Plan assets at
December 31, 1998, the trustee of the Savings Plan could purchase up to 32,178
shares of PFSB Bancorp common stock assuming a purchase price of $10.00 per
share. This prospectus supplement relates to the election of Savings Plan
participants to direct the trustee of the Savings Plan to invest all or a
portion of their Savings Plan accounts in PFSB Bancorp common stock.
The prospectus dated February ___, 1999, of PFSB Bancorp, which we have
attached to this prospectus supplement, includes detailed information regarding
the conversion of Palmyra Savings, PFSB Bancorp common stock and the financial
condition, results of operations and business of Palmyra Savings. This
prospectus supplement provides information regarding the Savings Plan. You
should read this prospectus supplement together with the prospectus and keep
both for future reference.
Please refer to "Risk Factors" beginning on page __ of the prospectus.
The date of this Prospectus Supplement is February ___, 1999.
<PAGE>
Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation, nor any other state or
federal agency or any state securities commission, has approved or disapproved
these securities. Any representation to the contrary is a criminal offense.
These securities are not deposits or accounts and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
This prospectus supplement may be used only in connection with offers and
sales by PFSB Bancorp of interests or shares of common stock under the Savings
Plan. No one may use this prospectus supplement to reoffer or resell interests
or shares of common stock acquired through the Savings Plan.
You should rely only on the information contained in this prospectus
supplement and the attached prospectus. PFSB Bancorp, Palmyra Savings and the
Savings Plan have not authorized anyone to provide you with information that is
different.
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 an offer or solicitation in that jurisdiction.
Neither the delivery of this prospectus supplement and the prospectus nor any
sale of common stock shall under any circumstances imply that there has been no
change in the affairs of Palmyra Savings or the Savings Plan since the date of
this prospectus supplement, or that the information contained in this prospectus
supplement or incorporated by reference is correct as of any time after the date
of this prospectus supplement.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
THE OFFERING...................................................................... 1
Securities Offered........................................................... 1
Election to Purchase PFSB Bancorp Common Stock in the Conversion of Palmyra
Savings..................................................................... 1
Value of Participation Interests............................................. 2
Method of Directing Transfer................................................. 2
Time for Directing Transfer.................................................. 2
Irrevocability of Transfer Direction......................................... 2
Purchase Price of PFSB Bancorp Common Stock.................................. 2
Nature of a Participant's Interest in PFSB Bancorp Common Stock.............. 2
Voting and Tender Rights of PFSB Bancorp Common Stock........................ 3
DESCRIPTION OF THE SAVINGS PLAN................................................... 3
Introduction................................................................. 3
Eligibility and Participation................................................ 4
Contributions Under the Savings Plan......................................... 4
Limitations on Contributions................................................. 4
Investment of Contributions.................................................. 6
Benefits Under the Savings Plan.............................................. 8
Withdrawals and Distributions From the Savings Plan.......................... 8
Administration of the Savings Plan........................................... 9
Reports to Savings Plan Participants......................................... 9
Plan Administrator........................................................... 9
Amendment and Termination.................................................... 10
Merger, Consolidation or Transfer............................................ 10
Federal Income Tax Consequences.............................................. 10
Restrictions on Resale....................................................... 12
SEC Reporting and Short-Swing Profit Liability............................... 13
LEGAL OPINIONS.................................................................... 14
CHANGE OF INVESTMENT ALLOCATION FORM.............................................. 15
</TABLE>
<PAGE>
THE OFFERING
Securities Offered
The securities offered in connection with this prospectus supplement are
participation interests in the Savings Plan. Assuming a purchase price of
$10.00 per share, the trustee may acquire up to 32,178 shares of PFSB Bancorp
common stock for the PFSB Bancorp Stock Fund. Only eligible employees of
Palmyra Savings may participate in the Plan. The interests offered under this
prospectus supplement are conditioned on the completion of the conversion of
Palmyra Savings. Your investment in the PFSB Bancorp Stock Fund in connection
with the conversion of Palmyra Savings is also governed by the purchase
priorities contained in the plan of conversion of Palmyra Savings.
This prospectus supplement contains information regarding the Savings Plan.
The attached prospectus contains information regarding the conversion of Palmyra
Savings and the financial condition, results of operations and business of
Palmyra Savings. The address of the principal executive office of Palmyra
Savings is 123 W. Lafayette Street, Palmyra, MO 63461. The telephone number of
Palmyra Savings is (573) 769-2134.
Election to Purchase PFSB Bancorp Common Stock in the Conversion of Palmyra
Savings
In connection with the conversion of Palmyra Savings, the Savings Plan will
permit you to direct the trustee to transfer all or part of the funds which
represent your current beneficial interest in the assets of the Savings Plan to
the PFSB Bancorp Stock Fund. The trustee of the Savings Plan will subscribe for
PFSB Bancorp common stock offered for sale in connection with the conversion of
Palmyra Savings in accordance with each participant's direction. If the
conversion offering is oversubscribed and some or all of your funds cannot be
used to purchase common stock in the conversion offering, the trustee will
reallocate the amount not invested in PFSB Bancorp common stock on a
proportionate basis to the other investment options you have selected. If you
fail to direct the investment of your account, your account balance will remain
in the other investment options of the Savings Plan.
Your ability to invest in the PFSB Bancorp Stock Fund is based on your
status as an eligible account holder, supplemental eligible account holder, or
other member in the conversion of Palmyra Savings. An eligible account holder
is a depositor whose savings account(s) totalled $50.00 or more on June 30,
1997. A supplemental eligible account holder is a depositor whose savings
account(s) totalled $50 or more on December 31, 1998. Other members consist of
depositors of Palmyra Savings as of January 31, 1999 and borrowers with
outstanding loans as of June 1, 1995 which continue to be outstanding as of
January 31, 1999. No eligible account holders, supplemental eligible account
holders or other members may purchase in the subscription offering more than
$60,000 of PFSB Bancorp common stock. If you fall into one of the above
subscription offering categories, you have subscription rights to purchase
shares of common stock in the subscription offering and you may use funds in the
Savings Plan account to pay for PFSB Bancorp common stock for which you
subscribe.
1
<PAGE>
Value of Participation Interests
As of December 31, 1998, the market value of the assets of the Savings Plan
equaled $321,788. The plan administrator has informed each participant of the
value of his or her beneficial interest in the Savings Plan as of December 31,
1998. The value of Savings Plan assets represents your past contributions to
the Savings Plan, plus or minus earnings or losses on the contributions, less
previous withdrawals.
Method of Directing Transfer
The last two pages of this prospectus supplement is a form for you to
direct a transfer to the PFSB Bancorp Stock Fund (the "Change of Investment
Allocation Form"). If you wish to transfer all, or part in multiples of not
less than 1%, of your beneficial interest in the assets of the Savings Plan to
the PFSB Bancorp Stock Fund, you should complete the Change of Investment
Allocation Form. If you do not wish to make such an election at this time, you
do not need to take any action.
Time for Directing Transfer
The deadline for submitting a direction to transfer amounts to the PFSB
Bancorp Stock Fund in connection with the conversion of Palmyra Savings is ten
(10) days before ____________ (the "Expiration Date") of the offering. You
should return the Change of Investment Allocation Form to Eldon R. Mette of
Palmyra Savings by _:__ p.m. on _______ ___, 1999.
Irrevocability of Transfer Direction
Your direction to transfer amounts credited to such account in the Savings
Plan to the PFSB Bancorp Stock Fund cannot be changed.
Purchase Price of PFSB Bancorp Common Stock
The trustee will use the funds transferred to the PFSB Bancorp Stock Fund
to purchase shares of PFSB Bancorp common stock in the conversion of Palmyra
Savings. The trustee will pay the same price for shares of PFSB Bancorp common
stock as all other persons who purchase shares of PFSB Bancorp common stock in
the conversion of Palmyra Savings.
Nature of a Participant's Interest in PFSB Bancorp Common Stock
The trustee will hold PFSB Bancorp common stock in the name of the Savings
Plan. The trustee will allocate shares of common stock acquired at your
direction to your account under the Savings Plan. Therefore, earnings with
respect to your account should not be affected by the investment designations of
other participants in the Savings Plan.
2
<PAGE>
Voting and Tender Rights of PFSB Bancorp Common Stock
The Trustee generally will exercise voting and tender rights attributable
to all PFSB Bancorp common stock held by the PFSB Bancorp Stock Fund as directed
by participants with interests in the PFSB Bancorp Stock Fund. With respect to
each matter as to which holders of PFSB Bancorp common stock have a right to
vote, you will be given voting instruction rights reflecting your proportionate
interest in the PFSB Bancorp Stock Fund. The number of shares of PFSB Bancorp
common stock held in the PFSB Bancorp Stock Fund that are voted for and against
on each matter will be proportionate to the number of voting instruction rights
exercised in such manner. If there is a tender offer for PFSB Bancorp common
stock, the Savings Plan provides that each participant will be allotted a number
of tender instruction rights reflecting such participant's proportionate
interest in the PFSB Bancorp Stock Fund. The percentage of shares of PFSB
Bancorp common stock held in the PFSB Bancorp Stock Fund that will be tendered
will be the same as the percentage of the total number of tender instruction
rights that are exercised in favor of tendering. The remaining shares of PFSB
Bancorp common stock held in the PFSB Bancorp Stock Fund will not be tendered.
The Savings Plan makes provisions for participants to exercise their voting
instruction rights and tender instruction rights on a confidential basis.
DESCRIPTION OF THE SAVINGS PLAN
I. Introduction
On April 1, 1993, Palmyra Savings began participation in the Financial
Institution's Thrift Plan. Effective February 1, 1999, Palmyra Savings withdrew
from the Thrift Plan and simultaneously adopted the Palmyra Savings and Building
Association Employees' Savings and Profit Sharing Plan to include the PFSB
Bancorp Stock Fund as an investment alternative. Palmyra Savings intends for
the Savings Plan to comply, in form and in operation, with all applicable
provisions of the Internal Revenue Code and the Employee Retirement Income
Security Act or "ERISA." Palmyra Savings may change the Savings Plan from time
to time in the future to ensure continued compliance with these laws. Palmyra
Savings may also amend the Savings Plan from time to time in the future to add,
modify, or eliminate certain features of the plan, as it sees fit. As a plan
governed by the Employee Retirement Income Security Act of 1974, as amended,
federal law provides you with various rights and protections as a plan
participant. Although the 401(k) Plan is governed by many of the provisions of
the Employee Retirement Income Security Act of 1974, as amended, your benefits
under the plan are not guaranteed by the Pension Benefit Guaranty Corporation.
Applicable federal tax law requires the Savings Plan to impose substantial
restrictions on your right to withdraw amounts held under the plan before your
termination of employment with palmyra saving. Federal law may also impose an
excise tax on withdrawals made from the Savings Plan before you attain 59 1/2
years of age regardless of whether the withdrawal occurs during your employment
with Palmyra Saving or after termination of employment.
Reference to Full Text of Plan. The following portions of this prospectus
------------------------------
supplement provide an overview of the material provisions of the Savings Plan.
Palmyra Savings qualifies
3
<PAGE>
this overview in its entirety by reference to the full text of the Savings Plan.
You may obtain copies of the full Savings Plan document by sending a request to
Eldon R. Mette at Palmyra Savings. You should carefully read the full text of
the Savings Plan document to understand your rights and obligations under the
plan.
II. Eligibility and Participation
Any employee of Palmyra Savings may participate in the Savings Plan as of
the first day of the month following completion of one "year of service" and
attainment of age twenty-one. For purposes of the Savings Plan, you generally
complete one "year of service" if you complete 1,000 hours of service with
Palmyra Savings within a twelve-consecutive-month period.
As of December 31, 1998, approximately 16 out of ______ then eligible
employees had elected to participate in the Savings Plan.
III. Contributions Under the Savings Plan
Savings Plan Participant Contributions. The Savings Plan permits each
--------------------------------------
participant to annually defer receipt of up to 15% of compensation that Palmyra
Savings would otherwise currently pay. For purposes of calculating deferrals,
the Savings Plan considers compensation to include your total pay reportable on
IRS Form W-2 for purposes of income-tax withholding. However, by law, the
Savings Plan may not consider more than $160,000 of compensation for purposes of
determining deferrals for 1999. Participants in the Savings Plan may modify the
amount contributed to the plan, effective on the first day of the month.
Palmyra Savings Contributions. Palmyra Savings has discretion under the
-----------------------------
Savings Plan about whether or not to make matching contributions. Palmyra
Savings currently makes matching contributions to the Savings Plan equal to 50%
of a Participant's contributions up to 4% of a participant's compensation for
purposes of the Savings Plan.
IV. Limitations on Contributions
Limitation on Employee Salary Deferral. Although the Savings Plan permits
--------------------------------------
you to defer up to 15% of your compensation by law your total deferrals under
the Savings Plan, together with similar plans, may not exceed $10,000 for 1999.
The Internal Revenue Service will periodically increase this annual limitation.
Contributions in excess of this limitation, or excess deferrals, will be
included in an affected participant's gross income for federal income tax
purposes in the year they are made. In addition, a participant will have to pay
federal income taxes on any excess deferrals when distributed by the Savings
Plan to the participant, unless the excess deferral and any related income
allocable 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 distribution is made.
Limitations on Annual Additions and Benefits. Under the requirements of
--------------------------------------------
the Internal Revenue Code, the Savings Plan provides that the total amount of
contributions and forfeitures
4
<PAGE>
(annual additions) allocated to participants during any year may not exceed the
lesser of 25% of the participant's compensation for 1999, or $30,000. The
Savings Plan will also limit annual additions to the extent necessary to prevent
the limitations contained in the Internal Revenue Code for all of the qualified
defined benefit plans and defined contribution plans maintained by Palmyra
Savings from being exceeded.
Limitation on Plan Contributions for Highly Compensated Employees. Special
-----------------------------------------------------------------
provisions of the Internal Revenue Code limit the amount of salary deferrals
that may be made to the Savings Plan in any year on behalf of highly compensated
employees in relation to the amount of deferrals made by or on behalf of all
other employees eligible to participate in the Savings Plan. If these
limitations are exceeded, the level of deferrals by highly compensated employees
must be adjusted.
In general, a highly compensated employee includes any employee who, (1)
was a five percent owner of the sponsoring employer at any time during the year
or preceding year, or (2) had compensation for the preceding year in excess of
$80,000 and, if the sponsoring employer so elects, was in the top 20% of
employees by compensation for such year. The dollar amounts in the foregoing
sentence are for 1998, but are adjusted annually to reflect increases in the
cost of living.
Top-Heavy Plan Requirements. If for any calendar year the Savings Plan is
---------------------------
a Top-Heavy Plan, then Palmyra Savings may be required to make certain minimum
contributions to the Savings Plan on behalf of non-key employees. In addition,
certain additional restrictions would apply with respect to the combination of
contributions to the Savings Plan and projected annual benefits under any
defined benefit plan maintained by Palmyra Savings.
In general, the Savings Plan will be treated as a "Top-Heavy Plan" for any
calendar year if, as of the last day of the preceding calendar year, the
aggregate balance of the accounts of participants who are Key Employees exceeds
60% of the aggregate balance of the accounts of all participants. Key Employees
generally include any employee who, at any time during the calendar year or any
of the four preceding years, is:
(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 owning, directly or indirectly, the largest interests in Palmyra
Savings,
(3) a person who owns directly or indirectly more than 5% of the stock of
PFSB Bancorp, or stock possessing more than 5% of the total combined voting
power of all stock of PFSB Bancorp, or
(4) a person who owns directly or indirectly combined voting power of all
stock and more than 1% of the total stock of PFSB Bancorp and has annual
compensation in excess of $150,000.
The foregoing dollar amounts are for 1998.
5
<PAGE>
V. Investment of Contributions
All amounts credited to participants' accounts under the Savings Plan are
held in trust. A trustee appointed by the Board of Directors of Palmyra Savings
administers the trust.
Immediately before ________ __, 1999, the Savings Plan offered the
following choices:
S&P 500 Stock Fund. This 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.
Stable Value Fund. This fund invests primarily in Guaranteed Investment
Contracts and Synthetic Guaranteed Investment Contracts. These contracts pay a
steady rate of interest over a certain period of time, usually between three and
five years. Its objective is short to intermediate term: to achieve a stable
return over short to intermediate periods of time while preserving the value of
your investment.
S&P MidCap Stock Fund. This stock fund invests in the stocks of mid-sized
U.S. companies, which are expected to grow faster than larger, more established
companies. Its objective is long-term: to earn higher returns which reflect the
growth potential of mid-sized companies.
Money Market Fund. This fund invests in a broad range of high-quality,
short-term instruments issued by banks, corporations and the U.S. Government and
its agencies. These instruments include certificates of deposit and U.S.
Treasury bills. Its objective is short-term: to achieve competitive, short-term
rates of return while preserving the value of your principal.
Government Bond Fund. This 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.
International Stock Fund. This fund invests in over 1,000 foreign stocks
in 20 countries, based in Europe, Australia, and the Far East. Its objective is
long-term: to offer the potential return of investing in the stocks of
established non-U.S. companies, as well as the potential risk-reduction of broad
diversification.
Income Plus Asset Allocation Fund. This fund diversifies among a broad
range of stable value securities to reduce short-term risk and among a broad
range of large U.S. and international companies to capture growth potential.
The Fund is structured to take advantage of market opportunities with a small
flexible component. Its objective is intermediate-term: to preserve the value of
your investment over short periods of time and to offer some potential for
growth.
Growth and Income Asset Allocation Fund. This fund diversifies among U.S.
and international stocks, U.S. bonds, and stable value investments to pursue
long-term appreciation and short-term stability and takes advantage of market
opportunities with a small flexible
6
<PAGE>
component. Its objective is intermediate-term: to provide a balance between the
pursuit of growth and protection from risk.
Growth Asset Allocation Fund. This fund diversifies among a broad range of
domestic and international stocks and takes advantage of market opportunities
with a large flexible component. Its objective is long-term: to pursue high
growth of your investment over time.
The Savings Plan now provides the PFSB Bancorp Stock Fund as an additional
choice to these investment alternatives. The PFSB Bancorp Stock Fund invests
primarily in the common stock of PFSB Bancorp. Participants in the Savings Plan
may direct the trustee to invest all or a portion of their Savings Plan account
balance in the PFSB Bancorp Stock Fund.
A. Previous Funds.
--------------
Before the conversion of Palmyra Savings and implementation of the PFSB
Bancorp Stock Fund, contributions under the Savings Plan were invested in the
funds specified below. The annual percentage return on these funds for the
prior three years was:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
S&P 500 Stock Fund....................... 27.9% 32.7% 22.3%
Stable Value Fund........................ 5.9 6.2 6.5
S&P MidCap Stock Fund.................... 18.6 31.5 18.6
Money Market Fund........................ 5.5 5.5 5.6
Government Bond Fund..................... 13.8 15.4 (2.3)
International Stock Fund................. 19.3 3.6 10.6
Income Plus Asset Allocation Fund........ 9.7 8.9 8.3
Growth and Income Asset Allocation Fund.. 15.5 13.6 12.3
Growth Asset Allocation Fund............. 24.3 19.0 18.0
</TABLE>
B. The PFSB Bancorp Stock Fund.
---------------------------
The PFSB Bancorp Stock Fund consists of investments in the common stock of
PFSB Bancorp made on the effective date of the conversion of Palmyra Savings.
After the conversion of Palmyra Savings, the trustee of the Savings Plan will,
to the extent practicable, use all amounts held by it in the PFSB Bancorp Stock
Fund, including cash dividends paid on the common stock held in the fund, to
purchase shares of common stock of PFSB Bancorp.
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 PFSB Bancorp common stock. Accordingly, there is no record of the
historical performance of the PFSB Bancorp Stock Fund. Performance of the PFSB
Bancorp Stock Fund depends on a number of factors, including
7
<PAGE>
the financial condition and profitability of PFSB Bancorp and Palmyra Savings
and market conditions for PFSB Bancorp common stock generally.
Investments in the PFSB Bancorp Stock Fund may involve certain special
risks in investments in the common stock of PFSB Bancorp. For a discussion of
these risk factors, see "Risk Factors" beginning on page __ of the prospectus.
VI. Benefits Under the Plan
Vesting. At all times, you have a fully vested, nonforfeitable interest in
-------
your elective deferrals under the Savings Plan. You vest in your employer
matching contribution according to the following schedule.
<TABLE>
<CAPTION>
Period Vested
of Service Percentage
---------- ----------
<S> <C> <C>
0-2 Years... 0%
3 Years..... 100%
</TABLE>
VII. Withdrawals and Distributions From the Plan
Withdrawals Before Termination of Employment. You may receive in-service
--------------------------------------------
distributions from the Savings Plan under limited circumstances in the form of
hardship distributions and loans. You can apply for a loan from the Savings
Plan by contacting Eldon R. Mette at Palmyra Savings. You may also be eligible
for hardship withdrawals. In order to qualify for a hardship withdrawal, you
must have an immediate and substantial need to meet certain expenses and have no
other reasonably available resources to meet the financial need. If you qualify
for a hardship distribution, the trustee will make the distribution
proportionately from the investment funds in which you have invested your
account balances. You may not receive more than _____ hardship withdrawals in
any calendar year.
Distribution Upon Retirement or Disability. Upon retirement or disability,
------------------------------------------
you will receive a lump sum payment from the Savings Plan equal to the vested
value of your accounts.
Distribution Upon Death. If you die before your benefits are paid from the
-----------------------
Savings Plan, your benefits will be paid to your surviving spouse or beneficiary
under one or more of the forms available under the Savings Plan.
Distribution Upon Termination for Any Other Reason. If you terminate
--------------------------------------------------
employment for any reason other than retirement, disability or death and your
account balance exceeds $5,000, the trustee will make your distribution on your
normal retirement date, unless you request otherwise. If your account balances
does not exceed $5,000, the trustee will generally distribute your benefits to
you as soon as administratively practicable following termination of employment.
Nonalienation of Benefits. Except with respect to federal income tax
-------------------------
withholding and as provided with respect to a qualified domestic relations
order, benefits payable under the Savings
8
<PAGE>
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 Savings Plan shall
be void.
Administration of the Savings Plan
The trustee with respect to the Savings Plan is the named fiduciary of the
Savings Plan for purposes of ERISA.
Trustees. The board of trustees of Palmyra Savings appoints the trustee to
--------
serve at its pleasure. The board of trustees has appointed Bank of New York as
trustee of the PFSB Bancorp Stock Fund.
The trustee receives, holds and invests the contributions to the Savings
Plan in trust and distributes them to participants and beneficiaries in
accordance with the terms of the Savings Plan and the directions of the plan
administrator. The trustee is responsible for investment of the assets of the
trust.
Reports to Plan Participants
The plan administrator will furnish you a statement at least quarterly
showing the balance in your account as of the end of that period, the amount of
contributions allocated to your account for that period, and any adjustments to
your account to reflect earnings or losses.
Plan Administrator
The current plan administrator of the Savings Plan is
____________________________. The plan administrator is responsible for the
administration of the Savings 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 Internal Revenue Service, and for all disclosures
required to be made to participants, beneficiaries and others under Employee
Retirement Income Security Act of 1974, as amended.
Amendment and Termination
Palmyra Savings intends to continue the Savings Plan indefinitely.
Nevertheless, Palmyra Savings may terminate the Savings Plan at any time. If
Palmyra Savings terminates the Savings Plan in whole or in part, then regardless
of other provisions in the plan, all affected participants will become fully
vested in their accounts. Palmyra Savings reserves the right to make, from time
to time, changes which do not cause any part of the trust to be used for, or
diverted to, any purpose other than the exclusive benefit of participants or
their beneficiaries; provided, however, that Palmyra Savings may amend the plan
as it determines necessary or
9
<PAGE>
desirable, with or without retroactive effect, to comply with the Employee
Retirement Income Security Act of 1974, as amended, or the Internal Revenue
Code.
Merger, Consolidation or Transfer
If the Savings Plan merges or consolidates with another plan or transfers
the trust assets to another plan, and if either the Savings Plan or the other
plan is then terminated, the Savings Plan requires that you would receive a
benefit immediately after the merger, consolidation or transfer. The benefit
would be equal to or greater than the benefit you would have been entitled to
receive immediately before the merger, consolidation or transfer if the Savings
Plan had then terminated.
Federal Income Tax Consequences
The following is only a brief summary of the material federal income tax
aspects of the Savings Plan. You should not rely on this survey as a complete
or definitive description of the material federal income tax consequences
relating to the Savings Plan. Statutory provisions change, as do 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. You are urged to consult
your tax advisor with respect to any distribution from the Savings Plan and
transactions involving the plan.
As a "qualified retirement plan," the Code affords the Savings Plan special
tax treatment, including:
(1) The sponsoring employer is allowed an immediate tax deduction for the
amount contributed to the plan 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-deferred thereby permitting the tax-free
accumulation of income and gains on investments.
Palmyra Savings will administer the Savings Plan to comply in operation
with the requirements of the Internal Revenue Code as of the applicable
effective date of any change in the law. If Palmyra Savings receives an adverse
determination letter regarding its tax exempt status from the Internal Revenue
Service, all participants would generally recognize income equal to their vested
interest in the Savings Plan, the participants would not be permitted to
transfer amounts distributed from the Savings Plan to an Individual Retirement
Account or to another qualified retirement plan, and Palmyra Savings may be
denied certain deductions taken with respect to the Savings Plan.
Lump Sum Distribution. A distribution from the Savings Plan to a
---------------------
participant or the beneficiary of a participant will qualify as a lump sum
distribution if it is made within one taxable year, on account of the
participant's death, disability or separation from service, or after the
participant attains age 59 1/2; and consists of the balance to the credit of the
participant under
10
<PAGE>
this plan and all other profit sharing plans, if any, maintained by Palmyra
Savings. The portion of any lump sum distribution required to be included in
your taxable income for federal income tax purposes consists of the entire
amount of the lump sum distribution less the amount of after-tax contributions,
if any, you have made to any other profit sharing plans maintained by Palmyra
Savings which is included in the distribution.
Averaging Rules. The portion of any lump sum distribution, required to be
---------------
included in your federal taxable income for federal income tax purposes,
attributable to participation after 1973 in the Savings Plan or in any other
profit-sharing plan maintained by Palmyra Savings, known as the "ordinary income
portion," will be taxable generally as ordinary income for federal income tax
purposes. However, if you have completed at least five (5) years of
participation in the Savings Plan before the taxable year in which the
distribution is made, or receive a lump sum distribution on account of your
death, regardless of the period of your participation in this plan or any other
profit-sharing plan maintained by Palmyra Savings, you may elect to have the
ordinary income portion of such lump sum distribution taxed according to a
special five-year averaging rule. The election of the special five-year
averaging rules may apply only to one lump sum distribution you or your
beneficiary receive, provided such amount is received on or after the date your
turn 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
five-year averaging rule. 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 or under the prior law ten-year averaging
rule. These 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.
PFSB Bancorp Common Stock Included in Lump Sum Distribution. If a lump sum
-----------------------------------------------------------
distribution includes PFSB Bancorp 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
PFSB Bancorp common stock that is the excess of the value of PFSB Bancorp common
stock at the time of the distribution over its cost or other basis of the
securities to the trust. The tax basis of PFSB Bancorp common stock for
purposes of computing gain or loss on its subsequent sale equals the value of
PFSB Bancorp 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 PFSB Bancorp common stock, to the extent of the amount of net
unrealized appreciation at the time of distribution, will constitute long-term
capital gain regardless of the holding period of PFSB Bancorp common stock. Any
gain on a subsequent sale or other taxable disposition of PFSB Bancorp common
stock in excess 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 PFSB Bancorp common stock. Any gain on a subsequent sale or other
taxable disposition of PFSB Bancorp common stock in excess of the amount of net
unrealized appreciation at the time of distribution will be considered either
short-term, mid-term or long-term capital gain depending upon the length of the
holding period of PFSB Bancorp common stock. The recipient of a distribution may
elect to include the amount of any net unrealized appreciation in the total
taxable amount of the distribution to the extent allowed by the regulations to
be issued by the IRS.
11
<PAGE>
Distributions: Rollovers and Direct Transfers to Another Qualified Plan or
---------------------------------------------------------------------------
to an IRA. You may roll over virtually all distributions from the Savings Plan
- ----------
to another qualified plan or to an individual retirement account generally.
We have provided you with a brief description of the material federal
income tax aspects of the Savings Plan which are of general application under
the Code. It is not intended to be a complete or definitive description of the
federal income tax consequences of participating in or receiving distributions
from the Savings Plan. Accordingly, you are urged to consult a tax advisor
concerning the federal, state and local tax consequences of participating in and
receiving distributions from the Savings Plan.
Restrictions on Resale
Any person receiving a distribution of shares of common stock under the
Savings Plan who is an "affiliate" of PFSB Bancorp under Rules 144 and 405 under
the Securities Act of 1933, as amended, may reoffer or resell such shares only
under a registration statement filed under the Securities Act of 1933, as
amended, assuming the availability of a registration statement, under Rule 144
or some other exemption of the registration requirements of the Securities Act
of 1933, as amended. Directors, officers and substantial shareholders of PFSB
Bancorp are generally considered "affiliates." Any person who may be an
"affiliate" of Palmyra Savings may wish to consult with counsel before
transferring any common stock they own. In addition, participants are advised
to consult with counsel as to the applicability of Section 16 of the Securities
Exchange Act of 1934, as amended, which may restrict the sale of PFSB Bancorp
common stock acquired under the Savings Plan, or other sales of PFSB Bancorp
common stock.
Persons who are not deemed to be "affiliates" of Palmyra Savings at the
---
time of resale will be free to resell any shares of PFSB Bancorp common stock
distributed to them under the Savings Plan, either publicly or privately,
without regard to the registration and prospectus delivery requirements of the
Securities Act or compliance with the restrictions and conditions contained in
the exemptive rules under federal law. An "affiliate" of Palmyra Savings is
someone who directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control, with Palmyra Savings.
Normally, a director, principal officer or major shareholder of a corporation
may be deemed to be an "affiliate" of that corporation. A person who may be
deemed an "affiliate" of Palmyra Savings at the time of a proposed resale will
be permitted to make public resales of the common stock only under a "reoffer"
prospectus or in accordance with the restrictions and conditions contained in
Rule 144 under the Securities Act of 1933, as amended, or some other exemption
from registration, and will not be permitted to use this prospectus in
connection with any such resale. In general, the amount of the common stock
which any such affiliate may publicly resell under Rule 144 in any three-month
period may not exceed the greater of one percent of PFSB Bancorp common stock
then outstanding or the average weekly trading volume reported on the National
Association of Securities Dealers Automated Quotation System during the four
calendar weeks before the sale. Such sales may be made only through brokers
without solicitation and only at a time when PFSB Bancorp is current in filing
the reports required of it under the Securities Exchange Act of 1934, as
amended.
12
<PAGE>
SEC Reporting and Short-Swing Profit Liability
Section 16 of the Securities Exchange Act of 1934, as amended, imposes
reporting and liability requirements on officers, directors and persons
beneficially owning more than ten percent of public companies such as PFSB
Bancorp. Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the filing of reports of beneficial ownership. Within ten days of
becoming a person required to file reports under Section 16(a), a Form 3
reporting initial beneficial ownership must be filed with the Securities and
Exchange Commission. Certain changes in beneficial ownership, such as
purchases, sales, gifts and participation in savings and retirement plans must
be reported periodically, either on a Form 4 within ten days after the end of
the month in which a change occurs, or annually on a Form 5 within 45 days after
the close of Palmyra Savings' fiscal year. Participation in the PFSB Bancorp
Stock Fund of the Savings Plan by officers, directors and persons beneficially
owning more than ten percent of common stock of PFSB Bancorp must be reported to
the SEC annually on a Form 5 by such individuals.
In addition to the reporting requirements described above, Section 16(b) of
the Securities Exchange Act of 1934 provides for the recovery by PFSB Bancorp of
profits realized by any officer, director or any person beneficially owning more
than ten percent of the common stock resulting from the purchase and sale or
sale and purchase of the common stock within any six-month period.
The SEC has adopted rules that exempt many transactions involving the
Savings Plan from the "short-swing" profit recovery provisions of Section
16(b).The exemptions generally involve restrictions upon the timing of elections
to buy or sell employer securities for the accounts of any officer, director or
any person beneficially owning more than ten percent of the common stock.
Except for distributions of the common stock due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order, persons who are governed by Section 16(b) may, under limited
circumstances involving the purchase of common stock within six months of the
distribution, be required to hold shares of the common stock distributed from
the Savings Plan for six months following the distribution date.
LEGAL OPINIONS
The validity of the issuance of the common stock of PFSB Bancorp will be
passed upon by Muldoon, Murphy & Faucette LLP, Washington, D.C. Muldoon, Murphy
& Faucette LLP acted as special counsel for Palmyra Savings in connection with
the conversion of Palmyra Savings.
13
<PAGE>
PSI Form 7 (97) - H12 PALMYRA SAVING AND
BUILDING ASSOCIATION,
F.A.,
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 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>
<S> <C> <C>
______% from ______% from ______% from
S&P 500 Stock Fund to: Stable Value Fund to: S&P MidCap Stock Fund to:
______% 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 % PFSB Bancorp Stock Fund ______% Growth Fund
======
% PFSB Bancorp Stock Fund 100 % PFSB Bancorp Stock Fund
====== ======
100 100
<CAPTION>
<S> <C> <C>
______% from ______% from ______% from
Money Market Fund to: Government Bond Fund to: International Stock 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
______% 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
% PFSB Bancorp Stock Fund % PFSB Bancorp Stock Fund % PFSB Bancorp Stock Fund
====== ====== ======
100 100 100
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
______% 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
% PFSB Bancorp Stock Fund % PFSB Bancorp Stock Fund % PFSB Bancorp Stock Fund
====== ====== ======
100 100 100
</TABLE>
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 PFSB Bancorp 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 PFSB Bancorp 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 Palmyra Saving and Building Association, F.A. Date
Authorized Representative
<PAGE>
PROSPECTUS [LOGO]
PFSB BANCORP, INC.
(PROPOSED HOLDING COMPANY FOR PALMYRA SAVINGS)
747,500 SHARES OF COMMON STOCK
Palmyra Saving and Building Association, F.A. is converting from the mutual form
to the stock form of organization. As part of the conversion, Palmyra Saving
will become a wholly-owned subsidiary of PFSB Bancorp, Inc. PFSB Bancorp is
offering its common stock to the public under the terms of its plan of
conversion which must be approved by a majority of the votes eligible to be cast
by the members of Palmyra Saving. The conversion will not go forward if Palmyra
Saving does not receive this approval or if PFSB Bancorp does not sell at least
the minimum number of shares.
OFFERING SUMMARY
Price Per Share: $10.00
Expected Trading Market: OTC Bulletin Board
<TABLE>
<CAPTION>
Maximum
Without
Further Maximum
Regulatory Subject to Further
Minimum Midpoint Approval Regulatory Approval
---------- ---------- ---------- -------------------
<S> <C> <C> <C> <C>
Number of shares: 552,500 650,000 747,500 859,625
Gross offering proceeds: $5,525,000 $6,500,000 $7,475,000 $8,596,250
Estimated underwriting commissions
and other offering expenses: $ 535,000 $ 535,000 $ 535,000 $ 535,000
Estimated net proceeds: $4,990,000 $5,965,000 $6,940,000 $8,061,250
Estimated net proceeds per share: $ 9.03 $ 9.18 $ 9.28 $ 9.38
</TABLE>
Trident Securities, Inc. will use its best efforts to assist PFSB Bancorp in
selling at least the minimum number of shares but does not guarantee that this
number will be sold. Trident Securities is not obligated to purchase any shares
of common stock in the offering. Trident Securities intends to make a market in
the common stock.
The subscription offering will end at 12:00 Noon, Central Time, on
______________, 1999. If the conversion is not completed by _________, 1999,
and the Office of Thrift Supervision gives Palmyra Saving more time to complete
the conversion, PFSB Bancorp will give all subscribers the opportunity to
increase, decrease or cancel their orders. All extensions may not go beyond
__________, 2001. PFSB Bancorp will hold all funds received from subscribers in
an interest-bearing savings account at Palmyra Saving until the conversion is
completed or terminated. PFSB will return all funds promptly with interest if
the conversion is terminated.
- --------------------------------------------------------------------------------
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 __.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT
SUPERVISION, NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
For additional information about the conversion and the stock offering, please
refer to the more detailed information in this prospectus. For assistance,
please contact the stock information center at (573) 769-2655.
TRIDENT SECURITIES, INC.
The date of this prospectus is ___________, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary..........................................
Risk Factors.....................................
Selected Consolidated Financial Information.....
Recent Developments..............................
Use of Proceeds..................................
Dividend Policy..................................
Market for Common Stock..........................
Capitalization...................................
Historical and Pro Forma
Regulatory Capital Compliance....................
Pro Forma Data...................................
Shares to be Purchased by Management
With Subscription Rights........................
Palmyra Saving and Building Association,
F.A. Consolidated Statements of Income...........
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........................
Business of PFSB Bancorp.........................
Business of Palmyra Saving.......................
Management of PFSB Bancorp.......................
Management of Palmyra Saving.....................
Regulation.......................................
Taxation.........................................
The Conversion...................................
Restrictions on Acquisition
of PFSB Bancorp.................................
Description of Capital Stock
of PFSB Bancorp.................................
Registration Requirements........................
Legal and Tax Opinions...........................
Experts..........................................
Change in Accountants............................
Where You Can Find More
Information......................................
Index to Consolidated
Financial Statements.............................
</TABLE>
[Map of Missouri showing county borders, with enlargement of Marion, Clark and
Lewis Counties showing the location of the towns of Palmyra, Kahoka and Canton
appears here]
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
Because this is a summary, it does not contain all the information that may be
important to you. You should read the entire prospectus carefully before you
decide to invest. For assistance, please contact the stock information center
at (573) 769-2655.
THE COMPANIES
PFSB BANCORP, INC. Palmyra Saving formed PFSB Bancorp to be its
123 West Lafayette Street holding company. To date, PFSB Bancorp has only
Palmyra, Missouri 63461 conducted organizational activities. After the
(573) 769-2134 conversion, it will own all of Palmyra Saving's
capital stock and will direct, plan and coordinate
Palmyra Saving's business activities. After the
conversion, PFSB Bancorp 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.
PALMYRA SAVING AND BUILDING Palmyra Saving's business strategy is to operate
ASSOCIATION, F.A. as a traditional, community-oriented savings
123 West Lafayette Street association dedicated to financing home ownership
Palmyra, Missouri 63461 and providing quality customer service. Palmyra
(573) 769-2134 Saving operates out of three offices in northeast
Missouri located in the towns of Palmyra (Marion
County), Canton (Lewis County) and Kahoka (Clark
County). It considers Marion, Lewis and Clark
Counties as its primary market area for making
loans and attracting deposits.
Palmyra Saving's principal business is attracting
deposits from the general public and using those
funds to originate residential mortgage loans.
It also purchases participation interests in
residential, multi-family and commercial real
estate loans, generally secured by properties
located outside of its primary market area. At
September 30, 1998, Palmyra Saving had total
assets of $59.5 million, deposits of $52.7 million
and total equity of $6.0 million.
For a discussion of Palmyra Saving'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 Palmyra Saving's business
activities, see "Business of Palmyra
Saving."
- --------------------------------------------------------------------------------
1
<PAGE>
- --------------------------------------------------------------------------------
THE CONVERSION
WHAT IS THE CONVERSION (PAGE ___) The conversion is a change in Palmyra
Saving's legal form of organization. As
a mutual savings association, Palmyra
Saving currently has no stock or
stockholders. Instead, Palmyra Saving
operates for the mutual benefit of its
depositors who elect its directors and
vote on other important matters. Through
the conversion, Palmyra Saving will
become a stock savings association, will
change its name to "Palmyra Savings" and
will be owned and controlled by the
holder of its stock, PFSB Bancorp.
Voting rights in PFSB Bancorp will
belong to its stockholders.
Palmyra Saving is conducting the
conversion under the terms of its plan
of conversion. The Office of Thrift
Supervision has approved the conversion
with the condition that Palmyra Saving's
members approve the plan of conversion.
Palmyra Saving has called a special
meeting for _________, 1999 to vote on
the plan of conversion.
REASONS FOR THE CONVERSION (PAGE ___) By converting to the stock form of
organization, Palmyra Saving will be
structured in the form used by
commercial banks, most business entities
and a large number of savings
institutions. The conversion will be
important to Palmyra Saving's future
growth and performance by:
. providing a larger capital base
from which it can operate,
. enhancing its ability to attract
and retain qualified management
through stock-based compensation
plans,
. enhancing its ability to
diversify into other financial
services related activities, and
. expanding its ability to service
the public.
Presently, Palmyra Saving does not have
any specific plans or arrangements for
diversification or expansion.
BENEFITS OF THE CONVERSION TO PFSB Bancorp and Palmyra Saving intend
MANAGEMENT (PAGE __) to adopt the following benefit plans and
employment agreements:
. EMPLOYEE STOCK OWNERSHIP PLAN.
This plan intends to purchase 8%
of the shares issued in the
conversion. This would range
from 44,200 shares, assuming
552,500 shares are issued in the
conversion, to 68,770 shares,
assuming 859,625 shares are
issued in the conversion.
Palmyra Saving will allocate
these
- --------------------------------------------------------------------------------
2
<PAGE>
shares to employees over a period
of years in proportion to their
compensation.
. STOCK OPTION PLAN. Under this plan,
PFSB Bancorp may award stock options
to key employees and directors. The
number of options available under
this plan will be equal to 10% of
the number shares sold in the
conversion. This would range from
55,250 shares, assuming 552,550
shares are issued in the conversion,
to 85,962 shares, assuming 859,625
shares are issued in the conversion.
This plan will require shareholder
approval.
. MANAGEMENT RECOGNITION AND
DEVELOPMENT PLAN. Under this plan,
PFSB Bancorp may award shares of
restricted stock to key employees
and directors at no cost to the
recipient. The number of shares
available under this plan will equal
4% of the number of shares sold in
the conversion. This would range
from 22,100 shares, assuming 552,550
shares are issued in the conversion,
to 34,385 shares, assuming 859,625
shares are issued in the conversion.
This plan will require shareholder
approval.
. EMPLOYMENT AGREEMENTS with Palmyra
Saving's President and Chief
Executive Officer, and Vice
President and Treasurer. These
agreements will provide for
severance benefits if the executive
is terminated following a change in
control of PFSB Bancorp or Palmyra
Saving.
. EMPLOYEE SEVERANCE COMPENSATION
PLAN. This plan will provide
severance benefits to eligible
employees if there is a change in
control of PFSB Bancorp or Palmyra
Saving.
For a tabular summary of the value of these
benefits, see "Management of Palmyra Saving--
Summary of Benefits to Management from the
Conversion." For a discussion of certain
risks associated with these plans and
agreements, see "Risk Factors -- The
Implementation of Benefit Plans Will Increase
Future Compensation Expense and May Lower
Palmyra Saving's Net Income" and "--
Employment Agreements and Severance Plan
Could Make Takeover Attempts More Difficult
to Achieve."
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
THE OFFERING
Subscription Offering (page ___) Palmyra Saving has granted subscription
rights in the following order of priority to:
1. Persons with $50 or more on deposit
at Palmyra Saving as of June 30,
1997.
2. The Palmyra Saving employee stock
ownership plan.
3. Persons with $50 or more on deposit
at Palmyra Saving as of December 31,
1998.
4. Palmyra Saving's depositors as of
January 31, 1999 and borrowers of
Palmyra Saving as of June 1, 1995
whose loans continue to be
outstanding as of January 31, 1999.
To ensure that Palmyra Saving properly
identifies your subscription rights, you must
list all of your savings accounts and loans
as of the eligibility dates on the stock
order form. If you fail to do so, your
subscription may be reduced or rejected if
the offering is oversubscribed.
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 and may face criminal
prosecution and/or other sanctions.
The subscription offering will end at 12:00
Noon, Central time, on ________, 1999. If the
offering is oversubscribed, PFSB Bancorp will
allocate the shares in order of the
priorities described above under a formula
contained in the plan of conversion.
COMMUNITY OFFERING (PAGE __) PFSB Bancorp may offer shares not sold in the
subscription offering to the general public
in a community offering. People and trusts of
people who are residents of Marion, Lewis and
Clark Counties, Missouri will have first
preference to purchase shares in a community
offering. If shares are available, PFSB
Bancorp expects to offer them to the general
public immediately after the end of the
subscription offering, but may begin a
community offering at any time during the
subscription offering.
PFSB Bancorp and Palmyra Saving may reject
orders received in the community offering
either in whole or in part. If your order is
rejected in part, you cannot cancel the
remainder of your order.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
PURCHASE PRICE The purchase price is $10.00 per share. The
Boards of Directors of PFSB Bancorp and
Palmyra Saving consulted with Trident
Securities in determining it. You will not
pay a commission to buy any shares in the
conversion.
NUMBER OF SHARES TO BE ISSUED PFSB Bancorp will sell between 552,500 and
(PAGE ___) 747,500 shares of its common stock in this
offering. With regulatory approval, PFSB
Bancorp may increase the number of shares to
859,625 without giving you further
notice.
The amount of common stock that PFSB Bancorp
will offer in the conversion is based on an
independent appraisal of the estimated market
value of PFSB Bancorp and Palmyra Saving as
if the conversion had occurred as of the date
of the appraisal. RP Financial, LC., the
independent appraiser, has estimated that, in
its opinion, as of December 11, 1998 and
updated as of January 22, 1999, the estimated
market value ranged between $5,525,000 and
$7,475,000, with a midpoint of $6,500,000 .
The appraisal was based in part on Palmyra
Saving's financial condition and operations
and the effect on Palmyra Saving of the
additional capital raised by the sale of
common stock in this offering. The
independent appraisal will be updated before
the conversion is completed.
PURCHASE LIMITATIONS (PAGE __) The minimum purchase is 25 shares.
The maximum purchase in the subscription
offering by any person or group of persons
through a single deposit account is $60,000
of common stock, which equals 6,000
shares.
The maximum purchase by any person in the
community offering is $60,000 of common
stock, which equals 6,000 shares.
The maximum purchase in the subscription
offering and community offering combined by
any person, related persons or persons acting
together is $100,000 of common stock, which
equals 10,000 shares.
HOW TO PURCHASE COMMON STOCK If you want to subscribe for shares, you must
(PAGE ___) complete an original stock order form and
send it together with full payment to Palmyra
Saving in the postage-paid envelope provided.
You must sign the certification that is part
of the stock order form. Palmyra Saving must
receive your stock order form before the end
of the subscription offering.
You may pay for shares in any of the
following ways:
. IN CASH if delivered in person.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
. BY CHECK OR MONEY ORDER made payable
to PFSB Bancorp, Inc.
. BY WITHDRAWAL from an account at
Palmyra Saving. To use funds in an
IRA at Palmyra Saving you must
transfer your account to an
unaffiliated institution or broker.
Please contact the stock information
center at least one week before the
end of the subscription offering for
assistance.
Palmyra Saving will pay interest on your
subscription funds at the rate it pays on
passbook accounts from the date it receives
your funds until the conversion is completed
or terminated. All funds authorized for
withdrawal from deposit accounts with Palmyra
Saving will earn interest at the applicable
account rate until the conversion is
completed. There will be no early withdrawal
penalty for subscriptions paid for by
withdrawal from certificates of deposit.
After Palmyra Saving receives your order, you
cannot cancel or change it without Palmyra
Saving's consent. If PFSB Bancorp intends to
sell fewer than 552,500 shares or more than
991,875 shares, all subscribers will be
notified and given the opportunity to change
or cancel their orders. If you do not respond
to this notice, PFSB Bancorp will return your
funds promptly with interest.
USE OF PROCEEDS (PAGE ___) PFSB Bancorp will pay 50% of the net offering
proceeds to Palmyra Saving to buy all of the
common stock of Palmyra Saving. Palmyra
Saving will use these funds to originate and
purchase loans and purchase investments
similar to the kinds it currently holds.
PFSB Bancorp will also loan an amount equal
to 8% of the gross proceeds of the offering
to the employee stock ownership plan to fund
its purchase of common stock and will keep
the remainder of the net proceeds for general
corporate purposes. These purposes may
include, for example, paying cash dividends
or buying back shares of common stock.
PFSB Bancorp and Palmyra Saving may also use
the proceeds of the offering to expand and
diversify their businesses, although they
have no specific plans to do so at this time.
PURCHASES BY OFFICERS AND Palmyra Saving's directors and executive
DIRECTORS (PAGE ___) officers intend to subscribe for 41,700
shares, regardless of the number of shares
issued in the conversion. This number equals
5.6 % of the 747,500 shares that would be
issued at the maximum of the offering range.
If fewer shares are issued in the conversion,
then officers and directors may own a
greater
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
percentage of PFSB Bancorp. Directors and
executive officers will pay the same $10.00
per share price as everyone else who
purchases shares in the conversion.
MARKET FOR COMMON STOCK (PAGE ___) PFSB Bancorp intends to list the common
stock over-the-counter through the OTC
Bulletin Board or the National Daily
Quotation System "Pink Sheets" published by
the National Quotation Bureau, Inc. Trident
Securities intends to be a market maker in
the common stock. After shares of the
common stock begin trading, you may contact
a stock broker to buy or sell shares. PFSB
Bancorp cannot assure you that there will
be an active trading market for the common
stock. See "Risk Factors -- Possible
limited Market for PFSB Bancorp's Common
Stock May Negatively Affect Market
Price."
DIVIDEND POLICY (PAGE ___) PFSB Bancorp intends to adopt a policy of
paying regular cash dividends, but has not
yet decided on the amount or frequency of
payments.
- --------------------------------------------------------------------------------
7
<PAGE>
RISK FACTORS
Before investing in PFSB Bancorp's 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 Federal Deposit Insurance Corporation or any
other government agency.
PALMYRA SAVING'S BUSINESS DEPENDS HEAVILY ON ECONOMIC CONDITION OF ITS PRIMARY
MARKET AREA AND WEAK MARKET AREA DEMOGRAPHICS HAS HURT CORE EARNINGS AND LIMITS
GROWTH PROSPECTS
Because Palmyra Saving operates primarily in a rural market area with a
small population that is not growing significantly, Palmyra Saving's earnings
from lending, investment and deposit activities, or what is commonly referred to
as "core earnings," has been below that of its peers. The rural and low growth
characteristics of Palmyra Saving's primary market area also limits its ability
to increase its loan portfolio and deposit base. Furthermore, because a
substantial portion of Palmyra Saving's borrowers and depositors and
substantially all of Palmyra Saving's real estate collateral is located in this
market area, a downturn in the economy of the primary market area could increase
the risk of loan losses. See "Business of Palmyra Saving -- Market Area."
PURCHASED LOANS MAKE PALMYRA SAVING'S LOAN PORTFOLIO MORE RISKY
Rather than purchasing entire loans from other financial institutions,
Palmyra Saving purchases only a portion of one- to- four-family mortgage loans,
multi-family loans and commercial real estate loans from the other lenders,
generally secured by properties located outside of Palmyra Saving's primary
market area. These portions are commonly referred to as "participation
interests." Many of the participation interests in one- to- four family mortgage
loans are secured by non-owner occupied duplex properties, principally located
in Columbia, Missouri. At September 30, 1998, purchased loans amounted to $8.6
million, or 21.2% of net loans, of which $6.9 million were one- to- four family
mortgage loans, $806,000 were participation interests in multi-family loans and
$863,000 were participation interests in commercial real estate loans. Purchased
loans are more difficult to underwrite and monitor than loans originated by
Palmyra Saving because of the higher probability of lack of personal contact
with the borrower and the distant location of the collateral, among other
reasons. In addition, loans secured by non-owner occupied properties pose
additional risk, such as the borrowers' ability to earn enough rental income on
the property to pay the underlying mortgage debt. See "Business of Palmyra
Saving -- Lending Activities."
LOSS OF KEY PERSONNEL MAY HURT PALMYRA SAVING'S OPERATIONS
Eldon R. Mette, Palmyra Saving's Executive Vice President, and Ronald L.
Nelson, Palmyra Saving's Vice President and Treasurer, have been instrumental in
managing the business affairs of Palmyra Saving for over 25
8
<PAGE>
years. The loss of either individual could have a material adverse impact on the
operations of Palmyra Saving. Palmyra Saving does not have an established
management succession plan. Accordingly, should Palmyra Saving lose the services
of Mr. Mette and Mr. Nelson, the Board of Directors would have to search outside
of Palmyra Saving for qualified, permanent replacements. This search may be
prolonged and Palmyra Saving cannot assure you that it will be able to locate
and hire qualified replacements. Neither Palmyra Saving nor PFSB Bancorp has any
plans to obtain a "key man" life insurance policy for either individual. For a
discussion of Palmyra Saving's management, see "Management of Palmyra
Saving."
PALMYRA SAVING'S INTEREST RATE SPREAD IS LOW BECAUSE OF LARGE RESIDENTIAL
MORTGAGE LOAN PORTFOLIO
Historically, Palmyra Saving's principal lending activity has been making
one-to four-family mortgage loans for long-term investment purposes. At
September 30, 1998, approximately 61.9 % of Palmyra Saving's assets were
residential mortgage loans, which represented 88.9% 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, Palmyra Saving generally earns less interest income on
residential mortgage loans than these other types of loans. Palmyra Saving
expects that one- to four-family residential mortgage loans will continue to be
its primary lending activity for the foreseeable future.
YEAR 2000 DATA PROCESSING PROBLEMS COULD INTERRUPT AND HURT PALMYRA SAVING'S
OPERATIONS
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 is performed by a third party service bureau. If the
service bureau is unable to complete its Year 2000 adjustments in a timely
fashion, or if it does not successfully make all the necessary Year 2000
adjustments, then resulting computer malfunctions could interrupt the operations
of Palmyra Saving and have a significant adverse impact on Palmyra Saving's
financial condition and results of operations. For further discussion of
Palmyra Saving's Year 2000 compliance program, see "Management's Discussion And
Analysis of Financial Condition And Results of Operations - Year 2000
Issues."
RISING INTEREST RATES COULD HURT PALMYRA SAVING'S PROFITS
Like most financial institutions, Palmyra Saving's ability to make a profit
depends largely on its net interest income, which is the difference between
interest income it receives from its loans and investment securities and
interest it pays on deposits and borrowings. If interest rates rise, Palmyra
Saving anticipates that its net interest income would decline as interest paid
on deposits would increase more quickly than the interest earned on loans and
investment securities. In addition, rising interest rates may adversely affect
Palmyra Saving's earnings because rising rates may cause a decrease in customer
demand for loans and a reduction in value of Palmyra Saving's securities
available for sale. For further discussion of how changes in interest rates
could impact Palmyra Saving, see "Management's Discussion And Analysis of
Financial Condition And Results of Operations -- Asset and Liability
Management."
PALMYRA SAVING'S RETURN ON EQUITY WILL BE BELOW AVERAGE AFTER CONVERSION BECAUSE
OF HIGH CAPITAL LEVELS
Return on equity, which equals net income divided by average equity, is a
ratio used by many investors to compare the performance of a particular company
with other companies. In recent years, Palmyra Saving's return
9
<PAGE>
on average equity has been below the average return on equity for publicly held
savings associations and banks of comparable size. As a result of the additional
capital that will be raised in this offering, PFSB Bancorp expects that its
return on average equity will continue to be below average after the offering.
In addition, compensation expense will increase as a result of the new benefit
plans. Over time, PFSB Bancorp intends to use the net proceeds from this
offering 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 financial institutions. This goal could take a number
of years to achieve, and PFSB Bancorp cannot assure you that this goal can be
attained. Consequently, you should not expect a competitive return on equity in
the near future. See "Pro Forma Data" for an illustration of the financial
effects of this stock offering.
IMPLEMENTATION OF BENEFIT PLANS WILL INCREASE FUTURE COMPENSATION EXPENSE AND
MAY LOWER PALMYRA SAVING'S NET INCOME
Palmyra Saving will recognize additional material employee compensation and
benefit expenses that stem from the shares purchased or granted to employees and
executives under new benefit plans. Palmyra Saving 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 at
specific points in the future. Palmyra Saving would recognize expenses for its
Employee Stock Ownership Plan when shares are committed to be released to
participants' accounts and would recognize expenses for the Management
Recognition and Development Plan 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, may be higher or lower.
Recently proposed accounting rules would also require PFSB Bancorp to recognize
compensation expense for stock options awarded to non-employee directors. For
further discussion of these plans, see "Management of Palmyra Saving --
Benefits."
ISSUANCE OF SHARES FOR BENEFIT PROGRAMS MAY LOWER YOUR OWNERSHIP INTEREST
If stockholders approve the new stock-based benefit programs, PFSB Bancorp
intends to issue shares to its officers and directors through these plans. If
the shares for the Management recognition and Development Plan are issued from
authorized but unissued stock, your ownership interest could be reduced by up to
approximately 3.85%. If the shares for the stock option plan are issued from
authorized but unissued stock, your ownership interest could be reduced by up to
approximately 9.09%. See "Pro Forma Data."
POSSIBLE VOTING CONTROL BY MANAGEMENT AND EMPLOYEES MAY MAKE TAKEOVER ATTEMPTS
MORE DIFFICULT TO ACHIEVE
The shares of common stock that Palmyra Saving's directors and executive
officers intend to purchase in the conversion, when combined with the shares
that may be awarded or sold to participants under the Palmyra Saving's Employee
Stock Ownership Plan and PFSB Bancorp's stock-based benefit plans, could
ultimately result in management and employees controlling a significant
percentage of PFSB Bancorp's common stock. If these individuals were to act
together, they could have significant influence over the outcome of any
stockholder vote. This voting power may discourage takeover attempts that you
would like see happen. In addition, the total voting power of management and
employees could reach in excess of 20% of PFSB Bancorp's outstanding stock.
That level would enable management and employees as a group to defeat any
stockholder matter that requires an 80% vote. For information about
management's intended stock purchases and the number of shares that may be
awarded under new benefit plans, see "Shares to Be Purchased by Management With
Subscription Rights," "Management of Palmyra Saving -- Executive Compensation"
and "Restrictions on Acquisition of PFSB Bancorp."
10
<PAGE>
ANTI-TAKEOVER PROVISIONS AND STATUTORY PROVISIONS COULD MAKE TAKEOVER ATTEMPTS
MORE DIFFICULT TO ACHIEVE
Provisions in PFSB Bancorp's Articles of Incorporation and Bylaws, the
corporation law of the state of Missouri, and federal regulations may make it
difficult and expensive to pursue a takeover attempt that management opposes.
These provisions may discourage or prevent takeover attempts that you would like
to see happen. These provisions will also make the removal of the current board
of directors or management of PFSB Bancorp, or the appointment of new directors,
more difficult. These provisions include: limitations on voting rights of
beneficial owners of more than 10% of PFSB Bancorp'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 Articles of Incorporation
of PFSB Bancorp also contain provisions regarding the timing and content of
stockholder proposals and nominations and limiting the calling of special
meetings. Fore further information about these provisions, see "Restrictions on
Acquisition of PFSB Bancorp."
EMPLOYMENT AGREEMENTS AND SEVERANCE PLAN COULD MAKE TAKEOVER ATTEMPTS MORE
DIFFICULT TO ACHIEVE
The employment agreements of senior officers of PFSB Bancorp and Palmyra
Saving provide for cash severance payments and/or the continuation of health,
life and disability benefits if the executive is terminated following a change
in control of PFSB Bancorp or Palmyra Saving. If a change in control had
occurred at September 30, 1998, the aggregate value of the severance benefits
available to these executive officers under the agreements would have been
approximately $356,000. In addition, if a change in control had occurred at
September 30, 1998 and all eligible employees had been terminated, the aggregate
payment due under the Severance Plan would have been approximately $197,000.
These arrangements may have the effect of increasing the costs of acquiring PFSB
Bancorp, thereby discouraging future attempts to take over PFSB Bancorp or
Palmyra Saving. For information about the proposed employment and severance
agreements and Severance Plan, see "Management of Palmyra Saving -- Executive
Compensation."
COMPETITION HAS HURT PALMYRA SAVING'S NET INTEREST INCOME
Palmyra Saving faces intense competition both in making loans and
attracting deposits. This competition has made it more difficult for Palmyra
Saving to make new loans and has forced it to offer amongst the highest deposit
rates in its market area. This competition for loans and deposits has
contributed to a narrow interest rate spread, which has hurt net interest
income. Palmyra Saving expects that the competition for loans and deposits will
continue to be intense. For more information about the Palmyra Saving's market
area and the competition it faces, see "Business of Palmyra Saving -- Market
Area" and "-- Competition."
POSSIBLE LIMITED MARKET FOR PFSB BANCORP'S COMMON STOCK MAY LOWER MARKET PRICE
Because PFSB Bancorp has never issued capital stock, PFSB Bancorp does not
know whether an active trading market will develop. Because of the relatively
small size of the offering, it is highly unlikely that an active and liquid
market for the common stock will develop. As a result, you may not be able to
sell all of your shares on short notice and the sale of a large number of shares
all at once could temporarily lower the market price. Therefore, you should
consider the potentially illiquid and long-term nature of an investment in the
common stock. Furthermore, PFSB Bancorp cannot guarantee anyone who purchases
shares in the conversion that they will be able to sell their shares at or above
the $10.00 purchase price. For further information on the expected trading
market for PFSB Bancorp's common stock, see "Market For Common Stock."
11
<PAGE>
YOUR SUBSCRIPTION FUNDS COULD BE HELD FOR AN EXTENDED TIME PERIOD IF COMPLETION
OF THE CONVERSION IS DELAYED
If the conversion is not completed by __________, 1999 and the Office of
Thrift Supervision gives Palmyra Saving more time to complete the conversion,
PFSB Bancorp would conduct a resolicitation offering. A material change in the
independent appraisal of PFSB Bancorp and Palmyra Saving would be the most
likely, but not necessarily the only, reason for a delay in completing the
conversion. Federal regulations permit the Office of Thrift Supervision to
grant one or more time extensions, none of which may exceed 90 days. Extensions
may not go beyond __________, 2001. In the resolicitation offering, PFSB
Bancorp would mail a supplement to this prospectus to you if you subscribed for
stock to let you confirm, modify or cancel your subscription. If you fail to
respond to the resolicitation offering, it would be as if you had canceled your
order and all subscription funds, together with accrued interest, would be
returned to you. If you authorized payment by withdrawal of funds on deposit at
Palmyra Saving, that authorization would terminate. If you affirmatively
confirm your subscription order during the resolicitation offering, PFSB Bancorp
and Palmyra Saving would continue to hold your subscription funds until the end
of the resolicitation offering. Your resolicitation order would be irrevocable
without the consent of PFSB Bancorp and Palmyra Saving until the conversion is
completed or terminated.
BANKING REFORM LEGISLATION MAY REDUCE PFSB BANCORP'S AND PALMYRA SAVING'S POWERS
In 1998 the U.S. Congress considered legislation that was intended to
modernize the financial services industry. Under the proposed legislation, newly
formed unitary savings and loan holding companies would not be permitted to
exercise the broad powers currently available to these 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 provision was not included in the final legislation
that was considered. Palmyra Saving is a federal savings association and PFSB
Bancorp, upon completion of the conversion, will be a unitary savings and loan
holding company. PFSB Bancorp does not know whether federal legislation will be
enacted that affects the federal savings association charter or unitary savings
and loan holding companies, or if the legislation is enacted, what form this
legislation might take. Accordingly, management of Palmyra Saving and PFSB
Bancorp cannot predict what effect, if any, banking reform legislation would
have on the activities and operations of Palmyra Saving and PFSB Bancorp.
12
<PAGE>
SELECTED FINANCIAL INFORMATION
The following tables contain certain information concerning the financial
position and results of operations of Palmyra Saving at the dates and for the
periods indicated. This information should be read in conjunction with the
Consolidated Financial Statements and related Notes at the back of this
prospectus.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Total assets............................................................. $59,476 $58,433 $57,223
Cash and cash equivalents................................................ 2,268 2,146 1,732
Investment securities available for sale................................. 7,087 8,509 6,245
Investment securities held to maturity................................... 5,589 5,093 7,198
Mortgage-backed securities held to maturity.............................. 2,584 2,828 3,280
Loans receivable, net.................................................... 40,513 38,394 37,259
Deposits................................................................. 52,724 51,412 51,391
FHLB advances............................................................ 500 1,000 200
Total equity, substantially restricted................................... 6,048 5,715 5,302
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income.......................................................... $4,164 $4,133 $3,982
Interest expense......................................................... 2,685 2,626 2,598
------ ------ ------
Net interest income...................................................... 1,479 1,507 1,384
Provision (benefit) for loan losses...................................... 25 21 87
------ ------ ------
Net interest income after provision for loan losses...................... 1,454 1,486 1,297
Noninterest income....................................................... 75 63 85
Noninterest expense (1).................................................. 1,104 1,035 1,368
------ ------ ------
Income before income taxes............................................... 425 514 14
Income tax expense (benefit)............................................. 149 182 (8)
------ ------ ------
Net income............................................................... $ 276 $ 332 $ 22
====== ====== ======
</TABLE>
_____________________________
(1) Includes a one-time assessment of $305,000 in 1996 to recapitalize the
Savings Association Insurance Fund.
13
<PAGE>
<TABLE>
<CAPTION>
At September 30,
---------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
SELECTED OTHER DATA:
Number of:
Mortgage loans outstanding.................... 1,221 1,244 1,295
Deposit accounts.............................. 7,761 7,678 7,716
Full-service offices.......................... 3 3 3
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE
YEAR ENDED SEPTEMBER 30,
------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
SELECTED FINANCIAL RATIOS:
Performance Ratios:
Return on average assets(1).................... 0.47% 0.57% 0.04%
Return on average equity(2).................... 4.64 6.49 0.41
Interest rate spread(3)........................ 2.24 2.34 2.18
Net interest margin(4)......................... 2.62 2.70 2.54
Noninterest expense as a
percent of average total assets............... 1.88 1.79 2.43
Average interest-earning assets to
average interest-bearing liabilities.......... 107.87 107.66 107.62
Capital Ratios:
Tangible....................................... 10.13 9.82 9.43
Core........................................... 10.13 9.82 9.43
Risk-based..................................... 22.30 22.25 21.46
Average equity as a percent of average assets.. 10.12 9.66 9.65
Asset Quality Ratios:
Nonperforming loans as a percent
of loans receivable, net(5)................... 0.54 0.47 2.39
Nonperforming assets as a
percent of total assets(6).................... 0.37 0.31 1.56
Allowance for loan losses as a percent
of gross loans receivable..................... 0.68 0.64 0.62
Allowance for loan losses as a
percent of nonperforming loans................ 127.82 140.82 26.32
Net charge-offs as a percent of
average outstanding loans..................... -- -- --
</TABLE>
_________________________
(1) Net income divided by average total assets.
(2) Net income divided by average total equity.
(3) Difference between weighted average yield on interest-earning assets and
weighted average cost of interest-bearing liabilities.
(4) Net interest income as a percentage of average interest-earning assets.
(5) Nonperforming loans consist of loans accounted for on a nonaccrual basis.
(6) Nonperforming assets consist of nonaccrual loans. See "Business of Palmyra
Saving -- Lending Activities -- Nonperforming Assets and
Delinquencies."
14
<PAGE>
RECENT DEVELOPMENTS
The following selected financial and operating data at December 31, 1998
and for the three month periods ended December 31, 1998 and 1997 are derived
from unaudited financial data but, in the opinion of management, reflect all
adjustments needed to present fairly the results for these interim periods. All
adjustments are normal recurring ones. The results of operations of the three
months ended December 31, 1998 do not necessarily indicate the results of
operations that may be expected for the year ending September 30, 1999.
<TABLE>
<CAPTION>
AT DECEMBER 31, AT SEPTEMBER 30,
1998 1998
--------------- ----------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets $61,125 $59,476
Cash and cash equivalents 3,671 2,268
Investment securities available for sale 7,707 7,087
Investment securities held to maturity 5,260 5,589
Mortgage-backed securities held to maturity 2,445 2,584
Loan receivable, net 40,413 40,513
Deposits 54,323 52,724
FHLB advances 500 500
Total equity, substantially restricted 6,096 6,048
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
------------------------------------------
1998 1997
------------------- -------------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
SELECTED OPERATING DATA:
Interest income $1,034 $1,040
Interest expense 694 678
------ ------
Net interest income 340 362
Provision for loan losses -- --
------ ------
Net interest income after provision for loan losses 340 362
Non interest income 65 15
Non interest expense 298 282
------ ------
Income before income tax 107 95
Income tax expense 38 33
------ ------
Net income $ 69 $ 62
====== ======
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED
DECEMBER 31,
------------------------------------------
1998 1997
------------------- -------------------
(IN THOUSANDS)
<S> <C> <C>
KEY FINANCIAL RATIOS(1):
Performance Ratios:
Return on average assets(2) 0.46% 0.43%
Return on average equity(3) 4.52 4.32
Interest rate spread(4) 1.99 2.20
Net interest margin(5) 2.34 2.58
Non-interest expense as a percent 1.97 1.94
of average assets
Average interest-bearing assets to 107.39 107.76
interest-bearing liabilities
Capital Ratios:
Tangible 9.96 10.01
Core 9.96 10.01
Risk-based 22.01 22.54
Average equity as a percent of average assets 10.07 9.91
Asset Quality Ratios:
Nonperforming loans as a percent of 0.38 0.35
loans receivable, net(6)
Nonperforming assets as a percent of total assets(7) 0.53 0.23
Allowance for loan losses as a percent of 0.68 0.65
gross loans receivable
Allowance for loan losses as a percent of 182.69 187.73
nonperforming loans
Net charge-offs as a percent of average -- --
outstanding loans
</TABLE>
______________________________
(1) Annualized where appropriate.
(2) Net income dividend by average assets.
(3) Net income divided by average equity.
(4) Difference between average yield on interest-earning assets and average
cost of interest-bearing liabilities.
(5) Net interest income as a percentage of average interest-earning assets.
(6) Nonperforming loans consist of loans accounted for on a nonaccrual basis.
(7) Nonperforming assets consist of nonaccrual loans.
16
<PAGE>
REGULATORY CAPITAL
The table below sets forth Palmyra Saving's capital position relative to
its OTS capital requirements at the date indicated. For a discussion of the
Palmyra Saving's regulatory capital requirements, see "Regulation -- Federal
Regulation of Savings Associations -- Capital Requirements."
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
------------------------------------------
PERCENT OF ADJUSTED
AMOUNT TOTAL ASSETS(1)
------------------- -------------------
(IN THOUSANDS)
<S> <C> <C>
Tangible capital $6,086 9.96%
Tangible capital requirement 916 1.50
------ -----
Excess $5,170 8.46%
====== =====
Core capital $6,086 9.96%
Core capital requirement(2) 1,833 3.00
------ -----
Excess $4,253 6.96%
====== =====
Risk-based capital(3) $6,366 22.01%
Risk-based capital requirement(3) 2,313 8.00
------ -----
Excess $4,053 14.01%
====== =====
</TABLE>
______________________________
(1) Based on total tangible assets of $61.1 million for purposes of the
tangible capital requirement and the core capital requirement, and on risk-
weighted assets of $28.9 million for purposes of the risk-based capital
requirement.
(2) The current Office of Thrift Supervision core capital requirement for
savings associations is 3% of total adjusted assets. The Office of Thrift
Supervision has proposed core capital requirements that 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.
(3) Percentage represents total core and supplementary capital divided by total
risk-weighted assets.
NON-PERFORMING ASSETS AND DELINQUENCIES
At December 31, 1998, Palmyra Saving had $153,000 of loans accounted for on
a nonaccrual basis, compared to $219,000 at September 30, 1998. Nonaccrual loans
at December 31, 1998 consisted of $131,000 in residential real estate loans and
$22,000 in commercial real estate loans. At December 31, 1998, Palmyra Saving
had no accruing loans contractually past due 90 days or more, no restructured
loans and $173,000 of foreclosed real estate.
The allowance for loan losses was $280,000 at December 31, 1998. There were
no charge-offs or recoveries for either the three months ended December 31, 1998
or 1997.
17
<PAGE>
The following table sets forth the breakdown of the allowance for loan losses
by category at December 31, 1998.
<TABLE>
<CAPTION>
PERCENT OF LOANS
IN CATEGORY
AMOUNT TO TOTAL LOANS
------------------- -------------------
(IN THOUSANDS)
Mortgage loans:
<S> <C> <C>
One- to four-family $151 88.72%
Multi-family 16 1.94
Commercial 68 5.42
Construction 1 2.23
Land 6 0.73
Consumer -- 0.96
Unallocated 38 --
---- ------
Total allowance for loan losses $280 100.00%
==== ======
</TABLE>
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1998 AND SEPTEMBER 30,
1998
At December 31, 1998, total assets were $61.1 million compared to $59.5
million at September 30, 1998. This increase is primarily the result of a $1.4
million increase in cash and cash equivalents due to an increase in deposits.
Loans receivable, net, were relatively unchanged. Investment securities
available for sale increased as a result of purchases exceeding maturities and
prepayments. Mortgage-backed securities balances decreased as a result of
maturities and prepayments. At December 31, 1998, deposits were $54.3 million
compared to $52.7 million at September 30, 1998. Management attributes the
increase, which occurred primarily in certificates of deposit, to normal growth.
Total equity increased from $6.0 million at September 30, 1998 to $6.1 million
at December 31, 1998 as a result of retained earnings.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND
1997
NET INCOME. Net income was $69,000 in the 1998 quarter compared to $62,000 in
1997 quarter. This increase is primarily the result of a $52,000 one-time gain
of the sale of a branch office building which more than offset total interest
income, which was relatively unchanged, and increases in both interest expense
and noninterest expense. Excluding this one-time gain, net income for the 1998
quarter would have been $36,000.
NET INTEREST INCOME. Net interest income was $340,000 in the 1998 quarter
compared to $362,000 in the 1997 quarter primarily as a result of an increase in
total interest expense, which increased from $678,000 in the 1997 quarter to
$694,000 in the 1998 quarter primarily as a result of higher average deposit
balances.
PROVISION FOR LOAN LOSSES. Provisions for loan losses are charged to
operations to bring the total allowance for loan losses to a level considered by
management to be adequate to provide for estimated losses based on management's
evaluation of the collectibility of the loan portfolio, including the nature of
the portfolio, credit concentrations, trends in historical loss experience,
specified impaired loans, and economic conditions. There was no provision for
loan losses in either quarter. There were no charge-offs or recoveries in
either the 1998 quarter or 1997 quarter. The allowance for loan losses was
$280,000 at December 31, 1998. Management deemed such allowance as adequate at
both dates. Although management uses the best information available, future
adjustments to the allowance may be necessary due to changes in economic,
operating, regulatory and other conditions that may
18
<PAGE>
be beyond Palmyra Saving's control. While Palmyra Saving maintains its allowance
for loan losses at a level which it considers to be adequate to provide for
estimated losses, there can be no assurance that further additions will not be
made to the allowance for loan losses and that actual losses will not exceed the
estimated amounts. See "Business of Palmyra Saving -- Lending Activities --
Allowance for Loan Losses" for further information regarding the allowance for
loan losses.
NONINTEREST INCOME. Noninterest income increased from $15,000 in the 1997
quarter to $65,000 in the 1998 quarter primarily as a result of a $52,000 gain
on the sale of the Kahoka branch office. Palmyra Saving now leases this branch
office at $500 per month. See "Business of Palmyra Saving -- Properties" for
further information regarding this lease. This gain was offset primarily by an
$8,000 loss on the sale of real estate owned.
NONINTEREST EXPENSE. Noninterest expense increased from $282,000 in the 1997
quarter to $298,000 in the 1998 quarter. This increase is primarily
attributable to a $10,000 increase in depreciation expense associated with the
purchase of new computer equipment, an $12,000 increase in employee salaries and
benefits as a result of the hiring of three new employees, and a $4,000 increase
in data processing expense associated with the increased number of deposit
accounts.
INCOME TAXES. Income taxes increased between the 1998 and 1997 quarters as a
result of higher income before income taxes in the 1998 quarter.
19
<PAGE>
USE OF PROCEEDS
The following table presents the estimated net proceeds of the offering, the
amount to be retained by PFSB Bancorp, the amount to be contributed to Palmyra
Saving, and the amount of PFSB Bancorp's loan to the employee stock ownership
plan . See "Pro Forma Data" for the assumptions used to arrive at these amounts.
The Office of Thrift Supervision must approve the issuance of up to 859,625
shares in the conversion.
<TABLE>
<CAPTION>
552,500 650,000 747,500 859,625
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................................... $ 5,525 $ 6,500 $ 7,475 $ 8,596
Less: estimated underwriting commissions and
other offering expenses....................... (535) (535) (535) (535)
-------- -------- -------- --------
Net proceeds..................................... $ 4,990 $ 5,965 $ 6,940 $ 8,061
======== ======== ======== ========
Amount to be retained by
PFSB Bancorp.................................. $ 2,495 $ 2,982 $ 3,470 $ 4,030
Amount to be contributed to
Palmyra Savings............................... $ 2,495 $ 2,983 $ 3,470 $ 4,031
Amount of loan by
PFSB Bancorp to employee
stock ownership plan.......................... $ 442 $ 520 $ 598 $ 688
</TABLE>
PFSB Bancorp has received conditional Office of Thrift Supervision approval to
purchase all of the capital stock of Palmyra Saving to be issued in the
conversion in exchange for 50% of the net proceeds of the stock offering.
Receipt of 50% of the net proceeds of the sale of the common stock will increase
Palmyra Saving 's capital and will support the expansion of Palmyra Saving 's
existing business activities. Palmyra Saving 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. Depending on local loan
demand, Palmyra Saving may consider using a portion of the conversion proceeds
to purchase loan participation interests of the type it has purchased in the
past and/or for investment in mortgage-backed securities.
PFSB Bancorp intends to loan the employee stock ownership plan the amount
necessary to purchase 8% of the shares sold in the conversion. Accordingly, the
employee stock ownership plan purchases would range between 442,000 shares at
the minimum of the offering range and 59,800 shares at the maximum of the
offering range.
20
<PAGE>
At the midpoint of the offering range, the employee stock ownership plan would
purchase 52,000 shares. If 859,625 shares are issued in the conversion, the
employee stock ownership plan would purchase 68,770 shares. It is anticipated
that the employee stock ownership plan loan will have a 10-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
Palmyra Saving's contributions to the employee stock ownership plan and from
any dividends paid on shares of common stock held by the employee stock
ownership plan.
The remaining net proceeds retained by PFSB Bancorp initially will be invested
primarily in short-term U.S. Government and agency obligations. These proceeds
will be available for additional contributions to Palmyra Saving in the form of
debt or equity, to support future diversification or acquisition activities, as
a source of dividends to the stockholders of PFSB Bancorp and for future
repurchases of common stock to the extent permitted under Missouri law and
federal regulations. PFSB Bancorp will consider exploring opportunities to use
these funds to expand operations through acquiring or establishing additional
branch offices or acquiring other financial institutions. Currently, there are
no specific plans, arrangements, agreements or understandings, written or oral,
regarding any expansion activities.
Except as described above, neither PFSB Bancorp nor Palmyra Saving has
specific plans for the investment of the proceeds of this offering. Although
Palmyra Saving's capital currently exceeds regulatory requirements, it is
converting to stock form to structure itself in the form of organization used by
commercial banks and most other financial services companies. For a discussion
of management's business reasons for undertaking the conversion, see "The
Conversion -- Purposes of Conversion."
Following the conversion, the Board of Directors will have the authority to
adopt plans for repurchases of common stock that meet statutory and regulatory
requirements. Since PFSB Bancorp has not yet issued stock, there currently is
insufficient information upon which an intention to repurchase stock could be
based. The Board of Directors will consider many facts and circumstances in
determining whether to repurchase stock in the future. These factors include
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 PFSB Bancorp's return
on equity. 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 is another factor that will be considered. The Board of
Directors will also consider any other circumstances in which repurchases would
be in the best interests of PFSB Bancorp and its stockholders. Before any stock
repurchases the Board of Directors must determine that both PFSB Bancorp and
Palmyra Saving will be capitalized in excess of all applicable regulatory
requirements after any repurchases and that capital will be adequate, taking
into account, among other things, Palmyra Saving's level of nonperforming and
classified assets, PFSB Bancorp's and Palmyra Saving's current and projected
results of operations and asset/liability structure, the economic
21
<PAGE>
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
PFSB Bancorp's Board of Directors intends to adopt a policy of paying regular
cash dividends after the conversion, but has not decided the amount that may be
paid or when the payments may begin. In addition, the Board of Directors may
declare and pay periodic special cash dividends in addition to, or in lieu of,
regular cash dividends. Declarations or payments of any dividends, whether
regular or special, will be determined by PFSB Bancorp's Board of Directors.
The Board of Directors will take into account the amount of the net proceeds
retained by PFSB Bancorp , PFSB Bancorp's financial condition, results of
operations, tax considerations, capital requirements, industry standards, and
economic conditions. The regulatory restrictions that affect the payment of
dividends by Palmyra Saving to PFSB Bancorp discussed below will also be
considered. Under Missouri law, PFSB Bancorp is prohibited from paying a cash
dividend when its net assets are less than its stated capital or when the
payment of the dividend would reduce its net assets below its stated capital. In
order to pay cash dividends, however, PFSB Bancorp must have available cash
either from the net proceeds raised in the conversion and retained by PFSB
Bancorp, borrowings by PFSB Bancorp, dividends received from Palmyra Saving or
earnings on Holding Company assets. No assurances can be given that any
dividends, either regular or special, will be declared or paid, if declared and
paid, what the amount of dividends will be or whether they will continue
uninterrupted.
CURRENT RESTRICTIONS
Dividends from PFSB Bancorp may depend, in part, upon receipt of dividends
from Palmyra Saving because PFSB Bancorp initially will have no source of income
other than dividends from Palmyra Saving and earnings from the investment of the
net proceeds from the offering retained by PFSB Bancorp . Office of Thrift
Supervision regulations require Palmyra Saving to give the Office of Thrift
Supervision 30 days' advance notice of any proposed declaration of dividends to
PFSB Bancorp, and the Office of Thrift Supervision has the authority under its
supervisory powers to prohibit the payment of dividends to PFSB Bancorp. The
Office of Thrift Supervision imposes certain limitations on the payment of
dividends from Palmyra Saving to PFSB Bancorp which utilize a three-tiered
approach that permits various levels of distributions based primarily upon a
savings association's capital level. Palmyra Saving currently meets the criteria
to be designated a Tier 1 association and consequently, after prior notice to
and no objection made by the Office of Thrift Supervision,) could 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, Palmyra Saving may not declare or
pay a cash dividend on its capital stock if the effect thereof would be to
reduce the regulatory capital of Palmyra Saving below the amount required for
the liquidation account to be established as required by Palmyra Saving 's 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 Palmyra Saving -- Liquidation
Account" and Note N of the Notes to Consolidated Financial Statements included
elsewhere herein.
22
<PAGE>
Additionally, PFSB Bancorp and Palmyra Saving have committed to the Office of
Thrift Supervision that during the one-year period following the conversion,
PFSB Bancorp 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 Palmyra Saving appropriated
to bad debt reserves and deducted for federal income tax purposes cannot be used
by Palmyra Saving to pay cash dividends to PFSB Bancorp without the payment of
federal income taxes by Palmyra Saving 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 I of the Notes to Consolidated Financial Statements included
in the back of this prospectus. PFSB Bancorp does not contemplate any
distribution by Palmyra Saving that would result in a recapture of Palmyra
Saving's bad debt reserve or create the above-mentioned federal tax
liabilities.
MARKET FOR COMMON STOCK
Because PFSB Bancorp has never issued capital stock, there is no existing
market for the common stock. PFSB Bancorp intends to list the common stock over-
the-counter through either the National Daily Quotation System "Pink Sheets"
published by the National Quotation Bureau, Inc. or the OTC Bulletin Board and
to request Trident Securities to undertake to match buy and sell orders for the
shares. Trident Securities has agreed to make a market in the common stock
following the conversion, although it has no obligation to do so. However, there
can be no assurance that timely and accurate quotations will be regularly
available. The development of a liquid public market depends on the existence of
willing buyers and sellers and their existence is not within the control of PFSB
Bancorp, Palmyra Saving or any market maker. Because of the small size of the
offering, it is highly unlikely that an active and liquid market for the common
stock will develop and the number of active buyers and sellers at any particular
time is expected to be limited. Under these 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 per share purchase price or that published quotations will be
regularly available.
23
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of Palmyra Saving
at September 30, 1998, and the pro forma consolidated capitalization of PFSB
Bancorp after giving effect to the assumptions under "Pro Forma Data," based on
the sale of the number of shares indicated in the table. The issuance of 859,625
shares would require Office of Thrift Supervision approval of an updated
appraisal confirming that 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
-----------------------------------------------------------------------
552,500 650,000 747,500 859,625
CAPITALIZATION SHARES AT SHARES AT SHARES AT SHARES AT
AS OF $10.00 $10.00 $10.00 $10.00
SEPTEMBER 30, 1998 PER SHARE(1) PER SHARE(1) PER SHARE(1) PER SHARE(1)
------------------- ----------- ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deposits(3).................................. $52,724 $ 52,724 $ 52,724 $ 52,724 $ 52,724
Federal Home Loan Bank of Des Moines
advances.................................... 500 500 500 500 500
------- -------- -------- -------- --------
Total deposits and borrowings................ $53,224 $ 53,224 $ 53,224 $ 53,224 $ 53,224
======= ======== ======== ======== ========
PREFERRED STOCK:
1,000,000 shares, $.01 par value
per share, authorized; none issued
or outstanding............................. $ -- $ -- $ -- $ -- $ --
COMMON STOCK:
5,000,000 shares, $.01 par value
per share, authorized; specified
number of shares assumed to be
issued and outstanding(4).................. -- 6 7 7 9
Additional paid-in capital................... -- 4,984 5,958 6,933 8,053
Retained earnings, substantially
restricted(5)............................... 6,017 6,017 6,017 6,017 6,017
Unrealized gain on securities, net of tax.... 31 31 31 31 31
Less:
Common stock to be acquired
by employee stock ownership plan(6)...... -- (442) (520) (598) (688)
Common stock to be acquired
by management development and
recognition plan(7)...................... -- (221) (260) (299) (344)
------- -------- -------- -------- --------
Total stockholders' equity................... $ 6,048 $ 10,375 $ 11,233 $ 12,091 $ 13,078
======= ======== ======== ======== ========
</TABLE>
(footnotes on following page)
24
<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 Palmyra Saving or changes in market conditions or general financial,
economic and regulatory conditions, or the issuance of additional shares
under the stock option plan.
(2) This column represents the pro forma capitalization of PFSB Bancorp if the
aggregate number of shares of common stock issued in the conversion is 15%
above the maximum of the estimated valuation range. See footnote 1 to the
table under "Pro Forma Data."
(3) Withdrawals from deposit accounts for the purchase of common stock are not
reflected. Withdrawals will reduce pro forma deposits by the amount of the
withdrawals.
(4) Palmyra Saving's authorized capital will consist solely of 1,000 shares of
common stock, par value $1.00 per share, 1,000 shares of which will be
issued to PFSB Bancorp, and 9,000 shares of preferred stock, $1.00 par
value per share, none of which will be issued in connection with the
conversion.
(5) Total equity is substantially restricted by applicable regulatory capital
requirements. Additionally, Palmyra Saving 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
Palmyra Saving's eligible account holders and supplemental eligible account
holders at the time of the conversion and reduced as these account holders
reduce their balances or when they are no longer depositors. See "The
Conversion -- Effects of Conversion to Stock Form on Depositors and
Borrowers of Palmyra Saving -- Liquidation Account."
(6) Assumes that 8% of the common stock sold in the conversion will be acquired
by the employee stock ownership plan in the conversion with funds borrowed
from PFSB Bancorp. This would range between 44,200 shares, assuming 552,500
shares are issued in the conversion, to 68,770 shares, assuming 859,625
shares are issued in the conversion. The loan will be repaid principally
from Palmyra Saving's contributions to the employee stock ownership plan and
dividends payable on the common stock held by the employee stock ownership
plan over the anticipated 10-year term of the loan. Under generally accepted
accounting principles, the amount of common stock to be purchased by the
employee stock ownership plan represents unearned compensation and is,
accordingly, reflected as a reduction of capital. As shares are released to
employee stock ownership plan participants' accounts, a corresponding
reduction in the charge against capital will occur. Since the funds are
borrowed from PFSB Bancorp, the borrowing will be eliminated in
consolidation and no liability or interest expense will be reflected in the
consolidated financial statements of PFSB Bancorp. See "Management of
Palmyra Saving -- Benefits -- Employee Stock Ownership Plan."
(7) Assumes the purchase in the open market at $10.00 per share 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. This would range between 22,100 shares, assuming 552,500
shares are issued in the conversion, to 29,900 shares, assuming 859,625
shares are issued in the conversion. The issuance of an additional 4% of the
shares of common stock for the management development and recognition plan
from authorized but unissued shares would dilute the ownership interest of
stockholders by 3.85%. The shares are reflected as a reduction of
stockholders' equity. See "Risk Factors -- Issuance of Shares for Benefit
Programs May Lower Your Ownership Interest," "Pro Forma Data" and
"Management of Palmyra Saving -- Benefits -- Management Recognition Plan."
The management development and recognition plan is requires stockholder
approval, which is expected to be sought at a meeting to be held no earlier
than six months following the conversion.
25
<PAGE>
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
The following table presents Palmyra Saving's historical and pro forma
capital position relative to its capital requirements at September 30, 1998. The
amount of capital infused into Palmyra Saving 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 employee stock ownership plan
and the cost of the shares expected to be acquired by the management development
and recognition plan are deducted from pro forma regulatory capital. For a
discussion of the assumptions underlying these pro forma capital calculations ,
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 Office of Thrift Supervision . For a discussion of the capital standards
applicable to Palmyra Saving , see "Regulation -- Federal Regulation of Savings
Associations -- Capital Requirements."
<TABLE>
<CAPTION>
PRO FORMA AT SEPTEMBER 30, 1998
------------------------------------------------------------------------------------
15% above
Minimum of Midpoint of Maximum of Maximum of
Estimated Estimated Estimated Estimated
Valuation Range Valuation Range Valuation Range Valuation Range
------------------- ------------------ ------------------- --------------------
552,500 Shares 650,000 Shares 747,500 Shares 859,625 Shares
September 30, 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>
Generally accepted
accounting principles
capital................... $6,048 10.17% $7,880 12.76% $8,251 13.26% $8,624 13.76% $9,047 14.32%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Tangible capital........... $6,017 10.13% $7,849 12.72% $8,220 13.23% $8,590 13.72% $9,016 14.29%
Tangible capital
requirement............... 891 1.50 926 1.50 932 1.50 939 1.50 947 1.50
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Excess..................... $5,126 8.63% $6,923 11.22% $7,288 11.73% $7,651 12.22% $8,069 12.79%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Core capital............... $6,017 10.13% $7,849 12.72% $8,220 13.23% $8,590 13.72% $9,016 14.29%
Core capital requirement(2) 1,783 3.00 1,851 3.00 1,865 3.00 1,878 3.00 1,893 3.00
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Excess..................... $4,234 7.13% $5,998 9.72% $6,355 10.23% $6,712 10.72% $7,123 11.29%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Total capital(3)........... $6.297 22.30% $8,129 28.33% $8,500 29.53% $8,870 30.72% $9,296 32.08%
Risk-based
capital requirement........ 2,259 8.00 2,295 8.00 2,303 8.00 2,310 8.00 2,318 8.00
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Excess..................... $4,038 14.30% $5,834 20.33% $6,197 21.53% $6,560 22.72% $6,978 24.08%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
- -------------------------
(1) Based upon total adjusted assets of $59.5 million at September 30, 1998 and
$61.8 million, $62.2 million, $62.6 million and $63.2 million at the
minimum, midpoint, maximum and maximum, adjusted, of the estimated valuation
range, respectively, for purposes of the tangible and core capital
requirements, and upon risk-weighted assets of $28.2 million at September
30, 1998 and $28.7 million, $28.8 million, $28.9 million and $30.0 million
at the minimum, midpoint, maximum, and maximum, as adjusted, of the
estimated valuation range, respectively, for purposes of the risk-based
capital requirement.
(2) The current Office of Thrift Supervision core capital requirement for
savings associations is 3% of total adjusted assets. The Office of Thrift
Supervision 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.
(3) 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.
26
<PAGE>
PRO FORMA DATA
The plan of conversion requires that the common stock must be sold at a price
equal to the estimated market value of PFSB Bancorp and Palmyra Saving as
converted, based upon an independent valuation. The estimated valuation range as
of December 11, 1998 and updated as of January 22, 1999, is from a minimum of
$5,525,000 to a maximum of $7,475,000 with a midpoint of $6,500,000. At a price
per share of $10.00, this results in a minimum number of shares of 552,500, a
maximum number of shares of 747,500 and a midpoint number of shares of
650,000.
The actual net proceeds from the sale of the common stock cannot be determined
until the conversion is completed. However, net proceeds indicated on the
following table are based upon the following assumptions:
1. Trident Securities will receive a fixed management fee of $135,000 as
discussed under "The Conversion -- Plan of Distribution for the
Subscription, Direct Community and Syndicated Community
Offerings";
2. all of the common stock will be sold in the subscription and direct
community offerings; and
3. conversion expenses, excluding the fixed management fee paid to
Trident Securities, will total approximately $400,000 regardless of
the number of shares sold in the conversion .
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 pro forma data that follows was prepared by PFSB Bancorp and Palmyra
Savings with the assistance of RP Financial. The following table summarizes the
historical net income and retained earnings of Palmyra Saving and the pro forma
consolidated net income and stockholders' equity of PFSB Bancorp at and for the
year ended September 30, 1998. Pro forma consolidated net income has been
calculated as if the conversion was completed on October 1, 1997 and the
estimated net proceeds had been invested at 4.39% beginning on that date. That
percentage yield represents the one-year U.S. Treasury Bill yield as of
September 30, 1998. While Office of Thrift Supervision regulations call for the
use of a yield equal to the arithmetic average of the weighted average yield
earned by Palmyra Saving on its interest-earning assets and the rates paid on
its deposits, PFSB Bancorp believes that the one-year U.S. Treasury Bill yield
is a more realistic yield on the investment of the conversion proceeds.
A pro forma after-tax return of 2.77% is used for both PFSB Bancorp and
Palmyra Saving, 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 October 1, 1997 or
at September 30, 1998, but without any adjustment of historical or pro forma
stockholders' equity per share to reflect the earnings on the estimated net
proceeds.
No effect has been given to:
27
<PAGE>
1. the shares to be reserved for issuance under the's stock option plan,
which is expected to be voted upon by stockholders at a meeting to be
held no earlier than six months following the conversion;
2. withdrawals from deposit accounts to purchase common stock in the
conversion;
3. the issuance of shares from authorized but unissued shares to the
management development and recognition plan, which is expected to be
voted upon by stockholders at a meeting to be held no earlier than six
months following the conversion; or
4. the liquidation account that Palmyra Saving will establish for the
benefit of eligible account holders and supplemental eligible account
holders. See "The Conversion -- Effects of Conversion to Stock Form on
Deposits and Borrowers of Palmyra Saving -- Liquidation Account.
" THE FOLLOWING PRO FORMA DATA, WHICH IS BASED ON PALMYRA SAVING'S RETAINED
EARNINGS AT SEPTEMBER 30, 1998 AND NET INCOME FOR THE YEAR ENDED SEPTEMBER 30,
1998, MAY NOT REPRESENT THE ACTUAL FINANCIAL EFFECTS OF THE CONVERSION OR THE
OPERATING RESULTS OF PFSB BANCORP AFTER THE CONVERSION. THE PRO FORMA DATA
RELIES EXCLUSIVELY ON THE ASSUMPTIONS OUTLINED ABOVE. THE PRO FORMA DATA DOES
NOT REPRESENT THE FAIR MARKET VALUE OF PFSB BANCORP'S COMMON STOCK, THE CURRENT
FAIR MARKET VALUE OF PALMYRA SAVING'S OR PFSB BANCORP'S ASSETS OR LIABILITIES,
OR THE AMOUNT OF MONEY THAT WOULD BE AVAILABLE FOR DISTRIBUTION TO SHAREHOLDERS
IF PFSB BANCORP IS LIQUIDATED.
28
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED SEPTEMBER 30, 1998
-----------------------------------------------------------------------------
552,500 650,000 747,500 859,625
SHARES SHARES SOLD AT SHARES SOLD AT SHARES SOLD AT
SOLD AT $10.00 $10.00 $10.00 $10.00
PER SHARE PER SHARE PER SHARE PER SHARE (15%
(MINIMUM (MIDPOINT (MAXIMUM ABOVE MAXIMUM
OF ESTIMATED OF ESTIMATED OF ESTIMATED OF ESTIMATED
PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE)
-------------- -------------- -------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross Proceeds........................................ $ 5,525 $ 6,500 $ 7,474 $ 8,596
Less: estimated underwriting commission and
other offering expenses............................ (535) (535) (535) (535)
-------- -------- -------- --------
Estimated net proceeds................................ 4,990 5,965 6,940 8,061
Less: Common Stock acquired by employee stock
ownership plan................................... (442) (520) (598) (688)
Common Stock to be acquired by management
development and recognition plan........ (221) (260) (299) (344)
-------- -------- -------- --------
Net investable proceeds.......................... $ 4,327 $ 5,185 $ 6,043 $ 7,029
======== ======== ======== ========
Consolidated net income:
Historical....................................... $ 276 $ 276 $ 276 $ 276
Pro forma income on net proceeds(2).............. 120 143 167 194
Pro forma employee stock ownership plan
adjustments(3).................................. (28) (33) (38) (43)
Pro forma MRP adjustments(4)..................... (28) (33) (38) (43)
-------- -------- -------- --------
Pro forma net income........................ $ 340 $ 353 $ 367 $ 384
======== ======== ======== ========
Consolidated net income per share(5)(6):
Historical....................................... $ 0.54 $ 0.46 $ 0.40 $ 0.35
Pro forma income on net proceeds................. 0.24 0.24 0.24 0.24
Pro forma employee stock ownership plan
adjustments(3)................................ (0.05) (0.05) (0.05) (0.05)
Pro forma MRP adjustments(4)..................... (0.05) (0.05) (0.05) (0.05)
-------- -------- -------- --------
Pro forma net income per share.............. $ 0.68 $ 0.60 $ 0.54 $ 0.49
======== ======== ======== ========
Consolidated stockholders' equity (book value):
Historical....................................... $ 6,048 $ 6,048 $ 6,048 $ 6,048
Estimated net proceeds........................... 4,990 5,965 6,940 8,062
Less: Common stock acquired by employee stock
ownership plan................................ (442) (520) (598) (688)
Less: Common stock to be acquired by management
development and recognition plan(4)..... (221) (260) (299) (344)
-------- -------- -------- --------
Pro forma stockholders' equity(7).......... $ 10,375 $ 11,233 $ 12,091 $ 13,078
======== ======== ======== ========
Consolidated stockholders' equity per share(6)(8):
Historical(6).................................... $ 10.95 $ 9.30 $ 8.09 $ 7.04
Estimated net proceeds........................... 9.03 9.18 9.28 9.38
Less: Common stock acquired by employee stock
ownership plan................................ (0.80) (0.80) (0.80) (0.80)
-------- -------- -------- --------
Less: Common stock to be acquired by management
development and recognition plan(4)..... (0.40) (0.40) (0.40) (0.40)
-------- -------- -------- --------
Pro forma stockholders' equity per share(9). $ 18.78 $ 17.28 $ 16.17 $ 15.22
======== ======== ======== ========
Purchase price as a percentage of pro forma........... 53.25% 57.87% 61.84% 65.70%
stockholders' equity per share...................... ======== ======== ======== ========
Purchase price as a multiple of pro forma
net income per share............................... 14.71x 16.67x 19.23x 20.41x
======== ======== ======== ========
</TABLE>
(footnotes on following page)
29
<PAGE>
_______________________
(1) Gives effect to the sale of an additional 112,125 shares in the conversion,
which may be issued to cover an increase in the pro forma market value of
PFSB Bancorp and Palmyra Saving as converted, without the resolicitation of
subscribers or any right of cancellation. The issuance of additional shares
will be conditioned on a determination by RP Financial that the issuance is
compatible with its determination of the estimated pro forma market value
of PFSB Bancorp and Palmyra Saving 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 to purchase
common stock in the conversion. Since funds on deposit at Palmyra Saving
may be withdrawn to purchase shares of common stock (which will reduce
deposits by the amount of the purchases), the net amount of funds available
to Palmyra Saving for investment following receipt of the net proceeds of
the conversion will be reduced by the amount of the withdrawals.
(3) The funds used to acquire these shares will be borrowed by the employee
stock ownership plan, 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 7.75 %, from the net proceeds from the conversion
retained by PFSB Bancorp. The amount of this borrowing has been reflected
as a reduction from gross proceeds to determine estimated net investable
proceeds. Palmyra Saving intends to make contributions to the employee
stock ownership plan 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. Palmyra Saving's payment of the employee stock
ownership plan debt is based upon equal installments of principal over a
10-year period, assuming a combined federal and state income tax rate of
37.0%. Interest income earned by PFSB Bancorp on the employee stock
ownership plan debt offsets the interest paid by Palmyra Saving on the
employee stock ownership plan loan. No reinvestment is assumed on proceeds
contributed to fund the employee stock ownership plan . Applicable
accounting practices require that compensation expense for the employee
stock ownership plan 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 Palmyra Saving -- Benefits -- Employee Stock
Ownership Plan."
(4) In calculating the pro forma effect of the management development and
recognition plan, it is assumed that the required stockholder approval has
been received, that the shares were acquired 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 the
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 3.85% and pro forma net income per share
would be $0.65, $0.57, $0.52 and $0.48 at the minimum, midpoint, maximum
and 15% above the maximum of the estimated valuation range for the year
ended September 30, 1998, respectively, and pro forma stockholders' equity
per share would be $18.44, $17,00, $15.94 and $15.10 at the minimum,
midpoint, maximum and 15% above the maximum of the estimated valuation
range at September 30, 1998, respectively. Shares issued under the
management development and recognition plan vest 20% per year and for
purposes of this table compensation expense is recognized on a straight-
line basis over each vesting period. If the fair market value per share is
greater than $10.00 per share on the date shares are awarded, total
management development and recognition plan expense would increase. The
total estimated expense was multiplied by 20% (the total percent of shares
for which expense is recognized in the first year) resulting in pre-tax
expense of $44,200, $52,000, $59,800 and $68,770 at the minimum, midpoint,
maximum and 15% above the maximum of the estimated valuation range for the
year ended September 30, 1998, respectively. No effect has been given to
the shares reserved for issuance under the proposed stock option plan.
(5) Per share amounts are based upon shares outstanding of 510,510, 600,600,
690,690, and 794,294 at the minimum, midpoint, maximum and 15% above the
maximum of the estimated valuation range for the year ended September 30,
1998, respectively, which includes the shares of common stock sold in the
conversion less the number of shares assumed to be held by the employee
stock ownership plan 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 employee stock ownership plan expense or the
proposed management development and recognition plan expense, as described
above.
(7) "Book value" represents the difference between the stated amounts of
Palmyra Saving'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 Palmyra Saving'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 Palmyra Saving" 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.
(8) Per share amounts are based upon shares outstanding of 552,500, 650,000,
747,500 and 859,625 at the minimum, midpoint, maximum and 15% above the
maximum of the estimated valuation range, respectively.
(9) Does not represent possible future price appreciation or depreciation of
the common stock.
30
<PAGE>
SHARES TO BE PURCHASED BY MANAGEMENT WITH SUBSCRIPTION RIGHTS
The following table sets forth certain information as to the approximate
purchases of common stock by each director and executive officer of Palmyra
Saving, including their associates, as defined by applicable regulations. No
individual has entered into a binding agreement with respect to these intended
purchases, and, therefore, actual purchases could be more or less than indicated
below. Directors and officers of Palmyra Saving and their associates may not
purchase in excess of 35% of the shares sold in the conversion. For purposes of
the following table, it has been assumed that sufficient shares will be
available to satisfy subscriptions in all categories. Directors, officers, their
associates and employees will pay the same price as all other subscribers for
the shares for which they subscribe.
<TABLE>
<CAPTION>
Percent of Percent of
Shares at Shares at
Minimum of Maximum of
Name and Anticipated Number of Anticipated Dollar Estimated Estimated
Position Shares to be Purchased (1) Amount to be Purchased Valuation Range Valuation Range
-------- -------------------------- ---------------------- --------------- ---------------
<S> <C> <C> <C> <C>
L. Edward Schaeffer 5,000 $ 50,000 0.9% 0.7%
Chairman of the Board
and President
Eldon R. Mette 4,000 40,000 0.7 0.5
Executive Vice President,
Secretary and Director
Glenn J. Maddox 5,000 50,000 0.9 0.7
Vice President of the Board
and Director
Ronald L. Nelson 3,000 30,000 0.5 0.4
Vice President and Treasurer
Albert E. Davis 10,000 100,000 1.8 1.3
Director
Robert M. Dearing 2,700 27,000 0.5 0.4
Director
James D. Lovegreen 4,000 40,000 0.7 0.5
Director
Donald L. Slavin 8,000 80,000 1.5 1.1
------- -------- --------- ---------
Director
Total 41,700 $417,000 7.5% 5.6%
======= ======== ========= =========
</TABLE>
________________________________
(1) Does not include any shares to be awarded under the employee stock
ownership plan and management development and recognition plan or options
to acquire shares under the stock option plan.
31
<PAGE>
PALMYRA SAVING AND BUILDING ASSOCIATION, F.A.
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of Palmyra Saving and
Building Association, F.A. for the fiscal years ended September 30, 1998 and
1997 have been audited by Moore, Horton & Carlson, P.C., independent auditors.
The audit report is included in the back of this prospectus. These statements
should be read in conjunction with the Consolidated Financial Statements and
related Notes included in the back of this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1998 1997
--------------- ---------------
INTEREST INCOME:
<S> <C> <C>
Mortgage loans................................................................ $3,048,539 $2,927,976
Consumer and other loans...................................................... 34,982 36,057
Investment securities......................................................... 809,753 877,944
Mortgage-backed securities.................................................... 193,808 219,819
Interest-bearing deposits..................................................... 76,791 70,977
---------- ----------
Total Interest Income..................................................... 4,163,873 4,132,773
INTEREST EXPENSE:
Deposits -- Note G............................................................ 2,669,858 2,619,925
Advances from FHLB............................................................ 15,337 5,853
---------- ----------
Total interest expense..................................................... 2,685,195 2,625,778
---------- ----------
Net interest income........................................................ 1,478,678 1,506,995
Provision for Loan Losses -- Note D............................................... 25,000 20,813
---------- ----------
Net interest income after provision for loan losses........................... 1,453,678 1,486,182
NONINTEREST INCOME (LOSS):
Service charges and other fees................................................ 65,149 60,106
Loss on sale of investments................................................... (2,056) (14,015)
Gain (loss) on disposal of premises and equipment............................. 1,205 (731)
Other......................................................................... 10,534 17,419
---------- ----------
Total Noninterest Income.................................................. 74,832 62,779
NONINTEREST EXPENSE:
Employee salaries and benefits................................................ 560,020 524,262
Occupancy costs............................................................... 134,977 125,670
Advertising................................................................... 36,611 29,737
Data processing............................................................... 107,463 78,715
Federal insurance premiums.................................................... 32,249 47,956
Other......................................................................... 232,636 228,727
---------- ----------
Total Noninterest Expense................................................. 1,103,956 1,035,067
---------- ----------
INCOME BEFORE INCOME TAXES........................................................ 424,554 513,894
Income taxes -- Note I............................................................ 149,000 182,000
---------- ----------
NET INCOME........................................................................ $ 275,554 $ 331,894
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
32
<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 Palmyra Saving. The information contained in this
section should be read in conjunction with the Consolidated Financial Statements
and accompanying Notes in the back of this prospectus, as well as the other
sections of this prospectus.
OPERATING STRATEGY
Palmyra Saving's business consists principally of attracting retail
deposits from the general public and using these funds to originate and purchase
mortgage loans secured by one- to four-family residences generally located in
Missouri. To a lesser extent, Palmyra Saving also originates and purchases
multi-family and originates commercial real estate loans, land loans,
residential construction loans and loans secured by savings accounts. Palmyra
Saving funds its assets primarily with retail deposits, although it
occasionally uses advances from the Federal Home Loan Bank of Des Moines as a
supplemental source of funds.
Palmyra Saving's business strategy is to operate as a traditional,
community-oriented savings association dedicated to financing home ownership and
providing quality customer service. Historically, Palmyra Saving has
emphasized the origination and purchase of loans secured by real estate and has
retained for its portfolio all of the loans that it originates. To supplement
loan demand in its primary market area, Palmyra Saving purchases participation
interests in one- to- four family mortgage loans, primarily non-owner-occupied
duplex properties, multi-family loans and commercial real estate loans generally
secured by properties located in Missouri. Historically, virtually all of the
mortgage loans originated by Palmyra Saving have been three- and five-year
balloon loans based on an interest rate established by Palmyra Saving and that
is fixed during the balloon term. Palmyra Saving funds its loan originations
primarily with deposits, although advances form the Federal Home Loan Bank of
Des Moines are used as a supplemental source of funds. Palmyra Saving does
not intend to change its business materially after the conversion. However, in
order to offer more product variety to its customers, Palmyra Saving intends to
explore offering traditional ARM loans with an interest rate tied to a
nationally recognized index such as the U.S. Treasury Bill rate, fixed-rate
residential mortgage loans, and, to a limited extent, direct mobile home loans
without the security of the underlying property. Implementation of these
planned new loan programs will be gradual so that personnel can be trained
adequately and the necessary delivery systems can be implemented.
The conversion will increase the consolidated capital of PFSB Bancorp by
the amount of the net proceeds. Funds withdrawn from deposit accounts will
decrease interest-bearing liabilities, and new funds used to purchase shares
will increase interest-earning assets. While PFSB Bancorp expects these
changes to increase its net interest income, PFSB Bancorp also expects that the
adoption of the management development and recognition plan and the additional
costs of operating as a public company will increase its non-interest expenses.
For additional information regarding the effects of this offering, see "Risk
Factors -- Implementation of Benefit Plan Will Increase Future Compensation
Expenses" and "Pro Forma Data."
33
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1998 AND 1997
At September 30, 1998, total assets were $59.5 million compared to $58.4
million at September 30, 1997. This increase is primarily the result of a $2.1
million increase in loans, which was offset by declines in investment securities
and mortgage-backed securities. The increase in loans primarily reflected
residential mortgage loan refinancing in the current low interest rate
environment, rather than new loan originations. The current low interest rate
environment also contributed to the decline in investment securities and
mortgage-backed securities as a result of prepayments.
Premises and equipment increased from $491,000 at September 30, 1997 to
$562,000 at September 30, 1998 as a result of a decrease in building and
improvements from $581,000 to $569,000, offset by an increase in furniture and
equipment from $354,000 to $380,000. Building and improvements decreased from
$581,000 to $569,000 due to the write-off of a remodeling study of the Kahoka
branch office calling for Palmyra Saving to occupy the entire building. Rather
than occupying the entire building, Palmyra Saving sold and leasebacked the
office in December 1998. It will lease the office until a new branch building is
constructed. See "Recent Developments" and "Business of Palmyra Saving --
Properties" for further information. Furniture and equipment increased due to
the purchase of new computer systems for each office.
At September 30, 1998, deposits were $52.7 million compared to $51.4
million at September 30, 1997. Management attributes the increase, which
occurred primarily in certificates of deposit, to normal growth.
Total equity increased from $5.7 million at September 30, 1997 to $6.0
million at September 30, 1998 as a result of retained earnings and a prior
period adjustment of $87,000 for deferred income taxes relating to the allowance
for loan losses. See Note O to the Notes to Consolidated Financial Statements in
the back of this prospectus for further discussion of this prior period
adjustment.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
NET INCOME. Net income was $276,000 in 1998 compared to $332,000 in 1997.
Lower net interest income after provision for loan losses and higher noninterest
expense in 1998 compared to 1997 were the primary reasons for the decline in net
income.
NET INTEREST INCOME. Net interest income was unchanged at $1.5 million for
both years. Total interest income increased from $4.1 million in 1997 to $4.2
million in 1998 primarily as a result of a higher average balance of loans,
which offset lower average balances of investments and mortgage-backed
securities caused by repayments and maturities. Total interest expense increased
from $2.6 million in 1997 to $2.7 million in 1998 primarily as a result of
higher average deposit balances. Interest expense on Federal Home Loan Bank of
Des Moines advances was $15,000 in 1998 compared to $6,000 in 1997 primarily as
a result of higher average rates paid on advances.
PROVISION FOR LOAN LOSSES. Provisions for loan losses are charged to
operations to bring the total allowance for loan losses to a level considered by
management to be adequate to provide for estimated losses based on management's
evaluation of the collectibility of the loan portfolio, including the nature of
the portfolio, credit concentrations, trends in historical loss experience,
specified impaired loans, and economic conditions. The provision for loan losses
was $25,000 in 1998 compared to $21,000 in 1997. The provision was increased
primarily because of the growth in the loan portfolio. There were no charge-offs
or recoveries in either 1998 or 1997. The allowance for loan losses was $280,000
at September 30, 1998 and $255,000 at September 30, 1997. Management deemed the
allowance as adequate at both dates. Although management uses the best
information available, future adjustments to the allowance may be necessary due
to changes in economic, operating, regulatory and other conditions that may be
beyond Palmyra Saving's control. While Palmyra Saving maintains its allowance
for loan losses at a level which it considers to be adequate to provide for
estimated losses, there can be no assurance that further additions will not be
made to the allowance for loan losses and that actual
34
<PAGE>
losses will not exceed the estimated amounts. See "Business of Palmyra Saving --
Lending Activities -- Allowance for Loan Losses" for further information.
NONINTEREST INCOME. Noninterest income increased from $63,000 in 1997 to
$75,000 in 1998. Service charges and other fees increased primarily as a result
of higher numbers of loans outstanding and deposit accounts. Other noninterest
income, which decreased from $17,000 in 1997 to $11,000 in 1998, consists
primarily of miscellaneous operating income, commissions on credit life
insurance policies that Palmyra Saving's service corporation sells to Palmyra
Saving's borrowers, and safe deposit box rental fees. Other noninterest income
decreased primarily as a result of the absence of $5,000 of dividend income in
1998 from Palmyra Saving's former data processing provider. The 's data
processing provider, a business cooperative of which Palmyra Saving was a
member, was sold to another company in 1997.
NONINTEREST EXPENSE. Noninterest expense increased from $1.0 million in
1997 to $1.1 million in 1998. Employee salaries and benefits increased as a
result of a part-time employee converting to full-time status and the hiring of
three new employees . Occupancy costs increased primarily as a result of higher
depreciation expense associated with new computer equipment. Advertising expense
increased due to increased advertising to promote savings growth. Data
processing expenses increased as a result of the purchase of teller station
software that is charged based on the number of teller stations rather than as a
flat fee. Federal deposit insurance premiums decreased due to the lower premium
rates implemented after the recapitalization of the Savings Association
Insurance Fund in 1996. Other noninterest expenses consists primarily of fees
paid to directors, Office of Thrift Supervision assessment fees, professional
fees, stationary and printing expenses, insurance costs, telephone and postage
and other miscellaneous items. The increase in other noninterest expenses
between 1998 and 1997 is primarily the result of normal inflationary increases.
In addition, other noninterest expenses in 1997 included a $19,000 expense
associated with obselete architectural plans for a new Kahoka branch office
building. These plans were several years old and Palmyra Saving decided in 1997
that these plans would never be used. This expense was absent in 1998.
INCOME TAXES. Income taxes decreased between 1997 and 1998 as a result of
lower income before income taxes in 1998.
35
<PAGE>
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS/COST
The following table sets forth certain information for the periods
indicated 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. The 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 were derived from
month-end balances. Management does not believe that the use of month-end
balances instead of daily balances causes any material differences in the
information presented.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------------
1998 1997
----------------------------------------- -----------------------------------------
AVERAGE INTEREST AVERAGE INTEREST
BALANCE AND YIELD/ BALANCE AND YIELD/
DIVIDENDS COST DIVIDENDS COST
------------- ----------- ---------- ------------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable, net(1)............. $39,233 $3,084 7.86% $37,525 $2,964 7.90%
Investment securities................ 12,544 780 6.22 13,277 844 6.36
Mortgage-backed securities........... 2,804 194 6.91 3,053 220 7.20
FHLB stock........................... 431 29 6.82 480 34 7.00
Interest-bearing deposits............ 1,495 77 5.14 1,461 71 4.86
------- ------ ------- ------
Total interest-earning assets..... 56,507 4,164 7.37 55,796 4,133 7.41
Noninterest earning assets........... 2,185 1,973
------- -------
Total average assets.............. $58,692 $57,769
======= =======
INTEREST-BEARING LIABILITIES:
Savings accounts..................... $11,271 329 2.92 $11,694 342 2.93
Certificates of deposit.............. 40,844 2,341 5.73 40,007 2,278 5.69
------- ------ ------- ------
Total average deposits............. 52,115 2,670 5.12 51,701 2,620 5.07
FHLB advances........................ 269 15 5.70 123 6 4.76
------- ------ ------- ------
Total interest-bearing liabilities. 52,384 2,685 5.13 51,824 2,626 5.07
------ ------
Noninterest-bearing liabilities....... 366 366
------- -------
Total average liabilities.......... 52,750 52,190
Average total equity.................. 5,942 5,579
------- -------
Total liabilities and retained
earnings............................ $58,692 $57,769
======= =======
Net interest income................... $1,479 $1,507
====== ======
Interest rate spread.................. 2.24% 2.34%
==== ====
Net interest margin................... 2.62% 2.70%
==== ====
Ratio of average interest earning asset
to average interest-bearing
liabilities........................ 107.87% 107.66%
======= =======
</TABLE>
________________
(1) Average loans receivable includes nonperforming loans. Interest income does
not include interest on loans 90 days or more past due.
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<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 Palmyra Saving's assets and the weighted
average interest rates paid on Palmyra Saving's liabilities, together with
Palmyra Saving's interest rate spread and net interest margin.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, AT SEPTEMBER 30,
--------------------------------------- ----------------
1998 1997 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
Weighted average yield earned on:
Loans receivable, net........................... 7.86% 7.90% 7.85%
Investment securities........................... 6.22 6.36 6.18
Mortgage-backed securities...................... 6.91 7.20 6.98
FHLB stock...................................... 6.82 7.00 6.81
Interest-earning deposits....................... 5.14 4.86 5.18
Total interest-earning assets........ 7.37 7.41 7.39
Weighted average rate paid on:
Savings accounts................................ 2.92 2.93 3.05
Certificates of deposit......................... 5.73 5.69 5.56
Total average deposits............... 5.12 5.07 5.02
FHLB advances................................... 5.70 4.76 5.74
Total interest-bearing liabilities... 5.13 5.07 5.02
Interest rate spread (spread between weighted average
rate on all interest-earning assets and all interest-
bearing liabilities)................................... 2.24 2.34 2.37
Net interest margin (net interest income (expense) as a
percentage of average interest-earning assets)......... 2.62 2.70 N/A
</TABLE>
37
<PAGE>
RATE/VOLUME ANALYSIS
The following table sets forth the effects of changing rates and volumes on
the interest income and interest expense of Palmyra Saving. : The rate column
shows the effects attributable to changes in rate (changes in rate multiplied by
prior volume). The volume column shows the effects attributable to changes in
volume (changes in volume multiplied by prior rate). The rate/volume column
shows the effects attributable to changes in rate and volume (changes in rate
multiplied by changes in volume).
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1998
COMPARED TO
YEAR ENDED SEPTEMBER 30, 1997
INCREASE (DECREASE) DUE TO
-------------------------------------------------------------------
RATE VOLUME RATE/ TOTAL
VOLUME
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net.................................... $(14) $135 $(1) $120
Investment securities.................................... (18) (47) 1 (64)
Mortgage-backed securities............................... (9) (18) 1 (26)
FHLB stock............................................... (2) (3) -- (5)
Interest-earning deposits................................ 4 2 -- 6
---- ---- --- ----
Total net change in income
On interest-earning assets.......................... (39) 69 1 31
Interest-bearing liabilities:
Savings accounts......................................... (1) (12) -- (13)
Certificates of deposits................................. 15 48 -- 63
---- ---- --- ----
Total average deposits................................. 14 36 -- 50
FHLB advances............................................ 1 7 1 9
---- ---- --- ----
Total net change in expense
on interest-bearing liabilities........................ 15 43 1 59
---- ---- --- ----
Net change in net interest income......................... $(54) $ 26 $-- $(28)
==== ==== === ====
</TABLE>
MARKET RISK ANALYSIS
GENERAL. Palmyra Saving's profitability depends primarily on its net
interest income, which is the difference between the income it receives on its
loan and investment portfolio and its cost of funds, which consists of interest
paid on deposits and borrowings. Net interest income is also affected by the
relative amounts of interest-earning assets and interest-bearing liabilities.
When interest-earning assets equal or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income. Palmyra
Saving's profitability is also affected by the level of income and expenses.
Non-interest income includes service charges and fees and gain on sale of
investments. Non-interest expenses primarily include compensation and benefits,
occupancy and equipment expenses, deposit insurance premiums and data processing
expenses. Palmyra Saving's results of operations are also significantly affected
by general economic and competitive conditions, particularly changes in market
interest rates, government legislation and regulation and monetary and fiscal
policies.
38
<PAGE>
QUANTITATIVE ASPECTS OF MARKET RISK. Palmyra Saving does not maintain a
trading account for any class of financial instrument nor does it engage in
hedging activities or purchase high-risk derivative instruments. Furthermore,
Palmyra Saving has no foreign currency exchange rate risk or commodity price
risk. For information regarding the sensitivity to interest rate risk of Palmyra
Saving's interest-earning assets and interest-bearing liabilities, see the
tables under "Business of Palmyra Saving -- Lending Activities -- Maturity of
Loan Portfolio," "-- Investment Activities" and "-- Deposit Activities and Other
Sources of Funds -- Deposit Accounts -- Time Deposits by Maturities."
QUALITATIVE ASPECTS OF MARKET RISK. Palmyra Saving 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.
The principal element in achieving this objective is to increase the interest-
rate sensitivity of Palmyra Saving's interest-earning assets by originating for
its portfolio loans with interest rates that periodically adjust to market
conditions. Palmyra Saving 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.
In order to encourage institutions to reduce their interest rate risk, the
Office of Thrift Supervision adopted a rule incorporating an interest rate risk
component into the risk-based capital rules. Using data compiled by the Office
of Thrift Supervision, Palmyra Saving receives a report which measures interest
rate risk by modeling the change in net portfolio value over a variety of
interest rate scenarios. This procedure for measuring interest rate risk was
developed by the Office of Thrift Supervision to replace the "gap" analysis,
which is the difference between interest-earning assets and interest-bearing
liabilities that mature or reprice within a specific time period). Net portfolio
value is the present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. The calculation is intended to illustrate the
change in net portfolio value that will occur upon an immediate change in
interest rates of at least 200 basis points with no effect given to any steps
that management might take to counter the effect of that interest rate movement.
Under Office of Thrift Supervision regulations, an institution with a greater
than "normal" level of interest rate risk take a deduction from total capital
for purposes of calculating its risk-based capital. The Office of Thrift
Supervision, however, has delayed the implementation of this regulation. An
institution with a "normal" level of interest rate risk is defined as one whose
"measured interest rate risk" is less than 2.0%. Institutions with assets of
less than $300 million and a risk-based capital ratio of more than 12.0% are
exempt. Palmyra Saving is exempt because of its asset size. Based on Palmyra
Saving's regulatory capital levels at September 30, 1998, Palmyra Saving
believes that, if the proposed regulation was implemented at that date, Palmyra
Saving's level of interest rate risk would have caused it to be treated as an
institution with greater than "normal" interest rate risk.
39
<PAGE>
The following table is provided by the Office of Thrift Supervision and sets
forth the change in Palmyra Saving's net portfolio value at September 30, 1998,
based on Office of Thrift Supervision assumptions, that would occur upon an
immediate change in interest rates, with no effect given to any steps that
management might take to counteract that change.
<TABLE>
<CAPTION>
NET PORTFOLIO AS % OF
NET PORTFOLIO VALUE PORTFOLIO VALUE OF ASSETS
------------------------------------------------- ----------------------------------
BASIS POINT ("BP") NET PORTFOLIO
CHANGE IN RATES $ AMOUNT $ CHANGE (1) % CHANGE VALUE RATIO (2) CHANGE (BP) (3)
----------------------- ------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
400 $6,845 $562 9% 11.57% 112
300 6,742 459 7 11.34 90
200 6,605 322 5 11.07 62
100 6,412 129 2 10.71 26
0 6,283 -- -- 10.45 --
(100) 6,295 12 -- 10.39 (5)
(200) 6,358 75 1 10.41 (4)
(300) 6,418 135 2 10.42 (2)
(400) 6,440 158 3 10.38 (7)
</TABLE>
- -------------------------
(1) Represents the increase of the estimated net portfolio value at the
indicated change in interest rates compared to the net portfolio value
assuming no change in interest rates.
(2) Calculated as the estimated net portfolio value divided by the portfolio
value of total assets ("PV").
(3) Calculated as the increase (decrease) of the net portfolio value ratio
assuming the indicated change in interest rates over the estimated net
portfolio value ratio, assuming no change in interest rates.
The following table, provided by the Office of Thrift Supervision, is based
on the calculations in the above table. It sets forth the interest rate risk
capital component that will be deducted from risk-based capital in determining
the level of risk-based capital. At September 30, 1998, the change in net
portfolio value as a percentage of portfolio value of total assets is positive
1.2%, which is less than 2.0%, indicating that Palmyra Saving has a "normal"
level of interest rate risk.
<TABLE>
<CAPTION>
AT AT AT
SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
1998 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
RISK MEASURES: 200 BP RATE SHOCK:
Pre-shock net portfolio value ratio: net portfolio value as % of
portfolio value of assets............................................ 10.45% 11.62% 12.40%
Exposure measure: post-shock net portfolio value ratio............... 10.41 11.49 11.79
Sensitivity measure: change in net portfolio value ratio............. 4bp 13bp 61bp
</TABLE>
The Office of Thrift Supervision uses certain assumptions in assessing the
interest rate risk of savings associations. 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.
40
<PAGE>
Further, if 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
Palmyra Saving's primary sources of funds are maturities and prepayments of
investment securities, customer deposits, proceeds from principal and interest
payments on loans and Federal Home Loan Bank of Des Moines advances. While
investment securities maturities and scheduled amortization of loans are a
predictable source of funds, deposit flows, investment securities prepayments
and mortgage prepayments are greatly influenced by general interest rates,
economic conditions and competition.
Palmyra Saving must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to fund loan originations and deposit
withdrawals, to satisfy other financial commitments and to take advantage of
investment opportunities. Palmyra Saving generally maintains sufficient cash and
short-term investments to meet short-term liquidity needs. At September 30,
1998, cash and interest-bearing deposits totaled $2.3 million, or 3.8 % of total
assets, and investment securities classified as available-for-sale totaled $7.1
million. At September 30, 1998, Palmyra Saving had outstanding advances of
$500,000 under an available credit line of $16.7 million with the Federal Home
Loan Bank of Des Moines.
Office of Thrift Supervision regulations require savings institutions to
maintain an average daily balance of liquid assets (cash and eligible
investments) equal to at least 4.0% of the average daily balance of its net
withdrawals deposits and short-term borrowings. Palmyra Saving's actual
liquidity ratio at September 30, 1998 was 13.4%. See "-- Comparison of Financial
Condition at September 30, 1998 and 1997" and "Business of Palmyra Saving --
Investment Activities."
Palmyra Saving's primary investing activity is the origination and purchase
of one- to- four family mortgage loans. During the years ended September 30,
1998 and 1997, Palmyra Saving originated $8.7 million and $9.4 million of these
loans, respectively, and purchased $2.7 million and $1.0 million, respectively.
At September 30, 1998, Palmyra Saving had loan commitments, including
undisbursed portions of mortgage loans, totaling $1.3 million. Palmyra Saving
anticipates that it will have sufficient funds available to meet current loan
commitments. Certificates of deposit that are scheduled to mature in less than
one year from September 30, 1998 totaled $22.3 million. Historically, Palmyra
Saving has been able to retain a significant amount of its deposits as they
mature. In addition, management of Palmyra Saving 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 Palmyra Saving , Palmyra Saving would be able to
utilize Federal Home Loan Bank of Des Moines advances to fund deposit
withdrawals, which would result in an increase in interest expense to the extent
that the average rate paid on advances exceeds the average rate paid on deposits
of similar duration.
Office of Thrift Supervision regulations require Palmyra Saving to maintain
specific amounts of regulatory capital. As of September 30, 1998, Palmyra Saving
complied with all regulatory capital requirements as of that date with tangible,
core and risk-based capital ratios of 10.1%, 10.1% and 22.3%, 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
Palmyra Saving is a user of computers, computer software and equipment
utilizing embedded microprocessors that will be effected by the year 2000 issue.
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
41
<PAGE>
treat the year 2000 may cause erroneous results, ranging from system
malfunctions to incorrect or incomplete processing.
Palmyra Saving's year 2000 committee consists of the entire Board of
Directors and Ronald L. Nelson, Palmyra Saving's Vice President and Treasurer,
who is chairman of the committee. Mr. Nelson makes a monthly progress report to
the Board of Directors. The committee has developed and is implementing a
comprehensive plan to make all information and non-information technology assets
year 2000 compliant. The plan is comprised of the following phases:
1. Awareness - Educational initiatives on year 2000 issues and concerns.
This phase is ongoing, especially as it relates to informing customers
of Palmyra Saving's year 2000 preparedness.
2. Assessment - Inventory of all technology assets and identification of
third-party vendors and service providers. Palmyra Saving analyzed the
operation of all date-sensitive computer systems and identified in
writing all third-party vendors and service providers associated with
these systems. This phase was completed as of December 31, 1998.
3. Renovation - Review of vendor and service providers responses to
Palmyra Saving's year 2000 inquiries and development of a follow-up
plan and timeline. This phase was completed as of December 31, 1998.
4. Validation - Testing all systems and third-party vendors for year 2000
compliance. Palmyra Saving is currently in this phase of its plan.
Palmyra Saving has replaced all in-house equipment, such as teller
station equipment, with year 2000 compliant equipment. A third-party
service bureau processes all customer transactions and has completed
upgrades to its systems to be year 2000 compliant. Palmyra Saving is
relying on the results of proxy testing by its third-party service
bureau. The proxy testing, which involved five financial institutions,
not including Palmyra Saving , tested the results of transactions at
various different test dates before and after the year 2000 date
change and cover all of the applications used by Palmyra Saving . This
proxy testing was completed in November 1998. With the completion of
the proxy testing, Palmyra Saving will conduct connectivity testing
during February 1999. Connectivity testing, which is scheduled to last
approximately two to three days, involves Palmyra Saving and its
third-party service bureau each rolling forward their computer systems
to the year 2000 so that Palmyra Saving may process its own data files
under simulated year 2000 conditions using all applications. If
connectivity testing reveals that the third-party systems are not year
2000 compliant, Palmyra Saving's service bureau intends to either
transfer Palmyra Saving to other systems that are year 2000 compliant
or provide additional remedial resources. Other parties whose year
2000 compliance may effect Palmyra Saving include the Federal Home
Loan Bank of Des Moines , brokerage firms, the operator of Palmyra
Saving's automated teller machines network and Palmyra Saving's
pension plan administrator. These third parties have indicated their
compliance or intended compliance. Where it is possible to do so,
Palmyra Saving has scheduled testing with these third parties. Where
testing is not possible, Palmyra Saving will rely on certifications
from vendors and service providers.
5. Implementation - Replacement or repair of non-compliant technology. As
Palmyra Saving progresses through the validation phase, Palmyra Saving
expects to determine necessary remedial actions and provide for their
implementation. Palmyra Saving has already implemented a new year 2000
compliant computerized teller system and has verified the year 2000
compliance of its computer hardware and other equipment containing
42
<PAGE>
embedded microprocessors. Palmyra Saving's plan provides for year 2000
readiness to be completed by June 30, 1999.
Substantially all of Palmyra Saving's multi-family and commercial loans are
participation interests in loans originated by other financial institutions.
Palmyra Saving has contacted, in writing, each financial institution from which
it purchases loan interests asking them to report to it regarding their year
2000 readiness plan and status. The institutions have all responded and
indicated intended year 2000 compliance. Palmyra Saving's consideration of year
2000 compliance of potential borrowers is generally limited to these activities.
Palmyra Saving believes that year 2000 compliance issues do not affect
individuals, who represent virtually all of its borrowers, to nearly the same
degree as commercial borrowers.
Palmyra Saving estimates its total cost to replace computer equipment,
software programs or other equipment containing embedded microprocessors that
were not year 2000 compliant to be approximately $82,000 , of which
approximately $66,000 has been incurred as of September 30, 1998. System
maintenance or modification costs are charged to expense as incurred, while the
cost of new hardware, software or other equipment is capitalized and amortized
over their estimated useful lives. Palmyra Saving does not separately track the
internal costs and time that its own employees spend on year 2000 issues, which
are principally payroll costs.
Because Palmyra Saving depends substantially on its computer systems and
those of third parties, the failure of these systems to be year 2000 compliant
could cause substantial disruption of Palmyra Saving's business and could have a
material adverse financial impact on Palmyra Saving . Failure to resolve year
2000 issues presents the following risks to Palmyra Saving, which it believes
reflects its most reasonbly likely worst-case scenario :
1. Palmyra Saving could lose customers to other financial institutions,
resulting in a loss of revenue, if Palmyra Saving's third party service bureau
is unable to properly process customer transactions;
2. Governmental agencies, such as the Federal Home Loan Bank of Des
Moines , and correspondent institutions could fail to provide funds to Palmyra
Saving , which could materially impair Palmyra Saving's liquidity and affect
Palmyra Saving's ability to fund loans and deposit withdrawals;
3. Concern on the part of depositors that year 2000 issues could impair
access to their deposit account balances could result in Palmyra Saving
experiencing deposit outflows prior to December 31, 1999; and
4. Palmyra Saving could incur increased personnel costs if additional
staff is required to perform functions that inoperative systems would have
otherwise performed.
Management believes that it is impossible to estimate the potential lost
revenue due to the year 2000 issue, as the extent and longevity of any potential
problem cannot be predicted. Because substantially all of Palmyra Saving's loan
portfolio consists of loans to individuals rather than commercial enterprises,
management believes that year 2000 issues will not impair the ability of Palmyra
Saving's borrowers to repay their debt.
There can be no assurances that Palmyra Saving's year 2000 plan will
effectively address the year 2000 issue, that Palmyra Saving's estimates of the
timing and costs of completing the plan will ultimately be accurate or that the
impact of any failure of Palmyra Saving or its third-party vendors and service
providers to be year 2000 compliant will not have a material adverse effect on
Palmyra Saving's business, financial condition or results of operations.
43
<PAGE>
Palmyra Saving has a business resumption contingency plan for year 2000
compliance. If there is a computer systems failure in less than all of its
branch offices, all data processing would be transferred to and performed at the
unaffected office. If all computer systems fail, Palmyra Saving would resort to
manual processing of transactions until the computer systems resume operation.
IMPACT OF ACCOUNTING PRONOUNCEMENTS AND REGULATORY POLICIES
ACCOUNTING FOR STOCK-BASED COMPENSATION. Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," establishes
financial accounting and reporting standards for stock-based employee
compensation plans. This statement encourages all entities to adopt a new method
of accounting to measure compensation cost of all employee stock compensation
plans based on the estimated fair value of the award at the date it is granted.
Companies are, however, allowed to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting, which
generally does not result in compensation expense recognition for most plans.
Companies that elect to remain with the existing accounting method are required
to disclose in a footnote to the financial statements pro forma net income and,
if presented, earnings per share, as if this statement had been adopted. The
accounting requirements of this statement are effective for transactions entered
into in fiscal years that begin after December 15, 1995; however, companies are
required to disclose information for awards granted in their first fiscal year
beginning after December 15, 1994. Management expects to use the financial
statement footnote disclosure option after the conversion and the adoption of
stock based benefit plans.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENT OF LIABILITIES. Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities," is effective for transfers and servicing of
financial assets and extinguishment of liabilities occurring after December 31,
1996, and is to be applied prospectively. Earlier or retroactive application is
not permitted.
This statement provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishment of liabilities. The
standards are based on consistent application of a financial-components approach
that focuses on a control period. Under the approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered, and derecognizes liabilities when extinguished.
This statement provides consistent standards distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
Adoption of this statement on January 1, 1997 did not have a material impact on
Palmyra Saving's financial position or results of operations.
EARNINGS PER SHARE. Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," issued in February 1997, establishes standards for
computing and presenting earnings per share and applies to entities with
publicly-held common stock or potential common stock. It replaces the
presentation of primary earnings per share with a presentation of basic earnings
per share and requires the dual presentation of basic and diluted earnings per
share on the face of the income statement. This statement is effective for
financial statements issued for periods after December 15, 1997 including
interim periods; earlier applications are not permitted. This statement requires
restatement of all prior period earnings per share data presented.
DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE. Statement of Financial
Accounting Standards No. 129, "Disclosure of Information About Capital
Structure," establishes standards for disclosing information about an entity's
capital structure and applies to all entities. This statement continues the
previous requirements to disclose certain information about an entity's capital
structure found in Accounting Principles Board Opinions No. 10, "Omnibus
Opinion -1966," and No. 15, "Earnings Per Share," and Statement of Financial
Accounting Standards No. 47, "Disclosure of Long-Term Obligations," for entities
that were required to follow those standards. Statement of Financial Accounting
Standards No. 129 is effective for financial statements for periods ending after
December 15, 1997. Statement of Financial Accounting Standards No. 129 contains
no change in disclosure requirements for entities that were previously
44
<PAGE>
required to follow the requirements of APB Opinion Nos. 10 and 15 and Statement
of Financial Accounting Standards No. 47.
COMPREHENSIVE INCOME. Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," issued in July 1997, establishes standards for
reporting and presenting 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. The statement requires that companies classify items of
other comprehensive income by their nature in a financial statement and 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. The statement is effective for fiscal years beginning
after December 15, 1997. Reclassification of financial statements for earlier
periods provided for comprehensive purposes is required.
DISCLOSURE ABOUT SEGMENTS. Statement of Financial Accounting Standards No.
131, "Disclosure About Segments of an Enterprise and Related Information,"
issued in June 1997, establishes standards for disclosure about operating
segments in annual financial statements and selected information in interim
financial reports. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The statement
supersedes Statement of Financial Accounting Standards No. 14, "Financial
Reporting for Segments of a Business Enterprise." The statement becomes
effective for Palmyra Saving's fiscal year ending September 30, 1999, and
requires that comparative information from earlier years be restated to conform
to its requirements.
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS.
Statement of Financial Accounting Standards 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. The
statement is effective for fiscal years beginning after December 15, 1997, with
earlier application encouraged. Its adoption will have no impact on Palmyra
Saving's results of operations and financial condition as this statement relates
to disclosure requirements. Palmyra Saving adopted Statement of Financial
Accounting Standards No. 132 on October 1, 1998, and its adoption did not
significantly affect Palmyra Saving's financial reporting.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," issued in June 1998, standardizes the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts. The Statement requires entities to carry all derivative
instruments in the statement of financial position at fair value. The accounting
for changes in the fair value, gains and losses, of a derivative instrument
depends on whether it has been designated and qualifies as part of a hedging
relationship and, if so, on the reasons for holding it. If certain conditions
are met, entities may elect to designate a derivative instrument as a hedge of
exposures to changes in fair value, cash flows or foreign currencies. See Note A
of the Notes to Consolidated Financial Statements for further information. The
Statement is effective for financial statements issued for periods beginning
after June 15, 1999. Currently, Palmyra Saving is evaluating the effects of the
statement.
ACCOUNTING FOR MORTGAGE-BACKED SECURITIES RETAINED AFTER THE SECURITIZATION
OF MORTGAGE LOANS HELD FOR SALE BY A MORTGAGE BANKING ENTERPRISE. Statement of
Financial Accounting Standards No. 134, "Accounting for Mortgage-Backed
Securities Retained After the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise," issued in October 1998, amends Statement of
Financial Accounting Standards No. 65, "Accounting for Certain Mortgage Banking
Activities," and Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," for years
beginning after December 15, 1998. Currently, neither PFSB Bancorp nor Palmyra
Saving conduct any mortgage banking activities.
45
<PAGE>
EFFECT OF INFLATION AND CHANGING PRICES
The financial statements and related financial data presented herein have
been prepared in accordance with generally accepted accounting principles ,
which 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 primary impact of
inflation is reflected in the increased cost of Palmyra Saving'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 PFSB BANCORP
GENERAL
PFSB Bancorp was organized as a Missouri business corporation at the
direction of Palmyra Saving in November 1998 to become PFSB Bancorp for Palmyra
Saving upon completion of the conversion. As a result of the conversion, Palmyra
Saving will be a wholly-owned subsidiary of PFSB Bancorp and all of the issued
and outstanding capital stock of Palmyra Saving will be owned by PFSB
Bancorp.
BUSINESS
Before the completion of the conversion, PFSB Bancorp will not engage in
any significant activities other than of an organizational nature. Upon
completion of the conversion, PFSB Bancorp's sole business activity will be the
ownership of the outstanding capital stock of Palmyra Saving. In the future,
PFSB Bancorp may acquire or organize other operating subsidiaries, although
there are no current plans, arrangements, agreements or understandings, written
or oral, to do so.
Initially, PFSB Bancorp will neither own nor lease any property but will
instead use the premises, equipment and furniture of Palmyra Saving with the
payment of appropriate rental fees, as required by applicable law and
regulations.
Since PFSB Bancorp will only hold the outstanding capital stock of Palmyra
Saving after the conversion, the competitive conditions applicable to PFSB
Bancorp will be the same as those confronting Palmyra Saving. See "Business of
Palmyra Saving -- Competition."
BUSINESS OF PALMYRA SAVING
GENERAL
Palmyra Saving was founded in 1887 as a state-chartered mutual savings
association and converted to a federal mutual savings association charter
effective June 1, 1995. Palmyra Saving is regulated by the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation. Palmyra Saving's
deposits have been federally-insured since 1938 and are currently insured by the
Federal Deposit Insurance Corporation under the Savings Association Insurance
Fund. Palmyra Saving has been a member of the Federal Home Loan Bank-System
since 1937.
46
<PAGE>
Palmyra Saving operates as a traditional savings association, specializing
in single-family residential mortgage lending and savings deposits. Palmyra
Saving's business consists primarily of attracting retail deposits from the
general public and using those funds to originate and purchase real estate
loans. Palmyra Saving holds its loans for long-term investment purposes. See
"-- Lending Activities."
As discussed below under "-- Market Area" Palmyra Saving primarily operates
in a small, low-growth market area, which significantly limits its ability to
grow its primary business of making residential mortgage loans and attracting
savings deposits. Consequently, Palmyra Saving's core earnings from lending,
investment and deposit activities is below that of its peers. See "Risk Factors
- -- Palmyra Saving's Business Depends Heavily on Economic Conditions of its
Primary Market Area and Weak Market Area Demographics Has Hurt Core Earnings and
Limits Growth Prospects" for further discussion. With the capital raised in
this stock offering, Palmyra Saving believes that it will be able to offer new
competitive lending products to residents of its primary market area. After the
conversion, Palmyra Saving plans to implement a program for offering longer term
fixed-rate mortgage loans and traditional adjustable rate mortgage loans with
interest rates tied to a nationally recognized index such as the U.S. Treasury
Bill rate. To a limited extent, Palmyra Saving also intends to begin engaging
in direct mobile home lending without the security of the underlying real
estate. See "-- Lending Activities" for a further discussion.
MARKET AREA
Palmyra Saving conducts business from its main office in Palmyra (Marion
County) and two branch offices located in Canton (Lewis County) and Kahoka
(Clark County). Substantially all of Palmyra Saving's depositors live in
Lewis, Clark and Marion Counties and most of Palmyra Saving's loans are secured
by properties located in these counties. Lewis, Clark and Marion Counties are
rural counties that historically have had higher unemployment and lower income
than the rest of Missouri and the U.S. Service industries represent the largest
group of employers in Lewis and Marion Counties, while farm-related businesses
were the largest employers in Clark County. Manufacturing employment is most
significant in Marion County. Industries located in the region include
chemicals, automobile parts, electric utilities, and state and local government.
Palmyra Saving focuses on serving customers in the rural northeastern
Missouri counties of Marion, Lewis and Clark, which currently have an aggregate
population of approximately 45,000 distributed among approximately 18,000
households. The average unemployment rate for these three counties was
approximately 5.1% in July 1998, which exceeded both the Missouri rate of 4.4%
and the U.S. rate of 4.7%. The average median household income for the three
counties was approximately $31,000, which is less than the Missouri average of
approximately $36,100 and the U.S. average of approximately $38,100.
Furthermore, the average per capita income for the three counties was
approximately $14,000, which is also less than the Missouri average of
approximately $17,300 and the U.S. average of approximately $18,400.
COMPETITION
Palmyra Saving faces intense competition in its primary market area for the
attraction of deposits and in the origination of loans. Its most direct
competition for deposits has historically come from the several commercial banks
operating in Palmyra Saving's primary market area and, to a lesser extent, from
other financial institutions, such as brokerage firms and insurance companies.
Particularly in times of high interest rates, Palmyra Saving has faced
additional significant competition for investors' funds from short-term money
market securities and other corporate and government securities. Palmyra
Saving's competition for loans comes primarily from the commercial banks
operating in its primary market area. Competition for deposits and the
origination of loans may limit Palmyra Saving's growth in the future. See "Risk
Factors -- Competition Has Hurt Palymra Saving's Net Interest Income."
47
<PAGE>
LENDING ACTIVITIES
GENERAL. At September 30, 1998, Palmyra Saving's net loans receivable
totaled $40.5 million, or 68.1% of total assets. Palmyra Saving has concentrated
its lending activities on one- to four-family mortgage loans, with these loans
amounting to 88.9% of loans at September 30, 1998. Palmyra Saving also
originates multi-family, commercial real estate, land and residential
construction loans, as well as loans secured by savings accounts. In addition,
Palmyra Saving purchases participation interests in residential mortgage loans
that are primarily non-owner secured by non-owner-occupied duplex properties,
multi-family and commercial real estate loans. Purchased loan interests amounted
to $8.6 million, or 21.2% of net loans, at September 30, 1998. A substantial
portion of Palmyra Saving's mortgage loan portfolio is secured by real estate
located in Missouri.
LOAN PORTFOLIO ANALYSIS. The following table sets forth the composition of
Palmyra Saving's loan portfolio at the dates indicated. Palmyra Saving had no
concentration of loans exceeding 10% of total loans receivable other than as
disclosed below.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------------------------------------------------------
1998 1997
------------------------------ ------------------------------
AMOUNT PERCENT AMOUNT PERCENT
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Mortgage loans:
One- to four-family....................................... $36,801 88.91% $34,580 87.42%
Multi-family.............................................. 806 1.95 958 2.42
Commercial................................................ 2,073 5.01 1,834 4.64
Construction.............................................. 876 2.12 1,452 3.67
Land...................................................... 420 1.01 290 0.74
------- ------ ------- ------
Total mortgage loans.................................. 40,976 99.00 39,114 98.89
Consumer loans:
Education loans........................................... 98 0.24 124 0.31
Savings account loans..................................... 305 0.74 304 0.77
Other..................................................... 10 0.02 13 0.03
------- ------ ------- ------
Total consumer loans.................................. 413 1.00 441 1.11
------- ------ ------- ------
Total loans, gross.................................... 41,389 100.00% 39,555 100.00%
====== ======
Less:
Undisbursed loan funds.................................... 592 899
Allowance for loan losses................................. 280 255
Deferred loan fees........................................ 4 7
------- -------
Loan receivable, net.................................. $40,513 $38,394
======= =======
</TABLE>
ONE- TO FOUR-FAMILY REAL ESTATE LOANS. Palmyra Saving's primary lending
activity is the origination of loans secured by one- to four-family residences
located in its market area. Palmyra Saving also purchases participation
interests in one- to four-family mortgage loans that are primarily secured by
non-owner-occupied duplex properties located in other areas of Missouri. At
September 30, 1998, $36.8 million, or 88.9%, of Palmyra Saving's total loans
consisted of one- to four-family loans, of which $6.9 million were purchased
loans. All one- to four-family mortgage loans are held in Palmyra Saving's
portfolio for long-term investment.
48
<PAGE>
Palmyra Saving's residential mortgage loans are structured as either
three- or five-year balloon loans with terms up to 30 years, or 20 years for
non-owner occupied properties. The interest rate, fixed for the balloon term, is
established by Palmyra Saving after an assessment of rates offered by
competitors. The borrower is notified in writing 30 days before the end of the
balloon term of the new interest rate that will be effective at the maturity of
the balloon term. If the borrower accepts the new rate, a modification agreement
is executed for another balloon term with an amortization schedule equal to the
original amortization term less the prior balloon term(s). Palmyra Saving's
residential mortgage loans do not have any annual interest rate adjustment
limits, but have a lifetime interest rate adjustment limit of 6%. Palmyra Saving
charges a prepayment penalty of 2% of the outstanding principal balance if a
loan that has been outstanding five years or less is paid off before maturity.
Missouri law prohibits Palmyra Saving from charging a prepayment penalty on a
loan that has been outstanding for more the five years. Palmyra Saving's
residential mortgage loans are generally underwritten, but not documented,
according to secondary market guidelines.
To a limited extent, Palmyra Saving originates mortgage loans secured by
non-owner occupied residential properties. These loans are generally secured by
second residences located on or near a recreational lake located in southern
Clark County, Missouri, which is located approximately 12 miles northwest of
Canton. These loans are made on the same general terms as loans secured by owner
occupied properties, except that loan-to-value ratios are limited to up to 65%
and the terms are limited to up to 20 years.
The retention of balloon loans in Palmyra Saving's loan portfolio, which
through the use of modification agreements function like adjustable rate
mortgage loans, helps reduce Palmyra Saving's exposure to changes in interest
rates. There are, however, unquantifiable credit risks resulting from the
potential of increased costs due to changed rates to be paid by the borrower. It
is possible that during periods of rising interest rates the risk of default on
adjustable rate mortgage loans may increase as a result of repricing and the
increased payments required by the borrower. In addition, although adjustable
rate mortgage loans allow Palmyra Saving to increase the sensitivity of its
asset base to changes in interest rates, the extent of this interest sensitivity
is limited by the annual and lifetime interest rate adjustment limits. Because
of these considerations Palmyra Saving has no assurance that yields on
adjustable rate mortgage loans will be sufficient to offset increases in Palmyra
Saving's cost of funds. Palmyra Saving believes these risks, which have not had
a material adverse effect on Palmyra Saving to date, generally are less than the
risks associated with holding fixed-rate loans in portfolio during a rising
interest rate environment.
Palmyra Saving generally requires an acceptable attorney's opinion on the
status of its lien on all loans where real estate is the primary source of
security. Palmyra Saving also requires that fire and casualty insurance and, if
appropriate, flood insurance be maintained in an amount at least equal to the
outstanding loan balance.
Palmyra Saving's one- to four-family residential mortgage loans typically
do not exceed 80% of the appraised value of the security property. According to
underwriting guidelines adopted by Palmyra Saving's Board of Directors, Palmyra
Saving can lend up to 95% of the appraised value of the property securing a one-
to- four family residential loan. Generally, Palmyra Saving self insures the
portion of the principal amount between 80% and 90% of the appraised value of
the security property and requires private mortgage insurance on the portion of
the principal amount that exceeds 90% of the appraised value of the security
property. An independent certified appraiser appraises all non-owner occupied
properties and properties located outside of Palmyra Saving's primary market
area. Otherwise appraisals are performed by either Eldon R. Mette, Palmyra
Saving's Executive Vice President, or L. Edward Schaeffer, Palmyra Saving's
Chairman of the Board and President. Only Mr. Schaeffer is a certified
appraiser. If Mr. Mette or Mr. Schaeffer performs the property appraisal, he
will abstain from voting on the loan application.
Currently, Palmyra Saving does not offer fixed-rate residential mortgage
loans. Palmyra Saving originates only adjustable rate mortgage loans and most of
the residential mortgage loans that it purchases are also adjustable rate
mortgage loans. After the conversion, Palmyra Saving plans to implement a
program for offering longer term fixed-rate mortgage loans as well as
traditional
49
<PAGE>
adjustable rate mortgage loans with interest rates tied to a nationally
recognized index such as the U.S. Treasury Bill rate. Palmyra Saving intends to
hold fixed-rate mortgage loans for long-term investment.
MULTI-FAMILY AND COMMERCIAL REAL ESTATE LOANS. Palmyra Saving occasionally
originates and purchases mortgage loans for the acquisition and refinancing of
multi-family and commercial real estate properties. At September 30, 1998,
$806,000, or 2.0%, of Palmyra Saving's total loans consisted of loans secured
by multi-family residential property, all of which are purchased participation
interests secured by properties located in Missouri, and $2.1 million, or 5.0%,
of Palmyra Saving's total loans consisted of loans secured by commercial real
estate, $863,000 of which are purchased participation interests. All purchased
participation interests are underwritten according to the same standards that
Palmyra Saving would use if it were originating the underlying loans. Palmyra
Saving has no written or oral commitments with any institution to purchase a
predetermined number or type of participation interests.
At September 30, 1998, Palmyra Saving's commercial real estate loans are
secured by churches, storefronts and a restaurant, all located in Missouri, and
a strip shopping center located in Florida. At September 30, 1998, Palmyra
Saving's largest multi-family or commercial real estate loan that Palmyra
Saving originated was $119,000 and is secured by a restaurant. The largest
purchased multi-family or commercial real estate participation interest had an
outstanding balance of $414,000 at September 30, 1998 and is secured by a strip
shopping center located in Port Richey, Florida. At September 30, 1998, this
loan was designated "special mention." See "-- Asset Classification" for further
information.
All multi-family loans and commercial real estate loans originated by
Palmyra Saving are three- or five-year adjustable rate balloon loans with terms
of up to 20 years. Multi-family loans and commercial real estate loans purchased
by Palmyra Saving are also adjustable rate loan generally indexed to the prime
rate and with terms of up to 25 years. Palmyra Saving requires appraisals of all
properties securing multi-family loans and commercial real estate loans. If the
property is located outside of Palmyra Saving's primary market area, appraisals
are performed by an independent appraiser designated by Palmyra Saving, all of
which are reviewed by management. Otherwise, appraisals are prepared by either
Mr. Mette or Mr. Schaeffer as described above.
Multi-family and commercial real estate lending affords Palmyra Saving an
opportunity to receive interest at rates higher than those generally available
from one- to four-family residential lending. However, loans secured by these
properties usually are greater in amount and are more difficult to evaluate and
monitor and, therefore, involve a greater degree of risk than one- to four-
family residential mortgage loans. Because payments on loans secured by income
producing properties are often dependent on the successful operation and
management of the properties, repayment of these loans may be affected by
adverse conditions in the real estate market or the economy. Palmyra Saving
seeks to minimize these risks by limiting the maximum loan-to-value ratio to up
to 80% for multi-family loans (75% for commercial real estate loans) and
strictly scrutinizing the financial condition of the borrower, the cash flow of
the project, the quality of the collateral and the management of the property
securing the loan. Palmyra Saving also obtains loan guarantees from financially
capable parties based on a review of personal financial statements.
RESIDENTIAL CONSTRUCTION LOANS. Palmyra Saving originates residential
construction loans to local home builders and to individuals for the
construction and acquisition of their personal residence. At September 30, 1998,
residential construction loans amounted to $876,000, or 2.1% of Palmyra Saving's
total loans.
Palmyra Saving's construction loans to builders generally have fixed
interest rates and are for a term of six months. Loans to builders are typically
made with a maximum loan to value ratio of 80%. These loans are usually made to
the builder before there is an identified buyer for the completed home. Palmyra
Saving lends to approximately eight builders with whom it has long standing
relationships and limits each builder to no more than three homes under
construction at a time. At September 30, 1998, the largest amount of
construction loans outstanding to one builder was $102,000, all of which was for
speculative construction. Construction loans to individuals are made on the same
terms as Palmyra
50
<PAGE>
Saving's one- to four-family mortgage loans, but provide for the payment of
interest only during the construction phase, which is usually six months. At the
end of the construction phase, the loan converts to a permanent mortgage
loan.
Prior to making a commitment to fund a construction loan, Palmyra Saving
requires an appraisal of the property by a staff appraiser. Palmyra Saving also
reviews and inspects each project prior to disbursement of funds during the term
of the construction loan. Loan proceeds are disbursed after inspection of the
project based on percentage of completion.
Construction lending affords Palmyra Saving the opportunity to earn higher
interest rates with shorter terms to maturity relative to single-family
permanent mortgage lending. Construction lending, however, is generally
considered to involve a higher degree of risk than single-family permanent
mortgage lending because of the inherent difficulty in estimating both a
property's value at completion of the project and the estimated cost of the
project. These loans are generally more difficult to evaluate and monitor. If
the estimate of construction cost proves to be inaccurate, Palmyra Saving may be
required to advance funds beyond the amount originally committed to permit
completion of the project. If the estimate of value upon completion proves to be
inaccurate, Palmyra Saving may be confronted with a project whose value is
insufficient to assure full repayment. Projects may also be jeopardized by
disagreements between borrowers and builders and by the failure of builders to
pay subcontractors. Loans to builders to construct homes for which no purchaser
has been identified carry more risk because the payoff for the loan is dependent
on the builder's ability to sell the property prior to the time that the
construction loan is due.
Palmyra Saving has attempted to minimize the foregoing risks by, among
other things, limiting its construction lending to residential properties. It is
also Palmyra Saving's general policy to obtain regular financial statements
from builders so that it can monitor their financial strength.
LAND LOANS. Palmyra Saving occasionally originates loans secured by
unimproved land, including small residential subdivisions in Palmyra Saving's
primary market area. These loans have terms of three to 20 years and generally
have adjustable interest rates. At September 30, 1998, land loans totaled
$420,000, or 1.0% of total loans. The largest land loan at that date was
$101,000.
CONSUMER LOANS. Historically, Palmyra Saving's consumer lending
activities have been limited to guaranteed education loans and savings account
loans. At September 30, 1998, consumer loans amounted to $413,000, or 1.0% of
total loans. Palmyra Saving does not expect to become an active consumer lender,
but intends to begin engaging, to a limited extent, in direct mobile home
lending without the security of the underlying real estate. Currently, Palmyra
Saving engages in a limited amount of direct mobile home lending but only with
the security of the underlying real estate.
Palmyra Saving originates insured education loans to out-of-state residents
attending school in Missouri or to Missouri residents attending school outside
of Missouri under federally sponsored programs. Palmyra Saving receives
quarterly interest payments from the U.S. government on the outstanding loan
while the borrower is attending school. When the borrower is required to repay
the loan after graduation, Palmyra Saving sells the loan at par to the Missouri
Higher Education Loan Authority.
Palmyra Saving also offers loans secured by savings deposits at Palmyra
Saving. Generally, these loans are made at an interest rate that is 3% above
the account rate for up to 90% of the account balance and for a term of up to
five years. If the loan is secured by a certificate of deposit, the loan term is
generally matched with remaining term on the certificate.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of loans that are unsecured or secured by rapidly
depreciating assets such as automobiles. In these 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.
51
<PAGE>
LOANS TO ONE BORROWER. The maximum amount that Palmyra Saving may lend to
one borrower is limited by federal regulations. At September 30, 1998, Palmyra
Saving's regulatory limit on loans to one borrower was $944,000. At that date,
Palmyra Saving's largest amount of loans to one borrower, including the
borrower's related interests, was $582,000 and consisted of residential mortgage
loans. These loans were performing according to their original terms at
September 30, 1998.
MATURITY OF LOAN PORTFOLIO. The following table sets forth certain
information at September 30, 1998, regarding the dollar amount of loans maturing
in Palmyra Saving's portfolio based on their contractual terms to maturity, but
does not include potential prepayments. Demand loans, loans having no stated
schedule of repayments and no stated maturity, and overdrafts are reported as
becoming due within one year. Loan balances do not include undisbursed loan
proceeds, unearned discounts, unearned income and allowance for loans losses.
For purposes of the table, the contractual maturities of Palmyra Saving's
three- and five-year balloon mortgage loans are reported over their respective
amortization periods up to 30 years rather than as maturing at the end of the 3-
year or 5-year balloon term. Given Palmyra Saving's experience with its
borrowers, Palmyra Saving believes this presentation is appropriate.
<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
------------ ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Mortgage loans:
One- to four-family............................ $1,768 $3,189 $3,195 $8,095 $20,554 $36,801
Multi-family................................... 25 58 68 225 430 806
Commercial..................................... 237 460 208 492 676 2,073
Construction................................... 876 -- -- -- -- 876
Land........................................... 256 22 20 45 77 420
Consumer loans:
Education...................................... 65 33 -- -- -- 98
Savings account loans.......................... 144 49 38 31 43 305
Other.......................................... 3 6 1 -- -- 10
------ ------ ------ ------ ------- -------
Total...................................... $3,374 $3,817 $3,530 $8,888 $21,780 $41,389
====== ====== ====== ====== ======= =======
</TABLE>
The following table sets forth the dollar amount of all loans due after
September 30, 1999, which have fixed interest rates and have floating or
adjustable interest rates.
<TABLE>
<CAPTION>
FLOATING-
OR
FIXED- ADJUSTABLE-
RATE RATES
------------ -------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Mortgage loans:
One- to four-family............................. $382 $34,651
Multi-family.................................... -- 780
Commercial...................................... 274 1,563
Land............................................ 2 162
Consumer loans:
Education....................................... 33 --
Savings account loans........................... 161 --
Other........................................... 7 --
---- -------
Total....................................... $859 $37,156
==== =======
</TABLE>
52
<PAGE>
Scheduled contractual principal repayments of loans do not reflect the
actual life of the loans. The average life of a loan is substantially less than
its contractual term because of prepayments. In addition, due-on-sale clauses on
loans generally give Palmyra Saving the right to declare loans immediately due
and payable in the event, among other things, that the borrower sells the real
property with the mortgage and the loan is not repaid. The average life of a
mortgage loan tends to increase, however, when current mortgage loan market
rates are substantially higher than rates on existing mortgage loans and,
conversely, tends to decrease when rates on existing mortgage loans are
substantially higher than current mortgage loan market rates.
LOAN SOLICITATION AND PROCESSING. Palmyra Saving's lending activities
follow written, non-discriminatory, underwriting standards and loan origination
procedures established by Palmyra Saving's Board of Directors and management.
Loan originations come from a number of sources. The customary sources of loan
originations are realtors, referrals and existing customers. Palmyra Saving does
not utilize mortgage brokers or other third-party originators. All loans are
approved by Palmyra Saving's Board of Directors except for savings account
loans which may be approved by a branch manager.
LOAN ORIGINATIONS, PURCHASES AND SALES. Palmyra Saving primarily
originates three- and five-year balloon mortgage loans with amortization terms
of up to 30 years. Occasionally, Palmyra Saving originates fully amortizing
fixed rate loans with terms of less than five years.
Palmyra Saving generally retains for its portfolio all of the loans that it
originates and purchases. Occasionally, Palmyra Saving purchases participation
interests in one- to- four family mortgage loans that are primarily secured by
non-owner-occupied duplex properties, multi-family loans and commercial real
estate loans. Generally, Palmyra Saving limits its participation interest in a
loan to up to 80%. In the case of participations in one- to- four family
mortgage loans, Palmyra Saving participates 80% and the lead lender retains the
servicing rights. Palmyra Saving pays no fee on the loans it purchases.
Palmyra Saving holds all loans for long-term investment purposes, except
for government guaranteed student loans which are sold to the Missouri Higher
Education Loan Authority at par when the borrower is required to begin repaying
the loan.
53
<PAGE>
The following table sets forth total loans originated, purchased, sold and
repaid during the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------
1998 1997
---------------- ------------------
<S> <C> <C>
(IN THOUSANDS)
Total loans receivable, net, at beginning of period.............................. $ 38,394 $ 37,259
Loans originated:
Mortgage loans:
One- to four family........................................................... $ 8,742 $ 9,367
Commercial.................................................................... 408 206
Construction.................................................................. 1,010 1,778
Land.......................................................................... 192 48
-------- --------
Total mortgage loans...................................................... 10,352 11,399
Consumer loans:
Education..................................................................... 89 73
Savings account............................................................... 181 171
Other......................................................................... 13 20
-------- --------
Total consumer loans...................................................... 283 264
-------- --------
Total loans originated.................................................. 10,635 11,663
Loans purchased:
One- to four-family........................................................... 2,654 925
Multi-family.................................................................. 83 --
Construction.................................................................. 51 179
-------- --------
Total loans purchased..................................................... 2,788 1,104
Loans sold:
Education..................................................................... (114) (124)
Principal repayments............................................................. (11,475) (11,001)
Increase (decrease) in other items, net.......................................... 285 (507)
-------- --------
Net increase (decrease) in loans receivable, net................................. 2,119 1,135
-------- --------
Total loans receivable, net, at end of period.................................... $ 40,513 $ 38,394
======== ========
</TABLE>
The relatively high level of loan principal repayments in 1998 and 1997
reflects the high loan refinancing activity associated with low market interest
rates. As a result of borrowers refinancing at lower interest rates, Palmyra
Saving's interest rate spread decreased from 2.34% in 1997 to 2.24% in 1998 and
its interest rate margin deceased from 2.70% in 1997 to 2.62% in 1998.
LOAN COMMITMENTS. Palmyra Saving issues commitments for mortgage loans
conditioned upon the occurrence of certain events. Commitments are made in
writing on specified terms and conditions and are honored for up to 30 days from
approval. At September 30, 1998, Palmyra Saving had loan commitments totaling
$630,000, not including undisbursed portions of mortgage loans and consumer
loans of $620,000. See Note L of the Notes to Consolidated Financial Statements
included in the back of this prospectus.
LOAN FEES. In addition to interest earned on loans, Palmyra Saving
receives income from fees in connection with loan originations, loan
modifications, late payments and for miscellaneous services related
54
<PAGE>
to its loans. Income from these activities varies from period to period
depending upon the volume and type of loans made and competitive conditions.
Palmyra Saving charges loan origination fees for fixed-rate loans which are
calculated as a percentage of the amount borrowed. In accordance with applicable
accounting procedures, loan origination fees and discount points in excess of
loan origination costs are deferred and recognized over the contractual
remaining lives of the related loans on a level yield basis. Discounts and
premiums on loans purchased are accreted and amortized in the same manner. At
September 30, 1998, Palmyra Saving had $4,000 of deferred loan fees. Palmyra
Saving recognized $3,000 and $3,600 of deferred loan fees during the years ended
September 30, 1998 and 1997, respectively, in connection with loan refinancings,
payoffs, sales and ongoing amortization of outstanding loans.
NONPERFORMING ASSETS AND DELINQUENCIES. All loan payments are due on the
first day of each month. When a borrowers fails to make a required loan payment,
Palmyra Saving attempts to cure the deficiency by contacting the borrower and
seeking the payment. A late notice is mailed on the fifth day of the month and a
second late notice is mailed on the 15th day of the month. In most cases,
deficiencies are cured promptly. If a delinquency continues beyond the 25th day
of the month, additional contact is made either through additional notices or
other means and Palmyra Saving will attempt to work out a payment schedule.
While Palmyra Saving generally prefers to work with borrowers to resolve the
problems, Palmyra Saving will institute foreclosure or other proceedings, as
necessary, to minimize any potential loss.
Palmyra Saving's Board of Directors is informed monthly of the amounts of
loans delinquent more than 60 days, all loans in foreclosure and all foreclosed
and repossessed property owned by Palmyra Saving.
Palmyra Saving ceases accruing interest on mortgage loans when, in the
judgment of management, the probability of collection of interest is deemed to
be insufficient to warrant further accrual. Palmyra Saving does not accrue
interest on mortgage loans past due 90 days or more when the estimated value of
collateral and collection efforts are deemed insufficient to ensure full
recovery. In the case of consumer loans, Palmyra Saving continues to accrue
interest even if the loan is past due 90 days or more as the risk of loss to
Palmyra Saving is minimal because Palmyra Saving's consumer loan portfolio
consists primarily of government guaranteed education loans and savings account
loans.
The following table sets forth information with respect to Palmyra Saving's
nonperforming assets at the dates indicated. Palmyra Saving had no restructured
loans within the meaning of Statement of Financial Accounting Standards No. 15
at the dates indicated.
55
<PAGE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
----------------------------------------
1998 1997
---------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Loans accounted for on a nonaccrual basis:
Mortgage loans:
One- to four-family........................................................... $ 196 $ 181
Commercial.................................................................... 23 --
----- -----
Total mortgage loans........................................................ 219 181
Consumer loans................................................................... -- --
----- -----
Total......................................................................... 219 181
Accruing loans contractually past due 90 days or more............................ -- --
----- -----
Total of nonaccrual and 90 days past due loans................................... 219 181
Real estate owned................................................................ -- --
----- -----
Total nonperforming assets.................................................. $ 219 $ 181
===== =====
Nonaccrual and 90 days or more past due loans
as a percentage of loans receivable, net...................................... 0.54% 0.47%
Nonaccrual and 90 days or more past due loans
as a percentage of total assets............................................... 0.37% 0.31%
Nonperforming assets as a percentage of total assets............................. 0.37% 0.31%
</TABLE>
Interest income that would have been recorded for 1998 had nonaccruing
loans been current in accordance with their original terms amounted to
approximately $22,000. The amount of interest included in interest income in
1998 on these loans amounted to approximately $7,000.
REAL ESTATE OWNED. Real estate acquired by Palmyra Saving as a result of
foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned
until sold. When property is acquired it is recorded at fair market value at the
date of foreclosure. Subsequent to foreclosure, real estate owned is carried at
the lower of the foreclosed amount or fair value, less estimated selling costs.
At September 30, 1998, Palmyra Saving had no real estate owned.
ASSET CLASSIFICATION. The Office of Thrift Supervision 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, Office of Thrift Supervision examiners have authority to identify
problem assets and, if appropriate, require them to be classified. There are
three classifications for problem assets: substandard, doubtful and loss.
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Doubtful assets have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset classified as loss is considered uncollectible and of such little value
that continuance as an asset of the institution is not warranted. If an asset or
portion thereof is classified as loss, the insured institution establishes
specific allowances for loan losses for the full amount of the portion of the
asset classified as loss. All or a portion of general loan loss allowances
established to cover possible losses related to assets classified substandard or
doubtful can be included in determining an institution's regulatory capital,
while specific valuation allowances for loan losses generally do not qualify as
regulatory capital. Assets that do not currently expose the insured institution
to sufficient risk to warrant classification in one of the aforementioned
categories but possess weaknesses are designated "special mention" and are
monitored by Palmyra Saving.
56
<PAGE>
The aggregate amounts of Palmyra Saving's classified and special mention
assets at the dates indicated were as follows:
<TABLE>
<CAPTION>
At September 30,
----------------
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Classified assets:
Loss.................................. $ -- $ --
Doubtful.............................. -- --
Substandard........................... 219 181
Special mention....................... 432 459
---- ----
$651 $640
==== ====
</TABLE>
At September 30, 1998, assets designated substandard consisted of eight
one- to- four family mortgage loans totalling $196,000 and one commercial real
estate loan for $23,000, and assets designated as special mention consisted of a
one-to- four family mortgage loan for $17,000 and a purchased commercial real
estate loan participation interest for $415,000.
ALLOWANCE FOR LOAN LOSSES. In originating loans, Palmyra Saving 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. Accordingly, 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 operations.
The provision for loan losses is based on management's evaluation of of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specified impaired
loans, and economic conditions.
At September 30, 1998, Palmyra Saving had an allowance for loan losses of
$280,000. Although management believes that it uses the best information
available to establish the allowance for loan losses, 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. Furthermore, while Palmyra
Saving believes it has established its existing allowance for loan losses in
accordance with generally accepted accounting principles, there can be no
assurance that regulators, in reviewing Palmyra Saving's loan portfolio, will
not request Palmyra Saving 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 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 Palmyra Saving's financial condition and results of
operations.
57
<PAGE>
The following table sets forth an analysis of Palmyra Saving's allowance
for loan losses.
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------
1998 1997
---- ----
(Dollars in thousands)
<S> <C> <C>
Allowance at beginning of period............... $255 $234
Provision for loan losses...................... 25 21
Recoveries..................................... -- --
Charge-offs.................................... -- --
---- ----
Allowance at end of period.................. $280 $255
==== ====
Allowance for loan losses as a percentage
of total loans outstanding at the end of the
period......................................... 0.68% 0.64%
Net charge-offs (recoveries) as a percentage
of average loans outstanding during the
period......................................... -- --
Allowance for loan losses as a percentage
of nonperforming loans at end of period........ 127.85% 140.88%
</TABLE>
For additional discussion regarding the provisions for loan losses in
recent periods, see "Management's Discussion And Analysis of Financial Condition
And Results of Operations -- Comparison of Operating Results for the Years Ended
September 30, 1998 and 1997 -- Provision for Loan Losses."
The following table sets forth the breakdown of the allowance for loan
losses by loan category at the dates indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to absorb losses in
any other category.
<TABLE>
<CAPTION>
At September 30,
------------------------------------------
1998 1997
-------------------- --------------------
Percent Percent
of Loans of Loans
in Category in Category
to Total to Total
Amount Loans Amount Loans
------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans:
One- to four-family.................. $145 88.91% $134 87.42%
Multi-family......................... 8 1.95 10 2.42
Commercial........................... 38 5.01 35 4.64
Construction......................... 2 2.12 3 3.67
Land................................. 2 1.01 2 0.74
Consumer................................ -- 1.00 -- 1.11
Unallocated............................. 85 -- 71 --
---- ------ ---- ------
Total allowance for loan losses.. $280 100.00% $255 100.00%
==== ====== ==== ======
</TABLE>
58
<PAGE>
INVESTMENT ACTIVITIES
Palmyra Saving is permitted under federal law to invest in various types of
liquid assets, including U.S. Government obligations, securities of various
federal agencies and of state and municipal governments, deposits at the Federal
Home Loan Bank of Des Moines, certificates of deposit of federally insured
institutions, certain bankers' acceptances and federal funds. Within certain
regulatory limits, Palmyra Saving may also invest a portion of its assets in
commercial paper and corporate debt securities. Savings institutions like
Palmyra Saving are also required to maintain an investment in FHLB stock.
Palmyra Saving is required under federal regulations to maintain a minimum
amount of liquid assets. See "Regulation" and "Management's Discussion And
Analysis of Financial Condition And Results of Operations -- Liquidity and
Capital Resources."
Statement of Financial Accounting Standards 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.
Statement of Financial Accounting Standards 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." These securities are reported at fair value, and
unrealized gains and losses on the securities would be included in earnings.
Palmyra Saving 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." These securities are
reported at fair value, and unrealized gains and losses on the securities are
excluded from earnings and reported, net of deferred taxes, as a separate
component of equity.
All of Palmyra Saving's investment securities carry market risk insofar as
increases in market rates of interest may cause a decrease in their market
value. They also carry prepayment risk insofar as they may be called prior to
maturity in times of low market interest rates, so that Palmyra Saving may have
to invest the funds at a lower interest rate. Palmyra Saving's investment
policy does not permit engaging directly in hedging activities or purchasing
high risk mortgage derivative products. Investments are made based on certain
considerations, which include the interest rate, yield, settlement date and
maturity of the investment, Palmyra Saving's liquidity position, and
anticipated cash needs and sources. The effect that the proposed investment
would have on Palmyra Saving's credit and interest rate risk and risk-based
capital is also considered. Palmyra Saving purchases investment securities to
provide necessary liquidity for day-to-day operations. Palmyra Saving also
purchases investment securities when investable funds exceed loan demand.
59
<PAGE>
The following table sets forth the amortized cost and fair value of Palmyra
Saving's securities, by accounting classification and by type of security, at
the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
----------------------------------------------------------------
1998 1997
------------------------------ ------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Government agency securities $ 7,087 $ 7,087 $ 8,509 $ 8,509
------- ------- ------- -------
Total available for sale 7,087 7,087 8,509 8,509
------- ------- ------- -------
HELD TO MATURITY:
U.S. Government agency securities 4,959 4,995 4,403 4,405
Municipal 630 645 690 702
Mortgage-backed securities 2,584 2,624 2,828 2,871
------- ------- ------- -------
Total held to maturity 8,173 8,264 7,921 7,978
------- ------- ------- -------
Total $15,260 $15,351 $16,430 $16,487
======= ======= ======= =======
</TABLE>
Palmyra Saving purchases mortgage-backed securities when investable funds
exceed loan demand. All of Palmyra Saving's mortgage-backed securities are
issued or guaranteed by agencies of the U.S. Government. Accordingly, they carry
lower credit risk than mortgage-backed securities of a private issuer. However,
mortgage-backed securities carry market risk, the risk that increases in market
interest rates may cause a decrease in market value, and prepayment risk, the
risk that the securities will be repaid prior to maturity and that Palmyra
Saving will have to reinvest the funds at a lower interest rate.
Occasionally, Palmyra Saving invests in municipal obligations of local
entities, such as the water authority, school districts, firehouses and jail.
Generally, these obligations are not rated by a nationally recognized credit
rating service.
At September 30, 1998, Palmyra Saving did not own any securities, other
than U.S. Government and agency securities, which had an aggregate book value in
excess of 10% of Palmyra Saving's retained earnings at that date.
60
<PAGE>
The following table sets forth certain information regarding the carrying
value, weighted average yields and maturities or periods to repricing of Palmyra
Saving's debt securities at September 30, 1998, all of which are available for
sale. Certain U.S. Government agency obligations and municipal obligations are
exempt from state taxation, but their yields have not been computed on a tax
equivalent basis for purposes of the table.
<TABLE>
<CAPTION>
Less Than One to After Five After
One Year Five Years to Ten Years Ten Years Totals
------------------- ------------------- ------------------- ------------------- -------------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government agency
securities............. $635 5.60% $4,317 6.01% $7,094 6.42% -- $ --% $12,046 6.23%
Municipal................ 60 4.60 365 5.06 205 5.55 -- -- 630 5.18
Mortgage-backed
securities.............. -- -- 337 6.65 23 8.90 2,224 7.02 2,584 6.98
-------- ------ ------ -------- -------
Total............. $695 5.52% $5,019 5.98% $7,322 6.41% $2,224 7.02% $15,260 6.31%
======== ====== ====== ======== =======
</TABLE>
61
<PAGE>
DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS
GENERAL. Deposits are the major external source of funds for Palmyra
Saving's lending and other investment activities. In addition, Palmyra Saving
also generates funds internally from loan principal repayments and prepayments
and maturing investment securities. 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. Palmyra Saving may use borrowings from the Federal Home Loan Bank
of Des Moines to compensate for reductions in the availability of funds from
other sources. Presently, Palmyra Saving has no other borrowing
arrangements.
DEPOSIT ACCOUNTS. Nearly all of Palmyra Saving's depositors reside
in Missouri. Palmyra Saving's deposit products include money market accounts,
passbook accounts, and term certificate accounts. Deposit account terms vary
with the principal difference being the minimum balance deposit, early
withdrawal penalties and the interest rate. Palmyra Saving reviews its deposit
mix and pricing weekly. Palmyra Saving does not utilize brokered deposits, nor
has it aggressively sought jumbo certificates of deposit.
Palmyra Saving believes it is competitive in the interest rates it
offers on its deposit products. Palmyra Saving determines the rates paid based
on a number of factors, including rates paid by competitors, Palmyra Saving's
need for funds and cost of funds, borrowing costs and movements of market
interest rates.
In the unlikely event Palmyra Saving is liquidated after the
conversion, depositors will be entitled to full payment of their deposit
accounts before any payment is made to PFSB Bancorp as the sole stockholder of
Palmyra Saving.
The following table sets forth information concerning Palmyra Saving's
time deposits and other interest-bearing deposits at September 30, 1998.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE PERCENTAGE
INTEREST MINIMUM OF TOTAL
RATE TERM CATEGORY AMOUNT BALANCE DEPOSITS
- ---------- ------------ -------------------------------- ------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
3.03% None Passbook accounts $ 10 $ 8,422 15.97%
2.53 None NOW accounts 300 1,792 3.40
3.91 None Money market deposit accounts 1,000 1,275 2.42
Certificates of Deposit
-----------------------
4.48 90 days Fixed-term, fixed-rate 500 551 1.04
4.96 182 days Fixed-term, fixed-rate 1,000 5,040 9.56
5.30 365 days Fixed-term, fixed-rate 1,000 113 0.21
5.35 12 months Fixed-term, fixed-rate 1,000 12,834 24.34
5.25 18 months Fixed-term, fixed-rate 1,000 3 0.01
5.56 30 months Fixed-term, fixed-rate 1,000 7,053 13.38
6.15 60 months Fixed-term, fixed-rate 1,000 15,641 29.67
------- ------
$52,724 100.00%
======= ======
</TABLE>
62
<PAGE>
The following table indicates the amount of Palmyra Saving's jumbo
certificate accounts by time remaining until maturity as of September 30, 1998.
Jumbo certificate accounts have principal balances of $100,000 or more.
<TABLE>
<CAPTION>
CERTIFICATES
MATURITY PERIOD OF DEPOSITS
- --------------- --------------
(IN THOUSANDS)
<S> <C>
Three months or less $ 442
Over three through six months 213
Over six through twelve months 113
Over twelve months 1,398
------
Total $2,166
======
</TABLE>
DEPOSIT FLOW. The following table sets forth the balances, with
interest credited, and changes in dollar amounts of deposits in the various
types of accounts offered by Palmyra Saving between the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-------------------------------------------------------------------------------
1998 1997
---------------------------------------------- -----------------------------
PERCENT PERCENT
OF INCREASE OF
AMOUNT TOTAL (DECREASE) AMOUNT TOTAL
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Passbook accounts............................ $ 8,422 15.97% $ 220 $ 8,202 15.95%
NOW accounts................................. 1,792 3.40 (90) 1,882 3.66
Money market deposits........................ 1,275 2.42 246 1,029 2.00
Fixed-rate certificates maturing:
Within 1 year............... 22,269 42.24 (1,917) 24,186 47.05
After 1 year, but within 2 5,930 11.25 2,157 3,773 7.34
years......................
After 2 years, but within 5 13,036 24.72 696 12,340 24.00
years...................... ------- ------ ------- ------- ------
Total................ $52,724 100.00% $ 1,312 $51,412 100.00%
======= ====== ======= ======= ======
</TABLE>
TIME DEPOSITS BY MATURITIES. The following table sets forth the
amount of time deposits in Palmyra Saving categorized by maturities at September
30, 1998.
<TABLE>
<CAPTION>
AMOUNT DUE
---------------------------------------------------------------------------------
LESS THAN 1 - 2 2 - 3 3 - 4 AFTER
ONE YEAR YEARS YEARS YEARS 4 YEARS TOTAL
---------- --------- --------- --------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CERTIFICATE ACCOUNTS:
4.00 - 4.99%............................... $ 3,148 $ -- $ -- $ -- $ -- $ 3,148
5.00 - 5.99%............................... 19,109 3,685 5,725 1,039 1,251 30,809
6.00 - 6.99%............................... 12 2,245 2,028 1,364 1,629 7,278
------- ------ ------ ------ ------ -------
Total................................... $22,269 $5,930 $7,753 $2,403 $2,880 $41,235
======= ====== ====== ====== ====== =======
</TABLE>
63
<PAGE>
TIME DEPOSITS BY RATES
The following table sets forth the time deposits in Palmyra Saving
classified by rates as of the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
--------------------------------
1998 1997
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
4.00 - 4.99%......................... $ 3,148 $ 444
5.00 - 5.99%......................... 30,809 24,478
6.00 - 6.99%......................... 7,278 15,377
------- -------
Total...................... $41,235 $40,299
======= =======
</TABLE>
DEPOSIT ACTIVITY. The following table sets forth the deposit activity
of Palmyra Saving for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1998 1997
--------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Beginning balance.................... $51,412 $51,391
Net withdrawals (613) (1,974)
before interest credited...........
Interest credited.................... 1,925 1,995
------- -------
Net increase in deposits............. 1,312 21
------- -------
Ending balance....................... $52,724 $51,412
======= =======
</TABLE>
BORROWINGS. Palmyra Saving has the ability to use advances from the
Federal Home Loan Bank of Des Moines to supplement its supply of lendable funds
and to meet deposit withdrawal requirements. The Federal Home Loan Bank of Des
Moines functions as a central reserve bank providing credit for savings
associations and certain other member financial institutions. As a member of the
Federal Home Loan Bank of Des Moines, Palmyra Saving is required to own capital
stock in the Federal Home Loan Bank of Des Moines and is authorized to apply for
advances on the security of the capital stock and certain of its mortgage loans
and other assets, principally securities that are obligations of, or guaranteed
by, the U.S. Government or its agencies, provided certain creditworthiness
standards have been met. Advances are made under 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 September 30, 1998, Palmyra Saving had an
available credit line of $16.7 million from the Federal Home Loan Bank of Des
Moines under which Palmyra Saving had outstanding advances of $500,000.
64
<PAGE>
The following tables sets forth certain information regarding Palmyra
Saving's use of Federal Home Loan Bank of Des Moines advances during the periods
and at the dates indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1998 1997
------------- --------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Maximum amount of advances $1,000 $1,000
outstanding at any month end........................................
Approximate average short-term 269 123
advances outstanding................................................
Approximate weighted average rate paid on advances..................... 5.70% 4.76%
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------------------------
1998 1997
------------- --------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Balance outstanding at end of period................................... $ 500 $1,000
Weighted average rate paid on advances................................. 5.74% 6.10%
</TABLE>
SUBSIDIARY ACTIVITIES
Under Office of Thrift Supervision regulations, Palmyra Saving
generally may invest up to 3% of its assets in service corporations, provided
that at least one-half of investment in excess of 1% is used primarily for
community, inner-city and community development projects. In 1981 Palmyra Saving
formed PSA Service Corporation as a wholly-owned subsidiary to sell mortgage
life insurance to Palmyra Saving's borrowers. The corporation also offers safe
deposit box services in Palmyra Saving's Canton branch office.
65
<PAGE>
PROPERTIES
The following table sets forth information relating to Palmyra
Saving's offices as of September 30, 1998.
<TABLE>
<CAPTION>
NET BOOK OWNED/ APPROXIMATE
LOCATION YEAR OPENED Value(1) Leased SQUARE FOOTAGE
- --------- ----------- ---------- -------- --------------
<S> <C> <C> <C> <C>
Main Office 1975 $208,500 Owned 2,816
- -----------
123 W. Lafayette Street
Palmyra, Missouri
Branch Offices 1992 243,700 Owned 2,904
- --------------
600 Washington Street(2)
Canton, Missouri
103 E. Commercial Street 1976 108,500 Owned(3) 4,096(3)
Kahoka, Missouri
</TABLE>
_______________________________
(1) Represents the net book value of land, buildings, furniture, fixtures and
equipment owned by Palmyra Saving.
(2) Location of an automated teller machine.
(3) The Kahoka branch office occupies approximately 1,696 square feet of the
building located at 103 E. Commercial Street. The remaining space is
vacant. Palmyra Saving closed the sale on the branch in December 1998 and
now leases the branch under a 3-year lease at $500 per month. The lease
provides for one-year renewal options. The lease term began on December 14,
1998. Palmyra Saving plans to lease the existing facility until a new
branch office is constructed on real estate that Palmyra Saving owns
located at the corner of Johnson and Exchange Streets in Kahoka. Currently,
Palmyra Saving does not have any definitive plans or timetable for beginning
construction.
PERSONNEL
As of September 30, 1998, Palmyra Saving had 18 full-time employees and
four part-time employees, none of whom is represented by a collective bargaining
unit. Palmyra Saving believes its relationship with its employees is
good.
LEGAL PROCEEDINGS
Periodically, there have been various claims and lawsuits involving Palmyra
Saving, such as claims to enforce liens, condemnation proceedings on properties
in which Palmyra Saving holds security interests, claims involving the making
and servicing of real property loans and other issues incident to Palmyra
Saving's business. Palmyra Saving is not a party to any pending legal
proceedings that it believes would have a material adverse effect on the
financial condition or operations of Palmyra Saving.
MANAGEMENT OF PFSB BANCORP
Directors shall be elected by the stockholders of PFSB Bancorp for
staggered three-year terms, or until their successors are elected and qualified.
PFSB Bancorp's Board of Directors consists of seven persons divided into three
classes, each of which containing approximately one third of the Board. One
class, consisting of James D. Lovegreen, Eldon R. Mette and Donald L. Slavin,
has a term of office expiring at the first annual meeting of stockholders after
their initial election by stockholders; a second class, consisting of L. Edward
Schaeffer and Robert M. Dearing, has a term of office expiring at the second
annual
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meeting of stockholders after their initial election by stockholders; and a
third class, consisting of Glenn J. Maddox and Albert E. Davis, has a term of
office expiring at the third annual meeting of stockholders after their initial
election by stockholders. PFSB Bancorp anticipates that its first annual meeting
of stockholders will be held in January 2000.
The executive officers of PFSB Bancorp are elected annually and serve at
the Board's discretion. The executive officers of PFSB Bancorp are:
<TABLE>
<CAPTION>
NAME POSITION
- ---- --------------------------------------------
<S> <C>
L. Edward Schaeffer.............................. Chairman of the Board
Glenn J. Maddox.................................. Vice Chairman of the Board
Eldon R. Mette................................... President and Chief Executive Officer
Ronald L. Nelson................................. Vice President, Treasurer and
Secretary
</TABLE>
MANAGEMENT OF PALMYRA SAVING
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of Palmyra Saving 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 Palmyra Saving . The
executive officers of Palmyra Saving 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 Palmyra
Saving.
DIRECTORS
<TABLE>
<CAPTION>
DIRECTOR TERM
NAME AGE(1) POSITION HELD WITH PALMYRA SAVING SINCE EXPIRES
- ---- ----------- ------------------------------------- --------- -----------
<S> <C> <C> <C> <C>
L. Edward Schaeffer...... 68 Chairman of the Board 1964 2001
Eldon R. Mette .......... 62 President, Chief Executive Officer 1988 2000
and Director
Glenn J. Maddox.......... 72 Vice Chairman of the Board 1978 1999
Albert E. Davis.......... 62 Director 1990 1999
Robert M. Dearing........ 49 Director 1977 2001
James D. Lovegreen....... 65 Director 1971 2000
Donald L. Slavin......... 72 Director 1962 2000
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
NAME AGE(1) POSITION HELD WITH PALMYRA SAVING
- ---- ----------- -------------------------------------
Ronald L. Nelson......... 45 Vice President, Treasurer and Secretary
</TABLE>
_______________________
(1) As of September 30, 1998.
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BIOGRAPHICAL INFORMATION
Below is certain information regarding the Directors and executive officers
of Palmyra Saving . Unless otherwise stated, each director and executive officer
has held his current occupation for the last five years. There are no family
relationships among or between the directors or executive officers.
L. Edward Schaeffer is a blacksmith.
Eldon R. Mette has been employed with Palmyra Saving since 1969. He
became Executive Vice President in September 1969.
Glenn J. Maddox is a retired supermarket proprietor.
Albert E. Davis is a retired manufacturing firm executive.
Robert M. Dearing is a farmer and stockman.
James D. Lovegreen owns an automobile dealership.
Donald L. Slavin is a retired Chief Engineer of an electric utility.
Ronald L. Nelson has been employed with Palmyra Saving since 1973. He has
served as Vice President and Treasurer since 1978.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The business of Palmyra Saving is conducted through meetings and activities
of the Board of Directors and its committees. During the fiscal year ended
September 30, 1998, the Board of Directors held 24 regular meetings and one
special meeting. No director attended fewer than 75% of the total meetings of
the Board of Directors and of committees on which the director served.
The full Board of Directors acts as an Audit Committee to receive and
review all reports prepared by Palmyra Saving 's external auditor. The Board of
Directors met once in its capacity as Audit Committee during 1998.
The full Board of Directors acts as a Budget Review Committee to review
Palmyra Saving 's annual operating budget. The Board of Directors met once in
its capacity as Budget Review Committee in 1998.
The full Board of Directors acts as a Nominating Committee for the annual
selection of management's nominees for election as directors. The Board of
Directors met once in its capacity as Nominating Committee during 1998.
DIRECTORS' COMPENSATION
Each director of Palmyra Saving , other than the Chairman of the Board of
Palmyra Saving , receives a monthly fee of $265 plus $200 per meeting attended.
The President receives a monthly fee of $265 and $210 per meeting attended.
Following the conversion, directors' fees will continue to be paid by Palmyra
Saving and, initially, no separate fees are expected to be paid for service on
PFSB Bancorp 's Board of Directors.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following information is furnished for Mr.
Mette for the year ended September 30, 1998. No executive officer of Palmyra
Saving received salary and bonus of $100,000 or more during the year ended
September 30, 1998.
<TABLE>
<CAPTION>
Annual Compensation(1)
---------------------------------------------
Name and Other Annual All Other
Position Year Salary Bonus Compensation Compensation
- ----------------- ----- ------- ------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
Eldon R. Mette 1998 $74,450 $3,572 $13,129(2) $6,087(3)
Executive Vice
President
</TABLE>
_____________
(1) Compensation information for the years ended September 30, 1997 and 1996 has
been omitted as Palmyra Saving was not a public company nor a subsidiary of
a public company at that time.
(2) Consists of directors' fees of $7,785 and appraisal fees of $5,344. Does
not include the aggregate amount of perquisites and other personal benefits,
which was less than 10% of the total annual salary and bonus reported.
(3) Consists of employer 401(k) contribution of $1,489, employer paid medical
insurance premiums of $4,064, employer paid disability insurance premiums of
$519 and employer paid term life insurance premiums of $15.
EMPLOYMENT AGREEMENTS. PFSB Bancorp and Palmyra Saving plan to enter into
three-year employment agreements with Eldon R. Mette and Ronald L. Nelson. Under
the employment agreements, the initial salary levels for Messrs. Mette and
Nelson will be $77,250 and $51,500, respectively, which amounts will be paid by
Palmyra Saving and may be increased at the discretion of the Board of Directors
or an authorized committee of the Board. On each anniversary after the starting
date of the employment agreements, the term of the agreements may be extended
for an additional year at the discretion of the Board. The agreements may be
terminated by the Employers at any time, by the executive if he is assigned
duties inconsistent with his initial position, duties, responsibilities and
status, or upon the occurrence of certain events specified by federal
regulations. If the executive's employment is terminated without cause or upon
the executive's voluntary termination following the occurrence of an event
described in the preceding sentence, Palmyra Saving would be required to honor
the terms of the agreement through the expiration of the current term, including
payment of current cash compensation and continuation of employee benefits.
The employment agreements also provide for a severance payment and other
benefits upon involuntary termination of employment in connection with any
change in control of PFSB Bancorp and Palmyra Saving. A severance payment also
will be paid on a similar basis in connection with a voluntary termination of
employment where, subsequent to a change in control, the executive is assigned
duties inconsistent with his position, duties, responsibilities and status
immediately prior to a change in control. The term "change in control" is
defined in the agreement as having occurred when, among other things, a person
other than PFSB Bancorp purchases shares of PFSB Bancorp 's common stock under a
tender or exchange offer for the shares; any person (as that term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) is or
becomes the beneficial owner, directly or indirectly, of securities of PFSB
Bancorp representing 25% or more of the combined voting power of PFSB Bancorp 's
then outstanding securities; the membership of the Board of Directors changes as
the result of a contested election; or shareholders of PFSB Bancorp
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<PAGE>
approve a merger, consolidation, sale or disposition of all or substantially all
of PFSB Bancorp's assets, or a plan of partial or complete liquidation.
The maximum value of the severance benefits under the employment agreement
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 employment
agreements provide that the value of the maximum benefit may be distributed, at
the executive's election, in the form of a lump sum cash payment equal to 2.99
times the executive's average annual compensation for the five years preceding
the effective date of the change in control, or a combination of a cash payment
and continued coverage under the PFSB Bancorp's and Palmyra Saving's health,
life and disability programs for a 36-month period following the change in
control, the total value of which does not exceed 2.99 times the executive's
average annual compensation for the five years preceding the effective date of
the change in control. Assuming that a change in control had occurred at
September 30, 1998 and that Messrs. Mette and Nelson each elected to receive a
lump sum cash payment, Mr. Mette would have been entitled to payments of
approximately $214,000 and Mr. Nelson would have been entitled to approximately
$142,000. 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 must pay a 20% excise tax on the amount of
excess payments, and their employers would not be entitled to deduct the amount
of the excess payments.
The employment agreements restrict the executive's right to compete against
Palmyra Bancorp and Palmyra Saving for a period of one year from the date of
termination of the agreement if he voluntarily terminates employment, except
upon a change in control.
EMPLOYEE SEVERANCE COMPENSATION PLAN. Palmyra Saving's Board of Directors
intends to adopt the Palmyra Savings Employee Severance Compensation Plan to
provide benefits to eligible employees upon a change in control of PFSB Bancorp
or Palmyra Saving. Eligible employees are those with a minimum of two years of
service with Palmyra Saving. Generally, all eligible employees, other than
officers who will enter into separate employment agreements with PFSB Bancorp
and Palmyra Saving, will be eligible to participate in the severance plan. Under
the severance plan, if a change in control of PFSB Bancorp or Palmyra Saving
occurs, eligible employees who are terminated or who terminate employment, but
only upon the occurrence of events specified in the severance plan, within 12
months of the effective date of a change in control will be entitled to a
payment based on years of service with Palmyra Saving with a maximum payment
equal to 26 weeks of compensation, which would be earned after 13 years of
service. In addition, eligible officers and branch managers of Palmyra Saving,
(3 persons) would be eligible to receive a minimum severance payment equal to 12
months of their current compensation. Assuming that a change in control had
occurred at September 30, 1998, and the termination of all eligible employees,
the maximum aggregate payment due under the severance plan would be
approximately $197,000.
SUMMARY OF BENEFITS TO MANAGEMENT FROM THE CONVERSION
Palmyra Saving intends to establish an employee stock ownership plan, a
stock option plan and a management development and recognition plan. The shares
that may be issued under the stock option plan and the management development
and recognition plan may be authorized but unissued shares or treasury shares.
All three plans are discussed in more detail below.
The following table presents the total number and dollar value of the shares
of common stock, assuming 747,500 shares are issued in the conversion at the
maximum of the offering range, which would be acquired by the employee stock
ownership plan and the total value of all shares available for award and
issuance under the stock option plan and the management development and
recognition plan. The table assumes that the value of the shares is the same as
the sales price of the shares in the offering.
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<PAGE>
The table does not include a value for the options because that value will be
equal to the fair market value of the common stock on the day that the options
are granted. As a result, financial gains can be realized under an option only
if the market price of common stock increases.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER ESTIMATED SHARES ISSUED
OF VALUE OF IN THE
SHARES SHARES CONVERSION
------------ ------------ ---------------
<S> <C> <C> <C>
Employee stock ownership plan 59,800 $598,000 8.0%
Management development and recognition
plan awards 29,900 299,000 4.0
Stock options 74,750 -- 10.0
------- -------- ----
Total 164,450 $897,000 22.0%
======= ======== ====
</TABLE>
Additionally, two officers will receive employment agreements that could
provide those individuals with cash payments if they are terminated following a
change in control of PFSB Bancorp or Palmyra Saving. Palmyra Saving also intends
to adopt an employee severance compensation plan that would provide cash
payments to eligible employees following a change in control of PFSB Bancorp or
Palmyra Saving. The employment agreements and severance plan are described in
more detail above.
BENEFITS
GENERAL. Palmyra Saving currently pays 75% of the premiums for medical,
dental, life and disability insurance benefits for full-time employees, after
the employees pay certain deductibles.
401(K) PLAN. Palmyra Saving maintains a 401(k) Salary Reduction Plan and
Trust for the benefit of eligible employees of Palmyra Saving. The plan is
intended to be a tax-qualified plan under the Internal Revenue Code. Employees
of Palmyra Saving who have completed one year of service and who have attained
age 21 are eligible to participate in the plan on the January 1 next following
the date these requirements are satisfied. Participants may contribute up to the
applicable Internal Revenue Service limits to the plan through a salary
reduction election. This limit is $10,000 for the 1999 calendar year. Palmyra
Saving matches participant contributions at the rate of 50% of the first 4% of
the participant's annual contributions.
In addition to employer matching contributions, Palmyra Saving may
contribute a discretionary amount to the 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. Participants are at all times 100% vested in all salary reduction
contributions. Employer matching and profit-sharing contributions vest at the
rate of 100% per year beginning with the completion of three years of service.
For the year ended September 30, 1998, Palmyra Saving incurred total
contribution-related expenses of $9,000 in connection with the plan.
Generally, the investment of plan assets is directed by plan participants.
In connection with the conversion, the investment options available to
participants will be expanded to include the opportunity to direct the
investment of up to 100% of their plan account balance to purchase shares of
PFSB Bancorp 's common stock. A participant in the plan who elects to purchase
common stock in the conversion through the plan will receive the same
subscription priority and will be bound by the same individual purchase
limitations as if the participant had elected to purchase stock using other
funds. See "The Conversion -- Limitations on Purchases of Shares."
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<PAGE>
EMPLOYEE STOCK OWNERSHIP PLAN. Palmyra Saving's Board of Directors has
authorized the adoption of an employee stock ownership plan for employees of
Palmyra Saving to become effective upon the completion of the conversion.
Full-time employees of PFSB Bancorp and Palmyra Saving who have been credited
with at least 1,000 hours of service during a 12-month period and who have
attained age 21 will be eligible to participate in the employee stock ownership
plan.
The employee stock ownership plan intends to purchase 8% of the shares issued
in the conversion. This would range between 44,200 shares, assuming 552,500
shares are issued in the conversion, and 68,770 shares assuming 859,625 shares
are issued in the conversion. It is anticipated that the employee stock
ownership plan will borrow funds from PFSB Bancorp to purchase stock in the
conversion. The loan will equal 100% of the aggregate purchase price of the
common stock. The loan to the employee stock ownership plan will be repaid
principally from Palmyra Saving's contributions to the employee stock ownership
plan and dividends payable on common stock held by the employee stock ownership
plan over the anticipated 10-year term of the loan. The interest rate for the
employee stock ownership plan 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 employee stock ownership plan is unable to acquire
8% of the common stock sold in the offering, it is anticipated that these
additional shares may be acquired following the conversion through open market
purchases.
In any plan year, Palmyra Saving may make additional discretionary
contributions to the employee stock ownership plan 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 PFSB Bancorp. The timing, amount, and manner of 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 employee stock ownership plan 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 employee stock ownership
plan 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 employee stock
ownership plan at the rate of 20% per year, beginning upon the completion of two
years of service. A participant is fully vested at retirement, upon disability
or upon termination of the employee stock ownership plan. Benefits are
distributable upon a participant's retirement, early retirement, death,
disability, or termination of employment. Palmyra Saving's contributions to the
employee stock ownership plan are not fixed, so benefits payable under the
employee stock ownership plan cannot be estimated.
It is anticipated that members of Palmyra Saving's Board of Directors will
serve as trustees of the employee stock ownership plan. The trustees must vote
all allocated shares held in the employee stock ownership plan 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.
Under applicable accounting requirements, compensation expense for a leveraged
employee stock ownership plan is recorded at the fair market value of the
employee stock ownership plan shares when committed to be released to
participants' accounts. See "Pro Forma Data."
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<PAGE>
The employee stock ownership plan must meet the requirements of the Employee
Retirement Income Security Act of 1974, as amended, and the regulations of the
Internal Revenue Service and the Department of Labor. Palmyra Saving intends to
request a determination letter from the IRS regarding the tax-qualified status
of the employee stock ownership plan. Palmyra Saving expects, but cannot
guarantee, that a favorable determination letter will be received by the
employee stock ownership plan.
STOCK OPTION PLAN. The Board of Directors of PFSB Bancorp intends to adopt the
stock option plan and to submit the it to the stockholders for approval at a
meeting held no earlier than six months following the conversion. Under current
Office of Thrift Supervision regulations, the approval of a majority vote of
PFSB Bancorp's outstanding shares is required for implementation of the stock
option plan within one year after the conversion. The stock option plan will
comply with all applicable regulatory requirements. However, the stock option
plan will not be approved or endorsed by the Office of Thrift Supervision.
The stock option plan will be designed to attract and retain qualified
management personnel and nonemployee directors, to provide officers, key
employees and nonemployee directors with a proprietary interest in PFSB Bancorp
as an incentive to contribute to the success of PFSB Bancorp and Palmyra
Saving, and to reward officers and key employees for outstanding performance.
The stock option plan will provide for the grant of incentive stock options
intended to comply with the requirements of the Internal Revenue Code and for
nonqualified stock options. Upon receipt of stockholder approval of the stock
option plan, stock options may be granted to key employees of PFSB Bancorp and
its subsidiaries, including Palmyra Saving. The stock option plan will continue
in effect for a period of ten years from the date the stock option plan is
approved by stockholders, unless terminated earlier.
A number of authorized shares of common stock equal to 10% of the number of
shares of common stock issued with the conversion will be reserved for future
issuance under the stock option plan. This would range from 55,250 shares,
asuming 552,500 shares are issued in the conversion, to 85,962 shares, assuming
869,625 shares are issued in the conversion. Shares acquired upon exercise of
options will be authorized but unissued shares or treasury shares. If a stock
split, reverse stock split, stock dividend, or similar event occurs, the number
of shares of common stock under the stock 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 stock option plan committee to reflect the increase or decrease
in the total number of shares of common stock outstanding.
The stock option plan will be administered and interpreted by a committee of
the Board of Directors of PFSB Bancorp. According to applicable Office of
Thrift Supervision regulations, the committee will determine which nonemployee
directors, officers and key employees will be granted options, whether, in the
case of officers and employees, the number of shares represented by each option,
and the exercisability of options. All options granted to nonemployee directors
will be non-qualified stock options. The per 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.
Under current Office of Thrift Supervision regulations, if the stock option
plan is implemented within one year of the conversion, no officer or employees
could receive an award of options covering in excess of 25%, no nonemployee
director could receive in excess of 5%, and nonemployee directors, as a group,
could not receive in excess of 30% of the number of shares reserved for issuance
under the stock option plan.
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<PAGE>
It is anticipated that all options will be granted according to a vesting
schedule so that the options become exercisable over a specified period
following the date of grant. Under Office of Thrift Supervision regulations, if
the stock option plan is implemented within the first year following the
conversion the minimum vesting period will be five years. All unvested options
will be immediately exercisable upon the recipient's death or disability.
Unvested options also will be exercisable following a change in control, as
defined in the stock option plan, of PFSB Bancorp or Palmyra Saving to the
extent authorized or not prohibited by applicable law or regulations. Under
current Office of Thrift Supervision regulations, if the stock option plan is
implemented prior to the first anniversary of the conversion, vesting may not be
accelerated upon a change in control of PFSB Bancorp or Palmyra Saving.
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, or one year if the optionee's
termination results from death or disability, unless the stock option committee
extends the time period. 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 or two years upon a nonemployee
director's death or disability) following the termination of a nonemployee
director's service on 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 incentive stock option s and non-qualified stock option s is
different. For incentive stock options, 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 PFSB Bancorp as a result of the grant or exercise of an
incentive stock option, unless the optionee fails to satisfy the holding period
requirements. For non-qualified stock option s, the grant generally is not a
taxable event for the optionee and no tax deduction will be available to PFSB
Bancorp. However, upon exercise , 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
PFSB Bancorp will be entitled to a compensation expense deduction in the amount
of income realized by the optionee.
Under generally accepted accounting principles, compensation expense is
generally not recognized upon the award of options to officers and employees of
PFSB Bancorp and its subsidiaries. However, the Financial Accounting Standards
Board recently indicated that it would propose rules during 1999 that would
generally require recognition of compensation expense with respect to awards
made to non-employees, including non-employee directors of PFSB Bancorp, and
that the proposed changes would apply to awards made after December 15, 1998.
Although no specific award determinations have been made at this time, PFSB
Bancorp and Palmyra Saving anticipate that if stockholder approval is obtained
it would provide awards to its directors, officers and employees to the extent
and under terms and conditions permitted by applicable regulations. The size of
individual awards will be determined prior to submitting the stock option plan
for stockholder approval, and disclosure of anticipated awards will be included
in the proxy materials for the meeting.
MANAGEMENT RECOGNITION PLAN. The Board of Directors of PFSB Bancorp intends
to adopt the PFSB Bancorp, Inc. Management Development and Recognition Plan, a
restricted stock plan, for officers, employees, and nonemployee directors of
PFSB
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Bancorp and Palmyra Saving, and to submit it to the stockholders for approval
at a meeting held no earlier than six months following the conversion. The plan
will enable PFSB Bancorp and Palmyra Saving to provide participants with a
proprietary interest in PFSB Bancorp as an incentive to contribute to the
success of PFSB Bancorp and Palmyra Saving. Persons who are awarded stock under
the plan will not have to pay for the stock. Furthermore, some or all of the
persons who receive awards under the management development and recognition plan
will also be granted options under the stock option plan. The plan will comply
with all applicable regulatory requirements. However, the plan will not be
approved or endorsed by the Office of Thrift Supervision. Under current Office
of Thrift Supervision regulations, the approval of a majority vote of PFSB
Bancorp's outstanding shares is required for implementation of the plan within
one year after the conversion.
The plan intends to acquire a number of shares of PFSB Bancorp's common stock
equal to 4% of the common stock issued in the conversion. This would range from
22,100 shares, assuming 552,500 shares are issued in the conversion, to 34,385
shares, assuming 859,625 shares are issued in the conversion. The shares will be
acquired on the open market, if available, with funds contributed by PFSB
Bancorp or Palmyra Saving to a trust which PFSB Bancorp may establish in
conjunction with the plan or from authorized but unissued shares or treasury
shares of PFSB Bancorp.
A committee of the Board of Directors of PFSB Bancorp will administer the
management development and recognition plan , the members of which will also
serve as trustees for the plan, if a trust is formed. The trustees will be
responsible for the investment of all funds contributed by PFSB Bancorp or
Palmyra Saving to the trust. The Board of Directors of PFSB Bancorp may
terminate the plan at any time and, upon termination, all unallocated shares of
common stock will revert to PFSB Bancorp .
Shares of common stock granted under the plan will be in the form of
restricted stock payable ratably over a specified vesting period following the
date of grant. During the period of restriction, all shares will be held in
escrow by PFSB Bancorp or by the plan. Under Office of Thrift Supervision
regulations, if the management development and recognition plan is implemented
within the first year following the conversion, the minimum vesting period will
be five years. All unvested awards will vest upon the recipient's death or
disability. Unvested management development and recognition plan awards will
also vest following a change in control, as defined in the plan, of PFSB Bancorp
or Palmyra Saving to the extent authorized or not prohibited by applicable law
or regulations. Office of Thrift Supervision regulations currently provide that,
if the management development and recognition plan is implemented prior to the
first anniversary of the conversion, vesting may not be accelerated upon a
change in control of PFSB Bancorp or Palmyra Saving.
A recipient of a plan award in the form of restricted stock generally will not
recognize income upon an award of shares of common stock, and PFSB Bancorp will
not be entitled to a federal income tax deduction, until the termination of the
restrictions. Upon termination, the recipient will recognize ordinary income in
an amount equal to the fair market value of the common stock at the time and
PFSB Bancorp 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, PFSB Bancorp will be entitled
to a deduction in that 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.
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Although no specific award determinations have been made at this time, PFSB
Bancorp and Palmyra Saving anticipate that if stockholder approval is obtained
it would provide awards to its directors, officers and employees to the extent
and under terms and conditions permitted by applicable regulations. Under
current Office of Thrift Supervision regulations, if the plan is implemented
within one year after the conversion, no officer or employees could receive an
award covering in excess of 25%, no nonemployee director could receive in excess
of 5% and nonemployee directors, as a group, could not receive in excess of 30%
of the number of shares reserved for issuance under the plan. The size of
individual awards will be determined prior to submitting the plan for
stockholder approval, and disclosure of anticipated awards will be included in
the proxy materials for the meeting.
TRANSACTIONS WITH PALMYRA SAVING
Federal regulations require that all loans or extensions of credit 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. Palmyra Saving's policy is not to make any new
loans or extensions of credit to Palmyra Saving'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 the person and his related
interests, are in excess of the greater of $25,000 or 5% of Palmyra Saving'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 Savings Associations -- Transactions with
Affiliates." The aggregate amount of loans by Palmyra Saving to its executive
officers and directors was $59,000 at September 30, 1998, or approximately 0.5%
of pro forma stockholders' equity assuming that 747,500 shares are issued in the
conversion. These loans were performing according to their original terms at
September 30, 1998.
REGULATION
GENERAL
Palmyra Saving is regulated, examined and supervised by the Office of Thrift
Supervision, as its chartering agency, and the Federal Deposit Insurance
Corporation, as the insurer of its deposits. The activities of federal savings
institutions are governed by the Home Owners' Loan Act, as amended and, in
certain respects, the Federal Deposit Insurance Act and the regulations issued
by the Office of Thrift Supervision and the Federal Deposit Insurance
Corporation 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, Palmyra Saving's
relationship with its depositors and borrowers is also regulated to a great
extent, especially in matters such as the ownership of deposit accounts and the
form and content of Palmyra Saving's mortgage documents. Palmyra Saving must
file reports with the Office of Thrift Supervision and the Federal Deposit
Insurance Corporation 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 Office of Thrift
Supervision and the Federal Deposit Insurance Corporation to review Palmyra
Saving'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
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policies, whether by the Office of Thrift Supervision , the Federal Deposit
Insurance Corporation or Congress, could have a material adverse impact on
Palmyra Saving and its operations.
FEDERAL REGULATION OF SAVINGS ASSOCIATIONS
OFFICE OF THRIFT SUPERVISION. The Office of Thrift Supervision is an office in
the Department of the Treasury. It generally possesses the supervisory and
regulatory duties and responsibilities formerly vested in the Federal Home Loan
Bank Board. Among other functions, the Office of Thrift Supervision issues and
enforces regulations affecting federally insured savings associations and
regularly examines these institutions.
FEDERAL HOME LOAN BANK SYSTEM. The Federal Home Loan Bank System, consisting
of 12 banks, is under the jurisdiction of the Federal Housing Finance Board.
Palmyra Saving, as a member of the Federal Home Loan Bank of Des Moines, is
required to acquire and hold shares of capital stock in the Federal Home Loan
Bank of Des Moines in an amount equal to the greater of 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 1/20 of its
borrowings from the Federal Home Loan Bank of Des Moines. Palmyra Saving is in
compliance with this requirement with an investment in Federal Home Loan Bank of
Des Moines stock of $373,500 at September 30, 1998. Among other benefits, the
Federal Home Loan Bank of Des Moines provides a central credit facility
primarily for member institutions.
FEDERAL DEPOSIT INSURANCE CORPORATION. The Federal Deposit Insurance
Corporation is an independent federal agency that insures the deposits, up to
prescribed statutory limits, of depository institutions. The Federal Deposit
Insurance Corporation currently maintains two separate insurance funds: the Bank
Insurance Fund and the Savings Association Insurance Fund. As insurer of
Palmyra Saving's deposits, the Federal Deposit Insurance Corporation has
examination, supervisory and enforcement authority over Palmyra Saving.
Palmyra Saving's accounts are insured by the Savings Association Insurance
Fund to the maximum extent permitted by law. Palmyra Saving pays deposit
insurance premiums based on a risk-based assessment system established by the
Federal Deposit Insurance Corporation. 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
Savings Association Insurance Fund unless effective corrective action is taken.
Under the Deposit Insurance Funds Act , which was enacted on September 30,
1996, the Federal Deposit Insurance Corporation imposed a special assessment on
each depository institution with Savings Association Insurance Fund -assessable
deposits which resulted in the Savings Association Insurance Fund achieving its
designated reserve ratio. As a result , the Federal Deposit Insurance
Corporation reduced the assessment schedule for Savings Association Insurance
Fund
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members, effective January 1, 1997, to a range of 0% to 0.27%, with most
institutions, including Palmyra Saving, paying 0%. This assessment schedule is
the same as that for the Bank Insurance Fund, which reached its designated
reserve ratio in 1995. In addition, since January 1, 1997, Savings Association
Insurance Fund members are charged an assessment of .065% of Savings Association
Insurance Fund -assessable deposits to pay interest on the obligations issued by
the Financing Corporation in the 1980s to help fund the thrift industry cleanup.
Bank Insurance Fund -assessable deposits will be charged an assessment to help
pay interest on the Financing Corporation 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 Deposit Insurance Funds Act also 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 Palmyra Saving.
The Federal Deposit Insurance Corporation 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 Federal Deposit Insurance Corporation . 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 Federal Deposit
Insurance Corporation . Management is aware of no existing circumstances that
could result in termination of the deposit insurance of Palmyra Saving.
LIQUIDITY REQUIREMENTS. Under Office of Thrift Supervision regulations, each
savings institution is required to maintain an average daily balance of liquid
assets, such as 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 of its net withdrawable accounts plus short-term
borrowings. The current percentage is 4%. Monetary 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. 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 "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 required to meet
and maintain a specific capital level for any capital measure; "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, or 3.0% under certain circumstances, and does not meet the definition of
"well capitalized;" "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%, or 3.0% under certain
circumstances; "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
"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
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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 Office of
Thrift Supervision 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 face various mandatory and discretionary restrictions on its
operations.
At September 30, 1998, Palmyra Saving was categorized as "well capitalized"
under the prompt corrective action regulations.
STANDARDS FOR SAFETY AND SOUNDNESS. The federal banking regulatory agencies
have adopted regulatory guidelines for all insured depository institutions
relating to internal controls, information systems and internal audit systems;
loan documentation; credit underwriting; interest rate risk exposure; asset
growth; asset quality; earnings; and compensation, fees and benefits. The
guidelines outline 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 Office of Thrift Supervision determines
that Palmyra Saving fails to meet any standard prescribed by the guidelines, it
may require Palmyra Saving to submit to the agency an acceptable plan to achieve
compliance with the standard. Office of Thrift Supervision regulations establish
deadlines for the submission and review of safety and soundness compliance
plans.
QUALIFIED THRIFT LENDER TEST. All savings associations are required to meet a
qualified thrift lender test to avoid certain restrictions on their operations.
A savings institution that fails to become or remain a qualified thrift lender
shall either convert to a national bank charter or face the following
restrictions on its operations. These restrictions are: the association may not
make any new investment or engage in activities that would not be permissible
for national banks; the association 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; the association shall be ineligible to
obtain new advances from any Federal Home Loan Bank; and the payment of
dividends by the association shall be under 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 qualified thrift lender, the savings institution would be prohibited from
retaining any investment or engaging in any activity not permissible for a
national bank and would be required to repay any outstanding advances to any
Federal Home Loan Bank. In addition, within one year of the date on which a
savings association controlled by a company ceases to be a qualified thrift
lender, the company must register as a bank holding company and follow the
rules applicable to bank holding companies. A savings institution may requalify
as a qualified thrift lender if it thereafter complies with the test.
Currently, the qualified thrift lender 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" 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; Federal Home Loan Bank
stock; direct or indirect obligations of the Federal Deposit Insurance
Corporation; 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 based on an
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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 goodwill and other intangible
assets, property used by the savings institution to conduct its business, and
liquid assets up to 20% of the institution's total assets. At September 30,
1998, Palmyra Saving was in compliance with the qualified thrift lender test.
CAPITAL REQUIREMENTS. Federal regulations require 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.
Office of Thrift Supervision 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 any intangible
assets, except for certain qualifying intangible assets; certain mortgage
servicing rights; and 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
Office of Thrift Supervision a capital plan that details the steps they will
take to reach compliance. In addition, the Office of Thrift Supervision's
prompt corrective action regulation provides that a savings institution that has
a leverage ratio of less than 4%, or 3% in the case of institutions receiving
the highest CAMELS examination rating, will be deemed to be "undercapitalized"
and may face certain restrictions. See "-- Federal Regulation of Savings
Associations -- Prompt Corrective Action."
Savings associations also must maintain "tangible capital" not less than 1.5%
of Palmyra Saving's adjusted total assets. "Tangible capital" is defined,
generally, as core capital minus any "intangible assets" other than purchased
mortgage servicing rights.
Each savings institution 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
permanent capital instruments such as cumulative perpetual preferred stock,
perpetual subordinated debt and mandatory convertible subordinated debt,
maturing capital instruments such as subordinated debt, intermediate-term
preferred stock and mandatory convertible subordinated debt, based on an
amortization schedule, and 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
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.
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The Office of Thrift Supervision 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 face 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, or 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
association's assets, as calculated in accordance with guidelines of the Office
of Thrift Supervision. 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 association'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 exempt
from the interest rate risk component, unless the Office of Thrift Supervision
determines otherwise. The rule also provides that the Office of Thrift
Supervision 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 calculated interest rate risk component, as calculated by the Office of
Thrift Supervision, 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 amount as calculated by the Office of Thrift Supervision. The Office
of Thrift Supervision 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 tangible, core and risk-based
capital requirements, Palmyra Saving's historical amounts and percentages at
September 30, 1998 and pro forma amounts and percentages based upon the stated
assumptions.
LIMITATIONS ON CAPITAL DISTRIBUTIONS. Federal 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, Federal regulations require Palmyra Saving to give the
Office of Thrift Supervision 30 days' advance notice of any proposed declaration
of dividends, and the Office of Thrift Supervision 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 fully phased-in
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 Office of Thrift Supervision, 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 at the beginning of
the calendar year or the amount authorized for a Tier 2 association. Capital
distributions in excess of that amount require advance notice to the Office of
Thrift Supervision. A Tier 2 savings association has capital equal to or in
excess of its minimum capital requirement but below its fully phased-in capital
requirement, both before and after the proposed capital distribution. Tier 2
associations may make without application capital distributions up to an amount
equal to 75% of its net income during the previous four quarters depending on
how close the association is to meeting its fully phased-in capital requirement.
Capital distributions exceeding this amount require prior Office of Thrift
Supervision 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 Office of Thrift Supervision.
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Palmyra Saving 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 Office of Thrift Supervision ) 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. Savings institutions are generally required to follow
the national bank limit on loans to one borrower. Generally, this limit is 15%
of its unimpaired capital and surplus, plus an additional 10% of unimpaired
capital and surplus, if the loan is secured by readily-marketable collateral,
which is defined to include certain financial instruments and bullion. The
Office of Thrift Supervision 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. See "Business of Palmyra Saving --Lending
Activities --Loans to One Borrower" for further information.
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 Office of Thrift Supervision, 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 association controls, the savings association must notify the Federal
Deposit Insurance Corporation and the Office of Thrift Supervision 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 Office of Thrift Supervision 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 association or is inconsistent with sound banking practices. Based upon that
determination, the Federal Deposit Insurance Corporation or the Office of Thrift
Supervision has the authority to order the savings association to divest itself
of control of the subsidiary. The Federal Deposit Insurance Corporation also may
determine by regulation or order that any specific activity poses a serious
threat to the Savings Association Insurance Fund. If so, it may require that no
Savings Association Insurance Fund 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 Home Owners Loan Act.
Generally, Sections 23A and 23B 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 the institution's capital and surplus
and place an aggregate limit on all transactions with affiliates to an amount
equal to 20% of capital and surplus, and require that all 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
Palmyra Saving 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. Second, a savings association may not purchase or invest in
securities issued by an affiliate (other than securities of a subsidiary. Third,
the Office of Thrift Supervision may, for reasons of safety and soundness,
impose more stringent restrictions on savings associations but may not exempt
transactions from or
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otherwise abridge Section 23A or 23B. Exemptions from Section 23A or 23B may be
granted only by the Federal Reserve, as is currently the case with respect to
all Federal Deposit Insurance Corporation -insured banks.
Palmyra Saving's authority to extend credit to executive officers, directors
and 10% shareholders, as well as entities controlled by those 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
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
Palmyra Saving may make to those persons based, in part, on Palmyra Saving's
capital position, and requires certain board approval procedures to be followed.
The Office of Thrift Supervision regulations, with certain minor variances,
apply Regulation O to savings institutions.
COMMUNITY REINVESTMENT ACT. Savings associations are required to follow 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 savings association's record
in meeting the credit needs of the community serviced by the savings
associations, including low and moderate income neighborhoods. The regulatory
agency's assessment of the savings association's record is made available to the
public. Further, an assessment is required of any savings associations 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. Palmyra Saving received a "satisfactory" rating as a result of its
most recent examination.
SAVINGS AND LOAN HOLDING COMPANY REGULATIONS
HOLDING COMPANY ACQUISITIONS. Federal law and regulation generally prohibit a
savings and loan holding company, without prior Office of Thrift Supervision
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 PFSB Bancorp, from acquiring control of any
savings association not a subsidiary of a savings and loan holding company,
unless the acquisition is approved by the Office of Thrift Supervision.
HOLDING COMPANY ACTIVITIES. As a unitary savings and loan holding company,
PFSB Bancorp generally has no activity restrictions under federal law. If PFSB
Bancorp 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. Federal law provides that, among other things, no
multiple savings and loan holding company or subsidiary thereof which is not an
insured association shall begin 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 furnishing or performing management
services for a subsidiary insured institution; conducting an insurance agency or
escrow business; holding, managing, or liquidating assets owned by or acquired
from a subsidiary insured institution; holding or managing properties used or
occupied by a subsidiary insured institution, acting as trustee under deeds of
trust; those activities previously directly authorized by regulation as of March
5, 1987 to be engaged in by multiple holding companies; or those activities
authorized by the Federal Reserve Board as permissible for bank holding
companies, unless the Office of Thrift Supervision by regulation, prohibits or
limits these activities for savings and loan holding companies.
The activities authorized by the Federal Reserve Board as permissible for bank
holding companies also must be approved by the Office of Thrift Supervision
prior to being engaged in by a multiple savings and loan holding company.
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QUALIFIED THRIFT LENDER TEST. Federal law provides that any savings and loan
holding company that controls a savings association that fails the qualified
thrift lender test, as explained under "-- Federal Regulation of Savings
Associations -- Qualified Thrift Lender Test," must, within one year after the
date on which the association ceases to be a qualified thrift lender, register
as and be deemed a bank holding company under all applicable laws and
regulations.
TAXATION
FEDERAL TAXATION
GENERAL. PFSB Bancorp and Palmyra Saving will report their income using the
accrual method of accounting and will be taxed under federal income tax laws in
the same manner as other corporations with some exceptions, including
particularly Palmyra Saving's reserve for bad debts discussed below. PFSB
Bancorp's and Palmyra Saving's tax year will end on September 30 of each year.
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
Palmyra Saving or PFSB Bancorp .
BAD DEBT RESERVE. Historically, savings institutions such as Palmyra Saving
which met certain definitional tests primarily related to their assets and the
nature of their business 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. Palmyra Saving'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 Palmyra Saving's actual
loss experience, or a percentage equal to 8% of Palmyra Saving's taxable income,
computed with certain modifications and reduced by the amount of any permitted
additions to the non-qualifying reserve. Due to Palmyra Saving's loss
experience, Palmyra Saving 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 8% 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, defined as the last
taxable year beginning before January 1, 1988. Palmyra Saving has no post-1987
reserves that would be recaptured. For taxable years beginning after December
31, 1995, Palmyra Saving's bad debt deduction will be determined under the
experience method using a formula based on actual bad debt experience over a
period of years. The unrecaptured base year reserves will not be recaptured as
long as the institution continues to carry on the business of banking. In
addition, the balance of the pre-1988 bad debt reserves continue to be treated
under the provisions of present law referred to below that require recapture in
the case of certain excess distributions to shareholders.
DISTRIBUTIONS. To the extent that Palmyra Saving makes "nondividend
distributions" to PFSB Bancorp, the 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 Palmyra Saving's loan portfolio decreased since
December 31, 1987, and then from the supplemental reserve for losses on loans.
An amount based on the supplemental reserve for loan losses will be included in
Palmyra Saving's taxable income. Nondividend distributions include distributions
in excess of Palmyra Saving's current and accumulated earnings and profits,
distributions in redemption of stock and distributions in partial or complete
liquidation. However, dividends paid out of Palmyra Saving's current or
accumulated earnings and profits, as calculated for federal income tax purposes,
will not be considered to result in a distribution from Palmyra Saving 's bad
debt reserve. The amount of additional taxable income created from an Excess
Distribution is an amount that, when
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reduced by the tax attributable to the income, is equal to the amount of the
distribution. Thus, if, after the conversion, Palmyra Saving makes a
"nondividend distribution," then approximately one and one-half times the amount
based on the supplemental reserve for loan losses would be includable in gross
income for federal income tax purposes, assuming a 34% corporate federal income
tax rate. See "Regulation" and "Dividend Policy" for limits on the payment of
dividends by Palmyra Saving. Palmyra Saving does not intend to pay dividends
that would result in a recapture of any portion of its tax bad debt
reserve.
CORPORATE ALTERNATIVE MINIMUM TAX. The Internal Revenue Code imposes a tax on
alternative minimum taxable income 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 alternative minimum taxable
income. In addition, only 90% of alternative minimum taxable income can be
offset by net operating loss carry-overs. alternative minimum taxable income is
increased by an amount equal to 75% of the amount by which Palmyra Saving's
adjusted current earnings exceeds its alternative minimum taxable income
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
alternative minimum taxable income (with certain modification) over $2.0 million
is imposed on corporations, including Palmyra Saving, whether or not an
alternative minimum tax is paid.
DIVIDENDS-RECEIVED DEDUCTION. PFSB Bancorp may exclude from its income 100% of
dividends received from Palmyra Saving 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 PFSB
Bancorp and Palmyra Saving will not file a consolidated tax return, except that
if PFSB Bancorp or Palmyra Saving owns more than 20% of the stock of a
corporation distributing a dividend, then 80% of any dividends received may be
deducted.
AUDITS. The IRS has not audited Palmyra Saving's federal income tax returns
for the past five years.
MISSOURI TAXATION
Missouri-based thrift institutions, like Palmyra Saving, pay a special
financial institutions tax at the rate of 7% of net income, without regard to
net operating loss carryforwards. 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 Palmyra Saving and held for lease or
rental to others and on real estate, contributions paid to the Unemployment
Compensation Law of Missouri, social security taxes, sales taxes and use taxes.
In addition, Palmyra Saving is entitled to a credit against this tax for all
taxes paid to the State of Missouri or any political subdivision, except taxes
on tangible personal property owned by Palmyra Saving and held for lease or
rental to others and on real estate, contributions paid under 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 do not pay the regular corporate income tax. Palmyra Saving's state
income tax returns have not been audited for the past five years.
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THE CONVERSION
THE OFFICE OF THRIFT SUPERVISION HAS APPROVED THE PLAN OF CONVERSION WITH THE
CONDITION THAT IT IS APPROVED BY THE MEMBERS OF PALMYRA SAVING ENTITLED TO VOTE
AND TO THE SATISFACTION OF CERTAIN OTHER CONDITIONS IMPOSED BY THE OFFICE OF
THRIFT SUPERVISION IN ITS APPROVAL. OFFICE OF THRIFT SUPERVISION APPROVAL IS NOT
A RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF CONVERSION.
GENERAL
On September 24, 1998, the Board of Directors of Palmyra Saving unanimously
adopted the plan of conversion, under which Palmyra Saving will be converted
from a federally chartered mutual savings and loan association to a federally
chartered stock savings bank to be held as a wholly-owned subsidiary of PFSB
Bancorp, a newly formed Missouri corporation. The Board of Directors
unanimously amended the plan of conversion on January 21, 1999. THE FOLLOWING
DISCUSSION OF THE PLAN OF CONVERSION CONTAINS ALL MATERIAL TERMS ABOUT THE
CONVERSION. NEVERTHELESS, READERS ARE URGED TO READ CAREFULLY THE PLAN OF
CONVERSION, WHICH IS ATTACHED AS EXHIBIT A TO PALMYRA SAVING'S PROXY STATEMENT
AND IS AVAILABLE TO MEMBERS OF PALMYRA SAVING UPON REQUEST. The plan of
conversion is also filed as an exhibit to the Registration Statement. See "Where
You Can Find More Information." The Office of Thrift Supervision has approved
the plan of conversion with the condition that it is approved by the members of
Palmyra Saving entitled to vote on the matter at a special meeting to be held on
________, 1999 and conditioned on the satisfaction of certain other conditions
imposed by the Office of Thrift Supervision in its approval.
The conversion will be accomplished through adoption of a Federal Stock
Charter and Bylaws to authorize the issuance of capital stock by Palmyra Saving.
As part of the conversion, Palmyra Saving will issue all of its newly issued
capital stock, or 1,000 shares of common stock, to PFSB Bancorp in exchange for
50% of the net proceeds from the sale of common stock by PFSB Bancorp.
The plan of conversion provides generally that: Palmyra Saving will convert
from a federally chartered mutual savings and loan association to a federally
chartered stock savings bank; the common stock will be offered by PFSB Bancorp
in the subscription offering to persons having subscription rights; if
necessary, shares of common stock not subscribed for in the subscription
offering will be offered in a direct community offering to certain members of
the general public, with preference given to natural persons and trusts of
natural persons residing in Marion, Lewis and Clark Counties of Missouri, and
then to certain members of the general public in a syndicated community offering
through a syndicate of registered broker-dealers under selected dealers
agreements; and PFSB Bancorp will purchase all of the capital stock of Palmyra
Saving to be issued in the conversion. The conversion will be completed only
upon the sale of at least $5,525,000 of common stock to be issued under the plan
of conversion.
As part of the conversion, PFSB Bancorp is making a subscription offering of
its common stock to holders of subscription rights in the following order of
priority. First, depositors of Palmyra Saving with $50.00 or more on deposit as
of June 30, 1997. Second, Palmyra Saving 's employee stock ownership plan.
Third, depositors of Palmyra Saving with $50.00 or more on deposit as of
December 31, 1998. Finally, depositors of Palmyra Saving as of January 31, 1999
and borrowers of Palmyra Saving with loans outstanding as of June 1, 1995 which
continue to be outstanding as of January 31, 1999.
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Shares of common stock not subscribed for in the subscription offering may be
offered for sale in the direct community offering. The direct community
offering, if one is held, is expected to begin immediately after the expiration
of the subscription offering, but may begin at any time during the subscription
offering. Shares of common stock not sold in the subscription and direct
community offerings may be offered in the syndicated community offering.
Regulations require that the Direct Community and syndicated community offerings
be completed within 45 days after completion of the fully extended subscription
offering unless extended by Palmyra Saving or PFSB Bancorp with the approval of
the regulatory authorities. If the syndicated community offering is determined
not to be feasible, the Board of Directors of Palmyra Saving 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 Palmyra Saving.
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 Palmyra Saving.
The completion of the offering, however, depends on market conditions and
other factors beyond Palmyra Saving's control. No assurance can be given as to
the length of time after approval of the plan of conversion at the Special
Meeting that will be required to complete the Direct Community or syndicated
community offerings or other sale of the common stock. If delays are
experienced, significant changes may occur in the estimated pro forma market
value of PFSB Bancorp and Palmyra Saving as converted, together with
corresponding changes in the net proceeds realized by PFSB Bancorp from the sale
of the common stock. If the conversion is terminated, Palmyra Saving would be
required to charge all conversion expenses against current income.
Orders for shares of common stock will not be filled until at least 552,500
shares of common stock have been subscribed for or sold and the Office of Thrift
Supervision 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 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 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 Palmyra Saving's passbook rate from the date payment is
received until the funds are returned to the subscriber. If the period is not
extended, or, in any event, if the conversion is not completed, all withdrawal
authorizations will be terminated and all funds held will be promptly returned
together with accrued interest at Palmyra Saving's passbook rate from the date
payment is received until the conversion is terminated.
REASONS FOR THE CONVERSION
The Board of Directors and management believe that the conversion is in the
best interests of Palmyra Saving , its members and the communities it serves.
Palmyra Saving's Board of Directors has formed PFSB Bancorp to serve as a
holding company, with Palmyra Saving as its subsidiary, after the conversion. By
converting to the stock form of organization, PFSB Bancorp and Palmyra Saving
will be structured in the form used by holding companies of commercial banks,
most business entities and by a growing number of savings institutions.
Management of Palmyra Saving believes that the conversion offers a number of
advantages which will be important to the future growth and performance of
Palmyra Saving. The capital raised in the conversion is intended to support
Palmyra Saving's current lending and investment activities and may also support
possible future expansion and diversification of operations, although there are
no current specific plans, arrangements or understandings, written or oral,
regarding any expansion or diversification. The conversion is also expected to
afford Palmyra Saving's management, members
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and others the opportunity to become stockholders of PFSB Bancorp and
participate more directly in, and contribute to, any future growth of PFSB
Bancorp and Palmyra Saving. The conversion will also enable PFSB Bancorp and
Palmyra Saving to raise additional capital in the public equity or debt markets
should the need arise, although there are no current specific plans,
arrangements or understandings, written or oral, regarding any financing
activities. Palmyra Saving , as a mutual savings and loan association, does not
have the authority to issue capital stock or debt instruments, other than by
accepting deposits.
EFFECTS OF CONVERSION TO STOCK FORM ON DEPOSITORS AND BORROWERS OF PALMYRA
SAVING
VOTING RIGHTS. Savings members and borrowers will have no voting rights in
the converted association or PFSB Bancorp and therefore will not be able to
elect directors of Palmyra Saving or PFSB Bancorp or to control their affairs.
Currently, these rights are accorded to savings members of Palmyra Saving.
Subsequent to the conversion, voting rights will be vested exclusively in PFSB
Bancorp with respect to Palmyra Saving and the holders of the common stock as
to matters pertaining to PFSB Bancorp. Each holder of common stock shall be
entitled to vote on any matter to be considered by the stockholders of PFSB
Bancorp. A stockholder will be entitled to one vote for each share of common
stock owned.
SAVINGS ACCOUNTS AND LOANS. Palmyra Saving's savings accounts, account
balances and existing Federal Deposit Insurance Corporation 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 Palmyra Saving.
TAX EFFECTS. Palmyra Saving has received an opinion from Muldoon, Murphy &
Faucette, Washington, D.C., that the conversion will constitute a nontaxable
reorganization under Section 368(a)(1)(F) of the Internal Revenue Code. Among
other things, the opinion states that:
1. no gain or loss will be recognized to Palmyra Saving in its mutual or
stock form by reason of the conversion;
2. no gain or loss will be recognized to its account holders upon the
issuance to them of accounts in Palmyra Saving immediately after the
conversion, in the same dollar amounts and on the same terms and
conditions as their accounts at Palmyra Saving in its mutual form
plus interest in the liquidation account;
3. the tax basis of account holders' accounts in Palmyra Saving
immediately after the conversion will be the same as the tax basis of
their accounts immediately prior to conversion;
4. the tax basis of each account holder's interest in the liquidation
account will be equal to the value, if any, of that interest;
5. the tax basis of the common stock purchased in the conversion will be
the amount paid and the holding period for the stock will begin on
the date of purchase; and
6. no gain or loss will be recognized to account holders upon the receipt
or exercise of subscription rights in the conversion, except to the
extent subscription rights are deemed to have value as discussed
below.
Unlike a private letter ruling issued by the Internal Revenue Service , an
opinion of counsel is not binding on the Internal Revenue Service and the
Internal Revenue Service could disagree with the conclusions reached in the
opinion. If there is a disagreement, no assurance can be
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given that the conclusions reached in an opinion of counsel would be sustained
by a court if contested by the Internal Revenue Service.
Based upon past rulings issued by the Internal Revenue Service , 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 Palmyra Saving , whose findings are not binding on
the Internal Revenue Service , has issued a letter indicating that the
subscription rights do not have any value, based on the fact that the 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 the rights may only be taxable to
those persons who exercise their subscription rights. Palmyra Saving could
also recognize a gain on the distribution of subscription rights. Holders of
subscription rights 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.
Palmyra Saving has also received an opinion from Moore, Horton & Carlson,
P.C., Mexico, Missouri, that, assuming the conversion does not result in any
federal income tax liability to Palmyra Saving , its account holders, or PFSB
Bancorp , implementation of the plan of conversion will not result in any
Missouri income tax liability to those entities or persons.
The opinions of Muldoon, Murphy & Faucette and Moore, Horton & Carlson,
P.C. and the letter from RP Financial are filed as exhibits to the Registration
Statement. See "Where You Can Find More Information."
PROSPECTIVE INVESTORS 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
Palmyra Saving , each depositor in Palmyra Saving would receive a pro rata
share of any assets of Palmyra Saving remaining after payment of claims of all
creditors, including the claims of all depositors up to the withdrawal value of
their accounts. Each depositor's pro rata share of the remaining assets would
be in the same proportion as the value of his or her deposit account to the
total value of all deposit accounts in Palmyra Saving at the time of
liquidation.
After the conversion, holders of withdrawals deposit(s) in Palmyra Saving ,
including certificates of deposit ), shall not be entitled to share in any
residual assets upon liquidation of Palmyra Saving. However, under Office of
Thrift Supervision regulations, Palmyra Saving shall, at the time of the
conversion, establish a liquidation account in an amount equal to its total
equity as of the date of the latest statement of financial condition contained
in the final prospectus relating to the conversion.
The liquidation account shall be maintained by Palmyra Saving subsequent
to the conversion for the benefit of eligible account holders and supplemental
eligible account holderswho retain their Savings Accounts in Palmyra Saving.
Each eligible account holder and supplemental eligible account holder shall,
with respect to each savings account held, have a related inchoate interest in a
sub-account portion of the liquidation account balance.
The initial subaccount balance for a savings account held by an eligible
account holder or a supplemental eligible account holder shall be determined by
multiplying the opening balance in the liquidation account by a
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fraction of which the numerator is the amount of the holder's "qualifying
deposit" in the savings account and the denominator is the total amount of the
"qualifying deposits" of all eligible account holders. The initial subaccount
balance shall not be increased, and it shall be decreased as provided below.
If the deposit balance in any savings account of an eligible account holder
or supplemental eligible account holder at the close of business on any annual
closing day of Palmyra Saving subsequent to June 30, 1997, or December 31, 1998
is less than the lesser of the deposit balance in a savings account at the close
of business on any other annual closing date subsequent to June 30, 1997 or
December 31, 1998, or the amount of the "qualifying deposit" in a savings
account on June 30, 1997 or December 31, 1998, then the subaccount balance for a
savings account shall be adjusted by reducing the subaccount balance in an
amount proportionate to the reduction in the deposit balance. Once reduced, the
subaccount balance shall not be subsequently increased, notwithstanding any
increase in the deposit balance of the related savings account. If any Savings
Account is closed, the related subaccount balance shall be reduced to zero.
Only upon a complete liquidation of Palmyra Saving each eligible account
holder and supplemental eligible account holder shall be entitled to receive a
liquidation distribution from the liquidation account in the amount of the then
current adjusted subaccount balance(s) for savings account(s) then held by the
holder before any liquidation distribution may be made to stockholders. No
merger, consolidation, bulk purchase of assets with assumptions of savings
account and other liabilities or similar transactions with another federally
insured institution in which Palmyra Saving is not the surviving institution
shall be considered to be a complete liquidation. In any of these transaction
the liquidation account shall be assumed by the surviving institution.
In the unlikely event Palmyra Saving is liquidated after the conversion,
depositors will be entitled to full payment of their deposit accounts before any
payment is made to PFSB Bancorp as the sole stockholder of Palmyra Saving.
THE SUBSCRIPTION, DIRECT COMMUNITY AND SYNDICATED COMMUNITY OFFERINGS
SUBSCRIPTION OFFERING. Under the plan of conversion, nontransferable
subscription rights to purchase the 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 depend on
the availability of the common stock for purchase under the categories
described 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 Palmyra Saving as of June 30, 1997 will receive nontransferable
subscription rights to subscribe for up to the greater of $60,000 of common
stock, which equals 6,000 shares , 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 one , to the extent possible, to purchase a number
of shares sufficient to make the person's total allocation equal 100 shares or
the number of shares actually subscribed for, whichever is less. Thereafter,
unallocated shares will be allocated 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
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increased deposits in Palmyra Saving in the one year period preceding June 30,
1997 are subordinated to the subscription rights of other eligible account
holders.
Category 2: Employee Stock Ownership Plan. The plan of conversion
provides that the employee stock ownership plan shall receive nontransferable
subscription rights to purchase up to 8% of the shares of common stock issued in
the conversion. The plan intends to purchase 8% of the shares of common stock
issued in the conversion. In the event the number of shares offered in the
conversion is increased , the plan shall have a priority right to purchase any
shares exceeding that amount up to 8% of the common stock. If the plan's
subscription is not filled in its entirety, the employee stock ownership plan
may purchase shares in the open market or may purchase shares directly from PFSB
Bancorp.
Category 3: Supplemental Eligible Account Holders. Each depositor with
$50.00 or more on deposit as of December 31, 1998 will receive nontransferable
subscription rights to subscribe for up to the greater of $60,000 of common
stock, which equals 6,000 shares , 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 Palmyra Saving as of
January 31, 1999 and each borrower with a loan outstanding on June 1, 1995
which continues to be outstanding as of January 31, 1999 will receive
nontransferable subscription rights to purchase up to $60,000 of common stock,
which equals 6,000 shares, in the conversion to the extent shares are available
following subscriptions by eligible account holders, Palmyra Saving's employee
stock ownership plan and supplemental eligible account holders. If there is
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 MAY
FORFEIT THOSE RIGHTS AND MAY FACE POSSIBLE FURTHER SANCTIONS AND PENALTIES
IMPOSED BY THE OFFICE OF THRIFT SUPERVISION OR ANOTHER AGENCY OF THE U.S.
GOVERNMENT. EACH PERSON EXERCISING SUBSCRIPTION RIGHTS WILL BE REQUIRED TO
CERTIFY THAT HE OR SHE IS PURCHASING 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 THE SHARES. ONCE TENDERED, SUBSCRIPTION ORDERS CANNOT
BE REVOKED WITHOUT THE CONSENT OF PALMYRA SAVING AND PFSB BANCORP.
PFSB Bancorp and Palmyra Saving 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, Central Time, on the __________, 1999,
whether or not Palmyra Saving has been able to locate each person entitled to
subscription rights. ORDERS FOR COMMON STOCK IN THE SUBSCRIPTION OFFERING
RECEIVED IN HAND BY PALMYRA SAVING AFTER THAT TIME WILL NOT BE ACCEPTED. The
subscription offering may be extended by PFSB
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Bancorp and Palmyra Saving up to ________, 1999 without the regulatory's
approval. Office of Thrift Supervision regulations require that PFSB Bancorp
complete the sale of common stock within 45 days after the close of the
subscription offering. If the direct community offering and the syndicated
community offerings are not completed within that period all funds received will
be promptly returned with interest at Palmyra Saving'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 the 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 PFSB Bancorp 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. Any shares of common stock which remain
unsubscribed for in the subscription offering will be offered by PFSB Bancorp
to certain members of the general public in a direct community offering, with
preference given to natural persons and trusts of natural persons residing in
Marion, Lewis and Clark Counties, Missouri. Purchasers in the direct community
offering are eligible to purchase up to $60,000 of common stock, which equals
6,000 shares. If not enough 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, if held, may be concurrent with, during or promptly after the
subscription offering. The direct community offering may terminate on or at any
time subsequent to 12 Noon, Central Time, on _________, 1999 , but no later than
45 days after the close of the subscription offering, unless extended by PFSB
Bancorp and Palmyra Saving , with approval of the Office of Thrift Supervision
. If regulatory approval of an extension of the time period has been granted,
all subscribers will be notified of the 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 PFSB Bancorp from a subscriber, the
subscriber's order will be rescinded and all funds received will be promptly
returned with interest. THE PFSB BANCORP AND PALMYRA SAVING HAVE THE ABSOLUTE
RIGHT TO ACCEPT OR REJECT IN WHOLE OR IN PART ANY ORDERS TO PURCHASE SHARES IN
THE DIRECT COMMUNITY OFFERING. IF AN ORDER IS REJECTED IN PART, THE PURCHASER
DOES NOT HAVE THE RIGHT TO CANCEL THE REMAINDER OF THE ORDER. PFSB BANCORP
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.
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 Trident
Securities acting as agent of PFSB Bancorp. PFSB BANCORP AND PALMYRA SAVING
HAVE THE RIGHT TO REJECT ORDERS, IN WHOLE OR PART, IN THEIR SOLE DISCRETION IN
THE SYNDICATED COMMUNITY OFFERING. Neither Trident Securities 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,
Trident Securities has agreed to use its best efforts in the sale of shares in
the syndicated community offering.
Stock sold in the syndicated community offering also will be sold at the
$10.00 purchase price. See "-- Stock Pricing and Number of Shares to Be
Issued." No person will be permitted to subscribe in the syndicated community
offering for shares of common stock with an aggregate purchase price of more
than $40,000 (4,000 shares) of common stock. See "-- Plan of Distribution for
the Subscription, Direct Community and Syndicated
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Community Offerings" for a description of the commission to be paid to the
selected dealers and to Trident Securities.
Trident Securities 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 PFSB Bancorp as of a certain
date for the purchase of shares. When and if Trident Securities and PFSB
Bancorp 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, Trident Securities
will request, as of that certain 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 customers on the next
business day after that certain date. Selected dealers may settle the trade by
debiting the accounts of their customers on a date which will be three business
days from that certain 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 PFSB Bancorp established for each
selected dealer. Each customer's funds so forwarded to PFSB Bancorp, along with
all other accounts held in the same title, will be insured by the Federal
Deposit Insurance Corporation up to the applicable $100,000 legal limit. After
payment has been received by PFSB Bancorp from selected dealers, funds will earn
interest at Palmyra Saving's passbook rate until the completion of the
offering. At the completion of the conversion, the funds received 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 Federal Deposit Insurance
Corporation or any other government agency. If the conversion is not completed,
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 expiration of the subscription offering, unless extended by PFSB Bancorp
and Palmyra Saving, with approval of the Office of Thrift Supervision.
If Palmyra Saving 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 Palmyra Saving, if feasible. Any other arrangements must be
approved by the Office of Thrift Supervision. The Office of Thrift Supervision
may grant one or more extensions of the offering period, provided that no single
extension exceeds 90 days, subscribers are given the right to increase, decrease
or rescind their subscriptions during the extension period, and 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 Office of
Thrift Supervision 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 the extension and of their
rights to modify their orders. If an affirmative response to any resolicitation
is not received by PFSB Bancorp 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.
PERSONS IN NON-QUALIFIED STATES. PFSB Bancorp and Palmyra Saving 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 under the plan of
conversion reside. However, PFSB Bancorp and Palmyra Saving 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 a small
number of persons otherwise eligible to subscribe for shares of common stock
reside in the state or PFSB Bancorp or Palmyra Saving determines that compliance
with
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the securities laws of the state would be impracticable for reasons of cost
or otherwise, including but not limited to a request or requirement that PFSB
Bancorp and Palmyra Saving or their officers, directors or trustees register as
a broker, dealer, salesman or selling agent, under the securities laws of the
state, or a request or requirement to register or otherwise qualify the
subscription rights or common stock for sale or submit any filing in the state.
Where the number of persons eligible to subscribe for shares in one state is
small, PFSB Bancorp and Palmyra Saving will base their decision as to whether or
not to offer the common stock in the 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 PFSB Bancorp, its
officers, directors or employees as brokers, dealers or salesmen.
PLAN OF DISTRIBUTION FOR THE SUBSCRIPTION, DIRECT COMMUNITY AND SYNDICATED
COMMUNITY OFFERINGS
Palmyra Saving and PFSB Bancorp have retained Trident Securities to consult
with and advise Palmyra Saving and to assist Palmyra Saving and PFSB Bancorp,
on a best efforts basis, in the distribution of shares in the offering. Trident
Securities is a broker-dealer registered with the Securities and Exchange
Commission and a member of the National Association of Securities Dealers, Inc.
Trident Securities will assist Palmyra Saving in the conversion by acting as
marketing advisor with respect to the subscription offering and will represent
Palmyra Saving as placement agent on a best efforts basis in the sale of the
common stock in the direct community offering if one is held; conducting
training sessions with directors, officers and employees of Palmyra Saving
regarding the conversion process; and assisting in the establishment and
supervision of Palmyra Saving's stock information center and, with management's
input, will train Palmyra Saving's staff to record properly and tabulate orders
for the purchase of common stock and to respond appropriately to customer
inquiries.
Based upon negotiations between Trident Securities on the one hand and PFSB
Bancorp and Palmyra Saving on the other hand concerning fee structure, Trident
Securities will receive a fixed management fee of $135,000. Trident Securities
and selected dealers participating in the syndicated community offering may
receive a commission in the syndicated community offering in a maximum amount to
be agreed upon by PFSB Bancorp and Palmyra Saving to reflect market
requirements at the time of the allocation of shares in the syndicated community
offering. Fees and commissions paid to Trident Securities and to any selected
dealers may be deemed to be underwriting fees, and Trident Securities and the
selected dealers may be deemed to be underwriters. Trident Securities will also
be reimbursed for its reasonable out-of-pocket expenses not to exceed $12,500
and its legal fees not to exceed $30,000. Trident Securities has received an
advance of $10,000 towards its reimbursable expenses. For additional
information, see "-- Stock Pricing and Number of Shares to Be Issued" and "Use
of Proceeds."
With certain limitations, PFSB Bancorp and Palmyra Saving have also
agreed to indemnify Trident Securities against liabilities and expenses,
including legal fees, incurred in connection with certain claims or litigation
arising out of or based upon untrue statements or omissions contained in the
offering material for the common stock or with regard to allocations of shares
if there is an oversubscription, or determinations of eligibility to purchase
shares.
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 Palmyra Saving'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
Trident Securities employees will be working at the stock information center.
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Employees of Trident Securities will be responsible for mailing materials
relating to the offering, responding to questions regarding the conversion and
the offering and processing stock orders.
Sales of common stock will be made by registered representatives affiliated
with Trident Securities or by the selected dealers managed by Trident
Securities. The management and employees of Palmyra Saving may participate in
the offering in clerical capacities, providing administrative support in
effecting sales transactions or, when permitted by state securities laws,
answering questions of a mechanical nature relating to the proper execution of
the order form. Management of Palmyra Saving may answer questions regarding
the business of Palmyra Saving when permitted by state securities laws. 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 PFSB Bancorp and Palmyra Saving have been
instructed not to solicit offers to purchase common stock or provide advice
regarding the purchase of common stock.
No officer, director or employee of Palmyra Saving or PFSB Bancorp will
be compensated, directly or indirectly, for any activities in connection with
the offer or sale of securities issued in the conversion.
None of Palmyra Saving's personnel participating in the offering is
registered or licensed as a broker or dealer or an agent of a broker or dealer.
Palmyra Saving's personnel will assist in the above-described sales activities
under an exemption from registration as a broker or dealer provided by Rule 3a4-
1 promulgated under the Securities Exchange Act of 1934, as amended. 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 the issuer if the associated person meets certain conditions.
These 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 the person not be
associated with a broker or dealer and that the person observe certain
limitations on his or her 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 purchase shares in the subscription offering, an executed order form
with the required full payment for each share subscribed for, or with
appropriate authorization indicated on the stock order form for withdrawal of
full payment from the subscriber's deposit account with Palmyra Saving, must be
received by Palmyra Saving by 12:00 Noon, Central Time, on ___________, 1999.
Order forms that are not received by that time or are executed defectively or
are received without full payment or without appropriate withdrawal
instructions are not required to be accepted. PFSB Bancorp and Palmyra Saving
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. Under the
plan of conversion, the interpretation by PFSB Bancorp and Palmyra Saving 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 Palmyra Saving prior to the time the direct community offering
terminates, which may be on or at any time subsequent to the Expiration Date.
Once received, an executed order form may not be modified, amended or rescinded
without the consent of Palmyra Saving unless the conversion has not been
completed within 45 days after the end of the subscription offering, unless
extended.
In order to ensure that persons with subscription rights are properly
identified as to their stock purchase priorities,
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they must list all accounts on the order form giving all names in each account,
the account number and the approximate account balance as of the appropriate
eligibility date. Failure to list an account could result in fewer shares
allocated if there is an oversubscription than if all accounts had been
disclosed.
Full payment for subscriptions may be made in cash if delivered in person
at Palmyra Saving's stock information center; by check, bank draft, or money
order; or by authorization of withdrawal from deposit accounts maintained with
Palmyra Saving. Appropriate means by which 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 Palmyra
Saving's passbook rate from the date payment is received at the stock
information center 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 the conversion is completed or
terminated, but a hold will be placed on the funds, making them unavailable to
the depositor until completion or termination of the conversion. When the
conversion is completed, the funds received in the 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 FEDERAL DEPOSIT
INSURANCE CORPORATION 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 Palmyra Saving to withdraw the amount of the
aggregate purchase price from his or her deposit account, Palmyra Saving will do
so as of the effective date of conversion, though the account must contain the
full amount necessary for payment at the time the subscription order is
received. Palmyra Saving 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 Palmyra Saving's passbook rate.
The employee stock ownership plan will not be required to pay for the
shares subscribed for at the time it subscribes, but rather may pay for shares
of common stock subscribed for at the $10.00 purchase price after the
conversion, provided that there is in force from the time of its subscription
until that time, a loan commitment from an unrelated financial institution or
PFSB Bancorp to lend to the employee stock ownership plan, at that time, the
aggregate purchase price of the shares for which it subscribed.
Individual retirement accounts maintained in Palmyra Saving 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 individual
retirement account. Since Palmyra Saving does not offer those accounts, it will
allow a depositor to make a trustee-to-trustee transfer of the individual
retirement account funds to a trustee offering a self-directed individual
retirement account program with the agreement that the funds will be used to
purchase PFSB Bancorp's common stock in the offering. There will be no early
withdrawal or Internal Revenue Service interest penalties for transfers. The new
trustee would hold the common stock in a self-directed account in the same
manner as Palmyra Saving now holds the depositor's IRA funds. An annual
administrative fee may be payable to the new trustee. Depositors interested in
using funds in an individual retirement account at Palmyra Saving 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, federal laws and
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regulations require that officers, directors and 10% shareholders who use self-
directed individual retirement account funds to purchase shares of common stock
in the subscription offering, make purchases for the exclusive benefit of
individual retirement accounts.
Certificates representing shares of common stock purchased, and any refund
due, will be mailed to purchasers at the address as may be specified in properly
completed order forms or to the last address of the persons appearing on the
records of Palmyra Saving as soon as practicable following the sale of all
shares of common stock. Any certificates returned as undeliverable will be
disposed of in accordance with applicable law. PURCHASERS MAY NOT BE ABLE TO
SELL THE SHARES OF COMMON STOCK WHICH THEY PURCHASED UNTIL CERTIFICATES FOR THE
COMMON STOCK ARE AVAILABLE AND DELIVERED TO THEM, EVEN THOUGH TRADING OF THE
COMMON STOCK MAY HAVE BEGUN.
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 Securities
Exchange Act of 1934, as amended, no prospectus will be mailed any later than
five days prior to that date or hand delivered any later than two days prior to
that 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. Palmyra Saving will accept for processing only orders submitted on
original order forms. Palmyra Saving 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.
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED
Federal regulations require that the aggregate purchase price of the
securities sold in connection with the conversion be based upon an estimated pro
forma value of PFSB Bancorp and Palmyra Saving as converted, as determined by
an independent appraisal. Palmyra Saving and PFSB Bancorp have retained RP
Financial to prepare an appraisal of the pro forma market value of PFSB Bancorp
and Palmyra Saving as converted, as well as a business plan. RP Financial will
receive a fee expected to total approximately $25,000 for its appraisal services
and assistance in the preparation of a business plan, plus reasonable out-of-
pocket expenses incurred in connection with the appraisal. Palmyra Saving has
agreed to indemnify RP Financial under certain circumstances against liabilities
and expenses, including legal fees, arising out of, related to, or based upon
the conversion.
RP Financial has prepared an appraisal of the estimated pro forma market
value of PFSB Bancorp and Palmyra Saving as converted taking into account the
formation of PFSB Bancorp as PFSB Bancorp for Palmyra Saving. For its analysis,
RP Financial undertook substantial investigations to learn about Palmyra
Saving's business and operations. Management supplied financial information,
including annual financial statements, information on the composition of assets
and liabilities, and other financial schedules. In addition to this information,
RP Financial reviewed Palmyra Saving's Form AC Application for Approval of
Conversion and PFSB Bancorp's Form SB-2 Registration Statement. Furthermore, RP
Financial visited Palmyra Saving's facilities and had discussions with Palmyra
Saving's management and its special conversion legal counsel, Muldoon, Murphy &
Faucette LLP. No detailed individual analysis of the separate components of PFSB
Bancorp's or Palmyra Saving's assets and liabilities was performed in connection
with the evaluation.
In estimating the pro forma market value of PFSB Bancorp and Palmyra Saving
as converted, as required by applicable regulatory guidelines, RP Financial's
analysis utilized three selected valuation procedures, the Price/Book method,
the Price/Earnings method, and Price/Assets method, all of which are described
in its report. RP Financial placed the greatest emphasis on the Price/Earnings
and Price Book methods in estimating pro forma market value. In applying these
procedures,
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RP Financial reviewed, among other factors, the economic make-up of Palmyra
Saving's primary market area, Palmyra Saving's financial performance and
condition in relation to publicly-traded institutions that RP Financial deemed
comparable to Palmyra Saving, the specific terms of the offering of PFSB
Bancorp's common stock, the pro forma impact of the additional capital raised
in the conversion, conditions of securities markets in general, and the market
for thrift institution common stock in particular. RP Financial's analysis
provides an approximation of the pro forma market value of PFSB Bancorp and
Palmyra Saving as converted based on the valuation methods applied and the
assumptions outlined in its report. Included in its report were certain
assumptions as to the pro forma earnings of PFSB Bancorp after the conversion
that were utilized in determining the appraised value. These assumptions
included estimated expenses and an assumed after-tax rate of return on the net
conversion proceeds as described under "Pro Forma Data," purchases by the
employee stock ownership plan of 8% of the common stock sold in the conversion
and purchases in the open market by the management development and recognition
plan of a number of shares equal to 4% of the common stock sold in the
conversion at the $10.00 purchase price. See "Pro Forma Data" for additional
information concerning these assumptions. The use of different assumptions may
yield different results.
On the basis of the foregoing, RP Financial has advised PFSB Bancorp and
Palmyra Saving that, in its opinion, as of December 11, 1998 and updated as of
January 22, 1999, the aggregate estimated pro forma market value of PFSB Bancorp
and Palmyra Saving, as converted and, therefore, the common stock was within the
valuation range of $5,525,000 to $7,475,000 with a midpoint of $6,500,000.
After reviewing the methodology and the assumptions used by RP Financial in the
preparation of the appraisal, the Board of Directors established the estimated
valuation range which is equal to the valuation range of $5,525,000 to
$7,475,000 with a midpoint of $6,500,000. Assuming that the shares are sold at
$10.00 per share in the conversion, the estimated number of shares would be
between 552,500 and 747,500 with a midpoint of 650,000. The purchase price of
$10.00 was determined by discussion among the Boards of Directors of Palmyra
Saving and PFSB Bancorp and Trident Securities, taking into account, among other
factors, the requirement under Office of Thrift Supervision regulations that the
common stock be offered in a manner that will achieve the widest distribution of
the stock, and desired liquidity in the common stock subsequent to the
conversion. Since the outcome of the offering relates in large measure to market
conditions at the time of sale, it is not possible to determine the exact number
of shares that will be issued by PFSB Bancorp at this time. The estimated
valuation range may be amended, with the approval of the Office of Thrift
Supervision, if necessitated by developments following the date of the
appraisal in, among other things, market conditions, the financial condition or
operating results of Palmyra Saving, regulatory guidelines or national or local
economic conditions.
RP Financial's appraisal report is filed as an exhibit to the Registration
Statement. See "Where You Can Find More Information."
If, upon completion of the subscription offering, 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 PFSB Bancorp and Palmyra Saving as
converted, as of the close of the subscription offering.
No sale of the shares will take place unless prior thereto RP Financial
confirms to the Office of Thrift Supervision 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 PFSB
Bancorp and Palmyra Saving as converted at the time of the sale. If, however,
the facts do not justify that 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
circumstances, subscribers would have the right to modify or rescind their
subscriptions and to have their subscription funds
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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 issued
may be more than 859,625 shares or less than 552,500 shares. If the total
amount of shares issued is less than 552,500 or more than 859,625 (15% above the
maximum of the estimated valuation range), for aggregate gross proceeds of less
than $5,525,000 or more than $8,596,250, subscription funds will be returned
promptly with interest to each subscriber unless he indicates otherwise. If RP
Financial establishes a new valuation range, it must be approved by the Office
of Thrift Supervision.
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 Palmyra Saving and PFSB Bancorp, if possible. Other
purchase arrangements must be approved by the Office of Thrift Supervision 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 discussed
earlier, although no purchases are currently intended. If other purchase
arrangements cannot be made, the plan of conversion will terminate.
In formulating its appraisal, RP Financial relied upon the truthfulness,
accuracy and completeness of all documents Palmyra Saving 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 the information and
did not independently verify the financial statements and other data provided by
Palmyra Saving and PFSB Bancorp or independently value the assets or liabilities
of PFSB Bancorp and Palmyra Saving. 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 SHARES IN THE CONVERSION WILL LATER BE ABLE TO SELL SHARES
THEREAFTER AT PRICES AT OR ABOVE THE PURCHASE PRICE.
LIMITATIONS ON PURCHASES OF SHARES
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. The plan
of conversion provides for the following purchase limitations:
1. The maximum purchase in the subscription offering by any person or
group of persons through a single account is $60,000, which equals
6,000 shares;
2. No person may purchase more than $60,000, which equals 6,000 shares,
in the direct community offering; and
3. The maximum purchase in the conversion by any person, related persons
or persons acting in concert is $100,000, which equals 10,000 shares.
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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.
Palmyra Saving's and PFSB Bancorp's Boards of Directors may, in their
sole discretion, increase the maximum purchase limitation 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. Palmyra
Saving and PFSB Bancorp do not intend to increase the maximum purchase
limitation unless market conditions warrant 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
PFSB Bancorp and Palmyra Saving may be, given the opportunity to increase
their subscriptions accordingly, based on 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
knowing participation in a joint activity or interdependent conscious parallel
action towards a common goal whether or not by an express agreement; or a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose under 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.
PFSB BANCORP AND PALMYRA SAVING MAY PRESUME THAT CERTAIN PERSONS ARE ACTING IN
CONCERT BASED UPON, AMONG OTHER THINGS, JOINT ACCOUNT RELATIONSHIPS AND THE FACT
THAT PERSONS MAY HAVE FILED JOINT SCHEDULES 13D WITH THE SECURITIES AND
EXCHANGE COMMISSION WITH RESPECT TO OTHER COMPANIES.
The term "associate" of a person is defined in the plan of conversion to
mean any corporation or organization other than Palmyra Saving or a majority-
owned subsidiary of Palmyra Saving of which a person is an officer or partner or
is, directly or indirectly, the beneficial owner of 10% or more of any class of
equity securities; any trust or other estate in which a person has a substantial
beneficial interest or as to which a person serves as trustee or in a similar
fiduciary capacity; and any relative or spouse of a person, or any relative of
a spouse, who either has the same home as a person or who is a director or
officer of Palmyra Saving or any of its parents or subsidiaries. For example, a
corporation of which a person serves as an officer would be an associate of a
person and, therefore, all shares purchased by a corporation would be included
with the number of shares which a person could purchase individually under the
above limitations.
The term "officer" is defined in the plan of conversion to mean an
executive officer of Palmyra Saving, including its Chairman of the Board,
President, Executive Vice Presidents, Senior Vice Presidents, Vice Presidents in
charge of principal business functions, Secretary and Treasurer.
Common stock purchased in the conversion will be freely transferable,
except for shares purchased by directors and officers of Palmyra Saving and
PFSB Bancorp and by NASD members. See "-- Restrictions on Transferability by
Directors and Officers and NASD Members."
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RESTRICTIONS ON REPURCHASE OF STOCK
Under Office of Thrift Supervision regulations, Office of Thrift
Supervision-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 if an
offer made to all of its stockholders to repurchase the common stock on a pro
rata basis, approved by the Office of Thrift Supervision or the repurchase of
qualifying shares of a director. Furthermore, repurchases of any common stock
are prohibited if the effect thereof would cause the association's regulatory
capital to be reduced below the amount required for the liquidation account or
the regulatory capital requirements imposed by the Office of Thrift Supervision.
Repurchases are generally prohibited during the first year following conversion.
Upon ten days' written notice to the Office of Thrift Supervision, and if the
Office of Thrift Supervision does not object, an institution may make open
market repurchases 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 institution. Any repurchases of common stock by PFSB Bancorp would be must
meet these regulatory restrictions unless the Office of Thrift Supervision would
provide otherwise.
RESTRICTIONS ON TRANSFERABILITY BY DIRECTORS AND OFFICERS AND NASD MEMBERS
Shares of common stock purchased in the offering by directors and officers
of PFSB Bancorp may not be sold for a period of one year following the
conversion, except upon the death of the stockholder or in any exchange of the
common stock in connection with a merger or acquisition of PFSB Bancorp. Shares
of common stock received by directors or officers through the employee stock
ownership plan or the management development and recognition plan or upon
exercise of options issued under the stock option plan or purchased subsequent
to the conversion are free of this restriction. Accordingly, shares of common
stock issued by PFSB Bancorp to directors and officers shall bear a legend
giving appropriate notice of the restriction and, in addition, PFSB Bancorp will
give appropriate instructions to the transfer agent for PFSB Bancorp '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 also be restricted.
Purchases of outstanding shares of common stock of PFSB Bancorp by
directors, executive officers, or any person who was an executive officer or
director of Palmyra Saving 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 Office of Thrift Supervision. This restriction does not
apply, however, to negotiated transactions involving more than 1% of PFSB
Bancorp's outstanding common stock or to the purchase of stock under the stock
option plan.
PFSB Bancorp has filed with the SEC a registration statement under the
Securities Act of 1933, as amended, for the registration of the common stock to
be issued in the conversion. The registration under the Securities Act of shares
of the common stock to be issued in the conversion does not cover the resale of
the shares. Shares of common stock purchased by persons who are not affiliates
of PFSB Bancorp may be resold without registration. Shares purchased by an
affiliate of PFSB Bancorp will have resale restrictions under Rule 144 of the
Securities Act. If PFSB Bancorp meets the current public information
requirements of Rule 144 under the Securities Act, each affiliate of PFSB
Bancorp 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 1% of
the outstanding shares of PFSB Bancorp or the average weekly volume of trading
in the shares during the preceding four calendar weeks. Provision may be
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made in the future by PFSB Bancorp 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
face certain restrictions on the transfer of securities purchased in accordance
with subscription rights and to certain reporting requirements upon purchase of
the securities.
RESTRICTIONS ON ACQUISITION OF PFSB BANCORP
The following discussion is a summary of certain provisions of federal law
and regulations and Missouri corporate law, as well as the Articles of
Incorporation and Bylaws of PFSB Bancorp, 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 Articles of Incorporation and Bylaws of PFSB Bancorp
contained in the Registration Statement filed with the SEC. See "Where You Can
Find More Information" as to how to obtain a copy of these documents.
CONVERSION REGULATIONS
Office of Thrift Supervision 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
Office of Thrift Supervision, no person may make 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 of
the completion of the conversion if, upon the completion of an 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 Office of Thrift Supervision 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 to acquire, hold or dispose 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 behalf for resale to the general
public are excepted. The regulation also provides civil penalties for willful
violation or assistance in any 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 Office of Thrift Supervision has been given 60 days' prior written
notice and has not issued a notice disapproving the proposed acquisition. In
addition, Office of Thrift Supervision regulations provide that no company may
acquire control of a savings association without the prior approval of the
Office of Thrift Supervision. Any company that acquires control becomes a
"savings and loan holding company" under registration, examination and
regulation by the Office of Thrift Supervision.
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 Office of Thrift Supervision
that the acquirer has the power to direct, or directly or indirectly to exercise
a controlling influence over, the management or policies of the
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institution. Acquisition of more than 10% of any class of a savings
association's voting stock, if the acquirer also meets any one of eight "control
factors," constitutes a rebuttable determination of control under the
regulations. Control factors include the acquirer being one of the two largest
stockholders. The determination of control may be rebutted by submission to the
Office of Thrift Supervision, prior to the acquisition of stock or the
occurrence of any other circumstances giving rise to control 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 Office of Thrift Supervision a certification form that the holder is
not in control of the institution, is not under 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
Office of Thrift Supervision, 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 Office of Thrift Supervision may prohibit an acquisition of control if
it finds, among other things, that the acquisition would result in a monopoly or
substantially lessen competition, the financial condition of the acquiring
person might jeopardize the financial stability of the institution, or 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 the person.
ANTI-TAKEOVER PROVISIONS IN PFSB BANCORP'S ARTICLES OF INCORPORATION AND BYLAWS
AND IN MISSOURI LAW
A number of provisions of PFSB Bancorp's Articles of Incorporation and
Bylaws deal with matters of corporate governance and certain rights of
stockholders. The following discussion is a general summary of certain
provisions of PFSB Bancorp's Articles 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 a transaction may not have an opportunity to do so.
These provisions will also render the removal of the incumbent Board of
Directors or management of PFSB Bancorp more difficult. The following
description of certain of the provisions of the Articles of Incorporation and
Bylaws of PFSB Bancorp is necessarily general and reference should be made in
each case to the Articles of Incorporation and Bylaws, which are incorporated
herein by reference. See "Where You Can Find More Information" as to where to
obtain a copy of these documents.
LIMITATION ON VOTING RIGHTS. The Articles of Incorporation of PFSB Bancorp
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 ("Limit") be entitled or permitted to any vote in respect of the shares
held in excess of that percentage limit, unless permitted by a resolution
adopted by a majority of the board of directors. Beneficial ownership is
determined under Rule 13d-3 of the General Rules and Regulations of the
Securities Exchange Act of 1934, as amended, and includes shares beneficially
owned by that person or any of his or her affiliates, shares which that person
or his or her affiliates have the right to acquire upon the exercise of
conversion rights or options and shares as to which the person and his or her
affiliates have or share investment or voting power, but shall not include
shares beneficially owned by the employee stock ownership plan or directors,
officers and employees of Palmyra Saving or Holding Company or shares that are
associated with a revocable proxy and that are not otherwise beneficially, or
deemed by PFSB Bancorp to be beneficially, owned by the person and his or her
affiliates.
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BOARD OF DIRECTORS. The Board of Directors of PFSB Bancorp 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. PFSB Bancorp's Articles of Incorporation
provides that the size of the Board shall be established in the Bylaws. The
Bylaws currently set the number of directors at seven. The Articles 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 a majority of the directors then in office and any director so chosen
shall hold office for a term expiring at the next annual meeting of
stockholders. 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 PFSB
Bancorp. The Articles of Incorporation of PFSB Bancorp 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 the holders' choice.
CUMULATIVE VOTING; SPECIAL MEETINGS. The Bylaws do not provide for
cumulative voting for any purpose. The Bylaws also provide that special meetings
of stockholders of PFSB Bancorp may be called only by the President or by the
Board of Directors of PFSB Bancorp.
AUTHORIZED SHARES. The Articles of Incorporation authorizes the issuance of
5,000,000 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 PFSB Bancorp'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
PFSB Bancorp. 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 PFSB
Bancorp, and thereby assist members of management to retain their positions.
PFSB Bancorp's Board currently has no plans for the issuance of additional
shares, other than the issuance of shares of common stock upon exercise of stock
options and in connection with the management development and recognition
plan.
STOCKHOLDER VOTE REQUIRED TO APPROVE BUSINESS COMBINATIONS WITH PRINCIPAL
STOCKHOLDERS. The Articles of Incorporation requires the approval of the holders
of at least 80% of PFSB Bancorp's outstanding shares of voting stock to approve
certain "Business Combinations" involving a "Related Person" except in cases
where the proposed transaction has been approved in advance by a majority of
those members of PFSB Bancorp'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 which owns beneficially or
controls, directly or indirectly, 10% or more of the outstanding shares of
voting stock of PFSB Bancorp or an affiliate of that person or entity. This
provision of the Articles of Incorporation applies to any "Business
Combination," which is defined to include any merger or consolidation of PFSB
Bancorp with or into any Related Person; any sale, lease, exchange, mortgage,
transfer, or other disposition of 25% or more of the assets of PFSB Bancorp or
combined assets of PFSB Bancorp and its subsidiaries to a Related Person; any
merger or consolidation of a Related Person with or into PFSB Bancorp or a
subsidiary of PFSB Bancorp; any sale, lease,
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exchange, transfer, or other disposition of 25% or more of the assets of a
Related Person to PFSB Bancorp or a subsidiary of PFSB Bancorp; the issuance of
any securities of PFSB Bancorp or a subsidiary of PFSB Bancorp to a Related
Person; the acquisition by PFSB Bancorp or a subsidiary of PFSB Bancorp of any
securities of a Related Person; any reclassification of common stock of PFSB
Bancorp or any recapitalization involving the common stock of PFSB Bancorp; or
any agreement or other arrangement providing for any of the foregoing.
Under Missouri law, absent this provision, business combinations, including
mergers, consolidations and sales of substantially all of the assets of a
corporation must, except for certain exceptions, be approved by the vote of the
holders of two-thirds of the outstanding shares of common stock of PFSB Bancorp
and any other affected class of stock. One exception under Missouri law to the
majority approval requirement applies to stockholders owning 20% or more of the
common stock of a corporation for a period of less than five years. A 20%
stockholder, in order to obtain approval of a business combination, must obtain
the approval of a majority of the outstanding stock, excluding the stock owned
by a 20% stockholder, or satisfy other requirements under Missouri law relating
to board of director approval of his or her acquisition of the shares of PFSB
Bancorp. 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 a merger or combination in the hands of a minority of
stockholders.
AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS. Amendments to PFSB
Bancorp's Articles 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
Articles 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 PFSB Bancorp and amendment of PFSB Bancorp's Bylaws
and Articles of Incorporation. PFSB Bancorp's Bylaws may be amended by its
Board of Directors, or by a vote of 66 2/3% of the total votes eligible to be
voted at a duly constituted meeting of stockholders.
STOCKHOLDER NOMINATIONS AND PROPOSALS. The Bylaws of PFSB Bancorp require 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 60 nor more than 90 days' advance notice to the Secretary of PFSB Bancorp;
provided, however, that if less than 71 days' notice or prior public disclosure
of the date of the meeting is given or made to shareholders, notice, to be
timely, must be received no later than the close of business on the 10th day
following the date on which notice was mailed to shareholders or other public
disclosure was made. The notice provision requires a stockholder who desires to
raise new business to provide certain information to PFSB Bancorp 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 PFSB Bancorp with certain information
concerning the nominee and the proposing stockholder.
PURPOSE AND TAKEOVER DEFENSIVE EFFECTS OF PFSB BANCORP'S ARTICLES OF
INCORPORATION AND BYLAWS. The Board of Directors of Palmyra Saving believes that
the provisions described above are prudent and will reduce PFSB Bancorp'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 PFSB Bancorp and Palmyra Saving 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 Palmyra Saving and PFSB Bancorp and its stockholders. In the
judgment of the Board of Directors, PFSB Bancorp's
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Board will be in the best position to determine the true value of PFSB Bancorp
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 PFSB Bancorp and its stockholders to encourage potential
acquirors to negotiate directly with the Board of Directors of PFSB Bancorp and
that these provisions will encourage 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 PFSB Bancorp 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 PFSB Bancorp
for its stockholders, with due consideration given to matters such as the
management and business of the acquiring corporation and maximum strategic
development of PFSB Bancorp'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, these 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 PFSB
Bancorp'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 Palmyra Saving and PFSB Bancorp as to the benefits to
stockholders of these provisions of PFSB Bancorp's Articles of Incorporation
and Bylaws, these provisions may also have the effect of discouraging a future
takeover attempt that would not be approved by PFSB Bancorp's Board, but where
stockholders may receive a substantial premium for their shares over then
current market prices. As a result, stockholders who might desire to participate
in a transaction may not have any opportunity to do so. These provisions will
also render the removal of PFSB Bancorp's Board of Directors and of management
more difficult. The Board of Directors of Palmyra Saving and PFSB Bancorp,
however, have concluded that the potential benefits outweigh the possible
disadvantages.
Following the conversion, if required by law, following the approval by
stockholders, PFSB Bancorp may adopt additional anti-takeover charter provisions
or other devices regarding the acquisition of its equity securities that would
be permitted for a Missouri business corporation.
The cumulative effect of the restriction on acquisition of PFSB Bancorp
contained in the Articles of Incorporation and Bylaws of PFSB Bancorp and in
Federal and Missouri law may be to discourage potential takeover attempts and
perpetuate incumbent management, even though certain stockholders of PFSB
Bancorp may deem a potential acquisition to be in their best interests, or deem
existing management not to be acting in their best interests.
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DESCRIPTION OF CAPITAL STOCK OF PFSB BANCORP
GENERAL
PFSB Bancorp is authorized to issue 5,000,000 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. PFSB Bancorp currently expects to issue up to
747,500 shares of common stock, unless increased to 859,625 shares of common
stock sold. No shares of preferred stock will be issued in the conversion. Each
share of PFSB Bancorp'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 stock will be duly authorized, fully paid and
nonassessable.
THE COMMON STOCK OF PFSB BANCORP WILL REPRESENT NONWITHDRAWABLE CAPITAL,
WILL NOT BE AN ACCOUNT OF ANY TYPE, AND WILL NOT BE INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
COMMON STOCK
DIVIDENDS. PFSB Bancorp 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 PFSB Bancorp limited by law and applicable regulation.
See "Dividend Policy" and "Regulation." The holders of common stock of PFSB
Bancorp will be entitled to receive and share equally in dividends as may be
declared by the Board of Directors of PFSB Bancorp out of funds legally
available therefor. If PFSB Bancorp issues preferred stock, the holders thereof
may have a priority over the holders of the common stock with respect to
dividends.
VOTING RIGHTS. Upon conversion, the holders of common stock of PFSB
Bancorp will possess exclusive voting rights in PFSB Bancorp. They will elect
PFSB Bancorp's Board of Directors and act on other matters as are required to
be presented to them under Missouri law or as are otherwise presented to them by
the Board of Directors. Except as discussed in "Restrictions on Acquisition of
PFSB Bancorp," 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 PFSB Bancorp issues preferred stock, holders of PFSB Bancorp
preferred stock may also possess voting rights. Certain matters require a vote
of 80% of the outstanding shares entitled to vote. See "Restrictions on
Acquisition of PFSB Bancorp."
As a federal mutual savings and loan association, corporate powers and
control of Palmyra Saving are vested in its Board of Directors, who elect the
officers of Palmyra Saving 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 Palmyra
Saving, all of which will be owned by PFSB Bancorp, and voted at the direction
of PFSB Bancorp's Board of Directors. Consequently, the holders of the common
stock will not have direct control of Palmyra Saving.
LIQUIDATION. If there is any liquidation, dissolution or winding up of
Palmyra Saving, PFSB Bancorp, as holder of Palmyra Saving's capital stock
would be entitled to receive, after payment or provision for payment of all
debts and liabilities of Palmyra Saving, including all deposit accounts and
accrued interest, and after distribution of the balance in the special
liquidation account to eligible account holders and supplemental eligible
account holders, all assets of Palmyra Saving available for distribution. Upon
liquidation, dissolution
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or winding up of PFSB Bancorp, 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 PFSB Bancorp available for distribution. If
Holding Company preferred stock is issued, the holders thereof may have a
priority over the holders of the common stock upon liquidation or
dissolution.
PREEMPTIVE RIGHTS; REDEMPTION. Holders of the common stock of PFSB Bancorp
will not be entitled to preemptive rights with respect to any shares that may be
issued. The common stock cannot be redeemed.
PREFERRED STOCK
None of the shares of the authorized Holding Company preferred stock will
be issued in the conversion and there are no plans to issue the preferred stock.
Preferred stock may be issued with 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.
RESTRICTIONS ON ACQUISITION
Acquisitions of PFSB Bancorp are restricted by provisions in its Articles
of Incorporation and Bylaws and by the rules and regulations of various
regulatory agencies. See "Regulation" and "Restrictions on Acquisition of PFSB
Bancorp."
REGISTRATION REQUIREMENTS
PFSB Bancorp has registered the common stock with the SEC under Section
12(g) of the Securities Exchange Act of 1934, as amended, and will not
deregister its common stock for a period of at least three years following the
conversion. As a result of registration, the proxy and tender offer rules,
insider trading reporting and restrictions, annual and periodic reporting and
other requirements of the that statute will apply.
LEGAL AND TAX OPINIONS
The legality of the common stock has been passed upon for PFSB Bancorp by
Muldoon, Murphy & Faucette LLP, Washington, D.C. The federal tax consequences of
the offering have been opined upon by Muldoon, Murphy & Faucette LLP and the
Missouri tax consequences of the offering have been opined upon by Moore, Horton
& Carlson, P.C. Muldoon, Murphy & Faucette LLP and Moore, Horton & Carlson, P.C.
have consented to the references herein to their opinions. Certain legal matters
will be passed upon for Trident Securities by Housley Kantarian & Bronstein,
P.C., Washington, D.C.
EXPERTS
The consolidated financial statements of Palmyra Saving at September 30,
1998 and 1997 and for each of the years ended September 30, 1998 and 1997
included in this prospectus have been audited by Moore, Horton & Carlson, P.C.,
independent auditors, as stated in their report in the back of this prospectus,
and have been so included in reliance upon the report of the firm given upon
their authority as experts in accounting and auditing.
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RP Financial has consented to the publication herein of the summary of its
report to Palmyra Saving setting forth its opinion as to the estimated pro forma
market value of PFSB Bancorp and Palmyra Saving as converted and its letter with
respect to subscription rights and to the use of its name and statements with
respect to it appearing in this prospectus.
CHANGE IN ACCOUNTANTS
Prior to the fiscal year ended September 30, 1998, Palmyra Saving's
consolidated financial statements were audited by Wade, Stables, Schanbacher &
Walker, P.C. The former accountant was dismissed and replaced by Moore, Horton &
Carlson, P.C., which was engaged on August 20, 1998 and continues as the
independent auditors of Palmyra Saving. The decision to change auditors was
approved by the Board of Directors on August 20, 1998. Palmyra Saving's
consolidated financial statements included in this Prospectus were audited by
Moore, Horton & Carlson, P.C.
For the fiscal years ended September 30, 1997 and 1996 and up to the date
of the replacement of Palmyra Saving's former accountant, there were no
disagreements with the former accountant on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure
which, if not resolved to the satisfaction of the former accountant, would have
caused it to make a reference to the subject matter of the disagreement in
connection with its reports. The independent auditors' report on the
consolidated financial statements for the fiscal years ended September 30, 1997
and 1996 did not contain an adverse opinion or a disclaimer of opinion, and was
not qualified or modified as to uncertainty, audit scope, or accounting
principles.
WHERE YOU CAN FIND MORE INFORMATION
PFSB Bancorp has filed with the SEC a Registration Statement on Form SB-2
(File No. 333-69191) under the Securities Act of 1933, as amended, with respect
to the common stock offered in the conversion. This prospectus does not contain
all the information contained in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the SEC. This
information may be inspected at the public reference facilities maintained by
the SEC at 450 Fifth Street, NW, Room 1024, Washington, D.C. 20549 and at its
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies
may be obtained at prescribed rates from the Public Reference Room of the SEC at
450 Fifth Street, NW, Washington, D.C. 20549. The public may obtain information
on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-
0330. The Registration Statement also is available through the SEC's World Wide
Web site on the Internet at http://www.sec.gov.
Palmyra Saving has filed with the Office of Thrift Supervision an
Application for Approval of Conversion, which includes proxy materials for
Palmyra Saving's Special Meeting and certain other information. This prospectus
omits certain information contained in that application. The application,
including the proxy materials, exhibits and certain other information included
in the Application, may be inspected, without charge, at the offices of the
Office of Thrift Supervision, 1700 G Street, NW, Washington, D.C. 20552 and at
the office of the Regional Director of the Office of Thrift Supervision at the
Midwest Regional Office of the Office of Thrift Supervision, 122 W. John
Carpenter Freeway, Suite 600, Irving, Texas 75039.
109
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PALMYRA SAVING & BUILDING ASSOCIATION, F.A.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.......................................................................... F-1
Consolidated Statements of Financial Condition as of September 30, 1998 and 1997..................... F-2
Consolidated Statements of Income for the Years Ended September 30, 1998 and 1997..................... 24
Consolidated Statements of Equity for the Years Ended September 30, 1998 and 1997..................... F-3
Consolidated Statements of Cash Flows for the Years Ended September 30, 1998 and 1997................. 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 PFSB Bancorp have not been included in
this prospectus because PFSB Bancorp, which has engaged in only organizational
activities to date, has no significant assets, contingent or other liabilities,
revenues or expenses.
110
<PAGE>
[LETTERHEAD OF MOORE, HORTON & CARLSON, P.C.]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Palmyra Saving and Building Association, F.A.
Palmyra, Missouri
We have audited the accompanying consolidated statements of financial condition
of Palmyra Saving and Building Association, F.A. ("Association") as of September
30, 1998 and 1997, and the related consolidated statements of income, changes in
equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Association's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Association as
of September 30, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
/s/ Moore, Horton & Carlson, P.C.
Mexico, Missouri
November 18, 1998
F-1
<PAGE>
PALMYRA SAVING AND BUILDING ASSOCIATION, F.A.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 30
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash (includes interest-bearing deposits of $1,003,689 and
$878,254, respectively) $ 2,268,166 $ 2,145,689
Investment securities--Note B
Available-for-sale, at fair value 7,086,677 8,508,981
Held-to-maturity (fair value of $5,639,849 and $5,106,899, respectively) 5,589,029 5,093,378
Mortgage-backed securities held-to-maturity (fair value of $2,623,999
and $2,870,571, respectively)--Note C 2,584,376 2,827,532
Stock in Federal Home Loan Bank of Des Moines ("FHLB") 373,500 480,400
Loans receivable--Note D 40,512,748 38,394,460
Accrued interest receivable--Note E 443,909 446,955
Premises and equipment--Note F 562,365 491,251
Other assets 55,532 44,555
----------- -----------
TOTAL ASSETS $59,476,302 $58,433,201
=========== ===========
LIABILITIES AND EQUITY
Liabilities
Deposits--Note G $52,723,768 $51,411,814
Advances from FHLB--Note H 500,000 1,000,000
Advances from borrowers for property taxes and insurance 50,219 53,688
Other liabilities 154,338 252,208
----------- -----------
TOTAL LIABILITIES $53,428,325 $52,717,710
Commitments and contingencies--Note L and M
Equity--Notes I and J
Retained earnings - substantially restricted 6,017,345 5,741,791
Unrealized gain (loss) on securities, net of taxes 30,632 (26,300)
----------- -----------
TOTAL EQUITY $ 6,047,977 $ 5,715,491
----------- -----------
TOTAL LIABILITIES AND EQUITY $59,476,302 $58,433,201
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
PALMYRA SAVING AND BUILDING ASSOCIATION, F.A.
CONSOLIDATED STATEMENTS OF EQUITY
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ON
RETAINED SECURITIES TOTAL
EARNINGS NET OF TAXES EQUITY
---------- ------------ ----------
<S> <C> <C> <C>
Balance at September 30, 1996, as originally reported $5,322,897 $(108,198) $5,214,699
Prior-period adjustment--Note O 87,000 --- 87,000
---------- --------- ----------
Balance as restated 5,409,897 (108,198) 5,301,699
Net income 331,894 --- 331,894
Change in unrealized gain (loss) on securities --- 81,898 81,898
---------- --------- ----------
BALANCE AT SEPTEMBER 30, 1997 5,741,791 (26,300) 5,715,491
Net income 275,554 --- 275,554
Change in unrealized gain (loss) on securities --- 56,932 56,932
---------- --------- ----------
BALANCE AT SEPTEMBER 30, 1998 $6,017,345 $ 30,632 $6,047,977
========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PALMYRA SAVING AND BUILDING ASSOCIATION, F.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 276,027 $ 331,894
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 56,275 41,133
Amortization of premiums and discounts (7,294) (12,908)
Loan fee amortization and payoffs (2,988) (3,590)
Provisions for loan losses 25,000 20,813
Deferred income taxes (10,000) (11,500)
Loss on sale of investments 2,056 14,015
Change to assets and liabilities
increasing (decreasing) cash flows
Accrued interest receivable 3,046 24,111
Other assets (10,977) 10,097
Other liabilities (121,465) (55,672)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 209,680 358,393
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment securities,
held-to-maturity (2,994,688) (1,845,000)
Proceeds from maturities and calls of investment
securities, held-to-maturity 2,510,000 3,950,000
Purchase of investment securities,
available-for-sale (3,993,213) (3,094,813)
Proceeds from maturities and calls of investment
securities, available-for-sale 5,500,000 950,000
Purchase of mortgage-backed securities (374,863) ---
Principal collected on mortgage-backed securities 618,338 453,989
Proceeds from redemption of FHLB stock 106,900 ---
Loans originated, net of repayments 532,316 (172,945)
Purchase of mortgage loans (2,787,237) (1,103,683)
Proceeds from sale of education loans 114,148 124,247
Purchase of premises and equipment (127,389) (53,465)
Net book value of premises and
equipment disposals --- 24,274
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (895,688) (767,396)
</TABLE>
F-4
<PAGE>
PALMYRA SAVING AND BUILDING ASSOCIATION, F.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONT'D
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits $ 1,311,954 $ 20,838
Advances from FHLB
Borrowings 500,000 1,000,000
Repayments (1,000,000) (200,000)
Net increase (decrease) in advances for
taxes and insurance (3,469) 2,115
----------- ----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 808,485 822,953
----------- ----------
NET INCREASE IN CASH 122,477 413,950
CASH, BEGINNING OF PERIOD 2,145,689 1,731,739
----------- ----------
CASH, END OF PERIOD $ 2,268,166 $2,145,689
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid for
Interest on deposits $ 2,672,539 $2,620,334
=========== ==========
Interest on FHLB advances $ 9,422 $ 4,833
=========== ==========
Income tax (refund) $ 284,174 $ (48,355)
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PALMYRA SAVING AND BUILDING ASSOCIATION, F.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying reporting policies and practices of Palmyra Saving and Building
Association, F.A. conform to generally accepted accounting principles ("GAAP")
and to prevailing practices within the thrift industry. A summary of the more
significant accounting policies follows:
NATURE OF OPERATIONS: The Association provides a variety of financial services
- --------------------
to individual and corporate customers through its headquarters located in
Palmyra, Missouri and its branch locations in Canton and Kahoka, Missouri. The
Association's primary deposit products are interest-bearing checking and savings
accounts and certificates of deposit. Its primary lending products are one- to
four-family residential loans.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
- ---------------------------
accounts of the Association and its wholly-owned subsidiary, PSA Service
Corporation, whose activities consist principally of selling mortgage redemption
insurance and safe deposit box rental to the Association's customers.
Significant intercompany balances and transactions have been eliminated in
consolidation.
INVESTMENT SECURITIES: Investment securities are classified as held-to-
- ---------------------
maturity, which are recorded at amortized cost, or available-for-sale.
Securities designated as held-to-maturity are designated as such because the
Association has the ability and the intent to hold these securities to maturity.
Securities designated as available-for-sale, provide the investor with certain
flexibility in managing its investment portfolio. Such securities are reported
at fair value; net unrealized gains and losses are excluded from income and
reported net of applicable income taxes as a separate component of equity.
Gains or losses on sales of securities are recognized in operations at the time
of sale and are determined by the difference between the net sales proceeds and
the cost of the securities using the specific identification method, adjusted
for any unamortized premiums or discounts. Premiums or discounts are amortized
or accreted to income using the interest method over the period to maturity.
MORTGAGE-BACKED SECURITIES: Mortgage-backed securities represent participating
- ---------------------------
interests in pools of long-term first mortgage loans originated and serviced by
issuers of the securities. These securities are recorded at amortized costs.
Gains and losses on sales of mortgage-backed securities are recognized in
operations at the time of sale and are determined by the difference between the
net sales proceeds and the amortized costs of the securities using the specific
identification method, adjusted for any unamortized premiums or discounts.
Premiums or discounts are amortized or accreted to income using the interest
method over the period to maturity.
STOCK IN FEDERAL HOME LOAN BANK OF DES MOINES: Stock in the FHLB is stated at
- ---------------------------------------------
cost and the amount of stock held is determined by regulation. No ready market
exists for such stock and it has no quoted market value.
LOANS RECEIVABLE: Loans receivable are carried at unpaid principal balances,
- ----------------
less the allowance for loan losses and deferred loan origination fees. Loan
origination and commitment fees and certain direct loan origination costs are
deferred and amortized to interest income over the contractual life of the loan
using the interest method.
The Association's real estate loan portfolio consists primarily of long-term
loans secured by first trust deeds on single-family residences, other
residential property, commercial property and land. The adjustable-rate
mortgage is the Association's primary loan investment. Consumer loans consist
principally of loans secured by savings deposits and insured education loans.
Mortgage loans are placed on nonaccrual status when principal or interest is
delinquent for 90 days or more.
F-6
<PAGE>
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONT'D
Uncollectible interest on loans is charged off or an allowance established by a
charge to income equal to all interest previously accrued. Interest is
subsequently recognized only to the extent cash payments are received until
delinquent interest is paid in full and in management's judgment, the borrower's
ability to make periodic interest and principal payments is back to normal in
which case the loan is returned to accrual basis. Interest on consumer loans
continues to accrue even if the loan is 90 days or more past due and is reversed
when management determines the interest to be uncollectible.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is maintained at a
- -------------------------
level which, in management's judgment, is adequate to absorb credit losses
inherent in the loan portfolio. The amount of the allowance is based on
management's evaluation of the collectibility of the loan portfolio, including
the nature of the portfolio, credit concentrations, trends in historical loss
experience, specific impaired loans and economic conditions. Allowances for
impaired loans are generally determined based on collateral values or the
present value of estimated cash flows. The allowance is increased by a
provision for loan losses, which is charged to expense, and reduced by charge-
offs, net of recoveries.
IMPAIRED LOANS: The Association accounts for impaired loans in accordance with
- --------------
Statement of Financial Accounting Standard ("SFAS") No. 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures, an amendment of
SFAS No. 114". These statements address the accounting by creditors for
impairment of certain loans. They apply to all creditors and to all loans,
uncollateralized as well as collateralized, except for large groups of small-
balance homogeneous loans that are collectively evaluated for impairment, loans
measured at fair value or at lower of cost or fair value, leases, and debt
securities. The Association considers all one- to four-family residential
mortgage loans, construction loans, and all consumer and other loans to be
smaller homogeneous loans.
Management applies its normal loan review procedures in determining when a loan
is impaired. All nonaccrual loans are considered impaired. Impaired loans are
assessed individually and impairment identified when the accrual of interest has
been discontinued, loans have been restructured or management has serious doubts
about the future collectibility of principal and interest, even though the loans
are currently performing. Factors considered in determining impairment include,
but are not limited to, expected future cash flow, the financial condition of
the borrower and current economic conditions. The Association measures each
impaired loan based on the fair value of its collateral and charges off those
loans or portions of loans deemed uncollectible. Management has elected to
continue to use its existing nonaccrual methods for recognizing interest income
on impaired loans.
PREMISES AND EQUIPMENT: Premises and equipment have been stated at cost less
- ----------------------
accumulated depreciation and amortization. Depreciation and amortization are
computed on a straight-line basis over the estimated useful lives of the
respective assets, which range from five to fifty years.
FORECLOSED REAL ESTATE: Real estate acquired in settlement of loans is carried
- ----------------------
at the lower of the balance of the related loan at the time of foreclosure or
fair value less the estimated costs to sell the asset. Costs of holding
foreclosed property are charged to expense in the current period, except for
significant property improvements which are capitalized to the extent that
carrying value does not exceed estimated fair market value.
INCOME TAXES: Deferred tax assets and liabilities are recognized for the future
- ------------
tax consequences, attributable to differences between the financial statement
carrying amounts of existing assets and labilities and their respective income
tax bases. As changes in tax law or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
STATEMENTS OF CASH FLOWS: For purposes of the cash flows, cash and amounts due
- ------------------------
from depository institutions and interest-bearing deposits in other banks with a
maturity of three months or less at date of purchase are considered cash
equivalents.
F-7
<PAGE>
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONT'D
RISK AND UNCERTAINTIES: The Association is a community-oriented financial
- ----------------------
institution which provides traditional financial services within the areas it
serves. The Association is engaged primarily in the business of attracting
deposits from the general public using these funds to originate one- to four-
family residential mortgage loans located primarily in Northeastern Missouri.
The Association's principal market area consists of rural communities and
substantially all of the Association's loans are to residents of or secured by
properties located in its principal lending area. Accordingly, the ultimate
collectibility of the Association's loan portfolio is dependent upon market
conditions in that area. This geographic concentration is considered in
management's establishment of the allowance for loan losses.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
statements, management is required to make estimates and assumptions which
affect the reported amounts of assets and liabilities as of the balance sheet
dates and income and expenses for the periods covered. Actual results could
differ significantly from these estimates and assumptions.
In the normal course of its business, the Association encounters two significant
types of risk, economic and regulatory. There are three main components of
economic risk: interest rate risk, credit risk and market risk. The
Association is subject to interest rate risk to the degree that its interest-
bearing liabilities mature or reprice more or less rapidly, or on a different
basis, than its interest-earning assets. Credit risk is the risk of default on
the Association's loan portfolio that results from the borrower's inability or
unwillingness to make contractually required payments. Market risk results from
changes in the value of assets and liabilities which may impact, favorably or
unfavorably, the realizability of those assets and liabilities held by the
Association.
The Association is subject to the regulations of various government agencies.
These regulations can and do change significantly from period to period. The
Association also undergoes periodic examinations by the regulatory agencies,
which may subject it to further changes with respect to asset valuations,
amounts of required loss allowances and operating restrictions resulting from
the regulators' judgements based on information available to them at the time of
their examination.
NEW ACCOUNTING STANDARDS: In June 1997, the Financial Accounting Standards
- ------------------------
Board ("FASB") issued SFAS No. 130, Reporting of Comprehensive Income and SFAS
No. 131, Disclosures about Segments of an Enterprise and Related Information.
SFAS 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.
SFAS 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.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, to revise present disclosure
requirements applicable to those benefits. Although the standard does not
change the measurement or recognition requirements for postretirement benefit
plans, it standardizes the disclosure requirements; requires additional
information on changes in benefit obligations and fair values of plan assets;
and eliminates certain present disclosure requirements.
SFAS Nos. 130, 131 and 132 are effective for fiscal years beginning after
December 15, 1997 and, accordingly, will be adopted by the Association in the
year ending September 30, 1999. Management does not expect that these standards
will significantly affect the Association's financial reporting.
F-8
<PAGE>
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONT'D
In June 1998, the FASB issued SFAS No. 133 Accounting for Derivative Instruments
and Hedging Activities. SFAS No. 133 standardizes the accounting for Derivative
instruments, including certain derivative instruments embedded in other
contracts, Under SFAS No. 133, entities are required to carry all derivative
instruments in the statement of financial position at fair value. The
accounting for changes in the fair value (i.e. gains or losses) of a derivative
instrument depends on whether it has been designated and qualifies as part of a
hedging relationship and, if so, on the reason for holding it. If certain
conditions are met, entities may elect to designate a derivative instrument as a
hedge of exposures to changes in fair values, cash flows or foreign currencies.
If the hedged exposure is a fair value exposure, the gain or loss on the
derivative instrument is recognized in earnings in the period of change together
with the offsetting loss or gain on the hedged item attributable to the risk
being hedged. If the hedged exposure is a cash flow exposure, the effective
portion of the gain or loss on the derivative instrument is reported initially
as a component of the other comprehensive income (outside earnings) and
subsequently reclassified into earnings when the forecasted transaction affects
earnings. Any amounts excluded from the assessment of hedge effectiveness as
well as the ineffective portion of the gain or loss is reported in earnings
immediately. Accounting for foreign currency hedges is similar to the
accounting for fair value and cash flow hedges. If the derivative instrument is
not designated as a hedge, the gain or loss is recognized in earnings in the
period of change.
SFAS No. 133 is effective for the financial statements issued for periods
beginning after June 15, 1999. The Association is currently evaluating the
effects of SFAS No. 133.
In October 1998, the FASB issued SFAS No. 134, Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage-Banking Enterprise. SFAS 134 amended SFAS No. 65, Accounting for
Certain Mortgage Banking Activities and No. 115, Accounting for Certain
Investments in Debt and Equity Securities for years beginning after December 15,
1998. The Association currently conducts no mortgage-banking activities.
NOTE B--INVESTMENT SECURITIES
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED -------------------- FAIR
COST GAINS LOSSES VALUE
---------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Government agency obligations
September 30, 1998 $7,037,978 $48,699 $ --- $7,086,677
========== ======= ======= ==========
September 30, 1997 $8,550,809 $19,936 $61,764 $8,508,981
========== ======= ======= ==========
Held-to-Maturity:
September 30, 1998
U.S. Government agency obligations $4,959,029 $35,900 $ --- $4,994,929
State and local obligations 630,000 14,920 --- 644,920
---------- ------- ------- ----------
$5,589,029 $50,820 $ --- $5,639,849
========== ======= ======= ==========
September 30, 1997
U.S. Government agency obligations $4,403,378 $20,080 $18,435 $4,405,023
State and local obligations 690,000 11,876 --- 701,876
---------- ------- ------- ----------
$5,093,378 $31,956 $18,435 $5,106,899
========== ======= ======= ==========
</TABLE>
F-9
<PAGE>
NOTE B--INVESTMENT SECURITIES - CONT'D
The scheduled contractual maturities of debt securities at September 30, 1998,
are shown below. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations without call
or prepayment penalties.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
---------------------- ----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Amounts maturing:
One year or less $ --- $ --- $ 695,114 $ 697,036
After one year through five years 3,296,925 3,318,965 1,362,780 1,383,784
After five years through ten years 3,741,053 3,767,712 3,531,135 3,559.029
---------- ---------- ---------- ----------
$7,037,978 $7,086,677 $5,589,029 $5,639,849
========== ========== ========== ==========
</TABLE>
During 1998 and 1997, securities available-for-sale were called for redemption
with proceeds of $2,300,000 and $200,000, respectively, resulting in gross
realized losses of $3,670 and $1,180 in 1998 and 1997, respectively.
During 1998 and 1997, securities held-to-maturity were called for redemption
with proceeds of $950,000 and $500,000, respectively, resulting in a gross
realized gain of $1,614 in 1998 and a gross realized loss of $12,835 in 1997.
Investment securities were pledged to secure deposits as required or permitted
by law, with an amortized cost of $1,399,344 and fair value of $1,407,749 at
September 30, 1998.
NOTE C--MORTGAGE-BACKED SECURITIES
Mortgage-backed securities held-to-maturity consist of the following:
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ------------------ FAIR
COST GAINS LOSSES VALUE
---------- --------- ------- ----------
<S> <C> <C> <C> <C>
September 30, 1998
GNMA $ 460,807 $16,747 $ --- $ 477,554
FNMA 1,522,667 14,856 11,135 1,526,388
FHLMC 572,339 21,264 --- 593,603
SBA 28,563 --- 2,109 26,454
---------- ------- ------- ----------
$2,584,376 $52,867 $13,244 $2,623,999
========== ======= ======= ==========
September 30, 1997
GNMA $ 583,162 $27,118 $ --- $ 610,280
FNMA 1,380,429 12,646 21,317 1,371,758
FHLMC 803,687 25,534 --- 829,221
SBA 60,254 --- 942 59,312
---------- ------- ------- ----------
$2,827,532 $65,298 $22,259 $2,870,571
========== ======= ======= ==========
</TABLE>
F-10
<PAGE>
NOTE C--MORTGAGE-BACKED SECURITIES - CONT'D
The amortized cost and fair value of mortgage-backed securities at September 30,
1998, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
Amounts maturing:
After one year through five years $ 337,380 $ 342,174
After five through ten years 22,863 24,015
After ten years 2,224,133 2,257,810
---------- ----------
$2,584,376 $2,623,999
========== ==========
</TABLE>
Mortgage-backed securities were pledged to secure deposits as required or
permitted by law, with an amortized cost of $854,291 and fair value of $871,958
at September 30, 1998.
NOTE D--LOANS RECEIVABLE
Loans receivable consist of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Mortgage loans:
One- to four-family residences $36,801,348 $34,580,609
Multi-family 806,042 958,167
Commercial 2,072,984 1,833,741
Construction 875,915 1,452,446
Land 419,577 289,684
----------- -----------
40,975,866 39,114,647
Less undisbursed portion of mortgage loans 592,430 898,685
----------- -----------
40,383,436 38,215,962
Consumer and other loans:
Savings 305,287 303,853
Education 97,975 123,720
Other 10,237 13,100
----------- -----------
413,499 440,673
----------- -----------
40,796,935 38,656,635
Less:
Net deferred loan-origination fees 4,187 7,175
Allowance for loan losses 280,000 255,000
----------- -----------
284,187 262,175
----------- -----------
Loans receivable $40,512,748 $38,394,460
=========== ===========
</TABLE>
F-11
<PAGE>
NOTE D--LOANS RECEIVABLE - CONT'D
In the normal course of business, the Association has made loans to its
directors and officers. In the opinion of management, related party loans are
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with unrelated
persons and do not involve more than the normal risk of collectibility. The
aggregate dollar amount of loans outstanding to directors, officers and
employees total approximately $756,000 and $572,000 at September 30, 1998 and
1997, respectively.
The Association had loans serviced by others amounting to $8,568,593 and
$8,410,910 at September 30, 1998 and 1997, respectively.
Allowance for loan losses are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
-----------------------
1998 1997
----------- ----------
<S> <C> <C>
Balance, beginning of period $255,000 $234,187
Provision for loan losses 25,000 20,813
-------- --------
BALANCE, END OF PERIOD $280,000 $255,000
======== ========
</TABLE>
The recorded investment in impaired loans, for which there is no need for a
valuation allowance based upon the measure of the loan's fair value of the
underlying collateral at September 30, 1998 and 1997, was $-0- and $12,165,
respectively. The average recorded investment in impaired loans during the year
ended September 30, 1998 and 1997 was $12,165 and $130,772, respectively. The
related interest income that would have been recorded had the loans been current
in accordance with their original terms amounted to approximately $2,000 and
$34,000 at September 30, 1998 and 1997, respectively. The amount of interest
included in interest income on such loans for the year ended September 30, 1998
and 1997, amounted to approximately $-0- and $34,000, respectively.
NOTE E--ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consist of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Loans $243,378 $234,682
Investments securities 181,689 191,005
Mortgage-backed securities 18,842 21,268
-------- --------
$443,909 $446,955
======== ========
</TABLE>
F-12
<PAGE>
NOTE F--PREMISES AND EQUIPMENT
Premises and equipment consist of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Land $ 82,132 $ 82,132
Building and improvements 569,052 580,651
Furniture and equipment 380,078 353,579
---------- ----------
1,031,262 1,016,362
Less accumulated depreciation and amortization 468,897 525,111
---------- ----------
$ 562,365 $ 491,251
========== ==========
</TABLE>
NOTE G--DEPOSITS
Deposit account balances are summarized as follows at September 30:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE RATE 1998 1997
AT SEPTEMBER 30, -------------------- ----------------------
1998 AMOUNT % AMOUNT %
---------------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
NOW 2.53% 1,791,576 3.4 1,882,369 3.7
Money Market 3.91 1,275,154 2.4 1,028,585 2.0
Passbook savings 3.03 8,421,794 16.0 8,201,646 15.9
----------- ----- ----------- -----
3.05 11,488,524 21.8 11,112,600 21.6
Certificates of deposit:
4.00 to 4.99% 4.74 3,148,195 6.0 444,405 .9
5.00 to 5.99% 5.46 30,808,573 58.4 24,478,037 47.6
6.00 to 6.99% 6.36 7,278,476 13.8 15,376,772 29.9
----------- ----- ----------- -----
5.56 41,235,244 78.2 40,299,214 78.4
----------- ----- ----------- -----
5.02% $52,723,768 100.0% $51,411,814 100.0%
==== =========== ===== =========== =====
</TABLE>
The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was approximately $2,166,000 and $1,653,000 at September 30, 1998 and
1997, respectively. Deposits over $100,000 are not federally insured.
The Association held deposits of approximately $1,649,000 and $1,556,000 for its
directors, officers and employees at September, 1998 and 1997, respectively.
F-13
<PAGE>
NOTE G--DEPOSITS - CONT'D
At September 30, 1998, contractual maturities of certificates of deposit are as
follows:
<TABLE>
<CAPTION>
STATED YEAR ENDED SEPTEMBER 30
INTEREST RATE 1999 2000 2001 2002 2003
- --------------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
4.00 to 4.99% $ 3,148,195 $ --- $ --- $ --- $ ---
5.00 to 5.99% 19,108,800 3,685,099 5,724,534 1,039,357 1,250,783
6.00 to 6.99% 11,992 2,245,170 2,028,311 1,364,091 1,628,912
----------- ---------- ---------- ---------- ----------
$22,268,987 $5,930,269 $7,752,845 $2,403,448 $2,879,695
=========== ========== ========== ========== ==========
</TABLE>
Interest expense on deposits are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1998 1997
---------- ----------
<S> <C> <C>
NOW, Money Market and
Passbook savings accounts $ 328,833 $ 342,098
Certificate accounts 2,341,025 2,277,827
---------- ----------
$2,669,858 $2,619,925
========== ==========
</TABLE>
NOTE H--ADVANCES FROM FEDERAL HOME LOAN BANK OF DES MOINES
Advances from FHLB, with weighted average interest rates and scheduled
maturities, consist of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
-------- ----------
<S> <C> <C>
6.10% due on or before September 24, 1998 $ --- $1,000,000
5.74% due on or before January 6, 1999 500,000 ---
-------- ----------
$500,000 $1,000,000
======== ==========
</TABLE>
Maturities of FHLB advances are all due within one year.
The Association has signed a blanket pledge agreement with the FHLB under which
it can draw advances of unspecified amounts. The Association must hold an
unencumbered portfolio of eligible one- to four-family residential mortgages
with a book value of not less than 150% of the indebtedness.
F-14
<PAGE>
NOTE I--INCOME TAXES
Components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1998 1997
--------- ---------
<S> <C> <C>
Current $159,000 $193,500
Deferred benefit (10,000) (11,500)
-------- --------
$149,000 $182,000
======== ========
</TABLE>
In addition, the Association recorded deferred income tax to equity relating to
unrealized gains and losses on investment securities available-for-sale of
$33,595 and $40,167 for the years ended September 30, 1998 and 1997,
respectively.
The provision for income taxes as shown on the consolidated statements of income
differs from amounts computed by applying the statutory federal income tax rate
of 34% to income before taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1998 1997
-----------------------------------
<S> <C> <C> <C> <C>
Income tax expense at statutory rates $144,348 34.0% $174,724 34.0%
Increase (decrease) resulting from:
State income taxes, net of federal benefit 14,414 3.4 17,190 3.3
Tax exempt income, net of related expenses (9,549) (2.2) (9,221) (1.8)
Other, net (213) (.1) (693) (.1)
-------- ---- -------- ----
$149,000 35.1% $182,000 35.4%
======== ==== ======== ====
</TABLE>
Deferred income taxes reflect the impact of "temporary differences" between
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws. Temporary differences which give rise to a
significant portion of deferred tax assets and liabilities included in other
liabilities at September 30 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets
Allowance for loan losses $ 37,100 $ 15,000
Deferred loan fees 1,600 2,600
Unrealized loss on available-for-sale securities --- 15,528
Deferred tax liabilities
Depreciation (35,030) (23,965)
FHLB stock dividend (45,200) (45,200)
Unrealized gain on available-for-sale securities (18,067) ---
-------- --------
NET DEFERRED TAX LIABILITY $(59,597) $(36,037)
======== ========
</TABLE>
F-15
<PAGE>
NOTE I--INCOME TAXES - CONT'D
During 1996, the Small Business Job Protection Act (the "Act") was signed into
law. The Act eliminated the percentage of taxable income bad debt deductions
for thrift institutions for tax years beginning after December 31, 1995. The
Act provides that bad debt reserves accumulated prior to 1988 be exempt from
recapture. Bad debt reserves accumulated after 1987 are subject to recapture
over a six year period. The Association has provided for deferred income taxes
for the reserve recapture after 1987; therefore the impact of this legislation
will not have a material effect on the Association's financial statements.
Prior to the enactment of the Act, the Association at September 30, 1998,
accumulated approximately $1,053,000 for which no deferred income tax liability
has been recognized. This amount represents an allocation of income to bad debt
deductions for income tax purposes only. If any of this amount is used other
than to absorb loan losses (which is not anticipated), the amount will be
subject to income tax at the current corporate rates.
NOTE J--REGULATORY CAPITAL REQUIREMENTS
The Association 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 Association's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Association must meet specific capital guidelines that involve quantitative
measures of the Association's assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. The Association
capital amounts and classification are also subject to qualitative judgement by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to insure capital adequacy
require the Association to maintain minimum amounts and ratios (set forth below)
of total and Tier I capital to risk-weighted assets, and Tier I capital to
average assets (all as defined in the regulations). Management believes, as of
September 30, 1998, that the Association meets all capital adequacy requirements
to which it is subject.
Based on its regulatory capital ratios at September 30, 1998, the Association is
categorized as "well capitalized" under the regulatory framework for prompt
corrective action. To be categorized as "well capitalized" the Association must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios
as set forth in the table. The Association's actual capital amounts and ratios
also presented in the table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
----------------- ------------------ ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1998
Total Risk-Based Capital (greater than (greater than
(to Risk Weighted Assets) $6,297 22.30% or equal to) 2,259 8.0% or equal to) 2,824 10.0%
Tier 1 Capital (greater than (greater than
(to Risk Weighted Assets 6,017 21.31 or equal to) 1,130 4.0 or equal to) 3,566 6.0
Tier 1 Capital (greater than (greater than
(to Adjusted Assets) 6,017 10.13 or equal to) 1,783 3.0 or equal to) 2,971 5.0
Tangible Capital (greater than (greater than
(to Adjusted Assets) 6,017 10.13 or equal to) 891 1.5 or equal to) N/A N/A
</TABLE>
F-16
<PAGE>
NOTE J--REGULATORY CAPITAL REQUIREMENTS - CONT'D
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
----------------- ------------------ ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1997
Total Risk-Based Capital (greater than (greater than
(to Risk Weighted Assets) $5,997 22.25% or equal to) 2,156 8.0% or equal to) 2,695 10.0%
Tier 1 Capital (greater than (greater than
(to Risk Weighted Assets 5,742 21.30 or equal to) 1,078 4.0 or equal to) 3,509 6.0
Tier 1 Capital (greater than (greater than
(to Adjusted Assets) 5,742 9.82 or equal to) 1,754 3.0 or equal to) 2,924 5.0
Tangible Capital (greater than (greater than
(to Adjusted Assets) 5,742 9.82 or equal to) 877 1.5 or equal to) N/A N/A
</TABLE>
Reconciliation of equity and regulatory risk-based capital is as follows at
September 30:
<TABLE>
<CAPTION>
1998 1997
-----------------------
(Dollars in thousands)
<S> <C> <C>
Equity $6,048 $5,716
Less unrealized gain (loss) on securities, net of taxes 31 (26)
Add general valuation allowance 280 225
------ ------
Regulatory risk-based capital $6,297 $5,997
====== ======
</TABLE>
NOTE K--EMPLOYEE BENEFITS
The Association has a 401(k) salary reduction plan that covers all employees
meeting specific age and length of service requirements. Under the plan, the
Association matches participant contributions at the rate of 50% up to 4% of the
participants' annual compensation. Pension costs recognized under the plan
totalled $8,903, and $8,660 for the years ended September 30, 1998 and 1997,
respectively.
NOTE L--FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK
The Association is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet customer financing needs. These
financial instruments consist principally of commitments to extend credit. The
Association uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. The Association's
exposure to credit loss in the event of nonperformance by the other party is
represented by the contractual amount of those instruments. The Association
does not generally require collateral or other security on unfunded loan
commitments until such time that loans are funded.
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. The
Association evaluates each customer's credit worthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Association upon
extension of credit, is based on management's credit evaluation of the
counterparty. Such collateral consists primarily of residential properties.
The Association had the following outstanding commitments at September 30, 1998:
<TABLE>
<S> <C>
Undisbursed portion of mortgage loans $ 592,430
Commitments to originate mortgage loans with variable or pending interest rates 502,700
Commitments to originate mortgage loans with fixed interest rates ranging
from 7.00% to 7.50% 126,750
Undisbursed portion of nonmortgage loans 27,847
----------
TOTAL $1,249,727
==========
</TABLE>
F-17
<PAGE>
NOTE L--FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK - CONT'D
At September 30, 1998, the Association had amounts on deposit at banks and
federal agencies in excess of federally insured limits of approximately
$2,245,000.
NOTE M--PLAN OF CONVERSION
On September 24, 1998, the Association's Board of Directors adopted a plan of
conversion ("Plan") to convert from a federally chartered mutual savings bank to
a federally chartered stock savings bank, subject to approval by the
Associations' members. The Plan, which includes the formation of a Holding
Bank, is subject to approval by the OTS and includes the filing of a
registration statement with the Securities and Exchange Commission.
The Plan is expected to be accomplished by the sale of common stock of the
Holding Bank and the acquisition of all of the capital stock of the Association
by the Holding Bank in exchange for a portion of the net proceeds of the
conversion. The Holding Bank's common stock will be offered to various eligible
account holders, to the Association's Employee Stock Ownership Plan, to other
supplemental eligible depositors and to other members of the Association in a
subscription offering. Shares of the Holding Bank's common stock not subscribed
for in the subscription offering, if any, may be offered for sale in a community
offering, as determined by the Board of Directors of the Association.
At the time of conversion, the Association will establish a liquidation account
in an amount equal to its retained earnings as reflected in the latest statement
of financial condition used in the final conversion prospectus. The liquidation
account will be maintained for the benefit of eligible account holders and
supplemental eligible account holders (collectively,"eligible depositors") who
continue to maintain their deposit accounts in the Association after conversion.
In the event of a complete liquidation of the Association (and only in such
event), eligible depositors who continue to maintain accounts shall be entitled
to receive distribution from the liquidation account before any liquidation may
be made with respect to common stock.
The Association may not declare or pay a cash dividend if the effect thereof
would cause its equity to be reduced below either the amount required for the
liquidation account or the regulatory capital requirements imposed by the OTS.
Conversion costs will be deducted from the proceeds of sale of common stock and
recorded as a reduction to equity. If the conversion is not completed, all costs
will be charged to expense. As of September 30, 1998, the Association has
incurred costs related to the conversion of $18,655.
NOTE N--FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No, 107, Disclosures About Fair Value of Financial Instruments, requires
disclosure of estimated fair value for financial instruments held by the
Association. Fair value estimates of the Association's financial instruments as
of September 30, 1998 and 1997, including methods and assumptions utilized, are
set forth below.
The following methods and assumptions were used by the Association in estimating
fair values of financial instruments as disclosed herein.
Cash and due from depository institutions: The carrying amounts approximate
fair value.
F-18
<PAGE>
NOTE N--FAIR VALUE OF FINANCIAL INSTRUMENTS - CONT'D
Investment and mortgage-backed securities: Fair value is determined by
reference to quoted market prices.
Stock in FHLB: This stock is a restricted asset and its carrying value is a
reasonable estimate of fair value.
Loans receivable: The fair value of fixed rate first mortgage loans is
estimated by using discounted cash flow analyses, using interest rates currently
offered by the Association for loans with similar terms to borrowers of similar
credit quality. The carrying value of variable rate first mortgage loans
approximate fair value. The fair value of consumer loans is calculated by using
the discounted cash flow based upon the current market for like instruments.
Fair values for impaired loans are estimated using discounted cash flow
analyses.
Accrued interest receivable: The carrying value approximates fair value.
Transaction deposits: Transaction deposits, payable on demand or with
maturities of 90 days or less, have a fair value equal to book value.
Certificates of deposit: The fair value of fixed maturity certificates of
deposit is estimated by discounting the future cash flows using the rates
currently offered for deposits of similar maturities.
Advances from borrowers for taxes and insurance: The carrying value
approximates fair value.
All other liabilities: The carrying value approximates fair value.
Off-balance sheet instruments: The fair value of a loan commitment and a letter
of credit is determined based on the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreement and
the present credit worthiness of the counterparties. Neither the fees earned
during the year on these instruments nor their value at year-end are significant
to the Association's consolidated financial position.
Limitations: Fair value estimates are made at a specific point in time, based
on relevant market information and information about the financial instrument.
The valuation techniques employed above involve uncertainties and are affected
by assumptions used and judgements regarding prepayments, credit risk, discount
rates, cash flows and other factors. Changes in assumptions could significantly
affect the reported fair value.
In addition, the fair value estimates are based on existing on- and off-balance
sheet financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that are not
considered financial instruments. Also, the fair value estimates do not include
the benefit that results from the low-cost funding provided by the deposit
liabilities compared to the cost of borrowing funds in the market. The amounts
at September 30, 1998 and 1997, are as follows:
F-19
<PAGE>
NOTE N--FAIR VALUE OF FINANCIAL INSTRUMENTS - CONT'D
<TABLE>
<CAPTION>
1998 1997
------------------ -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from depository institutions $ 2,268 $ 2,268 $ 2,146 $ 2,146
Investment securities - Available for sale 7,087 7,087 8,509 8,509
Investment securities - Held-to-maturity 5,589 5,640 5,093 5,107
Mortgage-backed securities - Held-to-maturity 2,584 2,624 2,828 2,871
Stock in FHLB 374 374 480 480
Loans receivable, net 40,513 40,522 38,394 38,398
Accrued interest receivable 444 444 447 447
LIABILITIES
Transaction accounts 11,489 11,489 11,113 11,113
Certificates of deposit 41,235 41,365 40,299 40,403
Advances from Federal Home Loan Bank 500 500 1,000 1,000
Advances from borrowers for property taxes
and insurance 50 50 54 54
</TABLE>
NOTE O--PRIOR-PERIOD ADJUSTMENT
The Association retroactively changed its method of computing deferred income
taxes to include the allowances for loan losses as a component of deferred
income taxes. The effect of this adjustment was to record a deferred income tax
asset and an increase in equity of $87,000.
F-20
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
prospectus in connection with the offering made hereby, and, if given or made,
that such other information or representation must not be relied upon as having
been authorized by PFSB Bancorp, Inc. or Palmyra Saving and Building
Association, F.A. 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 an offer or solicitation is not
authorized or in which the person making such an offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such an
offer or solicitation in such those 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 PFSB Bancorp, Inc.
or Palmyra Saving and Building Association, F.A. since any of the dates as of
which information is furnished herein or since the date hereof.
[Logo for PFSB Bancorp, Inc.]
(Proposed Holding Company for
Palmyra Saving and Building Association, F.A.,
to be known as Palmyra Savings)
637,500 to 862,500 Shares of Common Stock
----------------
Prospectus
----------------
TRIDENT SECURITIES, INC.
______ __, 1999
Until the later of _______, 1999, or 90 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.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
In accordance with the General and Business Corporations Law of the State of
Missouri (being Chapter 351 of the Missouri Statutes), Article IX of the
Registrant's Articles of Incorporation provide as follows:
ARTICLE IX - INDEMNIFICATION
9.1 The Corporation shall and does hereby indemnify any person who is or
was a Director or executive officer of the Corporation or any subsidiary against
any and all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement and reasonably incurred by such person in connection with any
threatened, pending or completed civil, criminal, administrative or
investigative action, suit, proceeding or claim (including any action by or in
the right of the Corporation or a subsidiary) by reason of the fact that such
person is or was serving in such capacity; provided, however,, that no such
-------- --------
person shall be entitled to any indemnification pursuant to this Article IX on
account of (i) conduct which is finally adjudged to have been knowingly
fraudulent or deliberately dishonest or to have constituted willful misconduct,
or (ii) an accounting for profits pursuant to Section 16(b) of the Securities
Exchange Act of 1934, as amended from time to time, or pursuant to a successor
statute or regulation.
9.2 The Corporation may, to the extent that the Board of Directors deems
appropriate and as set forth in a Bylaw or authorizing resolution, indemnify any
person who is or was a non-executive officer, or employee or agent of the
Corporation or any subsidiary or who 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 (including an employee
benefit plan) against any and all expenses (including attorneys' fees),
judgements, fines and amounts paid in settlement and reasonably incurred by such
person in connection with any threatened, pending or completed civil, criminal,
administrative or investigative action, suit, proceeding or claim (including an
action by or in the right of the Corporation or a subsidiary) by reason of the
fact that such person is or was serving in such capacity; provided, however,
-------- -------
that no such person shall be entitled to any indemnification pursuant to this
Section 9.2 on account of (i) conduct which is finally adjudged to have been
knowingly fraudulent or deliberately dishonest or to have constituted willful
misconduct, or (ii) an accounting for profits pursuant to Section 16(b) of the
Securities Exchange Act of 1934, as amended from time to time, or pursuant to a
successor statute or regulation.
9.3 The Corporation may, to the extent that the Board of Directors deems
appropriate, make advances of expenses, including attorneys' fees, incurred
prior to the final disposition of a civil, criminal, administrative or
investigative action, suit, proceeding or claim (including an action by or in
the right of the Corporation or a subsidiary) to any person to whom
indemnification is or may be available under this Article IX; provided, however,
-------- -------
that prior to making any advances, the Corporation shall receive a written
undertaking by or on behalf of such person to repay such amounts advanced in the
event that it shall be ultimately determined that such person is not entitled to
such indemnification.
9.4 The indemnification and other rights provided by this Article IX shall
not be deemed exclusive of any other rights to which a person to whom
indemnification is or otherwise may be available (under these Articles of
Incorporation or the Bylaws or any agreement or vote of shareholders or
disinterested Directors or otherwise), may be entitled. The Corporation is
authorized to purchase and maintain insurance on behalf of the Corporation or
any person to whom indemnification is or may be available against any liability
asserted against such person in, or arising out of, such person's status as
Director, officer, employee or agent of the Corporation, any of its subsidiaries
or another corporation, partnership, joint venture, trust or other enterprise
(including an employee benefit plan) which such person is serving at the request
of the Corporation.
9.5 Each person to whom indemnification is granted under this Article IX
is entitled to rely upon the indemnification and other rights granted hereby as
a contract with the Corporation and such person and such person's heirs,
executors, administrators and estate shall be entitled to enforce against the
Corporation all indemnification and other rights granted to such person by
Sections 9.1 and 9.3 and this Article IX. The indemnification and other rights
granted by Sections 9.1 and 9.3 and this Section 9.5 shall survive amendment,
modification or repeal of this Article IX, and no such amendment, modification
or repeal shall act to reduce, terminate or otherwise adversely affect the
rights to indemnification granted hereby, with respect to any expenses,
judgments, fines and
<PAGE>
amounts paid in settlement incurred by a person to whom indemnification is
granted under this Article IX with respect to an action, suit, proceeding or
claim that arises out of acts or omissions of such person that occurred prior to
the effective date of such amendment, modification or repeal.
Any indemnification granted by the Board of Directors pursuant this Article IX
shall inure to the person to whom the indemnification is granted and such
person's heirs, executors, administrators and estate; provided however, that
-------- -------
such indemnification may be changed, modified or repealed, at any time or from
time to time, at the discretion of the Board of Directors, and the survival of
such indemnification shall be in accordance with terms determined by the Board
of Directors.
9.6 For the purposes of this Article IX, "subsidiary" shall mean any
corporation, partnership, joint venture, trust or other enterprise of which a
majority of the voting power, equity or ownership interest is directly or
indirectly owned by the Corporation.
<PAGE>
Item 25. Other Expenses of Issuance and Distribution.
<TABLE>
<CAPTION>
<S> <C>
SEC filing(1)..................................... $ 2,758
OTS filing fee.................................... 8,400
NASD filing fee(1)................................ 1,490
Printing, postage and mailing..................... 75,000
Legal fees and expenses (including underwriter's
counsel)...................................... 160,000
Accounting fees and expenses...................... 70,000
Appraisers' fees and expenses (including
business plan)................................ 30,000
Marketing fees and selling commissions............ 135,000
Underwriter's expenses............................ 12,500
Conversion agent fees and expenses................ 5,000
Certificate printing.............................. 1,500
Miscellaneous..................................... 28,352
--------
TOTAL............................................. $535,000
========
</TABLE>
______________________
(1) Unless otherwise noted, based upon the registration and issuance of 991,875
shares at $10.00 per share.
Item 26. Recent Sales of Unregistered Securities.
None.
<PAGE>
Item 27. Exhibits.
The exhibits filed as a part of this Registration Statement are as follows:
<TABLE>
<CAPTION>
(a) List of Exhibits (filed herewith unless otherwise noted)
<S> <C>
1.1 Engagement Letter between Palmyra Saving and Building Association, F.A.
and Trident Securities, Inc.**
1.2 Draft Form of Agency Agreement
2.0 Amended Plan of Conversion (including the Stock Charter and Bylaws of
Palmyra Savings)
3.1 Articles of Incorporation of PFSB Bancorp, Inc.**
3.2 Bylaws of PFSB Bancorp, Inc.**
3.3 Stock Charter and Bylaws of Palmyra Savings
(See Exhibit 2.0 hereto)**
4.0 Draft Stock Certificate of PFSB Bancorp, Inc.**
5.0 Opinion of Muldoon, Murphy & Faucette LLP re: legality
8.1 Opinion of Muldoon, Murphy & Faucette LLP re: Federal Tax Matters
8.2 Opinion of Moore, Horton & Carlson, P.C. re: State Tax Matters
10.1 Form of Palmyra Savings Employee Stock Ownership Plan and Trust
Agreement **
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents **
10.3 Form of Palmyra Savings and PFSB Bancorp, Inc. Employment Agreement **
10.4 Form of Palmyra Savings Employee Severance Compensation Plan **
16.0 Letter on change in certifying accountant **
23.1 Consent of Muldoon, Murphy & Faucette LLP**
23.2 Consent of Moore, Horton & Carlson, P.C.
23.4 Consent and Subscription Rights Opinion of R.P. Financial, LC.**
24.1 Powers of Attorney **
24.2 Corporate Resolution re: Registration Statement execution and filing
27.0 Financial Data Schedule **
99.1 Appraisal Report of R.P. Financial, LC. (P)
99.2 Appraisal Update Report of R.P. Financial, LC (P)
99.3 Marketing Materials
</TABLE>
- --------------------------------------
** Previously filed
(P) **Previously filed pursuant to Rule 202 of Regulation S-T.
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
Item 28. Undertakings.
The small business issuer will:
(1) 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;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(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 to 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.
The small business issuer will provide to 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "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 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such 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 Act and will be governed by the final adjudication of such
issue.
<PAGE>
CONFORMED
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Amended
Registration Statement to be signed on its behalf by the undersigned, in the
City of Palmyra, State of Missouri, on February 3, 1999.
PFSB Bancorp, Inc.
By: /S/ Eldon R. Mette
----------------------------------------
Eldon R. Mette
President and Director
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Eldon R. Mette President and Director February 3, 1999
- ----------------------- (principal executive
Eldon R. Mette officer)
/s/ Ronald L. Nelson Vice President, Secretary February 3, 1999
- ----------------------- and Treasurer
Ronald L. Nelson (principal accounting and
financial officer)
* Chairman of the Board
- -----------------------
L. Edward Schaeffer
* Director
- -----------------------
Glenn J. Maddox
* Director
- -----------------------
Albert E. Davis
* Director
- -----------------------
Robert M. Dearing
* Director
- -----------------------
James D. Lovegreen
* Director
- -----------------------
Donald L. Slavin
</TABLE>
<PAGE>
*Pursuant to the Power of Attorney filed as Exhibit 24.1 to the Registration
Statement on Form SB-2 for PFSB Bancorp, Inc. on December 18, 1998.
/s/ Eldon R. Mette President and Director February 3, 1999
- --------------------
Eldon R. Mette
<PAGE>
As filed with the Securities and Exchange Commission on February 3, 1999
Registration No. 333-69191
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
EXHIBITS
TO THE
PRE-EFFECTIVE AMENDMENT NO. 2 TO THE
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------------
PFSB BANCORP, INC.
(Exact name of registrant as specified in its certificate of incorporation)
================================================================================
<PAGE>
TABLE OF CONTENTS
List of Exhibits (filed herewith unless otherwise noted)
The exhibits filed as a part of this Registration Statement are as follows:
<TABLE>
<CAPTION>
(a) List of Exhibits (filed herewith unless otherwise noted)
<S> <C>
1.1 Engagement Letter between Palmyra Saving and Building Association, F.A.
and Trident Securities, Inc.**
1.2 Draft Form of Agency Agreement
2.0 Amended Plan of Conversion (including the Stock Charter and Bylaws of
Palmyra Savings)
3.1 Articles of Incorporation of PFSB Bancorp, Inc.**
3.2 Bylaws of PFSB Bancorp, Inc.**
3.3 Stock Charter and Bylaws of Palmyra Savings
(See Exhibit 2.0 hereto)**
4.0 Draft Stock Certificate of PFSB Bancorp, Inc.**
5.0 Opinion of Muldoon, Murphy & Faucette LLP re: legality
8.1 Opinion of Muldoon, Murphy & Faucette LLP re: Federal Tax Matters
8.2 Opinion of Moore, Horton & Carlson, P.C. re: State Tax Matters
10.1 Form of Palmyra Savings Employee Stock Ownership Plan and Trust
Agreement **
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents **
10.3 Form of Palmyra Savings and PFSB Bancorp, Inc. Employment Agreement **
10.4 Form of Palmyra Savings Employee Severance Compensation Plan **
16.0 Letter on change in certifying accountant **
23.1 Consent of Muldoon, Murphy & Faucette LLP **
23.2 Consent of Moore, Horton & Carlson, P.C.
23.4 Consent and Subscription Rights Opinion of R.P. Financial, LC.**
24.1 Powers of Attorney **
24.2 Corporate Resolution re: Registration Statement execution and filing
27.0 Financial Data Schedule **
99.1 Appraisal Report of R.P. Financial, LC. (P)**
99.2 Updated Appraisal Report of R.P. Financial, LC (P)
99.3 Marketing Materials
</TABLE>
- --------------------------------------
** Previously filed
(P) **Previously filed pursuant to Rule 202 of Regulation S-T.
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
Exhibit 1.2 Draft Form of Agency Agreement
<PAGE>
Exhibit 1.2
PFSB Bancorp, Inc.
637,500 to 862,500 Shares
(as may be increased to 991,875 Shares)
Common Stock
(Par Value $.01 Per Share)
Purchase Price: $10.00 Per Share
SALES AGENCY AGREEMENT
----------------------
Trident Securities, Inc.
4601 Six Forks Road, Suite 400
Raleigh, North Carolina 27609
Dear Sirs:
PFSB Bancorp, Inc., a Missouri corporation (the "Company") and Palmyra
Savings and Building Association, F.A., a federally chartered and insured mutual
savings association (the "Association", in mutual or stock form as the context
may require), hereby confirm, as of ___________, 1999 their respective
agreements with Trident Securities, Inc. ("Trident"), a broker-dealer registered
with the Securities and Exchange Commission ("Commission") and a member of the
National Association of Securities Dealers, Inc. ("NASD"), as follows:
1. Introductory. The Association intends to convert from a federally
------------
chartered mutual savings association to a federally chartered capital stock
savings bank as a wholly owned subsidiary of the Company (together with the
Offerings, as defined below, the issuance of shares of common stock of the
Association to the Company and the incorporation of the Company, the
"Conversion") pursuant to a plan of conversion adopted by the Association's
Board of Directors on September 24, 1998 (the "Plan"). In accordance with the
Plan, the Company is offering shares of its common stock, par value $.01 per
share (the "Common Stock"), pursuant to nontransferable subscription rights in a
subscription offering (the "Subscription Offering") to certain depositors and
borrowers of the Association and to the Association's tax-qualified employee
benefit plans (i.e., the Association's Employee Stock Ownership Plan (the
"ESOP")). Any shares of the Common Stock not sold in the Subscription Offering
are being offered to the general public in a Community Offering (the "Community
Offering"), with preference given to natural persons and the trusts of natural
persons who are permanent residents of Marion, Lewis and Clark Counties,
Missouri (the "Local Community") (the Subscription and Community Offerings are
sometimes referred to collectively as the "Subscription and Community
Offering"), subject to the right of the Company and the Association, in their
absolute discretion, to reject orders in the Community Offering in whole or in
part. It is anticipated that shares of Common Stock not subscribed for in the
Subscription and Community Offering (if any) will be offered to certain members
of the general public on a best efforts basis by a selling group of broker
dealers to be formed and managed by Trident in a syndicated offering
("Syndicated Community Offering") (the Subscription
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 2
and Community Offering and the Syndicated Community Offering are referred to
collectively as the "Offerings"). In the Subscription Offering (and the
Community Offering and the Syndicated Community Offering if applicable), the
Company is offering between 637,500 and 862,500 shares of Common Stock (the
"Shares"), with the possibility of offering up to 991,875 shares without a
resolicitation of subscribers, as contemplated by Part 563b of Title 12 of the
Code of Federal Regulations. With the exception of the ESOP, no person (or group
of persons through a single deposit account) may purchase shares with an
aggregate purchase price of more than $40,000 and no person or entity, together
with associates of and persons acting in concert with such person or other
entity, may purchase shares of Common Stock which in the aggregate exceed 1% of
the total number of shares of Common Stock issued in the Conversion.
The Company and the Association have been advised by Trident that it will
utilize its best efforts to assist the Company with the sale of the Shares in
the Offerings. Prior to the execution of this Agreement, the Company has
delivered to Trident the Prospectus dated ________, 1999 (as hereinafter
defined) and all supplements thereto, if any, to be used in the Offerings have
also been delivered to Trident (or if after the date of this Agreement, will be
promptly delivered to Trident). Such Prospectus contains information with
respect to the Company, the Association and the Shares.
2. Representations and Warranties.
------------------------------
(a) The Company and the Association jointly and severally represent
and warrant to Trident that:
(i) The Company has filed with the Commission a registration
statement, including exhibits and an amendment or amendments thereto,
on Form SB-2 (No. 333-69191), including a Prospectus relating to the
Offerings, for the registration of the Shares under the Securities Act
of 1933, as amended (the "Act"). Such registration statement has
become effective under the Act and no stop order has been issued with
respect thereto and no proceedings therefor have been initiated or, to
the Company's best knowledge, threatened by the Commission. Except as
the context may otherwise require, such registration statement, as
amended or supplemented, on file with the Commission at the time the
registration statement became effective, including the Prospectus,
financial statements, schedules, exhibits and all other documents
filed as part thereof, as amended and supplemented, is herein called
the "Registration Statement," and the prospectus, as amended or
supplemented, on file with the Commission at the time the Registration
Statement became effective is herein called the "Prospectus," except
that if the prospectus filed by the Company with the Commission
pursuant to Rule 424(b) of the general rules and regulations of the
Commission under the Act (the "SEC Regulations")
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 3
differs from the form of prospectus on file at the time the
Registration Statement became effective, the term "Prospectus" shall
refer to the Rule 424(b) prospectus from and after the time it is
filed with the Commission and shall include any amendments or
supplements thereto from and after their dates of effectiveness or
use, respectively. If any Shares remain unsubscribed following
completion of the Subscription Offering and, if any, the Community
Offering, the Company (i) will, if required by SEC Regulations,
promptly file with the Commission a post-effective amendment to such
Registration Statement relating to the results of the Subscription
Offering and, if any, the Community Offering, any additional
information with respect to the proposed plan of distribution and any
revised pricing information or (ii) if no such post-effective
amendment is required, will file with the Commission a prospectus or
prospectus supplement containing information relating to the results
of the Subscription and the Community Offerings and pricing
information pursuant to Rule 424(c) of the SEC Regulations, in either
case in a form reasonably acceptable to the Company and
Trident.
(ii) The Association has filed an Application for Approval of
Conversion on Form AC, including exhibits (as amended or supplemented,
the "Form AC" and together with the Form H-(e)1-S referred to below,
the "Conversion Application") with the Office of Thrift Supervision
(the "Office") under the Home Owners' Loan Act, as amended (the
"HOLA") and the enforceable rules and regulations, including published
policies and actions, of the Office thereunder (the "OTS
Regulations"), which has been approved by the Office; the Prospectus
and the proxy statement for the solicitation of proxies from members
of the Association for the special meeting to approve the Plan (the
"Proxy Statement") included as part of the Form AC have been approved
for use by the Office. No order has been issued by the Office
preventing or suspending the use of the Prospectus or the Proxy
Statement; and no action by or before the Office revoking such
approvals is pending or, to the Association's best knowledge,
threatened. The Company has filed with the Office the Company's
application on Form H-e(1)-S under the savings and loan holding
company provisions of the HOLA and the OTS Regulations, which has been
conditionally approved.
(iii) At the date of the Prospectus and at all times subsequent
thereto through and including the Closing Date (i) the Registration
Statement and the Prospectus (as amended or supplemented, if amended
or supplemented) complied and will comply in all material respects
with the Act and the SEC Regulations, (ii) the Registration Statement
(as amended or supplemented, if amended or supplemented) did not
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (iii) the Prospectus (as
amended or supplemented, if
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 4
amended or supplemented) did not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Representations or warranties in this subsection shall not apply to
statements or omissions made in reliance upon and in conformity with
written information furnished to the Company or the Association
relating to Trident, by or on behalf of Trident expressly for use in
the Registration Statement or Prospectus.
(iv) The Company has been duly incorporated as a Missouri
corporation and the Association has been duly organized as a mutual
savings association under the laws of the United States, and each of
them is validly existing and in good standing under the laws of the
jurisdiction of its organization with full power and authority to own
its property and conduct its business as described in the Prospectus;
the Association is a member of the Federal Home Loan Bank of Des
Moines; and the deposit accounts of the Association are insured by the
Savings Association Insurance Fund ("SAIF") administered by the
Federal Deposit Insurance Corporation ("FDIC") up to the applicable
limits. Neither the Company or the Association is required to be
qualified to do business as a foreign corporation in any jurisdiction
where non-qualification would have a material adverse effect on the
Company and the Association, taken as a whole. The Association does
not own equity securities of or an equity interest in any business
enterprise, except as described in the Prospectus. Upon amendment of
the Association's charter and bylaws as provided in the OTS
Regulations and completion of the sale by the Company of the Shares as
contemplated by the Prospectus, (i) the Association will convert
pursuant to the Plan to a federally chartered capital stock savings
bank with full power and authority to own its property and conduct its
business as described in the Prospectus, (ii) all of the authorized
and outstanding capital stock of the Association will be owned of
record and beneficially by the Company, and (iii) the Company will
have no direct subsidiary other than the Association.
(v) The Association has good and marketable title to all assets
material to its business and to those assets described in the
Prospectus as owned by it, free and clear of all material liens,
charges, encumbrances or restrictions, except for liens for taxes not
yet due, except as described in the Prospectus and except as would not
in the aggregate have a material adverse effect upon the operations or
financial condition of the Association; and all of the leases and
subleases material to the operations or financial condition of the
Association, under which it holds properties, including those
described in the Prospectus, are in full force and effect as described
therein.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 5
(vi) The Association has obtained all licenses, permits and other
governmental authorizations currently required for the conduct of its
business, all such licenses, permits and other governmental
authorizations are in full force and effect and the Association is in
all material respects complying therewith, except where the failure to
hold or comply with such licenses, permits or governmental
authorizations would not have a material adverse effect on the Company
and the Association, taken as a whole;
(vii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
and validly authorized by all necessary actions on the part of each of
the Company and the Association, and this Agreement is a valid and
binding obligation with valid execution and delivery of each of the
Company and the Association, enforceable in accordance with its terms
(except as the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium, reorganization or similar laws relating to or
affecting the enforcement of creditors' rights generally or the rights
of creditors of savings and loan holding companies the accounts of
whose subsidiary are insured by the FDIC or by general equity
principles, regardless of whether such enforceability is considered in
a proceeding in equity or at law, and except to the extent that the
provisions of Sections 8 and 9 hereof may be unenforceable as against
public policy or pursuant to Section 23A of the Federal Reserve Act,
12 U.S.C. Section 371c ("Section 23A")).
(viii) There is no litigation or governmental proceeding pending
or, to the best knowledge of the Company or the Association,
threatened against or involving the Company, the Association, or any
of their respective assets which individually or in the aggregate
would reasonably be expected to have a material adverse effect the
condition (financial or otherwise), results of operations and
business, including the assets and properties of the Company and the
Association, taken as a whole.
(ix) The Company and the Association have received the opinions
of Muldoon, Murphy & Faucette with respect to federal income tax
consequences of the Conversion and of Moore, Horton & Carlson, P.C.,
with respect to Missouri income tax consequences of the Conversion, to
the effect that the Conversion will constitute a tax-free
reorganization under the Internal Revenue Code of 1986, as amended,
and will not be a taxable transaction for the Association or the
Company under the laws of Missouri, and the facts relied upon in such
opinions are accurate and complete.
(x) Each of the Company and the Association has all such
corporate power, authority, authorizations, approvals and orders as
may be required to enter
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 6
into this Agreement and to carry out the provisions and conditions
hereof, subject to the limitations set forth herein and subject to the
satisfaction of certain conditions imposed by the Office in connection
with its approvals of the Form AC and the Application H-(e)1-S, and
except as may be required under the securities, or "blue sky", laws of
various jurisdictions, and in the case of the Company, as of the
Closing Date, will have such approvals and orders to issue and sell
the Shares to be sold by the Company as provided herein, and in the
case of the Association, as of the Closing Date, will have such
approvals and orders to issue and sell the Shares of its Common Stock
to be sold to the Company as provided in the Plan, subject to the
issuance of an amended charter in the form required for federally
chartered capital stock savings banks (the "Stock Charter"), the form
of which Stock Charter has been approved by the Office.
(xi) Neither the Company nor the Association is in violation of
any rule or regulation of the Office or the FDIC that could reasonably
be expected to result in any enforcement action against the Company,
the Association, or their officers or directors that would have a
material adverse effect on the condition (financial or otherwise),
operations, businesses, assets or properties of the Company and the
Association, taken as a whole.
(xii) The financial statements and the related notes or
schedules which are included in the Registration Statement and are
part of the Prospectus fairly present the consolidated financial
condition, income, retained earnings and cash flows of the Association
at the respective dates thereof and for the respective periods covered
thereby and comply as to form in all material respects with the
applicable accounting requirements of the SEC Regulations and the
applicable accounting regulations of the Office. Such financial
statements have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods
involved, except as set forth therein, and such financial statements
are in all material respects consistent with financial statements and
other reports filed by the Association with supervisory and regulatory
authorities except as such generally accepted accounting principles
may otherwise require. The tables in the Prospectus accurately
present the information purported to be shown thereby at the
respective dates thereof and for the respective periods therein.
(xiii) There has been no material change in the condition
(financial or otherwise), results of operations or business, including
assets and properties, of the Company and the Association, taken as a
whole, since the latest date as of which such condition is set forth
in the Prospectus, except as set forth therein; and the
capitalization, assets, properties and business of each of the Company
and the Association conform to the descriptions thereof contained in
the Prospectus. Neither the Company nor the Association has any
material liabilities of any kind, contingent or otherwise, except as
set forth in the Prospectus.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 7
Neither the Company nor the Association has any material liabilities
of any kind, contingent or otherwise, except as set forth in the
Prospectus.
(xiv) There has been no breach or default (or the occurrence of
any event which, with notice or lapse of time or both, would
constitute a default) under, or creation or imposition of any lien,
charge or other encumbrance upon any of the properties or assets of
the Company or the Association pursuant to any of the terms,
provisions or conditions of, any agreement, contract, indenture, bond,
debenture, note, instrument or obligation to which the Company or the
Association is a party or by which any of them or any of their
respective assets or properties may be bound or is subject, or
violation of any governmental license or permit or any enforceable
published law, administrative regulation or order or court order,
writ, injunction or decree, which breach, default, encumbrance or
violation would have a material adverse effect on the condition
(financial or otherwise), operations, business, assets or properties
of the Company and the Association taken as a whole; all agreements
which are material to the condition (financial or otherwise), results
of operations or business of the Company and the Association, taken as
a whole are in full force and effect, and no party to any such
agreement has instituted or, to the best knowledge of the Company or
the Association threatened any action or proceeding wherein the
Company or the Association would be alleged to be in default
thereunder.
(xv) Neither the Company nor the Association is in violation of
its respective articles of incorporation, charter or bylaws. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by the Company and the Association do
not conflict with or result in a breach of the respective articles of
incorporation, charter or bylaws of the Company or the Association (in
either mutual or stock form) or constitute a material breach of or
default (or an event which, with notice or lapse of time or both,
would constitute a default) under, give rise to any right of
termination, cancellation or acceleration contained in, or result in
the creation or imposition of any lien, charge or other encumbrance
upon any of the properties or assets of the Company or the Association
pursuant to any of the terms, provisions or conditions of, any
material agreement, contract, indenture, bond, debenture, note,
instrument or obligation to which the Company or the Association is a
party or violate any governmental license or permit or any enforceable
published law, administrative regulation or order or court order,
writ, injunction or decree (subject to the satisfaction of certain
conditions imposed by the Office in connection with its approval of
the Conversion Application), which breach, default, encumbrance or
violation would have a material adverse effect on the condition
(financial or otherwise), operations or business of the Company and
the Association, taken as a whole.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 8
(xvi) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus and prior to the
Closing Date (as hereinafter defined), except as otherwise may be
indicated or contemplated therein, neither the Company nor the
Association has issued any securities which will remain issued at the
Closing Date or incurred any liability or obligation, direct or
contingent, or borrowed money, except liabilities, obligations or
borrowings in the ordinary course of business, or entered into any
other transaction not in the ordinary course of business and
consistent with prior practices, which is material in light of the
business of the Company and the Association, taken as a whole.
(xvii) Upon consummation of the Conversion, the authorized,
issued and outstanding equity capital of the Company shall be within
the range set forth in the Prospectus under the caption
"Capitalization," and no capital stock of the Company shall be
outstanding immediately prior to the Closing Date; the issuance and
the sale of the Shares have been duly authorized by all necessary
corporate action of the Company and approved by the Office and, when
issued in accordance with the terms of the Plan and paid for, shall be
validly issued, fully paid and nonassessable and shall conform to the
description thereof contained in the Prospectus; the issuance of the
Shares is not subject to preemptive rights, except as set forth in the
Prospectus; and good title to the Shares will be transferred by the
Company to the purchasers thereof upon issuance thereof against
payment therefor, free and clear of all claims, encumbrances, security
interests and liens against the Company whatsoever. The certificates
representing the Shares will conform in all material respects with the
requirements of applicable laws and regulations. The issuance and sale
of the capital stock of the Association to the Company has been duly
authorized by all necessary corporate action of the Association and
the Company and appropriate regulatory authorities (subject to the
satisfaction of various conditions imposed by the Office in connection
with its approval of the Conversion Application), and such capital
stock, when issued in accordance with the terms of the Plan, will be
fully paid and nonassessable and will conform in all material respects
to the description thereof contained in the Prospectus.
(xviii) No approval of any regulatory or supervisory or other
public authority is required in connection with the execution and
delivery of this Agreement or the issuance of the Shares, except for
the declaration of effectiveness of any required post-effective
amendment by the Commission and approval thereof by the Office and
approval of the Company's Application H-(e)1-S, the issuance of the
Stock Charter by the Office and as may be required under the
securities laws of various jurisdictions.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 9
(xix) All contracts and other documents required to be filed as
exhibits to the Registration Statement or the Conversion Application
have been filed with the Commission and/or the Office, as the case may
be.
(xx) Moore, Horton & Carlson, P.C., which has audited the
financial statements of the Association at September 30, 1998 and 1997
and for the years ended September 30, 1998 and 1997 included in the
Prospectus, is an independent public accountant with respect to the
Company and the Association within the meaning of the Code of
Professional Ethics of the American Institute of Certified Public
Accountants and Title 12 of the Code of Federal Regulations, Section
571.2(c)(3).
(xxi) For the past five years, or in the case of the Company,
such lesser period corresponding to the Company's existence, the
Company and the Association have timely filed all required federal,
state and local franchise tax returns, and no deficiency has been
asserted with respect to such returns by any taxing authorities, and
the Company and the Association have paid all taxes that have become
due and, to the best of their knowledge, have made adequate reserves
for known future tax liabilities, except where any failure to make
such filings, payments and reserves, or the assertion of such a
deficiency, would not have a material adverse effect on the condition
(financial or otherwise) of the Company and the Association, taken as
a whole.
(xxii) All of the loans represented as assets of the Association
on the most recent statement of financial condition of the Association
included in the Prospectus meet or are exempt from all requirements of
federal, state or local law pertaining to lending, including without
limitation truth in lending (including the requirements of Regulation
Z and 12 C.F.R. Part 226 and Section 563.99), real estate settlement
procedures, consumer credit protection, equal credit opportunity and
all disclosure laws applicable to such loans, except for violations
which, if asserted, would not have a material adverse effect on the
Company and the Association, taken as a whole.
(xxiii) The records of account holders, depositors and other
members of the Association delivered to Trident by the Association or
its agent for use during the Conversion have been prepared or reviewed
by the Association and, to the best knowledge of the Company and the
Association, are reliable and accurate.
(xxiv) Neither the Company nor the Association nor, to the best
knowledge of the Company and the Association, the employees of the
Company or the Association, has made any payment of funds of the
Company or the Association
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 10
prohibited by law, and no funds of the Company or the Association have
been set aside to be used for any payment prohibited by law.
(xxv) To the best knowledge of the Company and the Association,
the Company and the Association are in compliance with all laws, rules
and regulations relating to the discharge, storage, handling and
disposal of hazardous or toxic substances, pollutants or contaminants
and neither the Company nor the Association believes that the Company
and Association is subject to liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, or any similar law, except for violations which, if asserted,
would not have a material adverse effect on the Company and the
Association, taken as a whole. There are no actions, suits,
regulatory investigations or other proceedings pending or, to the best
knowledge of the Company or the Association, threatened against the
Company or the Association relating to the discharge, storage,
handling and disposal of hazardous or toxic substances, pollutants or
contaminants. To the best knowledge of the Company and the
Association, no disposal, release or discharge of hazardous or toxic
substances, pollutants or contaminants, including petroleum and gas
products, as any of such terms may be defined under federal, state or
local law, has been caused by the Company or the Association or, to
the best knowledge of the Company or the Association, has occurred on,
in or at any of the facilities or properties of the Company or the
Association, except such disposal, release or discharge which would
not have a material adverse effect on the Company and the Association,
taken as a whole.
(xxvi) At the Closing Date, the Company and the Association will
have completed the conditions precedent to, and shall have conducted
the Conversion in all material respects in accordance with, the Plan,
the HOLA, the OTS Regulations and all other applicable laws,
regulations, published decisions and orders, including all terms,
conditions, requirements and provisions precedent to the Conversion
imposed by the Office, or appropriate waivers shall have been
obtained.
(b) Trident represents and warrants to the Company and the Association
that:
(i) Trident is registered as a broker-dealer with the Commission
and a member of the NASD, and is in good standing with the Commission
and the NASD.
(ii) Trident is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation, with
full corporate power and authority to provide the services to be
furnished to the Company and the Association hereunder.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 11
(iii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
and validly authorized by all necessary action on the part of Trident,
and this Agreement is a legal, valid and binding obligation of
Trident, enforceable in accordance with its terms (except as the
enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, reorganization or similar laws relating to or affecting
the enforcement of creditors' rights generally or the rights of
creditors of registered broker-dealers accounts of whom may be
protected by the Securities Investor Protection Corporation or by
general equity principles, regardless of whether such enforceability
is considered in a proceeding in equity or at law, and except to the
extent that the provisions of Sections 8 and 9 hereof may be
unenforceable as against public policy or pursuant to Section 23A).
(iv) Each of Trident, and to Trident's knowledge, its employees,
agents and representatives who shall perform any of the services
required hereunder to be performed by Trident shall be duly authorized
and shall have all licenses, approvals and permits necessary to
perform such services, and Trident is a registered selling agent in
the jurisdictions listed in Exhibit A hereto and will remain
registered in such jurisdictions in which the Company is relying on
such registration for the sale of the Shares, until the Conversion is
consummated or terminated.
(v) The execution and delivery of this Agreement by Trident, the
fulfillment of the terms set forth herein and the consummation of the
transactions contemplated hereby shall not violate or conflict with
the corporate charter or bylaws of Trident or violate, conflict with
or constitute a breach of, or default (or an event which, with notice
or lapse of time, or both, would constitute a default) under, any
material agreement, indenture or other instrument by which Trident is
bound or under any governmental license or permit or any law,
administrative regulation, authorization, approval or order or court
decree, injunction or order.
(vi) All funds received by Trident to purchase the Common Stock
will be handled in accordance with Rule 15c2-4 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(vii) There is not now pending or, to Trident's best knowledge,
threatened against Trident any action or proceeding before the
Commission, the NASD, any state securities commission or any state or
federal court concerning Trident's activities as a broker-dealer.
3. Employment of Trident; Sale and Delivery of the Shares. On the basis
------------------------------------------------------
of the representations and warranties herein contained, but subject to the terms
and conditions herein set
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 12
forth, the Company and the Association hereby employ Trident as their agent to
utilize its best efforts in assisting the Company with the Company's sale of the
Shares in the Offerings. The employment of Trident hereunder shall terminate
(a) forty-five (45) days after the Offerings close, unless the Company and the
Association, with the approval of the Office, are permitted to extend such
period of time, or (b) upon consummation of the Conversion, whichever date shall
first occur.
In the event the Company is unable to sell a minimum of 637,500 Shares of
Common Stock (or such lesser amount as the Office may permit) within the period
herein provided, this Agreement shall terminate, and the Company and the
Association shall refund promptly to any person who has subscribed for any of
the Shares, the full amount which it may have received from them, together with
interest as provided in the Prospectus, and no party to this Agreement shall
have any obligation to the other party hereunder, except as set forth in
Sections 6, 8(a) and 9 hereof. Appropriate arrangements for placing the funds
received from subscriptions for Shares in a special interest-bearing account
with the Association until all Shares are sold and paid for were made prior to
the commencement of the Subscription and Community Offering, with provision for
prompt refund to the purchasers as set forth above, or for delivery to the
Company if all Shares are sold.
If all conditions precedent to the consummation of the Conversion are
satisfied, including the sale of all Shares required by the Plan to be sold, the
Company agrees to issue or have issued such Shares and to release for delivery
certificates to subscribers thereof for such Shares on the Closing Date against
payment to the Company by any means authorized pursuant to the Prospectus, at
the principal office of the Company or at such other place as shall be agreed
upon between the parties hereto. The date upon which Trident is paid the
compensation due hereunder is herein called the "Closing Date."
Trident agrees either (a) upon receipt of an executed order form of a
subscriber to forward the aggregate offering price of the Common Stock ordered
on or before twelve noon on the next business day following receipt or execution
of an order form by Trident to the Association for deposit in a segregated
account or (b) to solicit indications of interest in which event (i) Trident
will subsequently contact any potential subscriber indicating interest to
confirm the interest and give instructions to execute and return an order form
or to receive authorization to execute the order form on the subscriber's
behalf, (ii) Trident will mail acknowledgments of receipt of orders to each
subscriber confirming interest on the business day following such confirmation,
(iii) Trident will debit accounts of such subscribers on the third business day
("debit date") following receipt of the confirmation referred to in (i), and
(iv) Trident will forward completed order forms together with such funds to the
Association on or before twelve noon on the next business day following the
debit date for deposit in a segregated account. Trident acknowledges that if
the procedure in (b) is adopted, subscribers' funds are not required to be in
their accounts until the debit date.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 13
In addition to the expenses specified in Section 6 hereof, Trident shall
receive the following compensation for its services hereunder:
(a) a management fee of one hundred thirty-five thousand dollars
($135,000) and (ii) if applicable, for any stock sold in the
Syndicated Community Offering by other NASD member firms
under selected dealer's agreements, the commission shall not
exceed a fee to be agreed upon jointly by Trident and the
Association to reflect market requirements at the time of a
stock allocation in the Syndicated Community Offering. All
such fees are to be payable in same-day funds to Trident on
the Closing Date.
(b) Trident shall be reimbursed for reasonable allocable
expenses, including but not limited to travel,
communications, legal fees and expenses and postage,
incurred by it whether or not the Offerings are successfully
completed; provided, however, that neither the Company nor
the Association shall pay or reimburse Trident for any of
the foregoing expenses accrued after Trident shall have
notified the Company or the Association of its election to
terminate this Agreement pursuant to Section 11 hereof or
after such time as the Company or the Association shall have
given notice in accordance with Section 12 hereof that
Trident is in breach of this Agreement. Trident's
reimbursable out of pocket expenses will not exceed $12,500,
and its reimbursable legal fees will not exceed $30,000.
Full payment to defray Trident's reimbursable expenses shall
be made in next-day funds on the Closing Date or, if the
Conversion is not completed and is terminated for any
reason, within ten (10) business days of receipt by the
Company of a written request from Trident for reimbursement
of its expenses. Trident acknowledges receipt of $10,000
advance payment from the Association which shall be credited
against the total reimbursement due Trident hereunder.
(c) Notwithstanding the limitations on reimbursement of Trident
for allocable expenses provided in the immediately preceding
paragraph (b), in the event that a resolicitation or other
event causes the Offerings to be extended beyond their
original expiration date, Trident shall be reimbursed for
its allocable expenses incurred during such extended period,
provided that the allowance for allocable expenses provided
for in the immediately preceding paragraph (b) above have
been exhausted and subject to the following: such
reimbursement shall be in amount equal to the product
obtained by dividing $12,500 (original reimbursable out-of-
pocket expenses) by the total number of days of the
unextended Subscription Offering (calculated from the date
of the Prospectus to the intended close of the Subscription
Offering as stated
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 14
in the Prospectus) and multiplying such product by the
number of days of the extension (that number of days from
the date of the supplemental prospectus used in the extended
Subscription Offering to the closing of the extension of the
Subscription Offering described in such supplemental
prospectus).
The Company shall pay any stock issue and transfer taxes which may be
payable with respect to the sale of the Shares. The Company and the Association
shall also pay all expenses of the Conversion incurred by them or on their prior
approval including but not limited to their attorneys' fees, NASD filing fees,
and attorneys' fees relating to any required state securities laws research and
filings, telephone charges, air freight, rental equipment, supplies, transfer
agent charges, fees relating to auditing and accounting and costs of printing
all documents necessary in connection with the Conversion.
4. Offering. Subject to the provisions of Section 7 hereof, Trident is
--------
assisting the Company on a best efforts basis in offering a minimum of 637,500
and a maximum of 862,500 Shares, with the possibility of offering up to 991,875
Shares (except as the Office may permit to be decreased or increased) in the
Subscription and Community Offerings, and if necessary, the Syndicated Community
Offering. The Shares are to be offered to the public at the price set forth on
the cover page of the Prospectus and the first page of this Agreement.
5. Further Agreements. The Company and the Association jointly and
------------------
severally covenant and agree that:
(a) The Company shall deliver to Trident, from time to time, such
number of copies of the Prospectus as Trident reasonably may request. The
Company authorizes Trident to use the Prospectus in any lawful manner in
connection with the offer and sale of the Shares.
(b) The Company will notify Trident or its counsel immediately upon
discovery, and confirm the notice in writing, (i) when any post-effective
amendment to the Registration Statement becomes effective or any supplement
to the Prospectus has been filed, (ii) of the issuance by the Commission of
any stop order relating to the Registration Statement or of the initiation
or the threat of any proceedings for that purpose, (iii) of the receipt of
any notice with respect to the suspension of the qualification of the
Shares for offering or sale in any jurisdiction, and (iv) of the receipt of
any comments from the staff of the Commission relating to the Registration
Statement. If the Commission enters a stop order relating to the
Registration Statement at any time, the Company will make every reasonable
effort to obtain the lifting of such order at the earliest possible moment.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 15
(c) During the time when the Prospectus is required to be delivered
under the Act, the Company will comply so far as it is able with all
requirements imposed upon it by the Act, as now in effect and hereafter
amended, and by the SEC Regulations and the OTS Regulations, as from time
to time in force, so far as necessary to permit the continuance of offers
and sales of or dealings in the Shares in accordance with the provisions
hereof and the Prospectus. If during the period when the Prospectus is
required to be delivered in connection with the offer and sale of the
Shares any event relating to or affecting the Company and the Association,
taken as a whole, shall occur as a result of which it is necessary, in the
opinion of counsel for Trident, with concurrence of counsel of the Company,
to amend or supplement the Prospectus in order to make the Prospectus not
false or misleading as to a material fact in light of the circumstances
existing at the time it is delivered to a purchaser of the Shares, the
Company forthwith shall prepare and furnish to Trident a reasonable number
of copies of an amendment or amendments or of a supplement or supplements
to the Prospectus (in form and substance satisfactory to counsel for
Trident) which shall amend or supplement the Prospectus so that, as amended
or supplemented, the Prospectus shall not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements therein, in light of the circumstances existing at the time
the Prospectus is delivered to a purchaser of the Shares, not misleading.
The Company will not file or use any amendment or supplement to the
Registration Statement or the Prospectus of which Trident has not first
been furnished a copy or to which Trident shall reasonably object after
having been furnished such copy. For the purposes of this subsection the
Company and the Association shall furnish such information with respect to
themselves as Trident from time to time may reasonably request.
(d) The Company has taken or will take all reasonably necessary
action as may be required to qualify or register the Shares for offer and
sale by the Company under the securities or blue sky laws of such
jurisdictions as Trident and either the Company or its counsel may agree
upon; provided, however, that the Company shall not be obligated to qualify
as a foreign corporation to do business under the laws of any such
jurisdiction. In each jurisdiction where such qualification or registration
shall be effected, the Company, unless Trident agrees that such action is
not necessary or advisable in connection with the distribution of the
Shares, shall file and make such statements or reports as are, or
reasonably may be, required by the laws of such jurisdiction.
(e) Appropriate entries will be made in the financial records of the
Association sufficient to establish a liquidation account for the benefit
of Eligible Account Holders and Supplemental Eligible Account Holders in
accordance with the requirements of the Office.
(f) The Company will file a registration statement for the Common
Stock under Section 12(g) of the Exchange Act prior to completion of the
stock offering pursuant to the
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 16
Plan and shall request that such registration statement be effective upon
completion of the Conversion. The Company shall maintain the effectiveness
of such registration for a minimum period of three years or for such
shorter period as may be required by applicable law.
(g) The Company will make generally available to its security
holders as soon as practicable, but not later than 90 days after the close
of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 of the regulations promulgated under the
Act) covering a twelve-month period beginning not later than the first day
of the Company's fiscal quarter next following the effective date (as
defined in said Rule 158) of the Registration Statement.
(h) For a period of three (3) years from the date of this Agreement
(unless the Common Stock shall have been deregistered under the Exchange
Act), the Company will furnish to Trident, as soon as publicly available
after the end of each fiscal year, a copy of its annual report to
shareholders for such year; and the Company will furnish to Trident (i) as
soon as publicly available, a copy of each report or definitive proxy
statement of the Company filed with the Commission under the Exchange Act
or mailed to shareholders, and (ii) from time to time, such other public
information concerning the Company as Trident may reasonably request.
(i) The Company shall use the net proceeds from the sale of the
Shares consistently with the manner set forth in the Prospectus.
(j) The Company shall not deliver the Shares until each and every
condition set forth in Section 7 hereof has been satisfied, unless such
condition is waived by Trident.
(k) The Company shall advise Trident, if necessary, as to the
allocation of deposits, in the case of Eligible Account Holders and
Supplemental Eligible Account Holders, and votes, in the case of Other
Members, and of the Shares in the event of an oversubscription and shall
provide Trident final instructions as to the allocation of the Shares
("Allocation Instructions") in such event and such information shall be
accurate and reliable. Trident shall be entitled to rely on such
instructions and shall have no liability in respect of its reliance
thereon, including without limitation, no liability for or related to any
denial or grant of a subscription in whole or in part.
(l) The Company and the Association will take such actions and
furnish such information as are reasonably requested by Trident in order
for Trident to ensure compliance with the NASD's "Interpretation Relating
to Free-Riding and Withholding."
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 17
(m) At the Closing Date, the Company and the Association will have
completed the conditions precedent to, and shall have conducted the
Conversion in all material respects in accordance with, the Plan, the OTS
Regulations and all other applicable laws, regulations, published decisions
and orders, including all terms, conditions, requirements and provisions
precedent to the Conversion imposed by the Office.
6. Payment of Expenses. Whether or not the Conversion is consummated,
-------------------
the Company and the Association shall pay or reimburse Trident for (a) all
filing fees paid or incurred by Trident in connection with all filings with the
NASD with respect to the Subscription and Community Offerings and, (b) in
addition, if the Company is unable to sell a minimum of 637,500 Shares of Common
Stock or such lesser amount as the Office may permit or the Conversion is
otherwise terminated, the Company and the Association shall reimburse Trident
for allocable expenses incurred by Trident relating to the offering of the
Shares as provided in Section 3 hereof; provided, however, that neither the
Company nor the Association shall pay or reimburse Trident for any of the
foregoing expenses accrued after Trident shall have notified the Company or the
Association of its election to terminate this Agreement pursuant to Section 11
hereof or after such time as the Company or the Association shall have given
notice in accordance with Section 12 hereof that Trident is in breach of this
Agreement.
7. Conditions of Trident's Obligations. Except as may be waived by
-----------------------------------
Trident, the obligations of Trident as provided herein shall be subject to the
accuracy of the representations and warranties contained in Section 2 hereof as
of the date hereof and as of the Closing Date, to the performance by the Company
and the Association of their obligations hereunder and to the following
conditions:
(a) At the Closing Date, Trident shall receive the favorable opinion
of Muldoon, Murphy & Faucette, special counsel for the Company and the
Association, dated the Closing Date, addressed to Trident, in form and
substance reasonably satisfactory to counsel for Trident and to the effect
that:
(i) The Company has been duly incorporated and is validly
existing in good standing under the laws of the State of Missouri, and
the Association is validly existing as a mutual savings association
under the laws of the United States, each with full corporate power
and authority to own its properties and conduct its business as
described in the Prospectus;
(ii) the Association is a member of the Federal Home Loan Bank
of Des Moines, and the deposit accounts of the Association are insured
by the SAIF up to the applicable legal limits;
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 18
(iii) the activities of the Association, as such activities
are described in the Prospectus, are permitted under federal and
Missouri law to subsidiaries of a Missouri business corporation and
the Association does not have any subsidiaries other than the
Subsidiary;
(iv) the Plan complies with, and the Conversion has been
effected in all material respects in accordance with the HOLA and the
OTS Regulations; all of the terms, conditions, requirements and
provisions with respect to the Plan and the Conversion imposed by the
Office, except with respect to the filing or submission of certain
required post-Conversion reports or other materials by the Company or
the Association, have been complied with by the Company and the
Association; and, to the knowledge of such counsel, no person has
sought to obtain regulatory or judicial review of the final action of
the Office in approving the Plan;
(v) the Company has authorized Common Stock as set forth in the
Registration Statement and the Prospectus, and the description of the
Common Stock in the Registration Statement and the Prospectus is
accurate in all material respects;
(vi) the issuance and sale of the Shares have been duly
authorized by all necessary corporate action on the part of the
Company; the Shares, upon receipt of payment and issuance in
accordance with the terms of the Plan and this Agreement, will be
validly issued, fully paid, nonassessable and, except as disclosed in
the Prospectus, free of preemptive rights, and purchasers of the
Shares from the Company, upon issuance thereof against payment
therefor, will acquire such Shares free and clear of all claims,
encumbrances, security interests and liens created by the Company;
(vii) the form of certificate used to evidence the Shares is in
proper form and complies in all material respects with the applicable
requirements of Missouri law;
(viii) the issuance and sale of the capital stock of the
Association to the Company have been duly authorized by all necessary
corporate action of the Association and the Company and have received
the approval of the Office, and such capital stock, upon receipt of
payment and issuance in accordance with the terms of the Plan, will be
validly issued, fully paid and nonassessable and owned of record and,
to the knowledge of such counsel, beneficially by the Company;
(ix) subject to the satisfaction of the conditions to the
Office's approval of the Conversion Application, no further approval,
authorization, consent or other
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 19
order of any federal governmental board or body is required in
connection with the execution and delivery of this Agreement, the
issuance of the Shares and the consummation of the Conversion, except
with respect to the issuance to the Association of the Stock Charter
by the Office and as may be required under the "blue sky" or state
securities laws of various jurisdictions;
(x) the execution and delivery of this Agreement and the
consummation of the Conversion have been duly and validly authorized
by all necessary corporate action on the part of each of the Company
and the Association;
(xi) the statements in the Prospectus under the captions
"Dividend Policy," "Regulation," "Taxation," "Restrictions on
Acquisition of the Holding Company, "Registration Requirements" and
"Description of Capital Stock of the Holding Company," insofar as they
are, or refer to, statements of law or legal conclusions (excluding
financial data included therein, as to which an opinion need not be
expressed), have been prepared or reviewed by such counsel and are
correct in all material respects;
(xii) the Conversion Application, the Registration Statement, the
Prospectus and the Proxy Statement, in each case as amended, comply as
to form in all material respects with the requirements of the Act, the
SEC Regulations, the HOLA and the OTS Regulations, as the case may be
(except as to information with respect to Trident included therein and
financial statements, notes to financial statements, financial tables
and other financial and statistical data, including the appraisal,
included therein, as to which no opinion need be expressed); to such
counsel's knowledge, all documents and exhibits required to be filed
with the Conversion Application and the Registration Statement have
been so filed and the description in the Conversion Application and
the Registration Statement of such documents and exhibits are accurate
in all material respects.
(xiii) the Form AC has been approved by the Office, and the
Prospectus and the Proxy Statement have been authorized for use by the
Office; the Registration Statement and any post-effective amendment
thereto has been declared effective by the Commission; no proceedings
are pending by or before the Commission or the Office seeking to
revoke or rescind the orders declaring the Registration Statement
effective or approving the Conversion Application or, to the knowledge
of such counsel, are contemplated or threatened (provided that for
this purpose such counsel need not regard any litigation or
governmental procedure to be "threatened" unless the potential
litigant or government authority has manifested to the management of
the Company or the Association, or to such counsel, a present
intention to initiate such litigation or proceeding);
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 20
(xiv) the execution and delivery of this Agreement, and the
consummation of the Conversion by the Company and the Association do
not conflict with or result in a breach of the respective articles of
incorporation, charter or bylaws of the Company or the Association (in
either mutual or stock form); and
(b) At the Closing Date, Trident shall receive the favorable opinion of
__________, counsel for the Company and Association, dated the Closing
Date, addressed to Trident, in the form and substance reasonably
satisfactory to counsel for Trident and the effect that:
(i) to the knowledge of such counsel, the Association has
obtained all licenses, permits and other governmental authorizations
currently required for the conduct of its business as such business is
described in the Prospectus, all such licenses, permits and other
governmental authorizations are in full force and effect and the
Association is in all material respects complying therewith, except
where the failure to hold such licenses, permits or governmental
authorizations or the failure to so comply would not have a material
adverse effect on the Company and the Association, taken as a whole;
(ii) there are no material legal or governmental
proceedings pending or, to the knowledge of such counsel, threatened
against or involving the assets of the Company or the Association
(provided that for this purpose such counsel need not regard any
litigation or governmental procedure to be "threatened" unless the
potential litigant or government authority has manifested to the
management of the Company or the Association, or to such counsel, a
present intention to initiate such litigation or proceeding);
(iii) this Agreement is a legal, valid and binding
obligation of each of the Company and the Association, enforceable in
accordance with its terms (except as the enforceability thereof may be
limited by bankruptcy, insolvency, moratorium, reorganization,
receivership, conservatorship or similar laws relating to or affecting
the enforcement of creditors' rights generally or the rights of
creditors of depository institutions whose accounts are insured by the
FDIC or savings and loan holding companies the accounts of whose
subsidiaries are insured by the FDIC or by general equity principles,
regardless of whether such enforceability is considered in a
proceeding in equity or at law, and except to the extent that the
provisions of Sections 8 and 9 hereof may be unenforceable as against
public policy or pursuant to Section 23A, as to which no opinion need
be rendered);
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 21
(iv) the execution and delivery of this Agreement and the
consummation of the Conversion by the Company and the Association do
not constitute a material breach of or default (or an event which,
with notice or lapse of time or both, would constitute a default)
under, give rise to any right of termination, cancellation or
acceleration contained in, or result in the creation or imposition of
any lien, charge or other encumbrance upon any of the properties or
assets of the Company or the Association pursuant to any of the terms,
provisions or conditions of, any material agreement, contract,
indenture, bond, debenture, note, instrument or obligation to which
the Company or the Association is a party or violate any governmental
license or permit or any enforceable published law, administrative
regulation or order or court order, writ, injunction or decree
(subject to the satisfaction of certain conditions imposed by the
Office in connection with its approval of the Conversion Application),
which breach, default, encumbrance or violation would have a material
adverse effect on the condition (financial or otherwise), operations,
business, assets or properties of the Company and the Association,
taken as a whole; and
(v) to the knowledge of such counsel, there has been no material
breach of any provision of the Company's or the Association's
respective articles of incorporation, charter or bylaws or breach or
default (or the occurrence of any event which, with notice or lapse of
time or both, would constitute a default) under any agreement,
contract, indenture, debenture, bond, note, instrument or obligation
to which the Company or the Association is a party or by which any of
them or any of their respective assets or properties may be bound, or
any governmental license or permit, or a violation of any enforceable
published law, administrative regulation or order, or court order,
writ, injunction or decree which breach, default, encumbrance or
violation would have a material adverse effect on the condition
(financial or otherwise), operations, business, assets or properties
of the Company and the Association, taken as a whole.
In rendering such opinions required under clauses 7(a) and 7(b) above, such
counsels may rely as to matters of fact on certificates of officers and
directors of the Company and the Association and certificates of public
officials delivered pursuant hereto. Such counsels may assume that any
agreement is the valid and binding obligation of any parties to such agreement
other than the Company and the Association. Such opinions may be governed by,
and interpreted in accordance with, the Legal Opinion Accord (the "Accord") of
the ABA Section of Business Law (1991), and, as a consequence, such opinions are
subject to the qualifications, exceptions, definitions, limitations on coverage
and other limitations, all as more particularly described in the Accord, and
they should be read in conjunction therewith. Further, references in such
opinions to such counsels' "knowledge" may be limited to "actual knowledge" as
defined in the Accord (or knowledge based on certificates). In addition, the
"General Qualifications" set forth in the Accord
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 22
apply to the opinions set forth in such opinions. Such opinions may be limited
to present statutes, regulations and judicial interpretations and to facts as
they presently exist; in rendering such opinions, such counsels need assume no
obligation to revise or supplement them should the present laws be changed by
legislative or regulatory action, judicial decision or otherwise; and such
counsels need express no view, opinion or belief with respect to whether any
proposed or pending legislation, if enacted, or any regulations or any policy
statements issued by any regulatory agency, whether or not promulgated pursuant
to any such legislation, would affect the validity of the execution and delivery
by the Company and the Association of this Agreement or the issuance of the
Shares.
(c) At the Closing Date, Trident shall receive the letter of Muldoon,
Murphy & Faucette, special counsel for the Company and the Association,
dated the Closing Date, addressed to Trident, in form and substance
reasonably satisfactory to counsel for Trident and to the effect that:
based on such counsel's participation in conferences with representatives
of the Company, the Association, the independent appraiser, the independent
certified public accountants, Trident and its counsel, review of documents
and understanding of applicable law (including the requirements of Form SB-
2 and the character of the Registration Statement contemplated thereby) and
the experience such counsel has gained in its practice under the Act,
nothing has come to such counsel's attention that would lead it to believe
that the Registration Statement, as amended (except as to information in
respect of Trident contained therein and except as to the appraisal,
financial statements, notes to financial statements, financial tables and
other financial and statistical data contained therein, as to which such
counsel need express no comment), at the time it became effective contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements made
therein not misleading, or that the Prospectus, as amended (except as to
information in respect of Trident contained therein and except as to the
appraisal, financial statements, notes to financial statements, financial
tables and other financial and statistical data contained therein as to
which such counsel need express no comment), at the time the Prospectus was
filed with the Commission under Rule 424(b), or as of the date of the
Prospectus if no 424(b) Prospectus is filed, and at the Closing Date,
contained any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (in making this
statement such counsel may state that it has not undertaken to verify
independently the information in the Registration Statement or Prospectus
and, therefore, does not assume any responsibility for the accuracy or
completeness thereof).
(d) Counsel for Trident shall have been furnished such documents as
they reasonably may require for the purpose of enabling them to review or
pass upon the matters required by Trident, and for the purpose of
evidencing the accuracy, completeness or satisfaction of any of the
representations, warranties or conditions herein contained,
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 23
including but not limited to, resolutions of the Board of Directors of the
Company and the Association regarding the authorization of this Agreement
and the transactions contemplated hereby.
(e) Prior to and at the Closing Date, in the reasonable opinion of
Trident, (i) there shall have been no material change in the condition
(financial or otherwise), business or results of operations of the Company
and the Association, taken as a whole, since the latest date as of which
such condition is set forth in the Prospectus, except as referred to
therein; (ii) there shall have been no transaction entered into by the
Company or the Association after the latest date as of which the financial
condition of the Company or the Association is set forth in the Prospectus
other than transactions referred to or contemplated therein, transactions
in the ordinary course of business, and transactions which are not material
to the Company and the Association, taken as a whole; (iii) neither the
Company nor the Association shall have received from the Office or
Commission any direction (oral or written) to make any change in the method
of conducting their respective businesses which is material to the business
of the Company and the Association, taken as a whole, with which they have
not complied; (iv) no action, suit or proceeding, at law or in equity or
before or by any federal or state commission, board or other administrative
agency, shall be pending or threatened against the Company or the
Association or affecting any of their respective assets, wherein an
unfavorable decision, ruling or finding would have a material adverse
effect on the business, operations, financial condition or income of the
Company and the Association, taken as a whole; and (v) the Shares shall
have been qualified or registered for offering and sale by the Company
under the securities or blue sky laws of such jurisdictions as Trident and
the Company shall have agreed upon.
(f) At the Closing Date, Trident shall receive a certificate of the
principal executive officer and the principal financial officer of each of
the Company and the Association, dated the Closing Date, to the effect
that: (i) they have examined the Prospectus and, at the time the Prospectus
became authorized by the Commission and the Office for use, the Prospectus
did not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading with
respect to the Company or the Association; (ii) since the date the
Prospectus became authorized by the Commission and the Office for use, no
event has occurred which should have been set forth in an amendment or
supplement to the Prospectus which has not been so set forth, including
specifically, but without limitation, any material change in the business,
condition (financial or otherwise) or results of operations of the Company
or the Association, and the conditions set forth in clauses (ii) through
(iv) inclusive of subsection (e) of this Section 7 have been satisfied;
(iii) no order has been issued by the Commission or the Office to suspend
the Subscription Offering or the Community Offering or the effectiveness of
the Prospectus, and no action for such purposes has been instituted or to
the best knowledge
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 24
of such officers, threatened by the Commission or the Office; (iv) to the
best knowledge of such officers, no person has sought to obtain review of
the final actions of the Office and division approving the Plan; and (v)
all of the representations and warranties contained in Section 2 of this
Agreement are true and correct, with the same force and effect as though
expressly made on the Closing Date.
(g) At the Closing Date, Trident shall receive, among other
documents, (i) copies of the letters from the Office authorizing the use of
the Prospectus and the Proxy Statement, (ii) a copy of the order of the
Commission declaring the Registration Statement effective; (iii) copies of
the letters from the Office evidencing the corporate existence of the
Association; (iv) a copy of the letter from the appropriate Missouri
authority evidencing the incorporation (and, if generally available from
such authority, good standing) of the Company; (v) a copy of the Company's
articles of incorporation certified by the appropriate Missouri
governmental authority; and, (vi) a copy of the letter from the Office
approving the Association's Stock Charter.
(h) As soon as available after the Closing Date, Trident shall
receive a certified copy of the Association's Stock Charter executed by the
Office.
(i) Concurrently with the execution of this Agreement, Trident
acknowledges receipt of a letter from Moore, Horton & Carlson, P.C.,
independent certified public accountants, addressed to Trident and the
Company, in substance and form satisfactory to counsel for Trident, with
respect to the financial statements and certain financial information
contained in the Prospectus.
(j) At the Closing Date, Trident shall receive a letter in form and
substance satisfactory to counsel for Trident from Moore, Horton & Carlson,
P.C., independent certified public accountants, dated the Closing Date and
addressed to Trident and the Company, confirming the statements made by
them in the letter delivered by them pursuant to the preceding subsection
as of a specified date not more than five (5) days prior to the Closing
Date.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are, in the reasonable
opinion of Trident and its counsel, satisfactory to Trident. Any certificates
signed by an officer or director of the Company or the Association prepared for
Trident's reliance and delivered to Trident or to counsel for Trident shall be
deemed a representation and warranty by the Company and the Association to
Trident as to the statements made therein. If any condition to Trident's
obligations hereunder to be fulfilled prior to or at the Closing Date is not so
fulfilled, Trident may terminate this Agreement or, if Trident so elects, may
waive any such conditions which have not been fulfilled, or may extend the time
of their
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 25
fulfillment. If Trident terminates this Agreement as aforesaid, the
Company and the Association shall reimburse Trident for its expenses as provided
in Section 3(b) hereof.
8. Indemnification.
---------------
(a) The Company and the Association jointly and severally agree to
indemnify and hold harmless Trident, its officers, directors and employees
and each person, if any, who controls Trident within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against any and all
loss, liability, claim, damage and expense whatsoever and shall further
promptly reimburse such persons for any legal or other expenses reasonably
incurred by each or any of them in investigating, preparing to defend or
defending against any such action, proceeding or claim (whether commenced
or threatened) arising out of or based upon (i) any misrepresentation by
the Company or the Association in this Agreement or any breach of warranty
by the Company or the Association with respect to this Agreement or arising
out of or based upon any untrue or alleged untrue statement of a material
fact or the omission or alleged omission of a material fact required to be
stated or necessary to make not misleading any statements contained in (A)
the Registration Statement or the Prospectus or (B) any application
(including the Form AC and the Form H-(e)1-S) or other document or
communication (in this Section 8 collectively called "Application")
prepared or executed by or on behalf of the Company or the Association or
based upon information furnished by or on behalf of the Company or the
Association, whether or not filed in any jurisdiction, to effect the
Conversion or qualify the Shares under the securities laws thereof or filed
with the Office or Commission, unless such statement or omission was made
in reliance upon and in conformity with information furnished to the
Company or the Association with respect to Trident by or on behalf of
Trident expressly for use in the Prospectus or any amendment or supplement
thereof or in any Application, as the case may be, or (ii) the
participation by Trident in the Conversion; provided, however, that this
indemnification agreement will not apply to any loss, liability, claim,
damage or expense found in a final judgment by a court of competent
jurisdiction to have resulted primarily from the bad faith, willful
misconduct or gross negligence of any party who may otherwise be entitled
to indemnification pursuant to this Section 8(a). This indemnity shall be
in addition to any liability the Company and the Association may have to
Trident otherwise.
(b) The Company shall indemnify and hold Trident harmless for any
liability whatsoever arising out of (i) the Allocation Instructions or (ii)
any records of account holders, depositors, borrowers and other members of
the Association delivered to Trident by the Association or its agents for
use during the Conversion; provided, however, that this indemnification
agreement will not apply to any loss, liability, claim, damage or expense
found in a final judgment by a court of competent jurisdiction to have
resulted primarily from the bad faith, willful misconduct or gross
negligence of any party who may
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 26
otherwise be entitled to indemnification pursuant to this Section 8(b).
This indemnity shall be in addition to any liability the Company and the
Association may have to Trident otherwise.
(c) Trident agrees to indemnify and hold harmless the Company and
the Association, their officers, directors and employees and each person,
if any, who controls the Company and the Association within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, to the same
extent as the foregoing indemnity from the Company and the Association to
Trident, but only with respect to (i) statements or omissions, if any, made
in the Prospectus or any amendment or supplement thereof, in any
Application or to a purchaser of the Shares in reliance upon, and in
conformity with, written information furnished to the Company or the
Association with respect to Trident by or on behalf of Trident expressly
for use in the Prospectus or in any Application; (ii) any misrepresentation
by Trident in Section 2(b) of this Agreement; or (iii) any liability of the
Company or the Association which is found in a final judgment by a court of
competent jurisdiction (not subject to further appeal) to have principally
and directly resulted from gross negligence or willful misconduct of
Trident.
(d) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party of
the commencement thereof; but the omission so to notify the indemnifying
party will not relieve it from any liability which it may have to any
indemnified party otherwise than under this Section 8. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein and, to the extent that it may wish,
jointly with the other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party under this Section 8 for any legal or
other expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than the reasonable cost of
investigation except as otherwise provided herein. In the event the
indemnifying party elects to assume the defense of any such action and
retain counsel acceptable to the indemnified party, the indemnified party
may retain additional counsel, but shall bear the fees and expenses of such
counsel unless (i) the indemnifying party shall have specifically
authorized the indemnified party to retain such counsel or (ii) the parties
to such suit include such indemnifying party and the indemnified party, and
such indemnified party shall have been advised by counsel that one or more
material legal defenses may be available to the indemnified party which may
not be available to the indemnifying party, in which case the indemnifying
party shall not be entitled to assume the defense of such suit
notwithstanding
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 27
the indemnifying party's obligation to bear the fees and expenses of such
counsel. An indemnifying party against whom indemnity may be sought shall
not be liable to indemnify an indemnified party under this Section 8 if any
settlement of any such action is effected without such indemnifying party's
consent. To the extent required by law, this Section 8 is subject to and
limited by the provisions of Section 23A.
9. Contribution. In order to provide for just and equitable contribution
------------
in circumstances in which the indemnity agreement provided for in Section 8
above is for any reason held to be unavailable to Trident, the Company and/or
the Association other than in accordance with its terms, the Company or the
Association and Trident shall contribute to the aggregate losses, liabilities,
claims, damages, and expenses of the nature contemplated by said indemnity
agreement incurred by the Company or the Association and Trident (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Association, on the one hand, and Trident, on the other hand,
from the offering of the Shares or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above, but
also the relative fault of the Company or the Association, on the one hand, and
Trident, on the other hand, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or judgments, as well as
any other relevant equitable considerations. The relative benefits received by
the Company and the Association, on the one hand, and Trident, on the other
hand, shall be deemed to be in the same proportion as the total net proceeds
from the Conversion received by the Company and the Association bear to the
total fees and expenses received by Trident under this Agreement. The relative
fault of the Company or the Association, on the one hand, and Trident, on the
other hand, shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or the Association or by Trident and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the Association and Trident agree that it would not be just
and equitable if contribution pursuant to this Section 9 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by the indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9, Trident shall not be required
to contribute any amount in excess of the amount by which fees owed Trident
pursuant to this Agreement exceeds the amount of any damages which Trident has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f)
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 28
of the Act) shall be entitled to contribution from any person who is not guilty
of such fraudulent misrepresentation. To the extent required by law, this
Section 8 is subject to and limited by the provisions of Section 23A.
10. Survival of Agreements, Representations and Indemnities. The
--------------------------------------------------------
respective indemnities of the Company and the Association and Trident and the
representations and warranties of the Company and the Association and of Trident
set forth in or made pursuant to this Agreement shall remain in full force and
effect, regardless of any termination or cancellation of this Agreement or any
investigation made by or on behalf of Trident or the Company or the Association
or any controlling person or indemnified party referred to in Section 8 hereof,
and shall survive any termination or consummation of this Agreement and/or the
issuance of the Shares, and any legal representative of Trident, the Company,
the Association and any such controlling persons shall be entitled to the
benefit of the respective agreements, indemnities, warranties and
representations.
11. Termination. Trident may terminate this Agreement by giving the
-----------
notice indicated below in this Section at any time after this Agreement becomes
effective as follows:
(a) If any domestic or international event or act or occurrence has
materially disrupted the United States securities markets such as to make
it, in Trident's reasonable opinion, impracticable to proceed with the
offering of the Shares; or if trading on the New York Stock Exchange shall
have suspended; or if the United States shall have become involved in a war
or major hostilities; or if a general banking moratorium has been declared
by a state or federal authority which has material effect on the
Association or the Conversion; or if a moratorium in foreign exchange
trading by major international banks or persons has been declared; or if
there shall have been a material change in the capitalization, financial
condition or business of the Company, or if the Association shall have
sustained a material or substantial loss by fire, flood, accident,
hurricane, earthquake, theft, sabotage or other calamity or malicious act,
whether or not said loss shall have been insured; or if there shall have
been a material change in the condition, financial or otherwise, or
prospects of the Company or the Association.
(b) If Trident elects to terminate this Agreement as provided in
this Section, the Company and the Association shall be notified promptly by
Trident by telephone or telegram, confirmed by letter.
(c) If this Agreement is terminated by Trident for any of the
reasons set forth in subsection (a) above, and to fulfill their
obligations, if any, pursuant to Sections 3, 6, 8(a) and 9 of this
Agreement and upon demand, the Company and the Association shall pay
Trident the full amount so owing thereunder.
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 29
(d) The Association may terminate the Conversion in accordance with
the terms of the Plan. Such termination shall be without liability to any
party, except that the Company and the Association shall be required to
fulfill their obligations pursuant to Sections 3(b), 3(c), 6, 8(a) and 9 of
this Agreement.
12. Notices. All communications hereunder, except as herein otherwise
-------
specifically provided, shall be in writing and if sent to Trident shall be
mailed, delivered or faxed and confirmed to Trident Securities, Inc., 4601 Six
Forks Road, Suite 400, Raleigh, North Carolina 27609, Attention: Mr. R. Lee
Burrows, Jr. (with a copy to Housley Kantarian & Bronstein, P.C., 1220 19th
Street, N.W., Washington, DC 20036, Attention: Howard S. Parris, Esquire) and if
sent to the Company, the Association or any Subsidiary, shall be mailed,
delivered or telegraphed and confirmed to PFSB Bancorp, Inc., Palmyra Savings
and Building Association, F.A., 123 West Lafayette Street, Palmyra, Missouri
63461, Attention: Mr. Eldon R. Mette, President of the Company and the
Association (with a copy to Muldoon, Murphy & Faucette, 5101 Wisconsin Avenue,
N.W., Washington, D.C. 20016, Attention: Paul M. Aggugia, Esquire).
13. Parties. This Agreement shall inure solely to the benefit of, and
-------
shall be binding upon, Trident, the Company, the Association and the controlling
and other persons referred to in Section 8 hereof, and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained.
14. Construction. Unless governed by preemptive federal law, this
------------
Agreement shall be governed by and construed in accordance with the substantive
laws of Missouri.
15. Counterparts and Definitions. This Agreement may be executed in
----------------------------
separate counterparts, each of which when so executed and delivered shall be an
original, but all of which together shall constitute but one and the same
instrument. Any initially capitalized terms not defined herein shall have the
meanings ascribed thereto in the Prospectus.
* * *
<PAGE>
Trident Securities, Inc.
Sales Agency Agreement
Page 30
Please acknowledge your agreement to the foregoing by signing below and
returning to the Company one copy of this letter.
PFSB BANCORP, INC. PALMYRA SAVINGS AND BUILDING
ASSOCIATION, F.A.
By: By:
---------------------------- -----------------------------
Eldon R. Mette Elden R. Mette
President President
Date: Date:
--------------------------- ---------------------------
Agreed to and accepted:
TRIDENT SECURITIES, INC.
By:
---------------------------
Date:
---------------------------
<PAGE>
Exhibit A
Trident Securities, Inc. is a registered selling agent in the jurisdictions
--
listed below:
Alabama Montana
Alaska Nebraska
Arizona Nevada
Arkansas New Hampshire
California New Jersey
Colorado New Mexico
Connecticut New York
Delaware North Carolina
District of North Dakota (Trident Securities, Inc. only, no
Columbia agents)
Florida Ohio
Georgia Oklahoma
Idaho Oregon
Illinois Pennsylvania
Indiana Rhode Island
Iowa South Carolina
Kansas Tennessee
Kentucky Texas
Louisiana Utah
Maine Vermont
Maryland Virginia
Massachusetts Washington
Michigan West Virginia
Minnesota Wisconsin
Mississippi Wyoming
Missouri
Trident Securities, Inc. is not a registered selling agent in the jurisdictions
---
listed below:
Hawaii
South Dakota
<PAGE>
EXHIBIT 2.0
PALMYRA SAVING AND BUILDING ASSOCIATION, F.A.
PALMYRA, MISSOURI
AMENDED PLAN OF CONVERSION
FROM FEDERAL MUTUAL SAVINGS AND LOAN ASSOCIATION
TO FEDERAL STOCK SAVINGS BANK
AND FORMATION OF A HOLDING COMPANY
INTRODUCTION
------------
I. General
-------
The Board of Directors of Palmyra Saving and Building Association, F.A.
("Association") desires to attract new capital to the Association to increase
its net worth, to support future growth, to increase the amount of funds
available for other lending and investment, to provide greater resources for the
expansion of customer services and to facilitate future expansion by the
Association. In addition, the Board of Directors intends to implement stock
option plans and other stock benefit plans as part of the Conversion in order to
attract and retain qualified directors and officers. It is the further desire
of the Board of Directors to reorganize the Association as the wholly owned
subsidiary of a holding company to enhance flexibility of operations,
diversification of business opportunities and financial capability for business
and regulatory purposes and to enable the Association to compete more
effectively with other financial service organizations. Accordingly, on
September 24, 1998, the Board of Directors, after careful study and
consideration, adopted by unanimous vote this Plan of Conversion From Federal
Mutual Savings and Loan Association to Federal Stock Savings Bank and Formation
Of A Holding Company ("Plan"), which was subsequently amended on January 21,
1999, which provides for the conversion of the Association from a federally
chartered mutual savings and loan association to a federally chartered stock
savings and loan association and the concurrent formation of a holding company
for the Association ("Holding Company").
All capitalized terms contained in the Plan shall have the meanings
ascribed to them in Section II hereof.
Pursuant to this Plan, shares of Conversion Stock will be offered as part
of the Conversion in a Subscription Offering pursuant to nontransferable
Subscription Rights at a predetermined and uniform price first to the
Association's Eligible Account Holders, second to the Tax-Qualified Employee
Stock Benefit Plans, third to the Association's Supplemental Eligible Account
Holders, and fourth to Other Members of the Association. Shares not subscribed
for in the Subscription Offering will be offered as part of the Conversion to
the general public in a Direct Community Offering. Shares still remaining may
then be offered to the general public in a Syndicated Community Offering, an
underwritten public offering, or otherwise. The aggregate Purchase Price of the
Conversion Stock will be based upon an independent appraisal of the Association
and will reflect the estimated pro forma market value of the Association as a
subsidiary of the Holding Company.
The Conversion is subject to the regulations of the Director of the OTS
(Part 563b of the Rules and Regulations Applicable to All Savings Associations)
as promulgated pursuant to Section 5(i) of the Home Owners' Loan Act.
Consummation of the Conversion is subject to the approval of this Plan and
the Conversion by the OTS and by the affirmative vote of Members of the
Association holding not less than a majority of the total votes eligible to be
cast at a special meeting of the Members to be called to consider the
Conversion.
A-1
<PAGE>
No change will be made in the Board of Directors or management of the
Association as a result of the Conversion.
II. Definitions
-----------
As used in this Plan, the terms set forth below have the following
meanings:
A. Acting in Concert: (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. A Person (as defined herein) who acts in concert
with another Person ("other party") shall also be deemed to be acting in concert
with any Person who is also acting in concert with that other party, except that
any Tax-Qualified Employee Stock Benefit Plan will not be deemed to be acting in
concert with its trustee or a Person who serves in a similar capacity solely for
the purpose of determining whether stock held by the trustee and stock held by
the Tax-Qualified Employee Benefit Plan will be aggregated.
B. Associate: When used to indicate a relationship with any Person, means
---------
(i) any corporation or organization (other than the Association or a majority-
owned subsidiary of the Association, or the Holding Company) of which such
Person is an officer or partner or is, directly or indirectly, the beneficial
owner of ten percent or more of any class of equity securities, (ii) any trust
or other estate in which such Person has a substantial beneficial interest or as
to which such Person serves as trustee or in a similar fiduciary capacity,
except that it does not include a Tax-Qualified Employee Stock Benefit Plan and
(iii) any relative or spouse of such Person, or any relative of such spouse, who
has the same home as such Person or who is a director or officer of the
Association, any of its subsidiaries, or the Holding Company.
C. Association: Palmyra Saving and Building Association, F.A., in its
-----------
present form as a federally chartered mutual savings and loan association.
D. Capital Stock: Any and all authorized capital stock in the Converted
-------------
Association.
E. Common Stock: Any and all authorized common stock in the Holding
------------
Company subsequent to the Conversion.
F. Conversion: (i) Amendment of the Association's Charter and Bylaws to
----------
authorize issuance of shares of Capital Stock by the Converted Association and
to conform to the requirements of a Federal stock savings bank under the laws of
the United States and rules and regulations of the OTS; (ii) issuance and sale
of Conversion Stock by the Holding Company in the Subscription Offering and
Direct Community Offering; and (iii) purchase by the Holding Company of all of
the issued and outstanding shares of Capital Stock of the Converted Association
to be issued in the Conversion immediately following or concurrently with the
close of the sale of all Conversion Stock.
G. Conversion Stock: Holding Company common stock to be issued and sold
----------------
by the Holding Company pursuant to the Plan.
H. Converted Association: Palmyra Saving and Building Association, F.A.,
---------------------
in its converted form as a federally chartered stock savings and loan
association.
I. Direct Community Offering: The offering for sale of Conversion Stock
-------------------------
to the public.
J. Eligibility Record Date: June 30, 1997.
-----------------------
A-2
<PAGE>
K. Eligible Account Holder: Holder of a Qualifying Deposit in the
-----------------------
Association on the Eligibility Record Date.
L. FDIC: Federal Deposit Insurance Corporation.
----
M. Form AC Application: The application submitted to the OTS on OTS Form
-------------------
AC for approval of the Conversion.
N. H-(e)1 Application: The application submitted to the OTS on OTS Form
------------------
H-(e)1 or, if applicable, Form H-(e)1-S for approval of the Holding Company's
acquisition of all of the Capital Stock of the Converted Association.
O. Holding Company: A corporation to be formed by the Association under
---------------
state law for the purpose of becoming a holding company through the issuance and
sale of its stock under the Plan, and concurrent acquisition of 100% of the
Capital Stock of the Converted Association to be issued pursuant to the Plan.
P. Holding Company Stock: Any and all authorized capital stock of the
---------------------
Holding Company.
Q. Local Community: Clark, Lewis and Marion Counties, Missouri.
---------------
R. Market Maker: A dealer (i.e., any Person who engages directly or
------------
indirectly as agent, broker, or principal in the business of offering, buying,
selling, or otherwise dealing or trading in securities issued by another Person)
who, with respect to a particular security, (i) regularly publishes bona fide,
competitive bid and offer quotations in a recognized inter-dealer quotation
system or furnishes bona fide competitive bid and offer quotations on request
and (ii) is ready, willing and able to effect transactions in reasonable
quantities at his quoted prices with other brokers or dealers.
S. Members: All Persons or entities who qualify as members of the
-------
Association pursuant to its Charter and Bylaws prior to the Conversion.
T. Officer: An executive officer of the Association, which includes the
-------
Chairman of the Board, President, Vice President, Secretary, Treasurer or
Principal Financial Officer, Comptroller or Principal Accounting Officer, and
Senior Vice Presidents, Vice Presidents in charge of principal business
functions, the Secretary and the Treasurer as well as any other person
performing similar functions.
U. Order Forms: Forms to be used for the purchase of Conversion Stock
-----------
sent to Eligible Account Holders and other parties eligible to purchase
Conversion Stock in the Subscription Offering pursuant to the Plan.
V. Other Member: Holder of a Savings Account (other than Eligible Account
------------
Holders and Supplemental Eligible Account Holders) as of the Record Date, and
borrowers from the Association as provided in the Association's Federal Mutual
Charter who continue as borrowers from the Association as of the Record Date.
W. OTS: Office of Thrift Supervision of the United States Department of
---
the Treasury.
X. Person: An individual, corporation, partnership, association, joint
------
stock company, trusts of natural Persons, unincorporated organization or a
government or any political subdivision thereof.
Y. Plan: This Plan of Conversion, which provides for the conversion of
----
the Association from a federally chartered mutual savings and loan association
to a federally chartered capital stock savings and loan association as a wholly
owned subsidiary of the Holding Company, as originally adopted by the Board of
Directors or as amended in accordance with the terms hereof.
A-3
<PAGE>
Z. Qualifying Deposit: The deposit balance in any Savings Account, and
------------------
any certificate of deposit, any demand deposit account and any noninterest-
bearing deposit account, as of the close of business on the Eligibility Record
Date or the Supplemental Eligibility Record Date, as applicable; provided,
however, that no account with a deposit balance of less than $50.00 on such date
shall constitute a Qualifying Deposit.
AA. Record Date: Date which determines which Members are entitled to vote
-----------
at the Special Meeting.
BB. Registration Statement: The registration statement on SEC Form S-1 or
----------------------
SEC Form SB-2 filed by the Holding Company with the SEC for the purpose of
registering the Conversion Stock under the Securities Act of 1933, as amended.
CC. Savings Account(s): Withdrawable deposit(s) in the Association or the
------------------
Converted Association.
DD. SEC: Securities and Exchange Commission.
---
EE. Special Meeting: The special meeting of Members called for the
---------------
purpose of considering the Plan for approval.
FF. Subscription Offering: The offering of Conversion Stock to Eligible
---------------------
Account Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental
Eligible Account Holders and Other Members under the Plan.
GG. Subscription Rights: Nontransferable, non-negotiable, personal rights
-------------------
of Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans,
Supplemental Eligible Account Holders and Other Members to purchase Conversion
Stock.
HH. Supplemental Eligibility Record Date: The last day of the calendar
------------------------------------
quarter preceding the approval of the Plan by the OTS.
II. Supplemental Eligible Account Holder: Holder of a Qualifying Deposit
------------------------------------
in the Association (other than an Officer or director of the Association or
their Associates) on the Supplemental Eligibility Record Date.
JJ. Syndicated Community Offering: The offering for sale by a syndicate
-----------------------------
of broker-dealers to the general public of shares of Conversion Stock not
purchased in the Subscription Offering and the Direct Community Offering.
KK. Tax-Qualified Employee Stock Benefit Plan: Any defined benefit plan or
-----------------------------------------
defined contribution plan of the Association or Holding Company, such as an
employee stock ownership plan, bonus plan, profit-sharing plan or other plan,
which, with its related trust, meets the requirements to be "qualified" under
section 401 of the Internal Revenue Code. A "non-tax-qualified employee stock
benefit plan" is any defined benefit plan or defined contribution plan that is
not so qualified.
III. Steps Prior to Submission of the Plan to the Members for Approval
-----------------------------------------------------------------
Prior to submission of the Plan to the Members for approval, the
Association must receive approval from the OTS of the Form AC Application.
Prior to such regulatory approval:
A. The Board of Directors shall adopt the Plan by a vote of not less than
two-thirds of its entire membership.
B. The Association shall notify the Members of the adoption of the Plan by
publishing legal notice in a newspaper having a general circulation in each
community in which the Association maintains an office.
A-4
<PAGE>
C. A press release relating to the proposed Conversion may be submitted to
the local media.
D. Copies of the Plan as adopted by the Board of Directors shall be made
available for inspection at each office of the Association.
E. The Association shall cause the Holding Company to be incorporated
under state law and the Board of Directors of the Holding Company shall concur
in the Plan by at least a two-thirds vote.
F. As soon as practicable following the adoption of this Plan, the
Association shall file the Form AC Application, and the Holding Company shall
file the Registration Statement and the H-(e)1 Application. Upon filing the
Form AC Application, the Association shall publish legal notice of the filing of
the Form AC Application in a newspaper having a general circulation in each
community in which the Association maintains an office and/or by mailing a
letter to each of its Members, and shall publish such other notices of the
Conversion as may be required in connection with the H-(e)1 Application and by
the regulations and policies of the OTS.
G. The Association shall obtain an opinion of its tax advisors or a
favorable ruling from the United States Internal Revenue Service which shall
state that the Conversion will not result in any gain or loss for Federal income
tax purposes to the Association or its Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members. Receipt of a favorable opinion or
ruling is a condition precedent to completion of the Conversion.
IV. Meeting of Members
------------------
Subsequent to the approval of the Plan by the OTS, the Special Meeting
shall be scheduled in accordance with the Association's Bylaws. Promptly after
receipt of approval and at least 20 days but not more than 45 days prior to the
Special Meeting, the Association shall distribute proxy solicitation materials
to all Members and beneficial owners of accounts held in fiduciary capacities
where the beneficial owners possess voting rights, as of the Record Date. The
proxy solicitation materials shall include a copy of the proxy statement to be
used in connection with such solicitation ("Proxy Statement") and other
documents authorized for use by the regulatory authorities and may also include
a copy of the Plan and/or a prospectus ("Prospectus") as provided in Paragraph V
below. The Association shall also advise each Eligible Account Holder and
Supplemental Eligible Account Holder not entitled to vote at the Special Meeting
of the proposed Conversion and the scheduled Special Meeting, and provide a
postage prepaid card on which to indicate whether he wishes to receive the
Prospectus, if the Subscription Offering is not held concurrently with the proxy
solicitation.
Pursuant to OTS regulations, an affirmative vote of not less than a
majority of the total outstanding votes of the Members is required for approval
of the Plan. Voting may be in person or by proxy. The OTS shall be notified
promptly of the actions of the Members.
V. Summary Proxy Statement
-----------------------
The Proxy Statement furnished to Members may be in summary form, provided
that a statement is made in bold-face type that a more detailed description of
the proposed transaction may be obtained by returning an enclosed postage
prepaid card or other written communication requesting supplemental information.
Without prior approval of the OTS, the Special Meeting shall not be held less
than 20 days after the last day on which the supplemental information statement
is mailed to requesting Members. The supplemental information statement may be
combined with the Prospectus if the Subscription Offering is commenced
concurrently with or during the proxy solicitation of Members for the Special
Meeting.
A-5
<PAGE>
VI. Offering Documents
------------------
The Holding Company may commence the Subscription Offering and, provided
that the Subscription Offering has commenced, may commence the Direct Community
Offering concurrently with or during the proxy solicitation of Members. The
Holding Company may close the Subscription Offering before the Special Meeting,
provided that the offer and sale of the Conversion Stock shall be conditioned
upon approval of the Plan by the Members at the Special Meeting. The
Association's proxy solicitation materials may require Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members to return to the
Association by a reasonable certain date a postage prepaid card or other written
communication requesting receipt of a Prospectus with respect to the
Subscription Offering, provided that if the Prospectus is not mailed
concurrently with the proxy solicitation materials, the Subscription Offering
shall not be closed until the expiration of 30 days after the mailing of the
proxy solicitation materials. If the Subscription Offering is not commenced
within 45 days after the Special Meeting, the Association may transmit, not more
than 30 days prior to the commencement of the Subscription Offering, to each
Eligible Account Holder, Supplemental Eligible Account Holder and other eligible
subscribers who had been furnished with proxy solicitation materials a notice
which shall state that the Association is not required to furnish a Prospectus
to them unless they return by a reasonable date certain a postage prepaid card
or other written communication requesting the receipt of the Prospectus.
Prior to commencement of the Subscription Offering, the Direct Community
Offering and the Syndicated Community Offering, the Holding Company shall file
the Registration Statement. The Holding Company shall not distribute the final
Prospectus until the Registration Statement containing same has been declared
effective by the SEC and the Prospectus has been declared effective by the OTS.
VII. Combined Subscription and Direct Community Offering
---------------------------------------------------
Instead of a separate Subscription Offering, all Subscription Rights may
be exercised by delivery of properly completed and executed Order Forms to the
Association or selling group utilized in connection with the Direct Community
Offering and the Syndicated Community Offering. If a separate Subscription
Offering is not held, orders for Conversion Stock in the Direct Community
Offering shall first be filled pursuant to the priorities and limitations stated
in Paragraph IX.C., below.
VIII. Consummation of the Conversion
------------------------------
After receipt of all orders for Conversion Stock, the amendment of the
Association's Federal Mutual Charter and Bylaws to authorize the issuance of
shares of Capital Stock and to conform to the requirements of a federal stock
savings bank, as approved by the Members at the Special Meeting will be declared
effective by the OTS. At such time, the Conversion Stock will be issued and
sold by the Holding Company, the Capital Stock to be issued in the Conversion
will be issued and sold to the Holding Company, and the Converted Association
will become a wholly owned subsidiary of the Holding Company. The Converted
Association will issue to the Holding Company 1,000 shares of its common stock,
representing all of the shares of Capital Stock to be issued by the Converted
Association, and the Holding Company will make payment to the Converted
Association of that portion of the aggregate net proceeds realized by the
Holding Company from the sale of the Conversion Stock under the Plan as may be
authorized or required by the OTS.
IX. Stock Offering
--------------
A. Number of Shares
----------------
The number of shares of Conversion Stock to be offered pursuant to the
Plan shall be determined initially by the Board of Directors of the Association
and the Board of Directors of the Holding Company in conjunction with the
determination of the Purchase Price (as that term is defined in Paragraph IX.B.
below). The number of shares to be offered may be subsequently adjusted by the
Board of Directors prior to completion of the offering.
A-6
<PAGE>
B. Independent Evaluation and Purchase Price of Shares
---------------------------------------------------
All shares of Conversion Stock sold in the Conversion, including shares
sold in any Direct Community Offering, shall be sold at a uniform price per
share, referred to herein as the "Purchase Price." The Purchase Price shall be
determined by the Board of Directors of the Association and the Board of
Directors of the Holding Company immediately prior to the simultaneous
completion of all such sales contemplated by this Plan on the basis of the
estimated pro forma market value of the Converted Association and the Holding
Company at such time. The estimated pro forma market value of the Converted
Association and the Holding Company shall be determined for such purpose by an
independent appraiser on the basis of such appropriate factors not inconsistent
with the regulations of the OTS. Immediately prior to the Subscription
Offering, a subscription price range shall be established which shall vary from
15% above to 15% below the average of the minimum and maximum of the estimated
price range. The maximum subscription price (i.e., the per share amount to be
remitted when subscribing for shares of Conversion Stock) shall then be
determined within the subscription price range by the Board of Directors of the
Association. The subscription price range and the number of shares to be
offered may be revised after the completion of the Subscription Offering with
OTS approval without a resolicitation of proxies or Order Forms or both.
C. Method of Offering Shares
-------------------------
Subscription Rights shall be issued at no cost to Eligible Account Holders,
Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible Account
Holders and Other Members pursuant to priorities established by this Plan and
the regulations of the OTS. In order to effect the Conversion, all shares of
Conversion Stock proposed to be issued in connection with the Conversion must be
sold and, to the extent that shares are available, no subscriber shall be
allowed to purchase less than 25 shares; provided, however, that if the purchase
price is greater than $20.00 per share, the minimum number of shares which must
be subscribed for shall be adjusted so that the aggregate actual purchase price
required to be paid for such minimum number of shares does not exceed $500.00.
The priorities established for the purchase of shares are as follows:
1. Category 1: Eligible Account Holders
-------------------------------------
a. Each Eligible Account Holder shall receive, without payment,
Subscription Rights entitling such Eligible Account Holder to purchase
that number of shares of Conversion Stock which is equal to the greater
of the maximum purchase limitation established for the Direct Community
Offering, one-tenth of one percent of the total offering or 15 times
the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Conversion Stock to be issued
by a fraction of which the numerator is the amount of the Qualifying
Deposit of the Eligible Account Holder and the denominator is the total
amount of Qualifying Deposits of all Eligible Account Holders. If the
allocation made in this paragraph results in an oversubscription,
shares of Conversion Stock shall be allocated among subscribing
Eligible Account Holders so as to permit each such account holder, to
the extent possible, to purchase a number of shares of Conversion Stock
sufficient to make his total allocation equal to 100 shares of
Conversion Stock or the total amount of his subscription, whichever is
less. Any shares of Conversion Stock not so allocated shall be
allocated among the subscribing Eligible Account Holders on an
equitable basis, related to the amounts of their respective Qualifying
Deposits as compared to the total Qualifying Deposits of all
subscribing Eligible Account Holders.
b. Subscription Rights received by Officers and directors of the
Association and their Associates, as Eligible Account Holders, based on
their increased deposits in the Association in the one-year period
preceding the Eligibility Record Date shall be subordinated to all
other subscriptions involving the exercise of Subscription Rights
pursuant to this Category.
A-7
<PAGE>
2. Category 2: Tax-Qualified Employee Stock Benefit Plans
------------------------------------------------------
a. Tax-Qualified Employee Stock Benefit Plans shall receive,
without payment, nontransferable Subscription Rights to purchase in the
aggregate up to 8% of the Conversion Stock, including shares of
Conversion Stock to be issued in the Conversion as result of an
increase in the estimated price range after commencement of the
Subscription Offering and prior to the completion of the Conversion.
The Subscription Rights granted to Tax-Qualified Stock Benefit Plans
shall be subject to the availability of shares of Conversion Stock
after taking into account the shares of Conversion Stock purchased by
Eligible Account Holders; provided, however, that in the event the
number of shares offered in the Conversion is increased to an amount
greater than the maximum of the estimated price range as set forth in
the Prospectus ("Maximum Shares"), the Tax-Qualified Employee Stock
Benefit Plans shall have a priority right to purchase any such shares
exceeding the Maximum Shares up to an aggregate of 8% of the Conversion
Stock. Tax-Qualified Employee Stock Benefit Plans may use funds
contributed or borrowed by the Holding Company or the Association
and/or borrowed from an independent financial institution to exercise
such Subscription Rights, and the Holding Company and the Association
may make scheduled discretionary contributions thereto, provided that
such contributions do not cause the Holding Company or the Association
to fail to meet any applicable capital requirements.
3. Category 3: Supplemental Eligible Account Holders
--------------------------------------------------
a. In the event that the Eligibility Record Date is more than 15
months prior to the date of the latest amendment to the Form AC
Application filed prior to OTS approval, then, and only in that event,
each Supplemental Eligible Account Holder shall receive, without
payment, Subscription Rights entitling such Supplemental Eligible
Account Holder to purchase that number of shares of Conversion Stock
which is equal to the greater of the maximum purchase limitation
established for the Direct Community Offering, one-tenth of one percent
of the total offering or 15 times the product (rounded down to the next
whole number) obtained by multiplying the total number of shares of
Conversion Stock to be issued by a fraction of which the numerator is
the amount of the Qualifying Deposit of the Supplemental Eligible
Account Holder and the denominator is the total amount of the
Qualifying Deposits of all subscribing Supplemental Eligible Account
Holders.
b. Subscription Rights received pursuant to this category shall be
subordinated to Subscription Rights granted to Eligible Account Holders
and Tax-Qualified Employee Stock Benefit Plans.
c. Any Subscription Rights to purchase shares of Conversion Stock
received by an Eligible Account Holder in accordance with Category
Number 1 shall reduce to the extent thereof the Subscription Rights to
be distributed pursuant to this Category.
d. In the event of an oversubscription for shares of Conversion
Stock pursuant to this Category, shares of Conversion Stock shall be
allocated among the subscribing Supplemental Eligible Account Holders
as follows:
(1) Shares of Conversion Stock shall be allocated so as to
permit each such Supplemental Eligible Account Holder, to the
extent possible, to purchase a number of shares of Conversion Stock
sufficient to make his total allocation (including the number of
shares of Conversion Stock, if any, allocated in accordance with
Category Number 1) equal to 100 shares of Conversion Stock or the
total amount of his subscription, whichever is less.
A-8
<PAGE>
(2) Any shares of Conversion Stock not allocated in accordance
with subparagraph (1) above shall be allocated among the
subscribing Supplemental Eligible Account Holders on an equitable
basis, related to the amounts of their respective Qualifying
Deposits as compared to the total Qualifying Deposits of all
subscribing Supplemental Eligible Account Holders.
4. Category 4: Other Members
--------------------------
a. Other Members shall receive, without payment, Subscription
Rights to purchase shares of Conversion Stock, after satisfying the
subscriptions of Eligible Account Holders, Tax-Qualified Employee Stock
Benefit Plans and Supplemental Eligible Account Holders pursuant to
Category Nos. l, 2 and 3 above, subject to the following conditions:
(1) Each such Other Member shall be entitled to subscribe for
the greater of the maximum purchase limitation established for the
Direct Community Offering or one-tenth of one percent of the total
offering.
(2) In the event of an oversubscription for shares of
Conversion Stock pursuant to Category No. 4, the shares of
Conversion Stock available shall be allocated among the subscribing
Other Members pro rata on the basis of the amounts of their
respective subscriptions.
D. Direct Community Offering and Syndicated Community Offering
-----------------------------------------------------------
1. Any shares of Conversion Stock not purchased through the exercise
of Subscription Rights set forth in Category Nos. 1 through 4 above may be
sold by the Holding Company to Persons under such terms and conditions as
may be established by the Association's Board of Directors with the
concurrence of the OTS. The Direct Community Offering may commence
concurrently with or as soon as possible after the completion of the
Subscription Offering and must be completed within 45 days after completion
of the Subscription Offering, unless extended with the approval of the OTS.
No Person may purchase shares of Conversion Stock in the Direct Community
Offering having an aggregate purchase price of more than $60,000. The right
to purchase shares of Conversion Stock under this Category is subject to
the right of the Association or the Holding Company to accept or reject
such subscriptions in whole or in part. In the event of an oversubscription
for shares in this Category, the shares available shall be allocated among
prospective purchasers pro rata on the basis of the amounts of their
respective orders. The offering price for which such shares are sold to the
general public in the Direct Community Offering shall be the Purchase
Price.
2. Orders received in the Direct Community Offering first shall be
filled up to a maximum of 2% of the Conversion Stock and thereafter
remaining shares shall be allocated on an equal number of shares basis per
order until all orders have been filled.
3. The Conversion Stock offered in the Direct Community Offering shall
be offered and sold in a manner that will achieve the widest distribution
thereof. Preference shall be given in the Direct Community Offering to
natural Persons and trusts of natural Persons residing in the Local
Community.
4. Subject to such terms, conditions and procedures as may be
determined by the Association and the Holding Company, all shares of
Conversion Stock not subscribed for in the Subscription Offering or ordered
in the Direct Community Offering may be sold by a syndicate of broker-
dealers to the general public in a Syndicated Community Offering. No Person
may purchase shares of Conversion Stock in the Syndicated Community
Offering having an aggregate purchase price of more than $60,000. Each
order for Conversion Stock in the Syndicated Community Offering shall be
subject to the absolute right of the Association and the
A-9
<PAGE>
Holding Company to accept or reject any such order in whole or in part
either at the time of receipt of an order or as soon as practicable after
completion of the Syndicated Community Offering. The Association and the
Holding Company may commence the Syndicated Community Offering concurrently
with, at any time during, or as soon as practicable after the end of the
Subscription Offering and/or Direct Community Offering, provided that the
Syndicated Community Offering must be completed within 45 days after the
completion of the Subscription Offering, unless extended by the Association
and the Holding Company with the approval of the OTS.
5. If for any reason a Syndicated Community Offering of shares of
Conversion Stock not sold in the Subscription Offering and the Direct
Community Offering cannot be effected, or in the event that any
insignificant residue of shares of Conversion Stock is not sold in the
Subscription Offering, Direct Community Offering or Syndicated Community
Offering, the Association and the Holding Company shall use their best
efforts to obtain other purchasers for such shares in such manner and upon
such conditions as may be satisfactory to the OTS.
6. In the event a Direct Community Offering or Syndicated Community
Offering do not appear feasible, the Association will immediately consult
with the OTS to determine the most viable alternative available to effect
the completion of the Conversion. Should no viable alternative exist, the
Association may terminate the Conversion with the concurrence of the OTS.
E. Limitations Upon Purchases
--------------------------
The following additional limitations and exceptions shall be imposed upon
purchases of shares of Conversion Stock:
1. No Person, together with Associates of or Persons Acting in Concert
with such Person, may purchase in the aggregate more than the overall
maximum purchase limitation of $100,000 of Conversion Stock, except that
Tax-Qualified Employee Stock Benefit Plans may purchase up to 8% of the
total Conversion Stock issued and shares held or to be held by the Tax-
Qualified Employee Stock Benefit Plans and attributable to a Person shall
not be aggregated with other shares purchased directly by or otherwise
attributable to such Person.
2. Officers and directors of the Association and Associates thereof
may not purchase in the aggregate more than 35% of the shares issued in the
Conversion.
3. The Association's and Holding Company's Boards of Directors will
not be deemed to be Associates or a group of Persons Acting in Concert with
other directors or trustees solely as a result of membership on the Board
of Directors.
4. The Association's Board of Directors, with the approval of the OTS
and without further approval of Members, may, as a result of market
conditions and other factors, increase or decrease the purchase limitation
in paragraphs 1 and 4 above or the number of shares of Conversion Stock to
be sold in the Conversion. If the Association or the Holding Company, as
the case may be, increases the maximum purchase limitations or the number
of shares of Conversion Stock to be sold in the Conversion, the Association
or the Holding Company, as the case may be, is only required to resolicit
Persons who subscribed for the maximum purchase amount and may, in the sole
discretion of the Association or the Holding Company, as the case may be,
resolicit certain other large subscribers. If the Association or the
Holding Company, as the case may be, decreases the maximum purchase
limitations or the number of shares of Conversion Stock to be sold in the
Conversion, the orders of any Person who subscribed for the maximum
purchase amount shall be decreased
A-10
<PAGE>
by the minimum amount necessary so that such Person shall be in compliance
with the then maximum number of shares permitted to be subscribed for by
such Person.
Each Person purchasing Conversion Stock in the Conversion shall be deemed
to confirm that such purchase does not conflict with the purchase limitations
under the Plan or otherwise imposed by law, rule or regulation. In the event
that such purchase limitations are violated by any Person (including any
Associate or group of Persons affiliated or otherwise Acting in Concert with
such Person), the Holding Company shall have the right to purchase from such
Person at the actual Purchase Price per share all shares acquired by such Person
in excess of such purchase limitations or, if such excess shares have been sold
by such Person, to receive from such Person the difference between the actual
Purchase Price per share paid for such excess shares and the price at which such
excess shares were sold by such Person. This right of the Holding Company to
purchase such excess shares shall be assignable by the Holding Company.
F. Restrictions On and Other Characteristics of the Conversion Stock
-----------------------------------------------------------------
1. Transferability. Conversion Stock purchased by Officers and
---------------
directors of the Association and officers and directors of the Holding
Company shall not be sold or otherwise disposed of for value for a period
of one year from the date of Conversion, except for any disposition (i)
following the death of the original purchaser or (ii) resulting from an
exchange of securities in a merger or acquisition approved by the
regulatory authorities having jurisdiction.
The Conversion Stock issued by the Holding Company to such Officers
and directors shall bear a legend giving appropriate notice of the one-year
holding period restriction. Said legend shall state as follows:
"The shares evidenced by this certificate are restricted as to transfer
for a period of one year from the date of this certificate pursuant to
Part 563b of the Rules and Regulations of the Office of Thrift
Supervision. These shares may not be transferred prior thereto without
a legal opinion of counsel that said transfer is permissible under the
provisions of applicable laws and regulations."
In addition, the Holding Company shall give appropriate instructions
to the transfer agent of the Holding Company Stock with respect to the
foregoing restrictions. Any shares of Holding Company Stock subsequently
issued as a stock dividend, stock split or otherwise, with respect to any
such restricted stock, shall be subject to the same holding period
restrictions for such Persons as may be then applicable to such restricted
stock.
2. Subsequent Purchases by Officers and Directors. Without prior
----------------------------------------------
approval of the OTS, if applicable, Officers and directors of the
Association and officers and directors of the Holding Company, and their
Associates, shall be prohibited for a period of three years following
completion of the Conversion from purchasing outstanding shares of Holding
Company Stock, except from a broker or dealer registered with the SEC.
Notwithstanding this restriction, purchases involving more than 1% of the
total outstanding shares of Holding Company Stock and purchases made and
shares held by a Tax-Qualified or non-Tax-Qualified Employee Stock Benefit
Plan which may be attributable to such directors and Officers may be made
in negotiated transactions without OTS permission or the use of a broker or
dealer.
3. Repurchase and Dividend Rights. For a period of three years
------------------------------
following the consummation of the Conversion, any repurchases of Holding
Company Stock by the Holding Company from any Person shall be subject to
the then applicable rules and regulations and policies of the OTS. The
Converted Association may not declare or pay a cash dividend on or
repurchase any of its Capital Stock if the result thereof would be to
reduce the regulatory capital of the Converted Association below the amount
required for the liquidation account described in Paragraph XIII. Further,
any dividend declared or paid on the Capital Stock shall comply with the
then applicable rules and regulations of the OTS.
A-11
<PAGE>
4. Voting Rights. After the Conversion, holders of Savings Accounts
-------------
in and obligors on loans of the Converted Association will not have voting
rights in the Converted Association. Exclusive voting rights with respect
to the Holding Company shall be vested in the holders of Holding Company
Stock; holders of Savings Accounts in and obligors on loans of the
Converted Association will not have any voting rights in the Holding
Company except and to the extent that such Persons become stockholders of
the Holding Company, and the Holding Company will have exclusive voting
rights with respect to the Converted Association's Capital Stock.
G. Mailing of Offering Materials and Collation of Subscriptions
------------------------------------------------------------
The sale of all shares of Conversion Stock offered pursuant to the Plan
must be completed within 24 months after approval of the Plan at the Special
Meeting. After approval of the Plan by the OTS and the declaration of the
effectiveness of the Prospectus, the Holding Company shall distribute
Prospectuses and Order Forms for the purchase of shares of Conversion Stock in
accordance with the terms of the Plan.
The recipient of an Order Form shall be provided not less than 20 days nor
more than 45 days from the date of mailing, unless extended, properly to
complete, execute and return the Order Form to the Holding Company or the
Association. Self-addressed, postage prepaid, return envelopes shall accompany
all Order Forms when they are mailed. Failure of any eligible subscriber to
return a properly completed and executed Order Form within the prescribed time
limits shall be deemed a waiver and a release by such eligible subscriber of any
rights to purchase shares of Conversion Stock under the Plan.
The sale of all shares of Conversion Stock proposed to be issued in
connection with the Conversion must be completed within 45 days after the last
day of the Subscription Offering, unless extended by the Holding Company with
the approval of the OTS.
H. Method of Payment
-----------------
Payment for all shares of Conversion Stock may be made in cash, by check or
by money order, or if a subscriber has a Savings Account(s) in the Association,
such subscriber may authorize the Association to charge the subscriber's Savings
Account(s). The Association shall pay interest at not less than the passbook
rate on all amounts paid in cash or by check or money order to purchase shares
of Conversion Stock in the Subscription Offering from the date payment is
received until the Conversion is completed or terminated. The Association is not
permitted knowingly to loan funds or otherwise extend any credit to any Person
for the purpose of purchasing Conversion Stock.
If a subscriber authorizes the Association to charge the subscriber's
Savings Account(s), the funds shall remain in the subscriber's Savings
Account(s) and shall continue to earn interest, but may not be used by such
subscriber until the Conversion is completed or terminated, whichever is
earlier. The withdrawal shall be given effect only concurrently with the sale of
all shares of Conversion Stock proposed to be sold in the Conversion and only to
the extent necessary to satisfy the subscription at a price equal to the
aggregate Purchase Price. The Association shall allow subscribers to purchase
shares of Conversion Stock by withdrawing funds from certificate accounts held
with the Association without the assessment of early withdrawal penalties,
subject to the approval, if necessary, of the applicable regulatory authorities.
In the case of early withdrawal of only a portion of such account, the
certificate evidencing such account shall be canceled if the remaining balance
of the account is less than the applicable minimum balance requirement. In that
event, the remaining balance shall earn interest at the passbook rate. This
waiver of the early withdrawal penalty is applicable only to withdrawals made in
connection with the purchase of Conversion Stock under the Plan.
Tax-Qualified Employee Stock Benefit Plans may subscribe for shares by
submitting an Order Form, along with evidence of a loan commitment from a
financial institution for the purchase of shares, if applicable, during the
Subscription Offering and by making payment for the shares on the date of the
closing of the Conversion.
A-12
<PAGE>
I. Undelivered, Defective or Late Order Forms; Insufficient Payment
----------------------------------------------------------------
If an Order Form (i) is not delivered and is returned to the Holding
Company or the Association by the United States Postal Service (or the Holding
Company or Association is unable to locate the addressee); (ii) is not returned
to the Holding Company or Association, or is returned to the Holding Company or
Association after expiration of the date specified thereon; (iii) is defectively
completed or executed; or (iv) is not accompanied by the total required payment
for the shares of Conversion Stock subscribed for (including cases in which the
subscribers' Savings Accounts are insufficient to cover the authorized
withdrawal for the required payment), the Subscription Rights of the Person to
whom such rights have been granted shall not be honored and shall be treated as
though such Person failed to return the completed Order Form within the time
period specified therein. Alternatively, the Holding Company or Association may,
but shall not be required to, waive any irregularity relating to any Order Form
or require the submission of a corrected Order Form or the remittance of full
payment for the shares of Conversion Stock subscribed for by such date as the
Holding Company or Association may specify. Subscription orders, once tendered,
shall not be revocable. The Holding Company's and Association's interpretation
of the terms and conditions of the Plan and of the Order Forms shall be final.
J. Members in Non-Qualified States or in Foreign Countries
-------------------------------------------------------
The Holding Company and the Association will make reasonable efforts to
comply with the securities laws of all states in the United States in which
persons entitled to subscribe for stock pursuant to the Plan reside. However,
the Holding Company and the Association 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 Association 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 Association 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 relative to other states,
the Holding Company and the Association 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.
X. Federal Stock Charter and Bylaws
--------------------------------
As part of the Conversion, a Federal Stock Charter and Bylaws will be
adopted to authorize the Converted Association to operate as a federal stock
savings bank. By approving the Plan, the Members of the Association will
thereby approve the Federal Stock Charter and Bylaws. Prior to completion of
the Conversion, the Federal Stock Charter and Bylaws may be amended in
accordance with the provisions and limitations for amending the Plan under
Paragraph XVII. below. The effective date of the adoption of the Federal Stock
Charter and Bylaws shall be the date of the issuance of the Conversion Stock,
which shall be the date of consummation of the Conversion.
XI. Post Conversion Filing and Market Making
----------------------------------------
In connection with the Conversion, the Holding Company shall register the
Conversion Stock with the SEC pursuant to the Securities Exchange Act of 1934,
as amended, and shall undertake not to deregister such Conversion Stock for a
period of three years thereafter.
A-13
<PAGE>
The Holding Company shall use its best efforts to encourage and assist
various Market Makers to establish and maintain a market for the shares of its
stock. The Holding Company shall also use its best efforts to list its stock
through The Nasdaq Stock Market or on a national or regional securities
exchange.
XII. Status of Savings Accounts and Loans Subsequent to Conversion
-------------------------------------------------------------
All Savings Accounts shall retain the same status after Conversion as
these accounts had prior to Conversion. Each Savings Account holder shall
retain, without payment, a withdrawable Savings Account(s) after the Conversion,
equal in amount to the withdrawable value of such holder's Savings Account(s)
prior to Conversion. All Savings Accounts will continue to be insured by the
Savings Association Insurance Fund of the FDIC up to the applicable limits of
insurance coverage. All loans shall retain the same status after the Conversion
as they had prior to the Conversion. See Paragraph IX.F.4. with respect to the
termination of voting rights of Members.
XIII. Liquidation Account
-------------------
After the Conversion, holders of Savings Accounts shall not be entitled to
share in any residual assets in the event of liquidation of the Converted
Association. However, the Association shall, at the time of the Conversion,
establish a liquidation account in an amount equal to its total net worth as of
the date of the latest statement of financial condition contained in the final
Prospectus. The function of the liquidation account shall be to establish a
priority on liquidation and, except as provided in Paragraph IX.F.3 above, the
existence of the liquidation account shall not operate to restrict the use or
application of any of the net worth accounts of the Converted Association.
The liquidation account shall be maintained by the Converted Association
subsequent to the Conversion for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders who retain their Savings Accounts in the
Converted Association. Each Eligible Account Holder and Supplemental Eligible
Account Holder shall, with respect to each Savings Account held, have a related
inchoate interest in a portion of the liquidation account balance
("subaccount").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder and/or a Supplemental Eligible Account Holder shall be determined
by multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of such holder's Qualifying Deposit in the
Savings Account and the denominator is the total amount of the Qualifying
Deposits of all Eligible Account Holders and Supplemental Eligible Account
Holders. Such initial subaccount balance shall not be increased, and it shall be
subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account
Holder or Supplemental Eligible Account Holder at the close of business on any
annual closing date subsequent to the Eligibility Record Date is less than the
lesser of (i) the deposit balance in such Savings Account at the close of
business on any other annual closing date subsequent to the Eligibility Record
Date or the Supplemental Eligibility Record Date or (ii) the amount of the
Qualifying Deposit in such Savings Account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, then the subaccount balance for such
Savings Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of a
downward adjustment, such subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
Savings Account. If any such Savings Account is closed, the related subaccount
balance shall be reduced to zero.
In the event of a complete liquidation of the Converted Association, each
Eligible Account Holder and Supplemental Eligible Account Holder shall be
entitled to receive a liquidation distribution from the liquidation account in
the amount of the then current adjusted subaccount balance(s) for Savings
Account(s) then held by such holder before any liquidation distribution may be
made to stockholders. No merger, consolidation, bulk purchase of assets with
assumptions of Savings Accounts and other liabilities or similar transactions
with another Federally-insured institution
A-14
<PAGE>
in which the Converted Association is not the surviving institution shall be
considered to be a complete liquidation. In any such transaction, the
liquidation account shall be assumed by the surviving institution.
XIV. Regulatory Restrictions on Acquisition of Holding Company
---------------------------------------------------------
A. OTS regulations provide that for a period of three years following
completion of the Conversion, no Person (i.e, individual, a group Acting in
Concert, a corporation, a partnership, an association, a joint stock company, a
trust, or any 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 or its holding company) shall directly, or
indirectly, offer to purchase or actually acquire the beneficial ownership of
more than 10% of any class of equity security of the Holding Company without the
prior approval of the OTS. However, approval is not required for purchases
directly from the Holding Company or the underwriters or selling group acting on
its behalf with a view towards public resale, or for purchases not exceeding 1%
per annum of the shares outstanding. Civil penalties may be imposed by the OTS
for willful violation or assistance of any violation. Where any Person,
directly or indirectly, acquires beneficial ownership of more than 10% of any
class of equity security of the Holding Company within such three-year period,
without the prior approval of the OTS, stock of the Holding Company beneficially
owned by such Person in excess of 10% shall not be counted as shares entitled to
vote and shall not be voted by any Person or counted as voting shares in
connection with any matter submitted to the stockholders for a vote. The
provisions of this regulation shall not apply to the acquisition of securities
by Tax-Qualified Employee Stock Benefit Plans provided that such plans do not
have beneficial ownership of more than 25% of any class of equity security of
the Holding Company.
B. The Holding Company may provide in its articles/certificate of
incorporation, or similar document, a provision that, for a specified period of
up to five years following the date of the completion of the Conversion, no
Person shall directly or indirectly offer to acquire or actually acquire the
beneficial ownership of more than 10% of any class of equity security of the
Holding Company. Such provisions would not apply to acquisition of securities
by Tax-Qualified Employee Stock Benefit Plans provided that such plans do not
have beneficial ownership of more than 25% of any class of equity security of
the Holding Company. The Holding Company may provide in its articles/certificate
of incorporation, or similar document, for such other provisions affecting the
acquisition of its stock as shall be determined by its Board of Directors.
XV. Directors and Officers of the Converted Association
---------------------------------------------------
The Conversion is not intended to result in any change in the directors or
Officers. Each Person serving as a director of the Association at the time of
Conversion shall continue to serve as a member of the Converted Association's
Board of Directors, subject to the Converted Association's Federal Stock Charter
and Bylaws. The Persons serving as Officers immediately prior to the Conversion
will continue to serve at the discretion of the Board of Directors in their
respective capacities as Officers of the Converted Association. In connection
with the Conversion, the Association and the Holding Company may enter into
employment agreements on such terms and with such officers as shall be
determined by the Boards of Directors of the Association and the Holding
Company.
XVI. Executive Compensation
----------------------
The Association and the Holding Company may adopt, subject to any required
approvals, executive compensation or other benefit programs, including but not
limited to compensation plans involving stock options, stock appreciation
rights, restricted stock grants, employee recognition programs and the like.
XVII. Amendment or Termination of Plan
--------------------------------
If necessary or desirable, the Plan may be amended by a two-thirds vote of
the Association's Board of Directors, at any time prior to submission of the
Plan and proxy materials to the Members. At any time after submission of the
Plan and proxy materials to the Members, the Plan may be amended by a two-thirds
vote of the Board of Directors only
A-15
<PAGE>
with the concurrence of the OTS. The Plan may be terminated by a two-thirds vote
of the Board of Directors at any time prior to the Special Meeting, and at any
time following such Special Meeting with the concurrence of the OTS. In its
discretion, the Board of Directors may modify or terminate the Plan upon the
order of the regulatory authorities without a resolicitation of proxies or
another meeting of the Members.
In the event that mandatory new regulations pertaining to conversions are
adopted by the OTS prior to the completion of the Conversion, the Plan shall be
amended to conform to the new mandatory regulations without a resolicitation of
proxies or another meeting of Members. In the event that new conversion
regulations adopted by the OTS prior to completion of the Conversion contain
optional provisions, the Plan may be amended to utilize such optional provisions
at the discretion of the Board of Directors without a resolicitation of proxies
or another meeting of Members.
By adoption of the Plan, the Members authorize the Board of Directors to
amend and/or terminate the Plan under the circumstances set forth above.
XVIII. Expenses of the Conversion
--------------------------
The Holding Company and the Association shall use their best efforts to
assure that expenses incurred in connection with the Conversion shall be
reasonable.
XIX. Contributions to Tax-Qualified Plans
------------------------------------
The Holding Company and/or the Association may make discretionary
contributions to the Tax-Qualified Employee Stock Benefit Plans, provided such
contributions do not cause the Association to fail to meet its regulatory
capital requirements.
* * *
A-16
<PAGE>
FEDERAL STOCK CHARTER
FOR
PALMYRA SAVINGS
Section 1. Corporate Title.
The full corporate title of the bank is Palmyra Savings (the "BANK").
Section 2. Office.
The home office shall be located in the City of Palmyra, in the State of
Missouri.
Section 3. Duration.
The duration of the BANK is perpetual.
Section 4. Purpose and Powers.
The purpose of the BANK is to pursue any or all of the lawful objectives of
a Federal savings bank chartered under Section 5 of the Home Owners' Loan Act
and to exercise all the express, implied, and incidental powers conferred
thereby and by all acts amendatory thereof and supplemental thereto, subject to
the Constitution and laws of the United States as they are now in effect, or as
they may hereafter be amended, and subject to all lawful and applicable rules,
regulations, and orders of the Office of Thrift Supervision ("Office").
Section 5. Capital Stock.
The total number of shares of all classes of the capital stock which the
BANK has the authority to issue is ten thousand (10,000), all of which one
thousand (1,000) shall be common stock, par value $1.00 per share and of which
nine thousand (9,000) shall be preferred stock, par value $1.00 per share. The
shares may be issued from time to time as authorized by the Board of Directors
without further approval of shareholders except as otherwise provided in this
Section 5 or to the extent that such approval is required by governing law,
rule, or regulation. The consideration for the issuance of the shares shall be
paid in full before their issuance and shall not be less than the par value.
Neither promissory notes nor future services shall constitute payment or part
payment for the issuance of shares of the BANK. The consideration for the
shares shall be cash, tangible or intangible property (to the extent direct
investment in such property would be permitted), labor or services actually
performed for the BANK, or any combination of the foregoing. In the absence of
actual fraud in the transaction, the value of such property, labor, or
<PAGE>
services, as determined by the Board of Directors of the BANK, shall be
conclusive. In the case of a stock dividend, that part of the retained earnings
of the BANK that is transferred to common stock or paid-in capital accounts upon
the issuance of shares as a stock dividend shall be deemed to be the
consideration for their issuance.
Except for shares issued in the initial organization of the BANK or in
connection with the conversion of the BANK from the mutual to the stock form of
capitalization, no shares of capital stock (including shares issuable upon
conversion, exchange, or exercise of other securities) shall be issued, directly
or indirectly, to officers, directors, or controlling persons of the BANK other
than as part of a general public offering or as qualifying shares to a director,
unless their issuance or the plan under which they would be issued has been
approved by a majority of the total votes eligible to be cast at a legal
meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share, except as
to the cumulation of votes for the election of directors, unless the charter
otherwise provides that there shall be no such cumulative voting: Provided, That
--------
this restriction on voting separately by class or series shall not apply:
(i) To any provision which would authorize the holders of preferred
stock, voting as a class or series, to elect some members of the
Board of Directors, less than a majority thereof, in the event of
default in the payment of dividends on any class or series of
preferred stock;
(ii) To any provision that would require the holders of preferred stock,
voting as a class or series, to approve the merger or consolidation
of the BANK with another corporation or the sale, lease, or
conveyance (other than by mortgage or pledge) of properties or
business in exchange for securities of a corporation other than the
BANK if the preferred stock is exchanged for securities of such
other corporation: Provided, That no provision may require such
approval for transactions undertaken with the assistance or pursuant
to the direction of the Office or the Federal Deposit Insurance
Corporation;
(iii) To any amendment which would adversely change the specific terms of
any class or series of capital stock as set forth in this Section 5
(or in any supplementary sections hereto), including any amendment
which would create or enlarge any class or series ranking prior
thereto in rights and preferences. An amendment which increases the
number of authorized shares of any class or series of capital stock,
or substitutes the surviving BANK in a merger or consolidation for
the BANK, shall not be considered to be such an adverse change.
A description of the different classes and series (if any) of the BANK's
capital stock and a statement of the designations, and the relative rights,
preferences, and limitations of the shares of each class of and series (if any)
of capital stock are as follows:
2
<PAGE>
A. Common Stock. Except as provided in this Section 5 (or in any
------------
supplementary sections hereto) the holders of the common stock shall
exclusively possess all voting power. Each holder of shares of common
stock shall be entitled to one vote for each share held by each
holder, except as to the cumulation of votes for the election of
directors, unless the charter otherwise provides that there shall be
no such cumulative voting.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of
stock having preference over the common stock as to the payment of
dividends, the full amount of dividends and of sinking fund, or
retirement fund, or other retirement payments, if any, to which such
holders are respectively entitled in preference to the common stock,
then dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends out
of any assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
BANK, the holders of the common stock (and the holders of any class or
series of stock entitled to participate with the common stock in the
distribution of assets) shall be entitled to receive, in cash or in
kind, the assets of the BANK available for distribution remaining
after: (i) payment or provision for payment of the BANK's debts and
liabilities; (ii) distributions or provision for distributions in
settlement of its liquidation account; and (iii) distributions or
provision for distributions to holders of any class or series of stock
having preference over the common stock in the liquidation,
dissolution, or winding up of the BANK. Each share of common stock
shall have the same relative rights as and be identical in all
respects with all the other shares of common stock.
B. Preferred Stock. The BANK may provide in supplementary sections to
---------------
its charter for one or more classes of preferred stock, which shall be
separately identified. The shares of any class may be divided into
and issued in series, with each series separately designated so as to
distinguish the shares thereof from the shares of all other series and
classes. The terms of each series shall be set forth in a
supplementary section to the charter. All shares of the same class
shall be identical except as to the following relative rights and
preferences, as to which there may be variations between different
series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and,
if so, from which date(s), the payment date(s) for dividends, and
the participating or other special rights, if any, with respect
to dividends;
3
<PAGE>
(c) The voting powers, full or limited, if any, of the shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price(s) at which, and the terms and conditions on which,
such shares may be redeemed;
(e) The amount(s) payable upon the shares of such series in the event
of voluntary or involuntary liquidation, dissolution, or winding
up of the BANK;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the
purchase or redemption of such shares, and if so entitled, the
amount of such fund and the manner of its application, including
the price(s) at which such shares may be redeemed or purchased
through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock
of the BANK and, if so, the conversion price(s) or the rate(s) of
exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial
preferred stock and whether such shares may be reissued as shares
of the same or any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the
same relative rights as and be identical in all respects with all the other
shares of the same series.
The Board of Directors shall have authority to divide, by the adoption
of supplementary charter sections, any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established
by a supplementary charter section adopted by the Board of Directors, the BANK
shall file with the Secretary of the Office a dated copy of that supplementary
section of this charter establishing and designating the series and fixing and
determining the relative rights and preferences thereof.
4
<PAGE>
Section 6. Preemptive Rights.
Holders of the capital stock of the BANK shall not be entitled to
preemptive rights with respect to any shares of the BANK which may be issued.
Section 7. Liquidation Account.
Pursuant to the requirements of the Office's regulations (12 C.F.R.
563b.3), the BANK shall establish and maintain a liquidation account for the
benefit of its savings account holders as of June 30, 1997 and
[_________________] ("eligible savers"). In the event of a complete liquidation
of the BANK, it shall comply with such regulations with respect to the amount
and the priorities on liquidation of each of the BANK's eligible saver's
inchoate interest in the liquidation account, to the extent it is still in
existence: provided, that an eligible saver's inchoate interest in the
liquidation account shall not entitle such eligible saver to any voting rights
at meetings of the BANK's shareholders.
Section 8. Certain Provisions Applicable for Five Years.
Notwithstanding anything contained in the BANK's charter or bylaws to
the contrary, for a period of five years from the date of completion of the
conversion of the BANK from mutual to stock form, the following provisions shall
apply:
A. Beneficial Ownership Limitation. No person shall directly or
-------------------------------
indirectly offer to acquire or acquire the beneficial ownership of
more than 10 percent of any class of any equity security of the BANK.
This limitation shall not apply to a transaction in which the BANK
forms a holding company without change in the respective beneficial
ownership interests of the BANK's shareholders other than pursuant to
the exercise of any dissenter and appraisal rights, the purchase of
shares by underwriters in connection with a public offering, or the
purchase of shares by a tax-qualified employee stock benefit plan
which is exempt from the approval requirements under Section
574.3(c)(1)(vi) of the Office Regulations.
In the event shares are acquired in violation of this Section 8, all
shares beneficially owned by any person in excess of 10 percent shall
be considered "excess shares" and shall not be counted as shares
entitled to vote and shall not be voted by any person or counted as
voting shares in connection with any matters submitted to the
shareholders for a vote.
For the purposes of this Section 8, the following definitions apply:
(i) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint
stock company, a trust,
5
<PAGE>
any unincorporated organization or similar company, a syndicate
or any other group formed for the purpose of acquiring, holding
or disposing of the equity securities of the BANK.
(ii) The term "offer" includes every offer to buy or otherwise
acquire, solicitation of an offer to sell, tender offer for, or
request or invitation for tenders of, a security or interest in a
security for value.
(iii) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(iv) The term "acting in concert" means (a) knowing participation in a
joint activity or conscious parallel action towards a common goal
whether or not pursuant to an express agreement, or (b) a
combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any
contract, understanding, relationship, agreement or other
arrangement, whether written or otherwise.
B. Cumulative Voting Limitation. Shareholders shall not be permitted to
cumulate their votes for the election of directors.
C. Call for Special Meetings. Special meetings of shareholders relating
to changes in control of the BANK or amendments to its charter shall
be called only at the direction of the Board of Directors.
Section 9. Directors.
The BANK shall be under the direction of a Board of Directors. The
authorized number of directors, as stated in the BANK's bylaws, shall be not be
less than five nor more than 15 except when a greater number or lesser number is
approved by the Office or his or her delegate.
6
<PAGE>
Section 10. Amendment of Charter.
Except as provided in Section 5, no amendment, addition, alteration,
change, or repeal of this charter shall be made, unless such is proposed by the
Board of Directors of the BANK, approved by the shareholders by a majority of
the votes eligible to be cast at a legal meeting, unless a higher vote is
otherwise required, and approved or preapproved by the Office.
PALMYRA SAVINGS
Attest: ____________________________ By: ____________________________
Eldon R. Mette L. Edward Schaeffer
Secretary President
OFFICE OF THRIFT SUPERVISION
Attest: ____________________________ By: ____________________________
Secretary to the Office Director
Declared effective on
the _____ day of __________, 1999
7
<PAGE>
FEDERAL STOCK BYLAWS
FOR
PALMYRA SAVINGS
ARTICLE I - HOME OFFICE
The home office of Palmyra Savings ("Bank") shall be at 123 West Lafayette
Street, Palmyra, in the State of Missouri.
ARTICLE II - SHAREHOLDERS
Section 1. Place of Meetings. All annual and special meetings of
-----------------------------
shareholders shall be held at the home office of the Bank or at such other
convenient place as the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the Bank for
--------------------------
the election of directors and for the transaction of any other business of the
Bank shall be held annually within 150 days after the end of the Bank's fiscal
year on the thirtieth of September if not a legal holiday, and if a legal
holiday, then on the next day following which is not a legal holiday, at or at
such other date and time within such 150-day period as the board of directors
may determine.
Section 3. Special Meetings. Special meetings of the shareholders for any
----------------------------
purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision ("Office"), may be called at any time by the
chairman of the board, the president, or a majority of the board of directors,
and shall be called by the chairman of the board, the president, or the
secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the Bank entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the Bank addressed to the chairman
of the board, the president, or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
-------------------------------
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by regulations of the Office or these bylaws or the
board of directors adopts another written procedure for the conduct of meetings.
The board of directors shall designate, when present, either the chairman of the
board or president to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day, and
------------------------------
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 20 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, or the secretary, or the directors calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the mail,
addressed to the shareholder at the
<PAGE>
address as it appears on the stock transfer books or records of the Bank as of
the record date prescribed in section 6 of this article II with postage prepaid.
When any shareholders' meeting, either annual or special, is adjourned for 30
days or more, notice of the adjourned meeting shall be given as in the case of
an original meeting. It shall not be necessary to give any notice of the time
and place of any meeting adjourned for less than 30 days or of the business to
be transacted at the meeting, other than an announcement at the meeting at which
such adjournment is taken.
Section 6. Fixing of Record Date. For the purpose of determining
--------------------------------
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more
than 60 days and, in case of a meeting of shareholders, not fewer than 10 days
prior to the date on which the particular action, requiring such determination
of shareholders, is to be taken. When a determination of shareholders entitled
to vote at any meeting of shareholders has been made as provided in this
section, such determination shall apply to any adjournment.
Section 7. Voting Lists. At least 20 days before each meeting of the
-----------------------
shareholders, the officer or agent having charge of the stock transfer books for
shares of the Bank shall make a complete list of the shareholders of record
entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order, with the address and the number of shares held by each. This
list of shareholders shall be kept on file at the home office of the Bank and
shall be subject to inspection by any shareholder of record or the shareholder's
agent at any time during usual business hours for a period of 20 days prior to
such meeting. Such list shall also be produced and kept open at the time and
place of the meeting and shall be subject to inspection by any shareholder of
record or any shareholder's agent during the entire time of the meeting. The
original stock transfer book shall constitute prima facie evidence of the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders. In lieu of making the shareholder list available for
inspection by shareholders as provided in the preceding paragraph, the board of
directors may elect to follow the procedures prescribed in (S)552.6(d) of the
Office's regulations as now or hereafter in effect.
Section 8. Quorum. A majority of the outstanding shares of the Bank
-----------------
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum. If a quorum is present, the
affirmative vote of the majority of the shares represented at the meeting and
entitled to vote on the subject matter shall be the act of the shareholders,
unless the vote of a greater number of shareholders voting together or voting by
classes is required by law or the charter. Directors, however, are elected by a
plurality of the votes cast at an election of directors.
2
<PAGE>
Section 9. Proxies. At all meetings of shareholders, a shareholder may
-------------------
vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Proxies may be given telephonically or
electronically as long as the holder uses a procedure for verifying the identity
of the shareholder. Proxies solicited on behalf of the management shall be
voted as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid
more than eleven months from the date of its execution except for a proxy
coupled with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons. When
---------------------------------------------------------------
ownership stands in the name of two or more persons, in the absence of written
directions to the Bank to the contrary, at any meeting of the shareholders of
the Bank any one or more of such shareholders may cast, in person or by proxy,
all votes to which such ownership is entitled. In the event an attempt is made
to cast conflicting votes, in person or by proxy, by the several persons in
whose names shares of stock stand, the vote or votes to which those persons are
entitled shall be cast as directed by a majority of those holding such and
present in person or by proxy at such meeting, but no votes shall be cast for
such stock if a majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing in the
-----------------------------------------------
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares outstanding in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
Shares held in trust in an IRA or Keogh Account, however, may by voted by the
Bank if no other instructions are received. Shares outstanding in the name of a
receiver may be voted by such receiver, and shares held by or under control of a
receiver may be voted by such receiver without the transfer into his or her name
if authority to do so is consigned in an appropriate order of the court or other
public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Bank nor shares held
by another Corporation, if a majority of the shares entitled to vote for the
election of directors of such other corporation are held by the Bank, shall be
voted at any meeting or counted in determining the total number of outstanding
shares at any given time for purposes of any meeting.
Section 12. Inspectors of Election. In advance of any meeting of
----------------------------------
shareholders, the board of directors may appoint any person other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed
3
<PAGE>
the chairman of the board or the president may, or on the request of not fewer
than 10 percent of the votes represented at the meeting shall, make such
appointment at the meeting. If appointed at the meeting, the majority of the
votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies; receiving votes,
ballots, or consents; hearing and determining all challenges and questions in
any way arising in connection with the rights to vote; counting and tabulating
all votes or consents; determining the result; and such acts as may be proper
for conduct the election or vote with fairness to all shareholders.
Section 13. Nominating Committee. The board of directors shall act as a
--------------------------------
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Bank. No nominations for directors
except those made by the nominating committee shall be voted upon at the annual
meeting unless other nominations by shareholders are made in writing and
delivered to the secretary of the Bank at least five days prior to the date of
the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Bank. Ballots bearing the names of all
persons nominated by the nominating committee and by shareholders shall be
provided for use at the annual meeting. However, if the nominating committee
shall fail or refuse to act at least 20 days prior to the annual meeting,
nominations for directors may be made at the annual meeting by any shareholder
entitled to vote and shall be voted upon.
Section 14. New Business. Any new business to be taken up at the annual
------------------------
meeting shall be stated in writing and filed with the secretary of the Bank at
least five days before the date of the annual meeting, and all business so
stated, proposed, and filed shall be considered at the annual meeting; but no
other proposal shall be acted upon at the annual meeting. Any shareholder may
make any other proposal at the annual meeting and the same may be discussed and
considered, but unless stated in writing and filed with the secretary at least
five days before the meeting, such proposal shall be laid over for action at an
adjourned, special, or annual meeting of the shareholders taking place 30 days
or more thereafter. This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers, directors,
and committees; but in connection with such reports, no new business shall be
acted upon at such annual meeting unless stated and filed as herein provided.
Section 15. Informal Action by Shareholders. Any action required to be
-------------------------------------------
taken at a meeting of the shareholders, or any other action which may be
4
<PAGE>
taken at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III - BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the Bank shall be
-------------------------
under the direction of its board of directors. The board of directors shall
annually elect a chairman of the board and a president from among its members
and shall designate, when present, either the chairman of the board or the
president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of seven
--------------------------
(7) and shall be divided into three classes as nearly equal in number as
possible. The members of each class shall be elected for a term of three years
and until their successors are elected and qualified. One class shall be
elected by ballot annually.
Section 3. Regular Meetings. A regular meeting of the board of directors
---------------------------
shall be held without other notice than this bylaw following the annual meeting
of shareholders. The board of directors may provide, by resolution, the time
and place, for the holding of additional regular meetings without other notice
than such resolution. Directors may participate in a meeting by means of a
conference telephone or similar communications device through which all persons
participating can hear each other at the same time. Participation by such means
shall constitute presence in person for all purposes.
Section 4. Qualification. Each director shall at all times be the
------------------------
beneficial owner of not less than 100 shares of capital stock of the Bank unless
the Bank is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. Special meetings of the board of directors
---------------------------
may be called by or at the request of the chairman of the board, the president,
or one-third of the directors. The persons authorized to call special meetings
of the board of directors may fix any place, within the Bank's normal lending
territory, as the place for holding any special meeting of the board of
directors called by such persons.
Members of the board of directors may participate in special meetings by
making use of conference telephone or similar communications equipment by which
all persons participating in the meeting can hear each other. Such participation
shall constitute presence in person for all purposes.
Section 6. Notice. Written notice of any special meeting shall be given to
-----------------
each director at least 24 hours prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed, when delivered to the telegraph company if sent by telegram,
or when the Bank receives notice of delivery if electronically transmitted. Any
director may waive notice of any
5
<PAGE>
meeting by a writing filed with the secretary. The attendance of a director at a
meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
meeting of the board of directors need be specified in the notice of waiver of
notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by section
------------------
2 of this article III shall constitute a quorum for the transaction of business
at any meeting of the board of directors; but if less than such majority is
present at a meeting, a majority of the directors present may adjourn the
meeting from time to time. Notice of any adjourned meeting shall be given in
the same manner as prescribed by section 5 of this article III.
Section 8. Manner of Acting. The act of the majority of the directors
----------------------------
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by regulation of the Office
or by these bylaws.
Section 9. Action Without a Meeting. Any action required or permitted to
------------------------------------
be taken by the board of directors at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the directors.
Section 10. Resignation. Any director may resign at any time by sending a
-----------------------
written notice of such resignation to the home office of the Bank addressed to
the chairman of the board or the president. Unless otherwise specified, such
resignation shall take effect upon receipt by the chairman of the board or the
president. More than three consecutive absences from regular meetings of the
board of directors, unless excused by resolution of the board of directors,
shall automatically constitute a resignation, effective when such resignation is
accepted by the board of directors.
Section 11. Vacancies. Any vacancy occurring on the board of directors may
---------------------
be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve only until the next election of
directors by the shareholders. Any directorship to be filled by reason of an
increase in the number of directors may be filled by election by the board of
directors for a term of office continuing only until the next election of
directors by the shareholders.
Section 12. Compensation. Directors, as such, may receive a stated salary
------------------------
for their services. By resolution of the board of directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for
attendance at each regular or special meeting of the board of directors. Members
of either standing or special committees may be allowed such compensation for
attendance at committee meetings as the board of directors may determine.
Section 13. Presumption of Assent. A director of the Bank who is present
---------------------------------
at a meeting of the board of directors at which action on any bank matter is
taken shall be presumed to have assented to the action taken unless his or her
dissent or abstention shall be entered in the minutes
6
<PAGE>
of the meeting or unless he or she shall file a written dissent to such action
with the person acting as the secretary of the meeting before the adjournment
thereof or shall forward such dissent by registered mail to the secretary of the
Bank within five days after the date a copy of the minutes of the meeting is
received. Such right to dissent shall not apply to a director who voted in favor
of such action.
Section 14. Removal of Directors. At a meeting of shareholders called
--------------------------------
expressly for that purpose, any director may be removed only for cause by a vote
of the holders of a majority of the shares then entitled to vote at an election
of directors. Whenever the holders of the shares of any class are entitled to
elect one or more directors by the provisions of the charter or supplemental
sections thereto, the provisions of this section shall apply, in respect to the
removal of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class and not to the vote of the outstanding shares
as a whole.
Section 15. Age Limitation. No persons seventy-five years of age shall be
--------------------------
eligible for election, reelection, appointment or reappointment to the Board of
Directors. No director shall serve as such beyond the annual meeting of the
Bank immediately following the director becoming seventy-five years of age,
except that a director serving on the date of adoption of these bylaws may
complete the term as director. This age limitation does not apply to an
advisory director or a director emeritus.
ARTICLE IV - EXECUTIVE AND OTHER COMMITTEES
Section 1. Appointment. The board of directors, by resolution adopted by
-----------------------
a majority of the full board, may designate the chief executive officer and two
or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of
---------------------
directors is not in session, shall have and may exercise all of the authority of
the board of directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the board of
directors with reference to: the declaration of dividends; the amendment of the
charter or bylaws of the Bank, or recommending to the shareholders a plan of
merger, consolidation, or conversion; the sale, lease, or other disposition of
all or substantially all of the property and assets of the Bank otherwise than
in the usual and regular course of its business; a voluntary dissolution of the
Bank; a revocation of any of the foregoing; or the approval of a transaction in
which any member of the executive committee, directly or indirectly, has any
material beneficial interest.
Section 3. Tenure. Subject to the provisions of section 8 of this article
------------------
IV, each member of the executive committee shall hold office until the next
regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
7
<PAGE>
Section 4. Meetings. Regular meetings of the executive committee may be
--------------------
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one day's notice stating the
place, date, and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
------------------
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted to
------------------------------------
be taken by the executive committee at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be
---------------------
filled by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive
------------------------------------
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full board of directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the president or secretary of the Bank. Unless otherwise specified,
such resignation shall take effect upon its receipt; the acceptance of such
resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
---------------------
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by resolution
----------------------------
establish an audit, loan, or other committee composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
Bank and may prescribe the duties, constitution, and procedures thereof.
ARTICLE V - OFFICERS
Section 1. Positions. The officers of the Bank shall be a president, one
--------------------
or more vice presidents, a secretary, and a treasurer or comptroller, each of
whom shall be elected by the board of directors. The board of directors may
also designate the chairman of the board as an officer. The offices of the
secretary and treasurer or comptroller may be held by the same person and a
8
<PAGE>
vice president may also be either the secretary or the treasurer or comptroller.
The board of directors may designate one or more vice presidents as executive
vice president or senior vice president. The board of directors may also elect
or authorize the appointment of such other officers as the business of the Bank
may require. The officers shall have such authority and perform such duties as
the board of directors may from time to time authorize or determine. In the
absence of action by the board of directors, the officers shall have such powers
and duties as generally pertain to their respective offices.
Section 2. Election and Term of Office. The officers of the Bank shall be
--------------------------------------
elected annually at the first meeting of the board of directors held after each
annual meeting of the shareholders. If the election of officers is not held at
such meeting, such election shall be held as soon thereafter as possible. Each
officer shall hold office until a successor has been duly elected and qualified
or until the officer's death, resignation or removal in the manner hereinafter
provided. Election or appointment of an officer, employee, or agent shall not of
itself create contractual rights. The board of directors may authorize the Bank
to enter into an employment contract with any officer in accordance with
regulations of the Office; but no such contract shall impair the right of the
board of directors to remove any officer at any time in accordance with section
3 of this Article V.
Section 3. Removal. Any officer may be removed by the board of directors
------------------
whenever in its judgment the best interests of the Bank will be served thereby,
but such removal, other than for cause, shall be without prejudice to the
contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
--------------------
resignation, removal, disqualification, or otherwise may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be fixed
-----------------------
from time to time by the board of directors.
ARTICLE VI - CONTRACTS, LOANS, CHECKS, AND DEPOSITS
Section 1. Contracts. To the extent permitted by regulations of the
--------------------
Office, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the board of directors may authorize any officer,
employee, or agent of the Bank to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the Bank. Such authority may be
general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the Bank and
----------------
no evidence of indebtedness shall be issued in its name unless authorized by the
board of directors. Such authority may be general or confined to specific
instances.
Section 3. Checks; Drafts. etc. All checks, drafts, or other orders for the
------------------------------
payment of money, notes, or other evidences of indebtedness issued in the name
of the Bank shall be signed by one or more officers, employees or agents of the
Bank in such manner as shall from time to
9
<PAGE>
time be determined by the board of directors.
Section 4. Deposits. All funds of the Bank not otherwise employed shall be
-------------------
deposited from time to time to the credit of the Bank in any duly authorized
depositories as the board of directors may select.
ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of
----------------------------------
capital stock of the Bank shall be in such form as shall be determined by the
board of directors and approved by the Office. Such certificates shall be
signed by the chief executive officer or by any other officer of the Bank
authorized by the board of directors, attested by the secretary or an assistant
secretary, and sealed with the corporate seal or a facsimile thereof. The
signatures of such officers upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar
other than the Bank itself or one of its employees. Each certificate for
shares of capital stock shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares are issued, with the owner
of shares and date of issue, shall be entered on the stock transfer books of the
Bank. All certificates surrendered to the Bank for transfer shall be cancelled
and no new certificate shall be issued until the former certificate for a like
number of shares has been surrendered and cancelled, except that in the case of
a lost or destroyed certificate, a new certificate may be issued upon such terms
and indemnity to the Bank as the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of the
-----------------------------
Bank shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the Bank. Such transfer shall be made only on surrender for cancellation of the
certificate for such shares. The person in whose name shares of capital stock
stand on the books of the Bank shall be deemed by the Bank to be the owner for
all purposes.
ARTICLE VIII - FISCAL YEAR
The fiscal year of the Bank shall end on the thirtieth day of September of
each year. The appointment of accountants shall be subject to annual
ratification by the shareholders.
ARTICLE IX - DIVIDENDS
Subject to the terms of the Bank's charter and the regulations and orders
of the Office, the board of directors may, from time to time, declare, and the
Bank may pay, dividends on its outstanding shares of capital stock.
10
<PAGE>
ARTICLE X - CORPORATE SEAL
The board of directors shall provide the Bank seal which shall be two
concentric circles between which shall be the name of the Bank. The year of
incorporation or an emblem may appear in the center.
ARTICLE XI - AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of the
Office and shall be effective after: (i) approval of the amendment by a majority
vote of the authorized board of directors, or by a majority vote of the votes
cast by the shareholders of the Bank at any legal meeting, and (ii) receipt of
any applicable regulatory approval. When the Bank fails to meet its quorum
requirements, solely due to vacancies on the board, then the affirmative vote of
a majority of the sitting board will be required to amend the bylaws.
<PAGE>
Exhibit 5.0 Opinion of Muldoon, Murphy & Faucette LLP
re: Legality
<PAGE>
{LETTERHEAD OF MULDOON, MURPHY AND FAUCETTE LLP]
February 2, 1999
Board of Directors
PFSB Bancorp, Inc.
123 West Lafayette Street
Palmyra, Missouri 63461
Re: The offering of up to 859,625 shares of
PFSB Bancorp, Inc. Common Stock
-------------------------------
Ladies and Gentlemen:
You have requested our opinion concerning certain matters of Missouri law
in connection with the conversion of Palmyra Saving and Building Association,
F.A. (the "Bank"), a federally-chartered savings association, from the mutual
form of ownership to a federally-chartered capital stock savings bank to be
named Palmyra Savings (the "Conversion"), and the related subscription offering,
community offering and syndicated community offering (the "Offerings") by PFSB
Bancorp, Inc., a Missouri corporation (the "Company"), of up to 747,500 shares
of its common stock, par value $.01 per share ("Common Stock") (859,625 shares
if the Estimated Valuation Range is increased up to 15% to reflect changes in
market and financial conditions following commencement of the Offerings).
In connection with your request for our opinion, you have provided to us
and we have reviewed the Company's articles of incorporation filed with the
Secretary of State, Corporate Division of Missouri on November 25, 1998 (the
"Articles of Incorporation"); the Company's Bylaws; the Company's Registration
Statement on Form SB-2, as filed with the Securities and Exchange Commission
initially on December 18, 1998, and as amended (the "Registration Statement");
the ESOP trust agreement and the ESOP loan agreement; resolutions of the Board
of Directors of the Company (the "Board") concerning the organization of the
Company, the Offerings and designation of a Pricing Committee of the Board, and
the form of stock certificate approved by the Board to represent shares of
Common Stock. We have also been furnished a certificate of the Secretary of
State, Corporation Division of Missouri, certifying the Company's good standing
as a Missouri corporation. Capitalized terms used but not defined herein shall
have the meaning given them in the Articles of Incorporation.
<PAGE>
Board of Directors
PFSB Bancorp, Inc.
February 2, 1999
Page 2
We understand that the Company will loan to the trust for the Bank's
Employee Stock Ownership Plan (the "ESOP") the funds the ESOP Trust will use to
purchase shares of Common Stock for which the ESOP Trust subscribes pursuant to
the Offerings and for purposes of rendering the opinion set forth below, we
assume that: (a) the Board of Directors of the Company has duly authorized the
loan to the ESOP Trust (the "Loan"); (b) the ESOP serves a valid corporate
purpose for the Company; (c) the Loan will be made at an interest rate and on
other terms that are fair to the Company; (d) the terms of the Loan will be set
forth in customary and appropriate documents including, without limitation, a
promissory note representing the indebtedness of the ESOP Trust to the Company
as a result of the Loan; and (e) the closing for the Loan and for the sale of
Common Stock to the ESOP Trust will be held after the closing for the sale of
the other shares of Common Stock sold in the Offerings and the receipt by the
Company of the proceeds thereof.
Based upon and subject to the foregoing, and limited in all respects to
matters of Missouri law, it is our opinion that:
Upon the due adoption by the Pricing Committee of a resolution fixing the
number of shares of Common Stock to be sold in the Offerings, the Common Stock
to be issued in the Offerings (including the shares to be issued to the ESOP
Trust) will be duly authorized and, when such shares are sold and paid for in
accordance with the terms set forth in the Prospectus and such resolution of the
Pricing Committee and certificates representing such shares substantially in the
form provided to us and included in Exhibit 4.0 to the Registration Statement
are duly and properly issued, will be validly issued, fully paid and
nonassessable.
The following provisions of the Articles of Incorporation may not be given
effect by a court applying Missouri law, but in our opinion the failure to give
effect to such provisions will not affect the duly authorized, validly issued,
fully paid and nonassessable status of the Common Stock:
Subsections 3.2(c) and (f) of ARTICLE III and Section 10.5 of Article
X, which grant the Board the authority to construe and apply the
provisions of those Articles, subsection 3.2(d) of Article III, to the
extent that subsection obligates any person to provide to the Board
the information such subsection authorizes the Board to demand,
subsection 3.2(a) of Article III, to the extent that subsection limits
the amount of shares of Common Stock a shareholder may vote, and
Subsection 10.3(h) of Article X empowering the Board to determine the
Fair Market Value of property offered or paid for the Company's stock
by an Interested Shareholder, in each case to the extent, if any, that
a court applying Missouri law were to impose equitable limitations
upon such authority.
<PAGE>
Board of Directors
PFSB Bancorp, Inc.
February 2, 1999
Page 3
We consent to the filing of this opinion as an exhibit to the Registration
Statement on Form SB-2 and the Form AC and to the use of the name of our firm
where it appears in the Registration Statement, Form AC and Prospectus.
Very truly yours,
/s/ Muldoon, Murphy & Faucette LLP
MULDOON, MURPHY & FAUCETTE LLP
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF MULDOON, MURPHY & FAUCETTE LLP]
January 19, 1999
Board of Directors
PFSB Bancorp, Inc.
123 West Lafayette Street
Palmyra, Missouri 63461-0072
Board of Directors
Palmyra Saving and Building Association, F.A.
123 West Lafayette Street
Palmyra, Missouri 63461-0072
Re: Federal Tax Consequences of the Conversion of Palmyra Saving and
Building Association, F.A. from a Federally-chartered Mutual Savings
and Loan Association to a Federally-chartered Stock Savings Bank and
the Offer and Sale of Common Stock of PFSB Bancorp, Inc. (the
"Conversion")
To the Members of the Board of Directors:
You have requested an opinion regarding the federal income tax consequences
of the proposed conversion of Palmyra Saving and Building Association, F.A. (the
"Association") from a federally-chartered mutual savings and loan association to
a federally-chartered stock savings bank (the "Converted Bank") and the
acquisition of the Converted Bank's capital stock by PFSB Bancorp, Inc., a
Missouri corporation (the "Holding Company"), pursuant to the plan of conversion
adopted by the Board of Directors on September 24, 1998 (the "Plan of
Conversion").
The proposed transaction is described in the Prospectus and the Plan of
Conversion, and the tax consequences of the proposed transaction will be as set
forth in the section of this letter entitled "FEDERAL TAX OPINION."
<PAGE>
Board of Directors
January 19, 1999
Page 2
We have made such inquiries and have examined such documents and records as
we have deemed appropriate for the purpose of this opinion. In rendering this
opinion, we have received factual representations of the Holding Company and the
Association concerning the Holding Company and the Association as well as the
transaction ("Representations"). These Representations are required to be
furnished prior to the execution of this letter and again prior to the closing
of the Conversion. We will rely upon the accuracy of the Representations of the
Holding Company and the Association and the statements of facts contained in the
examined documents, particularly the Plan of Conversion. We have also assumed
the authenticity of all signatures, the legal capacity of all natural persons
and the conformity to the originals of all documents submitted to us as copies.
Each capitalized term used herein, unless otherwise defined, has the meaning set
forth in the Plan of Conversion. We have assumed that the Conversion will be
consummated strictly in accordance with the terms of the Plan of
Conversion.
The Plan of Conversion and the Prospectus contain a detailed description of
the Conversion. These documents as well as the Representations to be provided
by the Holding Company and the Association are incorporated in this letter as
part of the statement of the facts.
The Association, with its headquarters in Palmyra, Missouri, is a
federally-chartered mutual savings and loan association. As a mutual savings
and loan association, the Association has never been authorized to issue stock.
Instead, the proprietary interest in the reserves and undivided profits of the
Association belong to the deposit account holders of the Association,
hereinafter sometimes referred to as "shareholders." A shareholder of the
Association has a right to share, pro rata, with respect to the withdrawal value
of his respective deposit account in any liquidation proceeds distributed in the
event the Association is ever liquidated. In addition, a shareholder of the
Association is entitled to interest on his account balance as fixed and paid by
the Association.
In order to provide organizational and economic strength to the
Association, the Board of Directors has adopted the Plan of Conversion whereby
the Association will convert itself into a federally-chartered stock savings
bank, the stock of which will be held entirely by the Holding Company. Assuming
that the Holding Company form of organization is utilized, the Holding Company
will acquire the stock of the Converted Bank by purchase, in exchange for the
Conversion proceeds that are not permitted to be retained by the Holding
Company. The Holding Company will apply to the Office of Thrift Supervision
("OTS") to retain up to 50% of the proceeds received from the Conversion. The
aggregate sales price of the Common Stock issued in the Conversion will be based
on an independent appraiser's valuation of the estimated pro forma market value
of the Holding Company and the Converted Bank. The Conversion and sale of the
Common Stock will be subject to applicable regulatory approval and the approval
by the affirmative vote of a majority of the Members.
<PAGE>
Board of Directors
January 19, 1999
Page 3
The Association shall establish at the time of Conversion a liquidation
account in an amount equal to its net worth as of the latest practicable date
prior to Conversion. The liquidation account will be maintained by the
Converted Bank for the benefit of the Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain their deposit accounts at the
Converted Bank. Each Eligible Account Holder and Supplemental Eligible Account
Holder shall, with respect to his Savings Account, hold a related inchoate
interest in a portion of the liquidation account balance, in relation to his
deposit account balance on the Eligibility Record Date and/or Supplemental
Eligibility Record Date or to such balance as it may be subsequently reduced, as
provided in the Plan of Conversion.
In the unlikely event of a complete liquidation of the Converted Bank (and
only in such event), following all liquidation payments to creditors (including
those to Account Holders to the extent of their deposit accounts), each Eligible
Account Holder and Supplemental Eligible Account Holder shall be entitled to
receive a liquidating distribution from the liquidation account, in the amount
of the then adjusted subaccount balance for his deposit accounts then held,
before any liquidation distribution may be made to any holders of the Converted
Bank's capital stock. No merger, consolidation, purchase of bulk assets with
assumption of Savings Accounts and other liabilities, or similar transaction
with a Federal Deposit Insurance Corporation ("FDIC") institution, in which the
Converted Bank is not the surviving institution, shall be deemed to be a
complete liquidation for this purpose. In such transactions, the liquidation
account shall be assumed by the surviving institution.
LIMITATIONS ON OPINION
----------------------
Our opinions expressed herein are based solely upon current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), including applicable
regulations thereunder and current judicial and administrative authority. Any
future amendments to the Code or applicable regulations, or new judicial
decisions or administrative interpretations, any of which could be retroactive
in effect, could cause us to modify our opinion. No opinion is expressed herein
with regard to the federal, state, or city tax consequences of the Conversion
under any section of the Code except if and to the extent specifically
addressed.
FEDERAL TAX OPINION
-------------------
Based upon the Representations and the other factual information referred
to in this letter, and assuming the transaction occurs in accordance with the
Plan of Conversion, and taking into consideration the limitations noted
throughout this opinion, it is our opinion that under current federal income tax
law:
<PAGE>
Board of Directors
January 19, 1999
Page 4
(1) Pursuant to the Conversion, the changes at the corporate level other
than changes in the form of organization will be insubstantial. Based
upon that fact and the fact that the equity interest of a shareholder
in a mutual entity is more nominal than real, unlike that of a
shareholder of a corporation, the Conversion of the Association from a
mutual entity to a stock savings bank is a tax-free reorganization
since it is a mere change in identity, form or place of organization
within the meaning of section 368(a)(1)(F) of the Code (see Rev. Rul.
80-105, 1980-1 C.B. 78). Neither the Association nor the Converted
Bank shall recognize gain or loss as a result of the Conversion. The
Association and the Converted Bank shall each be "a party to a
reorganization" within the meaning of section 368(b) of the Code.
(2) No gain or loss shall be recognized by the Converted Bank or the
Holding Company on the receipt by the Converted Bank of money from the
Holding Company in exchange for shares of the Converted Bank's capital
stock or by the Holding Company upon the receipt of money from the
sale of its Common Stock (Section 1032(a) of the Code).
(3) The basis of the assets of the Association in the hands of the
Converted Bank shall be the same as the basis of such assets in the
hands of the Association immediately prior to the Conversion (Section
362(b) of the Code).
(4) The holding period of the assets of the Association in the hands of
the Converted Bank shall include the period during which the
Association held the assets (Section 1223(2) of the Code).
(5) No gain or loss shall be recognized by the Eligible Account Holders
and the Supplemental Eligible Account Holders of the Association on
the issuance to them of withdrawable deposit accounts in the Converted
Bank plus interests in the liquidation account of the Converted Bank
in exchange for their deposit accounts in the Association or to the
other depositors on the issuance to them of withdrawable deposit
accounts (Section 354(a) of the Code).
(6) Provided that the amount to be paid for such stock pursuant to the
subscription rights is equal to the fair market value of the stock, no
gain or loss will be recognized by Eligible Account Holders and
Supplemental Eligible Account Holders upon the distribution to them of
the nontransferable subscription rights to purchase shares of stock in
the Holding Company (Section 356(a)). Gain realized, if any, by the
Eligible Account Holders and Supplemental Eligible Account
<PAGE>
Board of Directors
January 19, 1999
Page 5
Holders on the distribution to them of nontransferable subscription
rights to purchase shares of Common Stock will be recognized but only
in an amount not in excess of the fair market value of such
subscription rights (Section 356(a)). Eligible Account Holders and
Supplemental Eligible Account Holders will not realize any taxable
income as a result of the exercise by them of the nontransferable
subscription rights (Rev. Rul. 56-572, 1956-2 C.B. 182).
(7) The basis of the deposit accounts in the Converted Bank to be received
by the Eligible Account Holders, Supplemental Eligible Account Holders
and other shareholders of the Association will be the same as the
basis of their deposit accounts in the Association surrendered in
exchange therefor (Section 358(a)(1) of the Code). The basis of the
interests in the liquidation account of the Converted Bank to be
received by the Eligible Account Holders and Supplemental Eligible
Account Holders of the Association shall be zero (Rev. Rul. 71-233,
1971-1 C.B. 113). The basis of the Holding Company Common Stock to its
stockholders will be the purchase price thereof plus the basis, if
any, of nontransferable subscription rights (Section 1012 of the
Code). Accordingly, assuming the nontransferable subscription rights
have no value, the basis of the Common Stock to the Eligible Account
Holders and Supplemental Eligible Account Holders will be the amount
paid therefor. The holding period of the Common Stock purchased
pursuant to the exercise of subscription rights shall commence on the
date on which the right to acquire such stock was exercised (Section
1223(6) of the Code).
Our opinion under paragraph (6) above is predicated on the Representation
that no person shall receive any payment, whether in money or property, in lieu
of the issuance of subscription rights. Our opinion under paragraphs (6) and
(7) above assumes that the subscription rights to purchase shares of Common
Stock received by Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members have a fair market value of zero. We understand that
you have received a letter from RP Financial, LC, that the subscription rights
do not have any value. We express no view regarding the valuation of the
subscription rights.
If the subscription rights are subsequently found to have a fair market
value, income may be recognized by various recipients of the subscription rights
(in certain cases, whether or not the rights are exercised) and Holding Company
and/or the Converted Bank may be taxable on the distribution of the subscription
rights.
* * *
<PAGE>
Board of Directors
January 19, 1999
Page 6
Since this letter is rendered in advance of the closing of this
transaction, we have assumed that the transaction will be consummated in
accordance with the Plan of Conversion as well as all the information and
Representations referred to herein. Any change in the transaction could cause
us to modify our opinion.
We consent to the inclusion of this opinion as an exhibit to the Form AC
Application for Conversion of the Association and the references to and summary
of this opinion in such Application for Conversion. We also consent to the
inclusion of this opinion as an exhibit to the Form SB-2 Registration Statement
and the Form H-(e)1-S Application of PFSB Bancorp, Inc. and the references to
and summary of this opinion in both the Form SB-2 and the Form H-(e)1-S.
Sincerely,
/s/ Muldoon, Murphy & Faucette LLP
MULDOON, MURPHY & FAUCETTE LLP
<PAGE>
CERTIFICATE OF REPRESENTATIONS
------------------------------
I, Eldon R. Mette, Executive Vice President, Palmyra Saving and Building
Association, F.A., a federally chartered mutual savings and loan association
(the "Association"), for the purpose of obtaining an opinion of counsel to be
rendered by Muldoon, Murphy & Faucette LLP in connection with the Conversion
from a federally chartered mutual savings and loan association to a federally
chartered stock savings bank to be known as Palmyra Savings (the "Converted
Bank"), and the offer and sale of 100% of the issued and outstanding stock of
the Converted Bank to PFSB Bancorp, Inc., a Missouri corporation (the "Holding
Company"), pursuant to the Plan of Conversion, as adopted by the Board of
Directors on September 24, 1998, (the "Plan of Conversion") do hereby certify
that all the information set forth in the following representations is true to
the best of my knowledge and belief:
(a) The fair market value of the withdrawable deposit accounts plus
interests in the liquidation account of the Converted Bank to be
received under Paragraphs XII and XIII of the Plan of Conversion will,
in each instance, be equal to the fair market value of the
withdrawable deposit accounts (plus the related interest in the
residual equity of the Converted Bank) deemed to be surrendered in
exchange therefor.
(b) If an individual's total deposits in the Association equal or exceed
$50 as of the Eligibility Record Date or the Supplemental Eligibility
Record Date, then no amount of that individual's total deposits will
be excluded from participating in the liquidation account. The fair
market value of the deposit accounts of the Association which have a
balance of less than $50 on the Eligibility Record Date or the
Supplemental Eligibility Record Date will be less than 1% of the total
fair market value of all deposit accounts of the Association.
(c) Immediately following the Conversion, the Eligible Account Holders and
the Supplemental Eligible Account Holders of the Converted Bank will
own all of the outstanding interests in the liquidation account and
will own such interest solely by reason of their ownership of deposits
in the Association immediately before the Conversion.
(d) After the Conversion, the Converted Bank will continue the business of
the Association in the same manner as prior to the Conversion. The
Converted Bank has no plan or intention and the Holding Company has no
plan or intention to cause the Converted Bank to sell its assets other
than in the ordinary course of business.
(e) The Holding Company has no plan or intention to sell, liquidate or
otherwise dispose of the stock of the Converted Bank other than in the
ordinary course of business.
(f) The Converted Bank has no plan or intention to redeem or otherwise
acquire any of the Common Stock of the Converted Bank issued in the
Conversion
<PAGE>
transaction.
(g) Immediately after the Conversion, the assets and liabilities of the
Converted Bank will be identical to the assets and liabilities of the
Association immediately prior to the Conversion, plus the net proceeds
from the sale of the Converted Bank's common stock to the Holding
Company and any liability associated with indebtedness incurred by the
Employee Stock Option Plan ("ESOP") in the acquisition of Common Stock
by the ESOP.
(h) The Association is federally-chartered as a mutual savings and loan
association. The Converted Bank will receive a federal stock charter
as a stock savings bank. The Holding Company is incorporated under the
law of the state of Missouri.
(i) None of the shares of the Common Stock to be purchased by the
depositor-employees of the Association in the Conversion will be
issued or acquired at a discount. However, shares may be given to
certain Directors and employees as compensation by means of the
Employee Plans. Compensation to be paid to such Directors and
depositor-employees will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
(j) The fair market value of the assets of the Association, which will be
transferred to the Converted Bank in the Conversion, will equal or
exceed the sum of the liabilities of the Association which will be
assumed by the Converted Bank and any liabilities to which the
transferred assets are subject.
(k) The Association is solvent and is not under the jurisdiction of a
bankruptcy or similar court, a receivership, foreclosure, or similar
proceeding in a Federal or State court.
(l) Upon the completion of the Conversion, the Holding Company will own
and hold 100% of the issued and outstanding capital stock of the
Converted Bank and no other shares of capital stock of the Converted
Bank will be issued and/or outstanding. At the time of the
Conversion, the Association does not have any plan or intention to
issue additional shares of its stock following the transaction.
Further, no shares of preferred stock of the Converted Bank will be
issued and/or outstanding.
(m) Upon the completion of the Conversion, there will be no rights,
warrants, contracts, agreements, commitments or understandings with
respect to the capital stock of the Converted Bank, nor will there be
any securities outstanding which are convertible into the capital
stock of the Converted Bank.
(n) No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders, or others in lieu of (a)
nontransferable subscription rights, or (b) an interest in the
liquidation account of the Converted Bank.
2
<PAGE>
(o) The Association has utilized the reserve method of accounting for bad
debts in filing its federal income tax return for the past 3 tax
years. For the past two (2) tax years, the Association has calculated
its addition to the tax reserve for bad debts under the experience
method. For the 1995 tax year, the Association calculated its
addition to the bad debt reserve under the percentage of taxable
income method. Following the Conversion, the Converted Bank will
maintain a tax reserve for bad debts to the extent allowable under the
Internal Revenue Code.
(p) In preparing its federal income tax return for the 1995 taxable year,
the Association analyzed its assets by reference to whether 60% of its
total assets consists of the items listed below and has satisfied this
test. For the 1996 and 1997 tax years, this test was not performed
since the Association utilized the experience method. For the 1995
tax year, at least 60% of the amount of the total assets at the close
of the year consisted of the following items: (i) cash, (ii)
obligations of the US, of a State or political subdivision of a State,
obligations of a corporation which is an instrumentality of the US or
of a State (but excluding tax-exempt obligations), (iii) certificates
of deposit in, or obligations of a corporation organized under a State
law which specifically authorizes such corporation to insure the
deposits or share accounts, (iv) loans secured by a deposit or share
of a member, (v) loans secured by an interest in real property which
is residential real property or used primarily for church purposes,
loans made for the improvement of residential or church property, (vi)
loans secured by an interest in educational, health, or welfare
institutions or facilities, including structures designed to be used
for residential purposes, (vii) property acquired through the
liquidation of defaulted loans described in (v) or (vi) above, (viii)
loans made for the repayment of expenses of college or university
education or vocational training, (ix) property used by the
Association in the conduct of the business of acquiring the savings of
the public and investing in loans, and (x) any regular or residual
interest in a REMIC, but only in the proportion of the assets of the
REMIC which consists of property described in (i) through (ix) above.
(q) Depositors will pay the expenses of the Conversion solely applicable
to them, if any. The Holding Company and the Association will each
pay expenses of the transaction attributable to them and will not pay
any expenses solely attributable to the depositors or to the Holding
Company shareholders.
(r) The exercise price of the subscription rights received by the
Association's Eligible Account Holders, Supplemental Eligible Account
Holders, and other holders of subscription rights to purchase Holding
Company Common Stock will be equal to the fair market value of the
stock of the Holding Company at the time of the completion of the
Conversion as determined by an independent appraisal.
(s) The proprietary interests of the Eligible Account Holders and the
Supplemental Eligible Account Holders in the Association arise solely
by virtue of the fact that they are account holders in the
Association.
3
<PAGE>
(t) There is no plan or intention for the Converted Bank to be liquidated
or merged with another corporation following this proposed
transaction.
(u) The liabilities of the Association assumed by the Converted Bank plus
the liabilities, if any, to which the transferred assets are subject
were incurred by the Association in the ordinary course of its
business and are associated with the assets transferred.
(v) The Association currently has no net operating losses for federal tax
purposes, and has no such losses available for carryover to future tax
years. The Association has neither generated nor carried forward a
net operating loss for federal tax purposes in the past ten tax years.
I understand that the underlying premise of a tax-free reorganization is
grounded in the continuity of both the organization itself and the shareholders'
interests in the organization. Therefore, I understand that to the extent that
any repurchase of the Common Stock of the Converted Bank is considered to be
part of the reorganization, such repurchase could weaken continuity of interest
and thus, jeopardize the tax-free status of the reorganization. I also
understand that such repurchase could trigger recapture of the bad debt loss
reserve.
Additionally, I understand that any change in facts or in the execution of
this transaction could cause a modification of the opinion of Muldoon, Murphy &
Faucette LLP. Since these representations are being offered in advance of the
closing of this transaction, I will undertake to promptly notify Muldoon, Murphy
& Faucette LLP if I discover at any time following the date hereof that any of
the above representations cease to be true, correct and/or complete.
January 15, 1999 /s/ Eldon R. Mette
-------------------------------------------
Eldon R. Mette
Executive Vice President
Palmyra Saving and Building Association, F.A.
4
<PAGE>
Exhibit 8.2 Opinion of Moore, Horton & Carlson, P.C.
re: State Tax Matters
<PAGE>
Exhibit 8.2
[Letterhead of Moore, Horton and Carlson Appears Here]
Board of Directors
Palmyra Saving and Building Association, F.A.
Palmyra, Missouri 63461
RE: Certain Missouri Income Tax Consequences Relating to Proposed
Holding Company Conversion.
Gentlemen:
In accordance with your request, set forth herein is the opinion of this firm
relating to certain Missouri income tax consequences of (i) the proposed
conversion of Palmyra Saving and Building Association, F.A. (the "Bank") from a
federally-chartered mutual savings bank to a federally-chartered stock savings
bank (the "Converted Bank") (the "Stock Conversion") and (ii) the concurrent
acquisition of 100% of the outstanding capital stock of the Converted Bank by a
parent holding company formed at the direction of the Board of Directors of the
Bank and to be known as PFSB Bancorp, Inc. (the "Holding Company").
You have previously received the opinion of Muldoon, Murphy & Faucette regarding
the federal income tax consequences of the Stock Conversion and Holding Company
formation to the Bank, the Converted Bank, and the Holding Company and the
deposit account holders of the Bank under the Internal Revenue Code of 1986, as
amended (the "Code"). The federal tax opinion concludes, inter alia, that the
----- -----
proposed transactions qualify as a tax-free reorganization under Section
368(a)(1)(F) of the Code.
The State of Missouri will, for income tax purposes, treat the proposed
transactions in an identical manner as they are treated by the Internal Revenue
Service for federal income tax purposes. Based upon the facts and circumstances
attendant to the Stock Conversion, and applicable provisions of the Internal
Revenue Code, it is our opinion that, under the laws of the State of Missouri,
no adverse Missouri tax consequences will be incurred by the parties to the
proposed transactions, including deposit account holders, as a result of the
Stock Conversion and Holding Company formation.
No opinion is expressed on any matter other than income tax consequences
including, but not limited to, any franchise or capital stock taxes which might
result from the implementation of the proposed transactions.
<PAGE>
Board of Directors
Palmyra Saving and Building Association, F.A.
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (Form SB) of the Holding Company filed under the
Securities Act of 1933, as amended, the Bank's Application for Approval of
Conversion (Form AC) filed with the Office of Thrift Supervision ("OTS"), and to
the reference to us in the prospectus and proxy statement included therein. We
also consent to the filing of this opinion as an exhibit to the Holding Company
Application H-(e)1-S filed on behalf of the Holding Company with the OTS.
/s/ Moore, Horton & Carlson, P.C.
Mexico, Missouri
January 19, 1999
<PAGE>
Exhibit 23.2 Consent of Moore, Horton & Carlson, P.C.
<PAGE>
[LETTERHEAD OF MOORE, HORTON & CARLSON, P.C.]
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
PFSB Bancorp, Inc.
Palmyra Saving and Building Association, F.A.
Palmyra, Missouri 63461
We consent to the use in this Pre-Effective Amendment No. 2 to Registration
Statement on Form SB-2 on behalf of PFSB Bancorp, Inc. of our report date
November 18, 1998, relating to the consolidated financial statements of Palmyra
Saving and Building Association, F.A. which appears in such Registration
Statement. We also consent to the reference to us under the headings "Legal and
Tax Opinions" and "Experts" contained in the Prospectus, which is a part of such
Registration Statement.
/s/ Moore, Horton & Carlson, P.C.
Mexico, Missouri
February 2, 1999
<PAGE>
EXHIBIT 24.2
RESOLUTION OF THE BOARD OF DIRECTORS OF
PFSB BANCORP, INC.
WHEREAS, at a meeting of the Board of Directors of PFSB Bancorp, Inc., a
Missouri corporation (the "Corporation"), on December 3, 1998, the Board
considered the matter of the conversion of Palmyra Saving and Building
Association, F.A. (the "Association") from a federally-chartered mutual savings
association to a federally-chartered stock savings association and the
acquisition by the Corporation of all the outstanding shares to be issued by the
Association (the "Conversion") and the issuance of the Corporation's common
stock (the "Common Stock") as a part of that Conversion; and
WHEREAS, the Board has determined that it would be in the best interest of
the Corporation to effect said Conversion; and
NOW, THEREFORE, the Board has determined to hereby adopt the following
resolutions:
RESOLVED, that Eldon R. Mette be, and hereby is, authorized to act as
attorney-in-fact for the Corporation for the purpose of executing and filing
with the Securities and Exchange Commission any such registration statement, or
any amendment or supplement thereto, or any document deemed necessary,
convenient or appropriate by any such officer in connection therewith.
CERTIFICATION
-------------
The undersigned hereby certifies that he is the Corporate Secretary of PFSB
Bancorp, Inc., a corporation organized and existing under the laws of the State
of Missouri; that the foregoing is a true and correct copy of resolutions
adopted at a meeting of the Board of Directors of said corporation held on
December 3, 1998, at which meeting a quorum was at all times present and acting;
that the passage of said resolutions were in all respects legal; and that said
resolutions are in full force and effect.
Date: December 3, 1998 /s/ Ronald L. Nelson
--------------------
Ronald L. Nelson
Corporate Secretary
[SEAL]
<PAGE>
Exhibit 99.3 Marketing Materials
<PAGE>
EX 99.3
PFSB Bancorp, Inc.
Proposed Holding company for
Palmyra Saving and Building Association, F.A.
Palmyra, Missouri
Proposed Marketing Materials
1-12-99
<PAGE>
Marketing Materials
PFSB Bancorp, Inc.
Palmyra, Missouri
Table of Contents
-----------------
I. Press Releases
A. Explanation
B. Schedule
C. Distribution List
D. Press Release Examples
II. Advertisements
A. Explanation
B. Schedule
C. Advertisement Examples
III. Question and Answer Brochure
IV. Individual Letters and Community Meeting Invitations
V. Counter Cards and Lobby Posters
A. Explanation
B. Quantity
VI. Proxy Reminder
A. Explanation
B. Example
<PAGE>
I. Press Releases
A. Explanation
In an effort to assure that all customers receive prompt accurate information in
a simultaneous manner, Trident advises Palmyra Saving to forward press releases
to area newspapers, radio stations, etc. at various points during the conversion
process.
Only press releases approved by Conversion Counsel and the OTS will be forwarded
for publication in any manner.
B. Schedule
1. OTS Approval of Conversion
2. Close of Stock Offering
<PAGE>
C. Distribution List
National Distribution List
--------------------------
National Thrift News Wall Street Journal
- -------------------- -------------------
212 West 35th Street World Financial Center
13th Floor 200 Liberty
New York, New York 10001 New York, NY 10004
Richard Chang
American Banker SNL Securities
- --------------- --------------
One State Street Plaza Post Office Box 2124
New York, New York 10004 Charlottesville, Virginia 22902
Michael Weinstein
Barrons Investors Business Daily
- ------- ------------------------
Dow Jones & Savings Bank 12655 Beatrice Street
Barrons Statistical Information Post Office Box 661750
200 Burnett Road Los Angeles, California 90066
Chicopee, Massachusetts 01020
New York Times
- --------------
229 West 43rd Street
New York, NY 10036
<PAGE>
Local Media List
----------------
(To be provided)
Newspaper
- ---------
Radio
- -----
<PAGE>
D. Press Release Examples
PRESS RELEASE
FOR IMMEDIATE RELEASE
---------------------
For More Information Contact:
Eldon R.Mette, Executive Vice-President
(573) 769-2655
PALMYRA SAVING AND BUILDING ASSOCIATION
---------------------------------------
CONVERSION TO STOCK FORM APPROVED
---------------------------------
Palmyra, Missouri (February __, 1998) - Eldon R. Mette, Executive Vice-
President of Palmyra Saving and Building Association, F.A. ("Palmyra Saving"),
Palmyra, Missouri, announced that Palmyra Saving has received approval from the
Office of Thrift Supervision to convert from a federally-chartered mutual
savings association to a federally-chartered stock savings bank, to be known as
"Palmyra Savings". In connection with the Conversion, Palmyra Saving has formed
a holding company, PFSB Bancorp, Inc., to hold all of the outstanding capital
stock of Palmyra Savings.
PFSB Bancorp, Inc. is offering up to 747,500 shares of its common stock,
subject to adjustment, at a price of $10.00 per share. Certain account holders
and borrowers of Palmyra Saving will have an opportunity to subscribe for stock
through a Subscription Offering that closes at 12:00 noon, Central Time, on
March 16, 1999. Shares that are not subscribed for during the Subscription
Offering may be offered subsequently to the general public in a Direct Community
Offering, with first preference given to natural persons and trusts of natural
persons residing in Marion, Clark, and Lewis Counties, Missouri. The
Subscription Offering and Community Offering, if conducted, will be managed by
Trident Securities, Inc. of Raleigh, North Carolina. Copies of the Prospectus
relating to the offerings
<PAGE>
and describing the Plan of Conversion will be mailed to customers on or about
February 19, 1999.
As a result of the Conversion, Palmyra Saving will be structured in the
stock form as are all commercial banks and an increasing number of savings
institutions and will be a wholly-owned subsidiary of PFSB Bancorp, Inc.
According to Mr. Mette, "Our day to day operations will not change as a result
of the Conversion and deposits will continue to be insured by the FDIC up to the
applicable legal limits."
Customers with questions concerning the stock offering should call Palmyra
Saving's Stock Information Center at (573)769 - 2655, or visit Palmyra Saving's
main office.
<PAGE>
PRESS RELEASE
FOR IMMEDIATE RELEASE
---------------------
For More Information Contact:
Eldon R. Mette, Executive Vice-President
(573) 769-2655
PFSB BANCORP, INC. COMPLETES INITIAL PUBLIC OFFERING
----------------------------------------------------
Palmyra, Missouri - (March __, 1999) Eldon R. Mette, Executive Vice-
President of Palmyra Saving and Building Association, F.A. ("Palmyra Saving"),
announced today that PFSB Bancorp, Inc., the proposed holding company for
Palmyra Saving, has completed its initial stock offering in connection with
Palmyra Saving's conversion from a mutual to a stock organization. A total of
shares were sold at the price of $10.00 per share.
On March __, 1999, Palmyra Saving's Amended Plan of Conversion was approved
by its voting members at a special meeting.
Mr. Mette said that the officers and boards of directors of PFSB Bancorp,
Inc. and Palmyra Saving wished to express their thanks for the response to the
stock offering and that Palmyra Saving looks forward to serving the needs of its
customers and new stockholders as a community-based stock institution. The
stock commenced trading on March __, 1999 on the OTC Electronic Bulletin Board
under the symbol " ". Trident Securities, Inc. of Raleigh, North Carolina
managed the stock offering.
<PAGE>
II. Advertisements
A. Explanation
The intended use of the attached advertisement "A" is to notify Palmyra
Saving's customers and members of the local community that the conversion
offering is underway.
The intended use of advertisement "B" is to remind Palmyra Saving's
customers of the closing date of the Subscription Offering.
B. Media Schedule
1. Advertisement A - To be run immediately following OTS approval and
possibly run weekly for the first three weeks.
2. Advertisement B - To be run during the last week of the subscription
offering.
Trident may feel it is necessary to run more ads in order to remind
customers of the close of the Subscription Offering and the Community
Offering, if conducted.
Alternatively, Trident may, depending upon the response from the customer
base, choose to run fewer ads or no ads at all.
These ads will run in the local newspapers.
The ad size will be as shown or smaller.
<PAGE>
- --------------------------------------------------------------------------------
This announcement is neither an offer to sell nor a solicitation of an offer
to buy these securities. The offer is made only by the prospectus. These
shares have not been approved or disapproved by the Securities and Exchange
Commission, the Office of Thrift Supervision or the Federal Deposit Insurance
Corporation, nor has such Commission, Office or Corporation passed upon the
accuracy or adequacy of the prospectus. Any representation to the contrary is
unlawful.
New Issue
____________, 1999
862,500 Shares
These shares are being offered pursuant
to an Amended Plan of Conversion whereby
Palmyra Saving and Building Association, F.A.
Palmyra, Missouri, will convert from a federally-chartered mutual
savings association to a federally-chartered stock savings
bank, change its name to Palmyra Savings and become a
wholly owned subsidiary of
PFSB Bancorp, Inc.
Common Stock
---------------
Price $10.00 Per Share
---------------
Trident Securities, Inc.
For a copy of the prospectus call (573) 769-2655.
Copies of the prospectus may be obtained in any state in which this announcement
is circulated from Trident Securities, Inc. or such other dealers
as may legally offer these securities in such state.
The Common Stock will not be insured by the FDIC or any other governmental
agency.
- --------------------------------------------------------------------------------
Attachment (B)
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- --------------------------------------------------------------------------------
PALMYRA SAVING AND BUILDING ASSOCIATION, F.A.
MARCH 16, 1999 IS THE DEADLINE TO SUBSCRIBE FOR STOCK OF PFSB BANCORP, INC.
Customers of Palmyra Saving and Building Association, F.A.
have the opportunity to invest in Palmyra Saving by subscribing
for common stock in its proposed holding company
PFSB BANCORP, INC.
A Prospectus relating to these securities is
available at our office or by calling our
Stock Information Center at (573) 769-2655.
This announcement is neither an offer to sell nor a solicitation of an offer to
buy the stock of PFSB Bancorp, Inc. The offer is made only by the Prospectus.
The shares of common stock are not deposits or savings accounts and will not be
insured by the Federal Deposit Insurance Corporation or any other government
agency.
Copies of the Prospectus may be obtained in any State in which this announcement
is circulated from Trident Securities, Inc. or such other brokers and dealers.
- --------------------------------------------------------------------------------
<PAGE>
III. Question and Answer Brochure
A. Explanation
The Question and Answer brochure is an essential marketing piece in any
conversion. It serves two purposes: a) to answer some of the most commonly
asked questions in "plain, everyday language"; and b) to highlight in
brochure form the intended stock purchases of Palmyra Saving's officers and
directors shown in the Prospectus. Although most of the answers are taken
verbatim from the Prospectus, it saves the individual from searching for
the answer to a simple question.
B. Method of Distribution
There are four primary methods of distribution of the Question and Answer
brochure. However, regardless of the method the brochures are always
accompanied by a Prospectus.
1. A Question and Answer brochure is sent out in the initial mailing to
all members of Palmyra Saving.
2. Question and Answer brochures are available in Palmyra Saving's main
office.
3. Question and Answer brochures are sent out in a standard information
packet to all interested investors who phone the Stock Information
Center requesting information.
<PAGE>
PROPOSED OFFICER AND DIRECTOR PURCHASES
<TABLE>
<CAPTION>
Total Shares Aggregate Price of Percent of Shares
Name and Position Purchased Shares Purchased Purchased(1)
- ----------------- ---------- ---------------- ---------
<S> <C> <C> <C>
L. Edward Schaeffer 5,000 $ 50,000 0.7%
President and Chairman
Of the Board
Eldon R. Mette 4,000 40,000 0.5%
Executive Vice-President,
Secretary and Director
Glenn J. Maddox 5,000 50,000 0.7%
Executive Vice-President
of the Board
And Director
Ronald L. Nelson 3,000 30,000 0.4%
Vice-President
and Treasurer
Albert E. Davis 10,000 100,000 1.3%
Director
Robert M. Dearing 2,700 27,000 0.4%
Director
James D. Lovegreen 4,000 40,000 0.5%
Director
Donald L. Slavin 8,000 80,000 1.1%
Director ------ -------- ---
TOTAL 41,700 $417,000 5.6%
</TABLE>
(1) Assumes 747,500 shares are issued in the conversion.
<PAGE>
QUESTIONS AND ANSWERS
REGARDING
THE PLAN OF CONVERSION
On September 24, 1998, the Board of Directors of Palmyra Saving and Building
Association, F.A. ("Palmyra Saving" or the "Association") unanimously adopted
the Plan of Conversion, pursuant to which Palmyra Saving will convert from a
federally-chartered mutual savings and loan association to a federally-chartered
stock savings bank (the "Conversion"). The Board of Directors unanimously
amended the Plan of Conversion on January 21, 1999. In addition, all of Palmyra
Savings's outstanding capital stock will be issued to PFSB Bancorp, Inc. (the
"Holding Company"), which was organized by the Association to own Palmyra Saving
as a subsidiary.
This brochure is provided to answer general questions you might have about the
Conversion. Following the Conversion, Palmyra Saving will continue to provide
financial services to its depositors, borrowers and other customers as it has in
the past and will operate with its existing management and employees. The
Conversion will not affect the terms, balances, interest rates or existing
federal insurance coverage on Palmyra Saving's deposits or the terms or
conditions of any loans to existing borrowers under their individual contract
arrangements with the Association.
For complete information regarding the Conversion, see the both the Prospectus
and the Proxy Statement dated __________ __, 1999. Copies of each of the
Prospectus and the Proxy Statement may be obtained by calling the Stock
Information Center at (573) 769-2655.
THIS INFORMATION DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY PFSB BANCORP, INC. COMMON STOCK. OFFERS TO BUY OR TO SELL MAY BE
MADE ONLY BY THE PROSPECTUS. PLEASE READ THE PROSPECTUS CAREFULLY PRIOR TO
MAKING AN INVESTMENT DECISION.
THE SHARES OF PFSB BANCORP, INC. COMMON STOCK BEING OFFERED IN THE SUBSCRIPTION
AND COMMUNITY OFFERINGS ARE NOT SAVINGS OR DEPOSIT ACCOUNTS AND ARE NOT INSURED
BY PALMYRA SAVING INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY.
<PAGE>
QUESTIONS AND ANSWERS
PFSB Bancorp, Inc.
(the proposed holding company for
Palmyra Saving and Building Association, F.A.)
Questions and Answers Regarding the Subscription and Community Offerings
MUTUAL TO STOCK CONVERSION
--------------------------
1. Q. What is a "Conversion"?
A. Conversion is a change in the legal form of organization. Palmyra
Saving currently operates as a federally-chartered mutual savings
association with no stockholders. Through the Conversion, Palmyra
Saving will become a federally-chartered stock savings bank, and the
stock of its holding company, PFSB Bancorp, Inc. will be held by
stockholders who purchase stock in the Subscription and Community
Offerings or in the open market following the Offerings.
2. Q. Why is Palmyra Saving converting?
A. Palmyra Saving, as a mutual savings association, does not have
stockholders and has no authority to issue capital stock. By
converting to the stock form of organization, Palmyra Saving will be
structured in the form used by commercial banks, most business
entities and a growing number of savings institutions. The Conversion
will be important to the future growth and performance of Palmyra
Saving by providing a larger capital base from which the Association
may operate, the ability to attract and retain qualified management
through stock-based employee benefit plans, enhanced ability to
diversify into other financial services related activities and
expanded ability to render services to the public.
The Board of Directors and management of Palmyra Saving believe that
the stock form of organization is preferable to the mutual form of
organization for a financial institution. The Board and management
recognize the decline in the number of mutual thrifts from over 12,500
mutual institutions in 1929 to under 800 mutual thrifts today.
<PAGE>
Palmyra Saving believes that converting to the stock form of
organization will allow the Association to more effectively compete
with local community banks, thrifts, and with statewide and regional
banks, which are in stock form. Palmyra Saving believes that by
combining its existing quality service and products with a local
ownership base, Palmyra Saving's customers and community members who
become stockholders will be inclined to do more business with the
Association.
Furthermore, because Palmyra Saving competes with local and regional
banks not only for customers, but also for employees, it believes that
the stock form of organization will better afford Palmyra Saving the
opportunity to attract and retain employees, management and directors
through various stock benefit plans which are not available to mutual
savings institutions.
3. Q. Is the Conversion beneficial to the communities that Palmyra Saving
serves?
A. Management believes that the structure of the Subscription and
Community Offerings is in the best interest of the communities that
Palmyra Saving serves because following the Conversion it is
anticipated that a significant portion of the Common Stock will be
owned by local residents desiring to share in the ownership of a local
community financial institution. Management desires that a
significant portion of the shares of common stock sold in the
Offerings will be sold to residents of Marion, Clark, and Lewis
Counties, Missouri.
4. Q. What effect will the Conversion have on deposit accounts and loans?
A. Terms and balances of accounts in Palmyra Saving and interest rates
paid on such accounts will not be affected by the Conversion.
Insurable accounts will continue to be insured by the Federal Deposit
Insurance Corporation ("FDIC") up to the maximum amount permitted by
law. The Conversion also will not affect the terms or conditions of
any loans to existing borrowers or the rights and obligations of these
borrowers under their individual contractual arrangements with Palmyra
Saving.
5. Q. Will the Conversion cause any changes in Palmyra Saving's personnel?
A. No. Both before and after the Conversion, Palmyra Saving's business
of accepting deposits, making loans and providing financial services
will continue without interruption with the same board of directors,
management and staff.
6. Q. What approvals must be received before the Conversion becomes
effective?
A. First, the Board of Directors of Palmyra Saving must adopt the Plan of
Conversion, which occurred on September 24, 1998. The Board of
Directors amended the Plan of Conversion on January 21, 1999. Second,
the Office of Thrift Supervision must approve the applications
required to effect the Conversion. These approvals have been obtained.
Third, the Plan of Conversion must be approved by a majority
<PAGE>
of all votes eligible to be cast by Palmyra Saving's voting members.
A Special Meeting of voting members will be held on March 22, 1999 to
consider and vote upon the Plan of Conversion.
THE HOLDING COMPANY
-------------------
7. Q. What is a holding company?
A. A holding company is a business entity that owns another entity.
Concurrent with the Conversion, Palmyra Saving will become a
subsidiary of PFSB Bancorp, Inc., a holding company organized by
Palmyra Saving to acquire all of the capital stock of Palmyra Saving
to be outstanding after the Conversion.
8. Q. If I decide to buy stock in this offering, will I own stock in the
Holding Company or Palmyra Saving?
A. You will own stock in PFSB Bancorp, Inc. However, PFSB Bancorp, Inc.,
as a holding company, will own all of the outstanding capital stock of
Palmyra Saving.
9. Q. Why did the Board of Directors form the Holding Company?
A. The Board of Directors believes that the Conversion of Palmyra Saving
and the formation of the Holding Company will result in a stronger
financial institution with the ability to provide additional
flexibility to diversify Palmyra Saving's business activities.
ABOUT BECOMING A STOCKHOLDER
-----------------------------
10. Q. What are the Subscription and Community Offerings?
A. Under the Plan of Conversion adopted by Palmyra Saving, the Holding
Company is offering shares of stock in the Subscription Offering, to
certain current and former customers of Palmyra Savingand to Palmyra
Saving's Employee Stock Ownership Plan ("ESOP"). Shares which are not
subscribed for in the Subscription Offering, if any, may be offered to
the general public in a Community Offering with preference given to
natural persons who are permanent residents of Marion, Lewis, and
Clark Counties of Missouri. These Offerings are consistent with the
board's objective of PFSB Bancorp, Inc. being a locally owned
financial institution. The Subscription Offering and Community
Offering, if conducted, are being managed by Trident Securities, Inc.
It is anticipated that any shares not subscribed for in either the
Subscription or Community Offerings may be offered for sale in a
Syndicated Community Offering, which is an offering on a best efforts
basis by a selling group of broker-dealers.
<PAGE>
11. Q. Must I pay a commission to buy stock in conjunction with the
Subscription, Community or Syndicated Community Offerings?
A. No. You will not pay a commission to buy the stock if the stock is
purchased in the Subscription Offering or Community Offering, if
conducted.
12. Q. How many shares of PFSB Bancorp, Inc. stock will be issued in the
Conversion?
A. It is currently expected that between 552,500 shares and 747,500
shares of common stock will be sold at a price of $10.00 per share.
Under certain circumstances the number of shares may be increased to
859,625.
13. Q. How was the dollar size of the offering determined?
A. The aggregate price of the common stock was determined by RP
Financial, LC., an independent appraisal firm specializing in the
thrift industry, and was approved by the Office of Thrift Supervision.
The dollar size of the offering is based on the pro forma market value
of Palmyra Saving and the Holding Company as determined by the
independent evaluation.
14. Q. Who is entitled to subscribe for stock in the Conversion?
A. The shares of PFSB Bancorp, Inc. to be issued in the Conversion are
being offered in the Subscription Offering in the following order of
priority to: (i depositors whose accounts in Palmyra Saving total
$50.00 or more as of June 30, 1997 (`Eligible Account Holders"), (ii)
Palmyra Saving's ESOP, (iii) depositors with $50.00 or more on deposit
at Palmyra Saving as of December 31, 1998, other than Eligible Account
Holders, ("Supplemental Eligible Account Holders"), (iv) depositors of
Palmyra Saving as of January 31, 1999, and borrowers as of June 1,
1995 whose loans continued to be outstanding as of January 31, 1999,
other than Eligible Account Holders and Supplemental Eligible Account
Holders ("Other Members"), subject to the priorities and purchase
limitations set forth in the Plan of Conversion. Subject to the prior
rights of holders of subscription rights, Common Stock not subscribed
for in the Subscription Offering may be offered in the Community
Offering to certain members of the general public, with preference
given to natural persons and trusts of natural persons residing in
Marion, Lewis, and Clark Counties of Missouri. Shares, if any, not
subscribed for in the Subscription or Community Offerings may be
offered to the general public in a Syndicated Community Offering.
15. Q. Are the subscription rights transferable?
A. No. Subscription rights granted to Palmyra Saving's Eligible Account
Holders, Supplemental Eligible Account Holders and Other Members in
the Conversion are not transferable. Persons violating such
prohibition, directly or indirectly, may lose their right to purchase
stock in the Conversion and be subject to other possible sanctions.
It is the responsibility of each subscriber qualifying as an
<PAGE>
Eligible Account Holder, Supplemental Eligible Account Holder or Other
Member to list completely all account numbers for qualifying savings
accounts or loans as of the qualifying date on the stock order form.
16. Q. What are the minimum and maximum numbers of shares that I can purchase
in the Conversion?
A. The minimum number of shares is 25. The maximum number of shares that
may be purchased in aggregate in the Conversion by any person or
person exercising rights through one account other than the ESOP, is
6,000 shares. The maximum purchase for any person, related persons or
persons acting together is 10,000 shares.
17. Q. Do the Board of Directors and management of Palmyra Saving subscribe
for stock in the Holding Company?
A. Directors and executive officers of Palmyra Saving are expected to
subscribe for 41,700 shares. The purchase price paid by directors and
executive officers will be the same $10.00 per share price as that
paid by all other persons who order stock in the Subscription or
Community Offerings.
18. Q. How do I subscribe for shares of stock?
A. To subscribe for shares of stock in the Subscription Offering, you
should send or deliver an original stock order form together with full
payment (or appropriate instructions for withdrawal from permitted
deposit accounts as described below) to Palmyra Saving in the postage-
paid envelope provided. The stock order form and payment or withdrawal
authorization instructions must be received prior to the close of the
Subscription Offering, which will terminate at 12:00 noon, Central
Time, on March 16, 1999, unless extended. Payment for shares may be
made in cash (if made in person) or by check or money order.
Subscribers who have deposit accounts with Palmyra Saving may include
instructions on the stock order form requesting withdrawal from such
deposit account(s) to purchase shares of PFSB Bancorp, Inc.
Withdrawals from certificates of deposit may be made without incurring
an early withdrawal penalty.
If shares remain available for sale after the expiration of the
Subscription Offering, they may be offered in the Community Offering,
which may commence at any time after the commencement of the
Subscription Offering and may terminate at any time without notice,
but may not terminate later than _____ __, 1999. Persons who wish to
order stock in the Community Offering should return their stock order
form as soon as possible after the Community Offering begins. Members
of the general public should contact the Stock Information Center at
(573) 769-2655 for additional information.
19. Q. May I use funds in a retirement account to purchase stock?
<PAGE>
A. Yes. If you are interested in using funds held in your retirement
account at Palmyra Saving, the Stock Information Center can assist you
in transferring those funds to a self-directed IRA. This process may
be done without an early withdrawal penalty and generally without a
negative tax consequence to your retirement account. Due to the
additional paperwork involved, IRA transfers must be completed by
March 12, 1999. For additional information, call the Stock
Information Center at (573) 769- 2655.
20. Q. Will I receive interest on funds I submit for a stock purchase?
A. Yes. Palmyra Saving will pay interest at its passbook savings account
rate from the date the funds are received until completion of the
stock offering or termination of the Conversion. All funds authorized
for withdrawal from deposit accounts with Palmyra Saving will continue
to earn interest at the contractual rate until the date of the
completion of the Conversion.
21. Q. May I obtain a loan from Palmyra Saving to pay for shares purchased in
the Conversion?
A. No. Federal regulations prohibit Palmyra Saving from making loans for
this purpose. However, federal regulations do not prohibit you from
obtaining a loan from another source for the purpose of purchasing
stock in the Conversion.
22. Q. If I buy stock in the Conversion, how would I go about buying
additional shares or selling shares in the aftermarket?
A. As a newly organized company, PFSB Bancorp, Inc has never issued
capital stock, and consequently there is no established market for its
Common Stock at this time. PFSB Bancorp, Inc. has requested that
Trident Securities, Inc. make a market for the Common Stock through
the OTC Electronic Bulletin Board. However, it is unlikely that an
active trading market for the Common Stock will develop, and there can
be no assurance that the shares of Common Stock being offered in the
Conversion can be resold at or above the $10.00 purchase price.
23. Q. What is the Holding Company's dividend policy?
A. The Board of Directors of the Holding Company intends to adopt a
policy of paying regular cash dividends after the consummation of the
Conversion, but has not decided the amount that may be paid or when
the payments may begin. No assurance can be given, however, that the
payment of dividends, once commenced, will continue. In addition, from
time to time in an effort to manage capital at a reasonable level, the
board may determine that it is prudent to pay special cash dividends.
Special cash dividends may be paid in addition to, or in lieu of,
regular cash dividends. There can be no assurance that special
dividends will be paid, or, if paid, will continue to be paid.
<PAGE>
24. Q. Will the FDIC insure the shares of the Holding Company?
A. No. The shares of PFSB Bancorp, Inc. are not savings deposits or
savings accounts and are not insured by the FDIC or any other
government agency.
25. Q. If I subscribe for shares and later change my mind, will I be able to
get a refund or modify my order?
A. No. Your order cannot be canceled, withdrawn or modified once it has
been received by Palmyra Saving without the consent of Palmyra Saving.
ABOUT VOTING "FOR" THE PLAN OF CONVERSION
-----------------------------------------
26. Q. Am I eligible to vote at the Special Meeting of Members to be held to
consider the Plan of Conversion?
A. You are eligible to vote at the Special Meeting of Members to be held
on March 22, 1999 if you were a depositor or borrower of Palmyra
Saving at the close of business on the Voting Record Date (January 31,
1999) and continue as such until the Special Meeting. If you were a
member on the Voting Record Date, you should have received a proxy
statement and a proxy card with which to vote.
27. Q. How many votes do I have?
A. Each account holder is entitled to one vote for each $100, or fraction
thereof, on deposit in such account(s) as of the Voter Record Date.
Each borrower member is entitled to cast one vote in addition to the
number of votes, if any, he or she is entitled to cast as an account
holder. No member may cast more than 1,000 votes.
28. Q. If I vote "against" the Plan of Conversion and it is approved, will I
be prohibited from buying stock during the Subscription Offering?
A. No. Voting against the Plan of Conversion in no way restricts you
from purchasing PFSB Bancorp, Inc. stock in the Subscription Offering.
29. Q. Did the Board of Directors of Palmyra Saving unanimously adopt the
Amended Plan of Conversion?
A. Yes. Palmyra Saving's Board of Directors unanimously adopted the
Amended Plan of Conversion and urges that all members vote "FOR"
approval of such Plan.
30. Q. What happens if Palmyra Saving does not get enough votes to approve
the Amended Plan of Conversion?
A. The Conversion would not take place, and Palmyra Saving would remain a
mutual savings association.
<PAGE>
31. Q. As a qualifying depositor or borrower of Palmyra Saving, am I required
to vote?
A. No. However, failure to return your proxy card or otherwise vote will
have the same effect as a vote AGAINST the Amended Plan of Conversion.
32. Q. What is a Proxy Card?
A. A proxy card gives you the ability to vote without attending the
Special Meeting in person. If you received more than one
informational packet, then you should vote the proxy cards in all
packets. Your proxy card(s) is (are) located in the window sleeve of
your informational packet(s).
You may attend the meeting and vote, even if you have returned your
proxy card, if you choose to do so. However, if you are unable to
attend, you still are represented by proxy. Previously executed
proxies, other than those proxies sent pursuant to the Conversion,
will not be used to vote for approval of the Plan of Conversion, even
if the respective members do not execute another proxy or attend the
Special Meeting and vote in person.
33. Q. How can I get further information concerning the stock offering?
A. You may call the Stock Information Center at (573) 769-2655 for
further information or to request a copy of the Prospectus, a stock
order form, a proxy statement or a proxy card.
THIS INFORMATION DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY PFSB BANCORP, INC. COMMON STOCK. SUCH OFFERS AND SOLICITATION
IS MADE ONLY BY MEANS OF THE PROSPECTUS. COPIES OF THE PROSPECTUS MAY BE
OBTAINED BY CALLING THE STOCK INFORMATION CENTER AT (573) 769-2655.
THE SHARES OF PFSB BANCORP, INC. COMMON STOCK BEING OFFERED ARE NOT SAVINGS
OR DEPOSIT ACCOUNTS AND ARE NOT INSURED BY PALMYRA SAVING, THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
IV. Individual Letters and Community Meeting Invitations
A. Explanation
In order to educate the public about the stock offering, Trident suggests
holding community meetings in various locations. In an effort to target a group
of interested investors, Trident requests that each Director of Palmyra Saving
submit a list of acquaintances that he or she would like to invite to a
community meeting.
B. Method of Distribution of Invitations and Prospect Letters
Each Director submits his list of prospects. Invitations are sent to each
Director's prospects through the mail. All invitations are preceded by a
Prospectus and all attendees are given a Prospectus at the meeting. Letters will
be sent to prospects to thank them for their attendance and to remind them of
closing dates.
C. Examples enclosed.
<PAGE>
(Palmyra Saving Letterhead)
____________, 1999
Dear Valued Customer:
Palmyra Saving and Building Association, F.A. ("Palmyra Saving" or the
"Association") is pleased to announce that it has received regulatory approval
to proceed with its plan to convert to a federally-chartered stock savings bank.
This stock conversion is the most significant event in the history of the
Association in that it allows customers, community members, directors and
employees an opportunity to own stock in PFSB Bancorp, Inc., the proposed
holding company for Palmyra Saving.
For over 111 years, Palmyra Saving has successfully operated as a mutual savings
association. We want to assure you that the Conversion will not affect the
terms, balances, interest rates or existing FDIC insurance coverage deposits at
Palmyra Saving, or the terms or conditions of any loans to existing borrowers
under their individual contract arrangements with Palmyra Saving. Let us also
assure you that the Conversion will not result in any changes in the management,
personnel or the Board of Directors of the Association.
As one of our valued members, you have the opportunity to invest in Palmyra
Saving's future by purchasing stock in PFSB Bancorp, Inc. during the
Subscription Offering, without paying a sales commission.
If you decide to exercise your subscription rights to purchase shares, you must
return the properly completed stock order form together with full payment for
the subscribed shares so that it is received by Palmyra Saving not later than
12:00 noon. Central Time on March 16, 1999.
Enclosed is a proxy card. Your Board of Directors urges you to vote "FOR"
Palmyra Saving's Amended Plan of Conversion. A vote in favor of the Plan does
not obligate you to purchase stock. Please sign and return your proxy card
promptly; your vote is important to us. We have also enclosed a Prospectus and
Proxy Statement which fully the describes Palmyra Saving, its management, Board
of Directors, financial strength and the Plan of Conversion. Please review it
carefully before you vote or invest. For your convenience we have established a
Stock Information Center. If you have any questions, please call the Stock
Information Center collect at (573) 769-2655.
We look forward to continuing to provide quality financial services to you in
the future.
Sincerely,
Eldon R. Mette
Executive Vice-President
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of PFSB Bancorp, Inc. common stock offered in the conversion. Such
offers and solicitations are made only by means of the Prospectus. There shall
be no sale of stock in any state in which any offer, solicitation of an offer or
sale of stock would be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
(Palmyra Saving Letterhead)
____________, 1999
Dear Interested Investor:
Palmyra Saving and Building Association, F.A. ("Palmyra Saving" or the
"Association") is pleased to announce that it has received regulatory approval
to proceed with its plan to convert to a federally-chartered stock savings bank.
This stock conversion is the most significant event in the history of the
Association in that it allows customers, community members, directors and
employees an opportunity to own stock in PFSB Bancorp, Inc., the proposed
holding company for Palmyra Savings.
For over 111 years, Palmyra Saving has successfully operated as a mutual savings
association. We want to assure you that the Conversion will not affect the
terms, balances, interest rates or existing FDIC insurance coverage on Palmyra
Saving deposits, or the terms or conditions of any loans to existing borrowers
under their individual contract arrangements with Palmyra Saving. Let us also
assure you that the Conversion will not result in any changes in the management,
personnel or the Board of Directors of the Association.
Enclosed is a Prospectus which fully describes Palmyra Saving, its management,
Board of Director, financial strength and Amended Plan of Conversion. Please
review it carefully before you make an investment decision. If you decide to
invest, please return to Palmyra Saving a properly completed stock order form
together with full payment for shares at your earliest convenience but not later
than 12:00 noon Central Time on March 16, 1999. For your convenience we have
established a Stock Information Center. If you have any questions, please call
the Stock Information Center collect at (573) 769-2655 .
We look forward to continuing to provide quality financial services to you in
the future.
Sincerely,
Eldon R. Mette
Executive Vice-President
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of PFSB Bancorp, Inc. common stock offered in the conversion. Such
offers and solicitations are made only by means of the Prospectus. There shall
be no sale of stock in any state in which any offer, solicitation of an offer or
sale of stock would be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
(Palmyra Saving Letterhead)
____________, 1999
Dear Friend:
Palmyra Saving and Building Association, F.A. ("Palmyra Saving" or the
"Association") is pleased to announce that it has received regulatory approval
to proceed with its plan to convert to a federally-chartered stock savings bank.
This stock conversion is the most significant event in the history of the
Association in that it allows customers, community members, directors and
employees an opportunity to own stock in PFSB Bancorp, Inc., the proposed
holding company for Palmyra Saving.
For over 111 years, Palmyra Saving has successfully operated as a mutual savings
association. We want to assure you that the Conversion will not affect the
terms, balances, interest rates or existing FDIC insurance coverage on Palmyra
Saving deposits, or the terms or conditions of any loans to existing borrowers
under their individual contract arrangements with Palmyra Savings. Let us also
assure you that the Conversion will not result in any changes in the management,
personnel or the Board of Directors of the Association.
Our records indicate that you were a depositor of Palmyra Saving on June 30,
1997 or December 31, 1998, but that you were not a member on January 31, 1999.
Therefore, under applicable law, you are entitled to subscribe for Common Stock
in PFSB Bancorp, Inc.'s Subscription Offering. Orders submitted by you and
others in the Subscription Offering are contingent upon the current members'
approval of the Plan of Conversion at a special meeting of members to be held on
March 22, 1999 and upon receipt of all required regulatory approvals.
If you decide to exercise your subscription rights to purchase shares, you must
return the properly completed stock order form together with full payment for
the subscribed shares so that it is received by Palmyra Saving not later than
12:00 noon, Central Time, on March 16, 1999. Enclosed is a Prospectus which
fully describes Palmyra Saving, its management, Board of Directors, financial
strength and Plan of Conversion. Please review it carefully before you invest.
For your convenience we have established a Stock Information Center. If you
have any questions, please call the Stock Information Center collect at (573)
769- 2655.
We look forward to continuing to provide quality financial services to you in
the future.
Sincerely,
Eldon R. Mette
Executive Vice-President
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of PFSB Bancorp, Inc. common stock offered in the conversion. Such
offers and solicitations are made only by means of the Prospectus. There shall
be no sale of stock in any state in which any offer, solicitation of an offer or
sale of stock would be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
(Palmyra Saving Letterhead)
___________, 1999
Dear Member:
As a qualified member of Palmyra Saving and Building Association, F.A.
("Palmyra Saving"), you have the right to vote upon Palmyra Saving's Amended
Plan of Conversion and also generally have the right to subscribe for shares of
common stock of PFSB Bancorp, Inc., the proposed holding company for Palmyra
Saving through the mutual to stock conversion of Palmyra Saving. However, the
Amended Plan of Conversion provides that PFSB Bancorp, Inc. will not offer
stock in any state in which compliance with the securities laws would be
impracticable for reasons of cost or otherwise. Unfortunately, the securities
laws of your state would require PFSB Bancorp, Inc. to register its common stock
and /or its employees in order to sell the common stock to you. Such
registration would be prohibitively expensive or otherwise impracticable in
light of the few members residing in your state.
You may vote on the Amended Plan of Conversion and we urge you to read the
enclosed Summary Proxy Statement and execute the enclosed Revocable Proxy.
Questions regarding the execution of the Revocable Proxy should be directed to
Palmyra Saving's Stock Information Center at (573)769-2655.
Sincerely,
Eldon R. Mette
Executive Vice-President
<PAGE>
*Sent to prospects who are customers*
_______________, 1999
&salutation& &firstname& &last name&
&address&
&city&, &state& &zip&
Dear &prefername&
Recently you may have read in the newspaper that Palmyra Saving and Building
Association, F.A. (the "Palmyra Saving") will convert from a federally-
chartered mutual savings association to a federally-chartered stock savings
bank. This is the most significant event in the history of Palmyra Saving in
that it allows customers, employees and directors the opportunity to share in
Palmyra Saving's future by becoming charter stockholders of Palmyra Saving's
newly-formed holding company, PFSB Bancorp, Inc.
As a customer of Palmyra Saving, you should have received a packet of
information regarding the conversion, including a Prospectus and a Proxy
Statement. In addition, we are holding several presentations for friends of the
officers and directors to discuss the stock offering in more detail. You will
receive an invitation in the near future.
Please feel free to call me or Palmyra Saving's Stock Information Center at
(573) 769-2655 if you have any questions. I look forward to seeing you at one
of our informational presentations.
Sincerely,
Eldon R. Mette
Executive Vice-President
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of PFSB Bancorp, Inc. common stock offered in the conversion. Such
offers and solicitations are made only by means of the Prospectus. There shall
be no sale of stock in any state in which any offer, solicitation of an offer or
sale of stock would be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
*Sent to prospects who are not customers*
____________, 1999
&salutation& &firstname& &lastname&
&address&
&city&, &state& &zip&
Dear &prefername&:
Recently you may have read in the newspaper that Palmyra Saving and Building
Association, F.A. (the "Palmyra Saving") will be converting from a federally-
chartered mutual savings association to a federally-chartered stock savings
bank. This is the most significant event in the history of Palmyra Saving in
that it allows customers, employees and directors the opportunity to share in
Palmyra Saving's future by becoming charter stockholders of Palmyra Saving's
holding company, PFSB Bancorp, Inc.
[Director] has asked that you be sent a Prospectus and stock order form which
will allow you to become a charter stockholder, should you desire. In addition,
we are holding several presentations for friends of the officers and directors
of Palmyra Saving to discuss the stock offering in more detail. You will
receive an invitation in the near future.
Please feel free to call me or Palmyra Savings's Stock Information Center at
(573) 769-2655 if you have any questions. I look forward to seeing you at one
of our information presentations.
Sincerely,
Eldon R. Mette
Executive Vice-President
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of PFSB Bancorp, Inc. common stock offered in the conversion. Such
offers and solicitations are made only by means of the Prospectus. There shall
be no sale of stock in any state in which any offer, solicitation of an offer or
sale of stock would be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
*Sent to those attending a community meeting*
____________, 1999
&salutation& &firstname& &lastname&
&address&
&City&, &state& &zip&
Dear &prefername&:
Thank you for attending our informational presentation relating to Palmyra
Saving's conversion to a stock savings bank. The information presented at the
meeting and the Prospectus you recently received should assist you in making an
informed investment decision.
Obviously, we are excited about this stock offering and the opportunity to share
in the future of Palmyra Saving. This conversion is the most important event in
our history and it gives Palmyra Saving the strength to compete in the future
and will provide Palmyra Saving additional corporate flexibility.
We may contact you in the near future to get an indication of your interest in
our offering. If you make a decision to invest, please return your properly
completed stock order form no later than 12:00 noon, Central Time, on March 16,
1999. If you have any questions, please call the Stock Information Center at
(573)769-2655.
Sincerely,
Eldon R. Mette
Executive Vice-President
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of PFSB Bancorp, Inc. common stock offered in the conversion. Such
offers and solicitations are made only by means of the Prospectus. There shall
be no sale of stock in any state in which any offer, solicitation of an offer or
sale of stock would be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
* Sent to those not attending a community meeting *
_________, 1999
&salutation& &firstname& &lastname&
&address&
&city&, &state& &zip&
Dear &prefername&:
I am sorry you were unable to attend our recent presentation regarding Palmyra
Saving's mutual to stock conversion. The Board of Directors and management team
of Palmyra Saving are committed to contributing to long term shareholder value
and as a group we are personally investing approximately $417,000 of our own
funds. We are enthusiastic about the stock offering and the opportunity to
share in the future of Palmyra Saving.
We have established a Stock Information Center to assist you with any questions
regarding the stock offering. Should you require any assistance between now and
the Subscription Offering deadline of 12:00 Noon, Central Time, on March 16,
1999, I encourage you to either stop by our Stock Information Center or call
(573) 769-2655.
I hope you will join me as a charter stockholder in PFSB Bancorp, Inc.
Sincerely,
Eldon R. Mette
Executive Vice-President
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of PFSB Bancorp, Inc. common stock offered in the conversion. Such
offers and solicitations are made only by means of the Prospectus. There shall
be no sale of stock in any state in which any offer, solicitation of an offer or
sale of stock would be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
* Final Reminder Letter *
_________, 1999
&salutation&firstname&lastname&
&address&
&city&, &state& &zip&
Dear &prefername&:
I am writing to remind you that the deadline for purchasing stock in PFSB
Bancorp, Inc. is quickly approaching. I hope you will join me in becoming a
charter stockholder in one of Missouri's newest publicly owned financial
institutions.
The deadline for becoming a charter stockholder is 12:00 Noon, Central Time, on
March 16, 1999. If you have any questions, please call our Stock Information
Center at (573) 769-2655.
Once again, I look forward to having you join me as a charter stockholder in
PFSB Bancorp, Inc.
Sincerely,
Eldon R. Mette
Executive Vice-President
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of PFSB Bancorp, Inc. common stock offered in the conversion. Such
offers and solicitations are made only by means of the Prospectus. There shall
be no sale of stock in any state in which any offer, solicitation of an offer or
sale of stock would be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
<PAGE>
================================================================================
The Directors and Officers
of
Palmyra Saving and Building Association, F.A.
cordially invite you to attend a brief
presentation regarding the stock offering of
PFSB Bancorp, Inc., our proposed holding company
Please join us at the
______________
_____________________
___________________________
____________
____________
for refreshments
YOU MUST RESPOND BY ____________ TO RESERVE A SEAT
R.S.V.P. (573) 769-2655
================================================================================
<PAGE>
V. Counter Cards and Lobby Posters
A. Explanation
Counter cards and lobby posters serve two purposes: (1) As a notice to
Palmyra Saving's customers and members of the local community that the stock
sale is underway and (2) to remind the customers of the end of the
Subscription Offering. Trident has learned in the past that many people
forget the deadline for subscribing and therefore we suggest the use of these
simple reminders.
B. Quantity
Approximately 2 - 3 Counter cards will be used at teller windows and on
customer service representatives' desk.
Approximately 1 - 2 Lobby posters will be used at Palmyra Saving's office.
C. Example
D. Size
The counter card will be approximately 8 1/2" x 11".
The lobby poster will be approximately 16" x 20".
<PAGE>
C.
POSTER OR COUNTER CARD
================================================================================
"TAKE STOCK IN OUR FUTURE"
"PFSB BANCORP, INC.
STOCK OFFERING MATERIALS
AVAILABLE HERE"
PALMYRA SAVING AND BUILDING ASSOCIATION, F.A.
================================================================================
<PAGE>
VII. Proxy Reminder
A. Explanation
A proxy reminder is used when the majority of votes needed to adopt the
Amended Plan of Conversion is still outstanding. The proxy reminder is mailed
to those "target vote" depositors who have not previously returned their
signed proxy.
The target vote depositors are determined by the conversion agent.
B. Example
C. Size
Proxy reminder is approximately 8 1/2" x 11".
<PAGE>
B. Example
- --------------------------------------------------------------------------------
P R O X Y R E M I N D E R
Palmyra Saving and Building Association, F.A.
YOUR VOTE ON OUR STOCK CONVERSION PLAN HAS NOT BEEN RECEIVED.
- --------- ---------------------
YOUR VOTE IS VERY IMPORTANT, PARTICULARLY SINCE FAILURE TO VOTE IS EQUIVALENT TO
- ---------------------------
VOTING AGAINST THE AMENDED PLAN OF CONVERSION.
VOTING FOR THE AMENDED PLAN OF CONVERSION WILL NOT AFFECT THE INSURANCE OF YOUR
ACCOUNTS. DEPOSIT ACCOUNTS WILL CONTINUE TO BE FEDERALLY INSURED UP TO THE
APPLICABLE LIMITS.
YOU MAY PURCHASE STOCK IF YOU WISH, BUT VOTING DOES NOT OBLIGATE YOU TO BUY
STOCK.
PLEASE ACT PROMPTLY! SIGN THE ENCLOSED PROXY CARD AND MAIL, OR DELIVER, THE
----------------------------
PROXY CARD TO PALMYRA SAVING TODAY.
PLEASE VOTE ALL PROXY CARDS RECEIVED.
---
WE RECOMMEND THAT YOU VOTE TO APPROVE THE AMENDED PLAN OF CONVERSION. THANK YOU.
THE BOARD OF DIRECTORS AND MANAGEMENT OF PALMYRA SAVING AND BUILDING
ASSOCIATION, F.A.
- --------------------------------------------------------------------------------
IF YOU RECENTLY MAILED THE PROXY,
PLEASE ACCEPT OUR THANKS AND DISREGARD THIS REQUEST.
FOR FURTHER INFORMATION CALL (573) 769-2655.
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of PFSB Bancorp, Inc. common stock offered in the conversion. Such
offers and solicitations are made only by means of the Prospectus. There shall
be no sale of stock in any state in which any offer, solicitation of an offer or
sale of stock would be unlawful.
THE STOCK WILL NOT BE INSURED BY THE FDIC OR ANY GOVERNMENTAL AGENCY.
