<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. 3 TO THE
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PFSB BANCORP, INC.
PALMYRA SAVING AND BUILDING ASSOCIATION, F.A. EMPLOYEE'S SAVINGS AND
PROFIT-SHARING PLAN
(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)
- --------------------------------------------------------------------------------------------------------
Participation Interest 32,178 Shares -- (3)
========================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) The Registration fee of $2,758 was previously paid upon the initial
filing of the Form SB-2 on December 18, 1998.
(3) The securities of PFSB Bancorp, Inc. to be purchased by the Palmyra
Saving and Building Association, F.A. Employee's Savings and Profit-
Sharing Plan are included in the amount shown for Common Stock.
Accordingly, no separate fee is required for the participation interests.
In accordance with Rule 457(h) of the Securities Act, as amended, the
registration fee has been calculated on the basis of the number of shares
of Common Stock that may be purchased with the current assets of the
Plan.
The Registrant Hereby Amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE>
INTERESTS IN
PALMYRA SAVING AND BUILDING ASSOCIATION, F.A.
EMPLOYEES' SAVINGS AND PROFIT-SHARING PLAN
AND
OFFERING OF 32,178 SHARES OF
PFSB BANCORP, INC.
COMMON STOCK ($.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 the purchase priorities in
Palmyra Savings' plan of conversion. Savings Plan participants may direct the
trustee of the Savings Plan to invest funds in their Savings Plan accounts in
PFSB Bancorp common stock. 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 at the purchase price of $10.00 per share.
This prospectus supplement relates to the election of a Savings Plan participant
to invest all or a portion of their Savings Plan funds in PFSB Bancorp common
stock.
The prospectus dated February ___, 1999 of PFSB Bancorp, which is attached
to this prospectus supplement, includes detailed information regarding the
conversion, 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.............. 3
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.................................................. 5
Benefits Under the Savings Plan.............................................. 7
Withdrawals and Distributions From the Savings Plan.......................... 7
Administration of the Savings Plan........................................... 8
Plan Administrator........................................................... 8
Reports to Savings Plan Participants......................................... 8
Amendment and Termination.................................................... 8
Merger, Consolidation or Transfer............................................ 9
Federal Income Tax Consequences.............................................. 9
Restrictions on Resale....................................................... 10
SEC Reporting and Short-Swing Profit Liability............................... 10
LEGAL OPINIONS.................................................................... 11
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 and shares of PFSB Bancorp common
stock. The interests offered under this prospectus supplement and the sale of
shares by PFSB Bancorp are conditioned on the completion of the conversion of
Palmyra Savings. Your ability to invest in the PFSB Bancorp Stock Fund Palmyra
is also limited by the purchase priorities contained in the plan of conversion
of Palmyra Savings.
This prospectus supplement contains information about the Savings Plan.
The attached prospectus contains information about 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
You may direct the trustee of the Savings Plan to invest all or part of the
funds in your account in the PFSB Bancorp Stock Fund. Based upon your election,
the trustee of the Savings Plan will subscribe for PFSB Bancorp common stock in
the conversion offering. If the conversion offering is oversubscribed and some
or all of your funds cannot be used to purchase common stock, the trustee will
return the funds to your account for investment in your original investment
choices. You do not have to invest any of your funds in the PFSB Bancorp Stock
Fund. If you do not elect to invest in the PFSB Bancorp Stock Fund, your
Savings Plan account will be invested, at your election, in the other investment
options of the Savings Plan.
If you elect to invest your funds in the PFSB Bancorp Stock Fund, you will
generally be able to sell your shares at any time. You may reinvest the
proceeds of a sale of shares in any of the other investment options offered by
the Savings Plan. AT THIS TIME, WE DO NOT ANTICIPATE THAT YOU WILL BE ABLE TO
PURCHASE ADDITIONAL SHARES OF PFSB BANCORP THROUGH THE SAVINGS PLAN.
Your ability to invest in the PFSB Bancorp Stock Fund is based on your
status as an eligible account holder or supplemental eligible account holder of
Palmyra Savings.
You are an eligible account holder if you had a deposit in Palmyra Savings
of $50.00 or more on June 30, 1997.
You are a supplemental eligible account holder if you had a deposit in
Palmyra Savings of $50 or more on December 31, 1998.
If you are not an eligible account holder or supplemental eligible account
holder, you may be eligible to invest in the PFSB Bancorp Stock Fund if you were
a depositor of Palmyra
1
<PAGE>
Savings as of January 31, 1999 or if you were a borrower from Palmyra Savings
with an outstanding loan on June 1, 1995 which was still outstanding on January
31, 1999. Persons in this category are referred to as other members of Palmyra
Savings.
No eligible account holders, supplemental eligible account holders or other
members may purchase more than $60,000 of PFSB Bancorp common stock in the
subscription offering. If you fall into one of the 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.
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 account 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 an investment in the PFSB Bancorp Stock Fund (the "Change of Investment
Allocation Form"). If you wish to invest all or part (in multiples of at least
1%) of your account in the PFSB Bancorp Stock Fund, you should complete the
attached form. If you do not wish to make such an election, you do not need to
take any action.
TIME FOR DIRECTING TRANSFER
The deadline for submitting your direction to invest funds in the PFSB
Bancorp Stock Fund is ________________. If you want to invest in the PFSB
Bancorp Stock Fund, you must return the attached form to Eldon R. Mette of
Palmyra Savings by __:___ p.m. on _______ ___, 1999.
IRREVOCABILITY OF TRANSFER DIRECTION
Your direction to invest your Savings Plan funds in the PFSB Bancorp Stock
Fund cannot be changed after you have turned in your form.
PURCHASE PRICE OF PFSB BANCORP COMMON STOCK
The trustee will pay $10 per share for shares of PFSB Bancorp common stock.
This price is the price that will be paid by all other persons who purchase
shares of PFSB Bancorp common stock in the conversion offering.
NATURE OF A PARTICIPANT'S INTEREST IN PFSB BANCORP COMMON STOCK
2
<PAGE>
The trustee will hold PFSB Bancorp common stock in the name of the Savings
Plan. The shares you purchase will be allocated to your Savings Plan account.
The value of your PFSB Bancorp shares will not be affected by the investments of
other Savings Plan participants.
VOTING AND TENDER RIGHTS OF PFSB BANCORP COMMON STOCK
You will direct the trustee of the Savings Plan about how to vote your PFSB
Bancorp shares. If PFSB Bancorp or a third party offers to purchase some or all
of the stock of PFSB Bancorp, you will direct the trustee about whether to
tender your PFSB Bancorp shares. Your instructions to the trustee will be
confidential.
DESCRIPTION OF THE SAVINGS PLAN
I. INTRODUCTION
Palmyra Savings established the Savings Plan in 1993. We added the PFSB
Bancorp Stock Fund as an investment option in February 1999. We intend that the
Savings Plan satisfy all the laws and regulations that relate to employer-
sponsored retirement programs, including 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 make sure that we are in
compliance with these laws. Palmyra Savings may also amend the Savings Plan
from time to time in the future to add, change, or eliminate certain features of
the plan. Federal law provides you with various rights and protections as a
plan participant. However, your benefits under the Savings Plan are not
guaranteed by any form of insurance, including by the federal government's
Pension Benefit Guaranty Corporation.
FEDERAL TAX LAW IMPOSES SUBSTANTIAL RESTRICTIONS ON YOUR RIGHT TO WITHDRAW
AMOUNTS HELD UNDER THE PLAN BEFORE YOUR TERMINATION OF EMPLOYMENT WITH PALMYRA
SAVINGS. FEDERAL LAW MAY ALSO IMPOSE A 10% EXCISE TAX ON WITHDRAWALS YOU MAKE
FROM THE SAVINGS PLAN BEFORE YOU REACH AGE 59 1/2 AGE REGARDLESS OF WHETHER THE
WITHDRAWAL OCCURS DURING OR AFTER YOUR EMPLOYMENT WITH PALMYRA SAVING.
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 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
If you are age 21 or older, you may participate in the Savings Plan after
you work for us for one year. You must, however, work for at least 1,000 hours
during your first year of employment. If you are not age 21, but work 1,000
hours during your first year of employment, your participation will be postponed
until you turn 21.
3
<PAGE>
__ of our employees participated in the Savings Plan during 1998.
III. CONTRIBUTIONS UNDER THE SAVINGS PLAN
Savings Plan Participant Contributions. You may contribute up to 15% of
--------------------------------------
your annual pay, including salary, bonus or commissions, to the Savings Plan.
Your contributions will be deducted from your regular paycheck. You may change
the amount of your contributions at any time and your changes will be effective
on the first day of the next month.
Palmyra Savings Contributions. Palmyra Savings may match your
-----------------------------
contributions to the Savings Plan but we are not obligated to match your
contributions. Palmyra Savings currently matches 50% of your contributions up
to 4% of your annual pay.
IV. LIMITATIONS ON CONTRIBUTIONS
Limitation on Employee Salary Deferral. Although you may contribute up to
--------------------------------------
15% of your pay to the Savings Plan, federal tax law limits the dollar amount of
your annual contribution to $10,000 in 1999. The Internal Revenue Service
periodically adjusts this limit for inflation. Contributions in excess of this
limit and earnings on those contributions will be generally be returned to you
by April 15 of the year following your contribution, and they will be subject to
regular federal income taxes.
Limitations on Annual Additions and Benefits. Under federal tax law, your
--------------------------------------------
contributions and our contributions to the Savings Plan may not be greater 25%
of your annual pay or, if less, $30,000. Contributions that we make to any
other retirement program that we sponsor may also count against these limits.
Special Rules About Highly-Paid Employees. Special provisions of the
-----------------------------------------
Internal Revenue Code limit contributions by employees who receive annual pay
greater than $80,000. If you are in this category, some of your contribution
may be returned if your contribution, when measured as a percentage of your pay,
is substantially higher than the contributions made by other employees.
If your annual pay is less than $60,000, we may be required to make a
minimum contribution to the Savings Plan of 3% of your annual pay if the Savings
Plan is considered to be a "top heavy" plan under federal tax law. The Savings
Plan is considered "top heavy" if, in any year, the value of the Savings Plan
accounts of employees making more than $60,000 represent more than 60 percent of
the value of all accounts.
V. INVESTMENT OF CONTRIBUTIONS
All amounts credited to your Savings Plan account are held in trust. A
trustee appointed by the Board of Directors of Palmyra Savings administers the
trust and invests the Savings Plan assets
4
<PAGE>
The Savings Plan offers the following investment 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 component. Its objective is intermediate-
term: to provide a balance between the pursuit of growth and protection from
risk.
5
<PAGE>
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.
PFSB BANCORP STOCK FUND. The Savings Plan now offers you the PFSB Bancorp
Stock Fund as an additional investment choice. The PFSB Bancorp Stock Fund
invests primarily in the common stock of PFSB Bancorp.
A. Previous Funds.
--------------
Before we added the PFSB Bancorp Stock Fund as an investment choice, your
contributions under the Savings Plan were invested in the funds identified
below. The annual percentage return on these funds for the prior three years
was as follows:
<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 is invested in the 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 investment performance of the PFSB Bancorp Stock Fund. Performance of the
PFSB Bancorp Stock Fund depends on a number of factors, including 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.
6
<PAGE>
VI. BENEFITS UNDER THE PLAN
Vesting. The contributions that you make the Savings Plan are fully vested
-------
and cannot be forfeited. You vest in your matching contribution according to
the following schedule.
<TABLE>
<CAPTION>
PERIOD VESTED
OF SERVICE PERCENTAGE
---------- ----------
<S> <C>
0-2 Years... 0%
3 Years..... 100%
</TABLE>
VII. WITHDRAWALS AND DISTRIBUTIONS FROM THE PLAN
Withdrawals Before Termination of Employment. Your plan account provides
--------------------------------------------
you with a source of retirement income. But, while you are employed by Palmyra
Savings, if you need funds from your account before retirement, you may be
eligible to receive a hardship distribution or a loan. You can apply for a
hardship distribution or a loan from the Savings Plan by contacting Eldon R.
Mette at Palmyra Savings. In order to qualify for a hardship withdrawal, you
must have an immediate and substantial need to meet certain expenses, like a
mortage payment or medical bill, and have no other reasonably available
resources to meet your 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 balance.
Distribution Upon Retirement or Disability. Upon retirement at 65 or
------------------------------------------
disability, you will receive a lump sum payment from the Savings Plan equal to
the vested balance of your account.
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 your
designated beneficiary.
Distribution Upon Termination for Any Other Reason. If you terminate
--------------------------------------------------
employment with Palmyra Savings for any reason other than retirement, disability
or death and your account balance exceeds $5,000, the trustee will distribute
your benefits when you turn 65, unless you request otherwise. If your account
balance 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. Your benefits are generally not available to
-------------------------
your creditors and cannot be pledged as collateral for a loan. Your benefits
may, however, be subject to federal tax withholding requirements. In addition,
in the event of your divorce, some or all of your benefits may be transferred to
your former spouse under the terms of a court order that meets certain
requirements of federal law.
7
<PAGE>
ADMINISTRATION OF THE SAVINGS PLAN
Palmyra Savings serves as Savings Plan administrator and is a fiduciary of
the Savings Plan. Palmyra Savings has appointed Bank of New York to serve as
trustee of the Savings Plan and Bank of New York is also a Savings Plan
fiduciary. Bank of New York will hold and invest contributions to the Savings
Plan and distribute them to participants and their beneficiaries at retirement,
termination of employment, death or disability.
A fiduciary is a person, persons or entity that is responsible for the
holding and investment of the Savings Plan's assets and the proper
administration of the Savings Plan. A fiduciary is required to act prudently
and in the best interests of Savings Plan participants.
PLAN ADMINISTRATOR
As plan administrator, Palmyra Savings is responsible for the
administration of the Savings Plan, interpretation of the provisions of the
plan, developing 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 Savings 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
federal law. Palmyra Savings relies on experienced retirement plan consultants
to assist with some of these tasks.
REPORTS TO PLAN PARTICIPANTS
We will provide you with a statement at least quarterly showing the balance
in your account as of the end of that period, the amount of contributions you
made to the Savings Plan for that period, and any adjustments to your account to
reflect earnings or losses.
AMENDMENT AND TERMINATION
We intend to maintain the Savings Plan indefinitely. Nevertheless, we may
decide to terminate the Savings Plan at any time or makes changes to the Savings
Plan. If we terminate the Savings Plan, in whole or in part, your account will
be fully vested and cannot be forfeited for any reason. We may make changes to
the Savings Plan to comply with legal requirements or for other reasons but any
changes cannot reduce your vested account balance or use the Savings Plan's
funds for any purpose other than to pay your benefits.
MERGER OR TRANSFER INVOLVING THE SAVINGS PLAN
Your account balance will not be affected if the Savings Plan is merged
with another, similar plan or if the assets of the Savings Plan are transferred
to another plan.
FEDERAL INCOME TAX CONSEQUENCES
8
<PAGE>
The following is only a brief summary of the material federal income tax
aspects of the Savings Plan. You should not rely on this summary as a complete
or definitive description of the material federal income tax consequences
relating to the Savings Plan. The tax rules that affect your benefits under the
Savings Plan change frequently and may vary based on your individual situation.
This summary also does not discuss how state or local tax laws affect your
Savings Plan benefits. WE URGE YOU TO CONSULT YOUR TAX ADVISOR WITH RESPECT TO
ANY DISTRIBUTION FROM THE SAVINGS PLAN AND TRANSACTIONS INVOLVING THE PLAN.
Federal tax law provides the Savings Plan with a number of special
benefits:
(1) we may deduct amounts contributed to the Savings Plan on your behalf;
(2) you pay no current income tax on your contributions or Palmyra Savings
contributions
(3) the earnings on your Savings Plan accounts are not taxable until you
receive a distribution.
These benefits are conditioned on the Savings Plan's compliance with
special requirements of federal tax law. We intend to satisfy all of the rules
that apply to the Savings Plan. However, if the rules are not satisfied, the
special tax benefits available to the Savings Plan may be lost.
Special Distribution Rules. If you receive a distribution of all of your
--------------------------
benefits from the Savings Plan, you may be eligible to spread the taxes on the
distribution over the next five years. If you turned 50 before 1986, you may
be eligible to spread the taxes on the distribution over as much as 10 years.
You should consult with your tax advisor to determine if your are eligible for
these special tax benefits and whether they are appropriate to your financial
needs.
PFSB Bancorp Common Stock Included in Lump Sum Distribution. If a
-----------------------------------------------------------
distribution of all of your benefits includes shares of PFSB Bancorp common
stock, you will generally not be taxed on the increase in the value of the stock
since its purchase until you sell the stock. You will be taxed on the amount of
the distribution equal to your original cost for the stock when you receive your
distribution.
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 retirement programs sponsored by other employers or to an individual
retirement account. We will provide you with detailed information on how to
roll over a distribution when you are eligible to receive benefits under the
Savings Plan.
RESTRICTIONS ON RESALE
If you are an "affiliate" of PFSB Bancorp or Palmyra Savings, you may be
subject to special rules under federal securities laws that affect your ability
to sell shares you hold in the
9
<PAGE>
PFSB Bancorp Stock Fund. 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. If you are not considered an "affiliate"
of Palmyra Savings you may freely sell any shares of PFSB Bancorp common stock
distributed to them under the Savings Plan, either publicly or privately.
SEC REPORTING AND SHORT-SWING PROFIT LIABILITY
If you are an officer, director or more than 10% owner of PFSB Bancorp,
you may be required to report purchases and sales of PFSB Bancorp common stock
through the Savings Plan to the Securities and Exchange Commission. In
addition, you may be subject to special rules that provide for the recovery by
PFSB Bancorp of profits realized by an officer director or a more than 10%
owner from the purchase and sale or sale and purchase of the common stock within
any six-month period. However, the rules exempt many transactions involving the
Savings Plan from the reporting and profit recovery rules. You should consult
with us regarding the impact of these rules on your transactions involving PFSB
Bancorp common stock.
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.
10
<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> <C> <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
______% 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> <C> <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 and will become a wholly-owned subsidiary of
PFSB Bancorp, Inc.
WHO IS ELIGIBLE TO PURCHASE STOCK?
. FIRST PRIORITY: Depositors of Palmyra Saving with at least $50 on deposit
on June 30, 1997, provided that PFSB Bancorp has registered the shares for
sale under the securities laws of their state of residence.
. SECOND PRIORITY: Palmyra Saving's employee stock ownership plan.
. THIRD PRIORITY: Depositors of Palmyra Saving with at least $50 on deposit
on December 31, 1998, provided that PFSB Bancorp has registered the shares
for sale under the securities laws of their state of residence.
. FOURTH PRIORITY: Depositors of Palmyra Saving on January 31, 1999 and
borrowers of Palmyra Saving's on June 1, 1995 whose loans were still
outstanding on January 31, 1999, provided that PFSB Bancorp has registered
the shares for sale under the securities laws of their state of
residence.
. FIFTH PRIORITY: Residents of Marion, Lewis and Clark Counties, Missouri, or
a trust of those residents, provided that PFSB Bancorp decides to extend
the offering to them.
. SIXTH PRIORITY: All other people, provided that PFSB Bancorp has registered
the shares for sale under the securities laws of their state of residence
and that PFSB Bancorp decides to extend the offering to them.
OFFERING SUMMARY
Price Per Share: $10.00
Expected Trading Market: OTC Bulletin Board
<TABLE>
<CAPTION>
Minimum Midpoint Maximum
---------- ---------- ----------
<S> <C> <C> <C>
Number of shares: 552,500 650,000 747,500
Gross offering proceeds: $5,525,000 $6,500,000 $7,475,000
Estimated underwriting commissions
and other offering expenses: $ 535,000 $ 535,000 $ 535,000
Estimated net proceeds: $4,990,000 $5,965,000 $6,940,000
Estimated net proceeds per share: $ 9.03 $ 9.18 $ 9.28
</TABLE>
With the approval of the office of Thrift Supervision, PFSB Bancorp may increase
the maximum number of shares by up to 15% to 859,625 shares.
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 March 16,
1999. If the conversion is not completed by May 20, 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 March 22, 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 8.
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 March 22, 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.
The following table summarizes the
total number and dollar value of the
shares of common stock, assuming
747,500 shares are issued in the
conversion, which the employee stock
ownership plan would acquire and the
total value of all shares available
for award under the stock option
plan and the management development
and recognition plan. The table
assumes the value of the shares is
$10.00 per share. The table does not
include a value for the options
because their value would 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 on
an option only if the market price
of common stock increases.
<TABLE>
<CAPTION>
NUMBER PERCENTAGE
OF ESTIMATED OF SHARES
SHARES VALUE ISSUED IN THE
OF SHARES CONVERSION
-------- --------- -------------
<S> <C> <C> <C>
Employee stock ownership 59,800 $598,000 8.0%
plan.......................
Management development
and recognition plan awards 29,000 299,000 4.0%
Stock options................ 74,750 - 10.0%
------- -------- ----
Total............... 164,450 $897,000 22.0%
======= ======== ====
</TABLE>
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 March 16, 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
859,625 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.
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."
LOANS SECURED BY PROPERTIES LOCATED OUTSIDE OF PALMYRA SAVING'S PRIMARY MARKET
AREA MAKE PALMYRA SAVING'S LOAN PORTFOLIO RISHIER
Palmyra Saving invests in one- to- four-family mortgage loans, multi-family
loans and commercial real estate loans secured by properties located outside of
Palmyra Saving's primary market area. Many of the 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 multi-family loans and $863,000 were commercial
real estate loans. These loans are more difficult to monitor because of the
distant location of the collateral property. Furthermore, because a large
percentage of these loans are portions of loans that Palmyra Saving purchases
from the lender who granted the loan to its borrower, it is highly likely that
Palmyra Saving did not meet with the borrower in person before purchase. This
lack of personal contact makes these loans more difficult to underwrite than
loans that Palmyra Saving makes to its own borrowers. 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 NET INTEREST INCOME 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."
INVESTMENT OF OFFERING PROCEEDS IN DEBT SECURITIES COULD PRODUCE LOWER
EARNINGS
PFSB Bancorp expects to retain 42% of the net offering proceeds for its own
use. PFSB Bancorp intends to invest these funds in short-term U.S. Government
and agency obligations until they may be used for other purposes such as paying
dividends or repurchasing stock. Furthermore, Palmyra Savings also intends to
invest the portion of the net offering proceeds that PFSB Bancorp will
contribute to it in short-term U.S. government and agency obligations until they
may be used to make or purchase loans. Interest income earned on short-term
investment securities is generally lower than interest income earned on loans.
Consequently, as long as PFSB Bancorp and Palmyra Saving primarily invest the
net offering proceeds in short term investment securities, particular during
times like now of low market interest rates, you should expect their earnings to
be less than what they generally could be if the net offering proceeds were
invested primarily in loans. See "Use of Proceeds" for further information
regarding PFSB Bancorp's and Palmyra Saving's intended uses of the net proceeds
of this offering.
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>
PALMYRA SAVING COULD HOLD YOUR SUBSCRIPTION FUNDS COULD BE HELD FOR AN EXTENDED
TIME PERIOD IF THE CONVERSION IS DELAYED
If the conversion is not completed by May 20, 1999 and the Office of Thrift
Supervision gives Palmyra Saving more time to complete the conversion, PFSB
Bancorp will contact everyone who subscribed for shares to see if they still
want to purchase stock. This is commonly referred to as 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 March 22, 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 M 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 34,385 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 $59.4 million at September 30, 1998 and
$61.7 million, $62.2 million, $62.6 million and $63.1 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 $29.0 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.
PFSB Bancorp and Palmyra Saving did not figure into their calculation the
following four items:
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 6,939 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 $ 6,042 $ 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 management development and
recognition plan 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 management development and
recognition plan 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............................... 14.93x 16.67x 18.52x 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 $0.47 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 512,720, 603,200,
693,680, and 797,732 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.
36
<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.
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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.
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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.
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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
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<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
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<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.
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<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
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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.
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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.
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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
66
<PAGE>
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.
67
<PAGE>
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.
68
<PAGE>
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)
President and
Chief Executive Officer
</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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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.
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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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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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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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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 first, 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 on March 22, 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 March 16, 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 April 5, 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 March 16, 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. 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 March 16, 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.
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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.
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[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 May 20, 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.
<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 11, 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 11, 1999
- ----------------------- (principal executive
Eldon R. Mette officer)
/s/ Ronald L. Nelson Vice President, Secretary February 11, 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 11, 1999
- --------------------
Eldon R. Mette
<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>
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* Previously filed
(P) Previously filed pursuant to Rule 202 of Regulation S-T.
<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. 3 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 11, 1999
