<PAGE>
As filed with the Securities and Exchange Commission on January 18, 2001
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CHESTERFIELD FINANCIAL CORP.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
Delaware 6712 (To be applied for)
(State or Other Jurisdiction of (Primary Standard (I.R.S. Employer
Incorporation or Organization) Industrial Classification) Identification Number)
</TABLE>
10801 South Western Avenue
Chicago, Illinois 60643
(773) 239-6000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Michael E. DeHaan
President and Chief Executive Officer
Chesterfield Financial Corp.
10801 South Western Avenue
Chicago, Illinois 60643
(773) 239-6000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
John J. Gorman, Esq.
Ned Quint, Esq.
Luse Lehman Gorman Pomerenk & Schick, P.C.
5335 Wisconsin Avenue, N.W.
Suite 400
Washington, D.C. 20015
Telephone: (202) 274-2000
Facsimile: (202) 362-2902
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933,
check the following box: [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) 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(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, check
the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================================
Proposed Proposed
Title of each class of Amount to be maximum maximum Amount of
securities to be registered registered offering price aggregate registration fee
per share offering price (1)
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<S> <C> <C> <C> <C>
Common Stock, $.01 par value 4,099,750 $10.00 $ 40,997,500 $ 10,249
per share shares
=================================================================================================================
</TABLE>
_______________________________
(1) Estimated solely for the purpose of calculating the registration fee.
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 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 Securities and Exchange Commission, acting pursuant to said Section
8(a), may determine.
<PAGE>
PROSPECTUS
Chesterfield Financial Corp.
(Proposed holding company for Chesterfield Federal Savings and Loan
Association of Chicago)
Up to 3,565,000 Shares of Common Stock
Chesterfield Federal Savings and Loan Association of Chicago is converting
from the mutual to the stock form of organization. As part of this conversion,
Chesterfield Financial Corp. is offering its shares of common stock for sale.
Chesterfield Financial will own Chesterfield Federal after the conversion.
================================================================================
TERMS OF THE OFFERING
Price Per Share: $10.00
Expected Trading Market: Nasdaq National Market
Expected Trading Symbol: CFSL
Minimum Purchase: 25 shares ($250)
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
------- -------
<S> <C> <C>
Number of Shares: 2,635,000 3,565,000
Gross offering proceeds: $26,350,000 $35,650,000
Estimated offering expenses: $ 1,082,000 $ 1,150,000
Estimated net proceeds: $25,268,000 $34,500,000
Estimated net proceeds per share: $ 9.59 $ 9.68
</TABLE>
================================================================================
With regulatory approval, we may increase the maximum number of shares by
up to 15%, to 4,099,750 shares.
Please refer to "Risk Factors" beginning on page __ of this document. An
investment in the common stock is subject to various risks, including possible
loss of principal.
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.
The shares of common stock offered hereby are not savings accounts or
deposits and are not insured by the Federal Deposit Insurance Corporation or any
other government agency.
Trident Securities, a Division of McDonald Investments, Inc., will use its
best efforts to assist Chesterfield Financial 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.
We have granted depositors and borrowers of Chesterfield Federal as of
certain dates the right to purchase our stock before we sell any shares to the
general public. If you wish to exercise this right, we must receive your order
no later than 12:00 noon, Central time, on April ____, 2001. We will offer any
remaining shares in a community offering to persons who do not have these
priority rights. We may terminate the community offering at any time without
notice. We will place funds we receive for stock purchases in a separate
interest-bearing account at Chesterfield Federal until we complete or terminate
the offering.
For assistance, please contact the Stock Information Center at (___)
_________.
Trident Securities
A Division of McDonald Investments, Inc.
The date of this Prospectus is March __, 2001
<PAGE>
Table of Contents
<TABLE>
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Page
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING............................................................. 3
SUMMARY.................................................................................................... 6
RISK FACTORS............................................................................................... 10
SELECTED FINANCIAL DATA.................................................................................... 15
PROPOSED MANAGEMENT PURCHASES.............................................................................. 16
USE OF PROCEEDS............................................................................................ 16
DIVIDEND POLICY............................................................................................ 18
MARKET FOR COMMON STOCK.................................................................................... 19
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE..................................................... 20
CAPITALIZATION............................................................................................. 21
PRO FORMA DATA............................................................................................. 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................... 27
BUSINESS OF CHESTERFIELD FINANCIAL CORP.................................................................... 41
BUSINESS OF CHESTERFIELD FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHICAGO................................... 41
REGULATION................................................................................................. 53
TAXATION................................................................................................... 60
MANAGEMENT................................................................................................. 61
THE CONVERSION............................................................................................. 68
RESTRICTIONS ON ACQUISITIONS OF STOCK AND RELATED TAKEOVER DEFENSIVE PROVISIONS............................ 85
DESCRIPTION OF CAPITAL STOCK............................................................................... 89
LEGAL AND TAX MATTERS...................................................................................... 90
CHANGE IN ACCOUNTANTS...................................................................................... 90
EXPERTS.................................................................................................... 91
WHERE CAN YOU FIND MORE INFORMATION........................................................................ 91
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
</TABLE>
<PAGE>
[Map of Chesterfield Federal's Branch Network Appears Here]
Locations:
10801 South Western Avenue
Chicago, Illinois 60643
10701 South Western Avenue
Chicago, Illinois 60643
10135 S. Roberts Road
Palos Hills, Illinois 60465
22 West Lincoln Highway
Frankfort, Illinois 60423
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QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING
The following are frequently asked questions. You should read this entire
prospectus, including the "Risk Factors" section beginning on page __ and "The
Conversion" section beginning on page ___, for more information.
Q. HOW MANY SHARES OF STOCK ARE BEING OFFERED, AND AT WHAT PRICE?
A. We are offering for sale up to 3,565,000 shares of common stock at a price
of $10.00 per share. We must sell at least 2,635,000 shares. Under certain
circumstances and without notice to you, we may be required to sell up to
4,099,750 shares.
Q. WHAT PARTICULAR FACTORS SHOULD I CONSIDER WHEN DECIDING WHETHER TO PURCHASE
THE STOCK?
A. There are many important factors for you to consider before making an
investment decision. Therefore, you should read this entire prospectus
before making your investment decision.
Q. WHO MAY PURCHASE STOCK IN THE SUBSCRIPTION OFFERING?
A. The stock will be offered on a priority basis to the following persons:
. Chesterfield Federal's depositors with $50 or more on deposit as of
June 30, 1999;
. Chesterfield Federal's tax-qualified employee plans;
. Chesterfield Federal's depositors with $50 or more on deposit as of
December 31, 2000;
. Chesterfield Federal's depositors as of __________, 2001 and borrowers
as of __________, 2001.
If the above persons do not subscribe for all of the shares offered, we
will offer the remaining shares to the general public in a community
offering, giving preference to persons who reside in Cook and Will
Counties, Illinois. We have the right to accept or reject any order placed
in the community offering.
Q. WHAT HAPPENS IF THERE ARE NOT ENOUGH SHARES OF STOCK TO FILL ALL ORDERS?
A. If there is an oversubscription, then you may not receive any or all of the
shares you want to purchase.
Q. HOW MUCH STOCK CAN I PURCHASE?
A. The minimum purchase is $250 (25 shares). No individual, or individuals
through a single account, may purchase more than $300,000 (30,000 shares).
Purchases cannot exceed $400,000 (40,000 shares) when made by persons who
may be acting together with you, such as your spouse or other relatives, or
companies or trusts in which you have an
3
<PAGE>
interest. We may decrease or increase the maximum purchase limitation
without notifying you.
Q. WILL I BE ABLE TO SELL MY STOCK AFTER I PURCHASE IT?
A. We anticipate having our stock quoted on the Nasdaq National Market under
the symbol "CFSL." However, there can be no assurance that an active and
liquid trading market will develop, that someone will want to buy your
shares or that you will be able to sell them for more money than you
originally paid.
Q. WILL MY STOCK BE COVERED BY DEPOSIT INSURANCE OR GUARANTEED BY ANY
GOVERNMENT AGENCY?
A. No. Unlike insured deposit accounts at Chesterfield Federal, our stock will
not be insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency.
Q. CAN I TRANSFER MY SUBSCRIPTION RIGHTS TO ANOTHER PERSON?
A. No. Any transfer of subscription rights is prohibited by law. In addition,
you will be required to certify that you are purchasing stock for your own
account.
Q. WHEN IS THE DEADLINE TO SUBSCRIBE FOR STOCK?
A. We must receive a properly signed original order form with the required
payment on or before 12:00 noon, Central time, on April ___, 2001, the
subscription offering expiration date.
Q. HOW DO I PURCHASE THE STOCK?
A. First, you should read this prospectus carefully. Then, complete and return
the enclosed stock order and certification form, together with your
payment. Subscription orders may be delivered in person to our office
during regular banking hours, or by mail in the enclosed envelope marked
STOCK ORDER RETURN. Subscription orders received after 12:00 noon, Central
time, on April ___, 2001, although not considered timely, may be held for
participation in any community offering. If the stock offering is not
completed by _____, 2001 and is not extended, then all funds will be
returned promptly with interest, and all withdrawal authorizations will be
cancelled.
Q. CAN I CHANGE MY MIND AFTER I PLACE AN ORDER TO SUBSCRIBE FOR STOCK?
A. No. After we receive your order form and payment, you may not cancel or
modify your order. However, if we extend the offering beyond _____, 2001,
you will be able to change or cancel your order. If you cancel your order,
you will receive a prompt refund plus interest.
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<PAGE>
Q. HOW CAN I PAY FOR THE STOCK?
A. You have three options: (1) pay cash only if it is delivered to us in
person; (2) send us a check or money order; or (3) authorize a withdrawal
from your deposit account at Chesterfield Federal including a certificate
of deposit, without any penalty for early withdrawal. No wire transfers
will be accepted. Please do not send cash in the mail.
Q. WILL I RECEIVE INTEREST ON MY SUBSCRIPTION PAYMENT?
A. Subscriptions payments will be placed in an interest-bearing deposit
account at Chesterfield Federal, and will earn interest at Chesterfield
Federal's passbook savings rate. Depositors who elect to pay by withdrawal
will continue to receive interest on their accounts at the applicable
contractual rate until the funds are withdrawn.
Q. WHO CAN HELP ANSWER ANY OTHER QUESTIONS I MAY HAVE ABOUT THE STOCK
OFFERING?
A. For answers to other questions we encourage you to read this prospectus in
its entirety. Questions may also be directed to our Stock Information
Center at (___) _______ Monday through Friday, between the hours of 8:30
a.m. and 5:00 p.m.
To ensure that each person receives a prospectus at least 48 hours prior to
the expiration date of April ___, 2001 in accordance with federal law, no
prospectus will be mailed any later than five days prior to April ___, 2001 or
hand delivered any later than two days prior to April ___, 2001.
5
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SUMMARY
This summary highlights selected information from this document and may not
contain all the information that is important to you. To understand the stock
offering fully, you should read this entire document carefully, including the
financial statements and the notes to financial statements of Chesterfield
Federal Savings and Loan Association of Chicago.
Chesterfield Financial Corp.
We formed Chesterfield Financial in January 2001 as a Delaware corporation.
Chesterfield Financial will be the holding company for Chesterfield Federal
following the conversion. Chesterfield Financial has not engaged in any
significant business to date. Our executive office is located at 10801 South
Western Avenue, Chicago, Illinois 60643, and our telephone number is (773) 239-
6000.
Chesterfield Federal Savings and Loan Association of Chicago
Founded in 1924, we are a customer oriented, federally chartered savings
association, which operates from our main office in Chicago, Illinois and three
branch offices. We also offer property and casualty insurance through our
wholly-owned subsidiary, Chesterfield Insurance Services, L.L.C. We emphasize
personal service for our customers, and believe that our ability to make prompt
responses to customer needs and inquiries is an important element in attracting
business. A full description of our products and services begins on page ___ of
this prospectus.
Our Conversion to Stock Form
The conversion is a series of transactions by which we will convert from
our current status as a mutual savings association to a stock savings
association. Following the conversion, we will retain our current name
"Chesterfield Federal Savings and Loan Association of Chicago," but we will be a
subsidiary of Chesterfield Financial. As a stock savings association, we intend
to continue to follow our same business strategies, and we will continue to be
subject to the regulation and supervision of the Office of Thrift Supervision
and the Federal Deposit Insurance Corporation.
As part of the conversion, we are offering between 2,635,000 and 3,565,000
shares of Chesterfield Financial's common stock. The purchase price will be
$10.00 per share. All investors will pay the same price per share in the
offering. Subject to regulatory approval, we may increase the amount of stock to
be sold to 4,099,750 shares without any further notice to you if market or
financial conditions change before we complete the conversion.
The offering proceeds will increase our capital and the amount of funds
available to us for lending and investment. This will give us greater
flexibility to diversify operations and expand the products and services we
offer. In addition, we will be able to compensate our employees, officers and
directors in the form of stock.
How We Determined the Offering Range
The offering range is based on an independent appraisal of our pro forma
market value by FinPro, Inc., a firm experienced in appraisals of financial
institutions. The pro forma market value is our estimated market value assuming
the sale of shares in this offering. FinPro has estimated that in its opinion as
of January ___, 2001, the value was between $26,350,000 and $35,650,000, with a
midpoint of $31,000,000. The appraisal was based in part upon our financial
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condition and operations and the effect of the additional capital we will raise
from the sale of common stock in this offering.
Subject to regulatory approval, we may increase the amount of common stock
offered by up to 15%, up to a total of 4,099,750 shares. The appraisal will be
updated before we complete the conversion. If the pro forma market value of the
common stock at that time is either below $26,350,000 or above $40,997,500, we
will notify you, and you will have the opportunity to change or cancel your
order. See "The Conversion--Stock Pricing and Number of Shares to be Issued" for
a description of the factors and assumptions used in determining the stock price
and offering range.
Two measures investors use to analyze a financial institution's stock are
the ratio of the offering price to the issuer's book value and the ratio of the
offering price to the issuer's annual net income. FinPro considered these
ratios, among other factors, in preparing its appraisal. Book value is the same
as total equity, and represents the difference between the issuer's assets and
liabilities. The ratio of the offering price to Chesterfield Financial's pro
forma book value ranges from 45.29% to 53.76%, and the offering price represents
between 7.41 and 9.01 times Chesterfield Financial's pro forma annualized
earnings for the four months ended October 31, 2000. The ratio of the offering
price to Chesterfield Financial's pro forma book value ranges from 46.02% to
54.53%, and the offering price represents between 8.26 and 10.31 times
Chesterfield Financial's pro forma earnings for the year ended June 30, 2000.
See "Pro Forma Data" for a description of the assumptions we used in making
these calculations.
The independent appraisal does not indicate market value. Do not assume or
expect that Chesterfield Federal's valuation as indicated above means that the
common stock will trade at or above the $10.00 purchase price after the
conversion.
Use of Proceeds
Chesterfield Financial will use 50% of the net offering proceeds to buy all
of the common stock of Chesterfield Federal and will retain the remaining net
proceeds for general business purposes. These purposes may include investment in
securities, paying cash dividends or repurchasing shares of common stock.
Chesterfield Federal will use the funds it receives for general business
purposes, including originating loans and purchasing securities.
Chesterfield Financial will also loan an amount equal to 8% of the total
dollar value of the stock to be issued in the conversion to the employee stock
ownership plan to fund its purchase of common stock in the conversion.
Chesterfield Financial and Chesterfield Federal may also use the proceeds
of the offering to expand and diversify their businesses, although they do not
have any specific contracts, understandings or arrangements for the acquisition
of other financial institutions or financial service companies or their assets.
The Amount of Stock You May Purchase
The minimum purchase is $250 (25 shares). No individual, or individuals
through a single account, may purchase more than $300,000 (30,000 shares). If
any of the following persons purchase stock, then their purchases when combined
with your purchases cannot exceed $400,000:
. relatives of you or your spouse living in your house
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. accounts registered to the same address
. companies, trusts or other entities in which you have an interest or
hold a position
. other persons who may be acting together with you
We may decrease or increase the maximum purchase limitation without notifying
you.
How We Will Prioritize Orders If We Receive Orders for More Shares Than Are
Available for Sale
You might not receive any or all of the shares you order. If we receive
orders for more shares than are available, we will allocate stock, pursuant to
our plan of conversion, to the following persons or groups in order of priority:
. ELIGIBLE ACCOUNT HOLDERS - Our depositors with a balance of at least
$50 at the close of business on June 30, 1999. Any remaining shares
will be offered to:
. OUR TAX QUALIFIED EMPLOYEE PLANS. Any remaining shares will be offered
to:
. SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS - Our depositors with a balance
of at least $50 at the close of business on December 31, 2000. Any
remaining shares will be offered to:
. OTHER MEMBERS - Our depositors at the close of business on
____________, 2001 and our borrowers as of ____________, 2001.
If the above persons do not subscribe for all of the shares offered, we
will offer the remaining shares to the general public in a community offering,
giving preference to persons who reside in Cook and Will Counties, Illinois.
How You Can Pay For Stock
You can pay for your shares by cash (if delivered in person to Chesterfield
Federal's stock information center), by check, bank draft or money order, or by
authorization of withdrawal from deposit accounts you maintain at Chesterfield
Federal, without any penalty to you for early withdrawal. Although we will not
withdraw these funds until the completion of the stock offering, you will not be
able to otherwise use the funds you designated for withdrawal.
Your Subscription Rights Are Not Transferable
You may not assign or sell your subscription rights. Any transfer of
subscription rights is prohibited by law. If you exercise subscription rights,
you will be required to certify that you are purchasing shares solely for your
own account and that you have no agreement or understanding regarding the sale
or transfer of shares. We intend to pursue any and all legal and equitable
remedies if we learn of the transfer of any subscription rights. We will reject
orders that we determine to involve the transfer of subscription rights.
Benefits to Management from the Offering
Our full-time employees will benefit from the offering through our employee
stock ownership plan. This plan will buy shares of stock with a portion of the
proceeds of the offering
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and then allocate the stock to employees over a period of time, at no cost to
the employees. You can find more information about our employee stock ownership
plan by reading the section of this document entitled "Management--Benefit
Plans--Employee Stock Ownership Plan and Trust." Following the conversion, we
also intend to implement a recognition and retention plan and a stock option
plan, which will benefit our officers and directors. These two plans will not be
implemented unless we receive stockholder approval of the plans at least six
months after the conversion. If our recognition and retention plan is approved
by stockholders, our officers and directors will be awarded shares of common
stock at no cost to them. If our stock option plan is approved by stockholders,
stock options will be granted at no cost to directors and officers, but these
persons will be required to pay the applicable exercise price at the time of
exercise in order to receive the shares of common stock.
The following table summarizes the benefits that directors, officers
and employees may receive from the conversion at the midpoint of the offering
range:
<TABLE>
<CAPTION>
Value of Shares
Individuals Eligible % of Based on Midpoint
Plan to Receive Awards Shares Sold of Offering Range
------------------------------- ----------------- ----------- -----------------
<S> <C> <C> <C>
Employee stock ownership plan All employees 8% $2,480,000
Recognition and retention plan Directors and officers 4%/(1)/ $1,240,000
Stock option plan Directors and officers 10% --/(2)/
</TABLE>
______________
/(1)/ If we implement the recognition and retention plan within 12 months after
the conversion, OTS regulations would limit the plan to no more than 4% of
the shares sold in the conversion. The 4% limitation would not apply if we
implement the plan more than 12 months after the conversion.
/(2)/ Stock options will be granted with a per share exercise price at least
equal to the market price of our common stock on the date of grant. The
value of a stock option will depend upon increases, if any, in the price
of our stock during the life of the stock option.
When combined with the proposed stock purchases by our directors and
officers, the above plans may give our directors and officers effective voting
control following the conversion. See "Risk Factors--Expected Voting Control by
Management and Employees Could Enable Insiders to Prevent a Merger That May
Provide That Shareholders Receive a Premium for Their Shares."
We intend to enter into a three-year employment agreement with Michael
E. DeHaan, the President and Chief Executive Officer of Chesterfield Federal.
The agreement provides that Mr. DeHaan would receive severance payments equal to
three times the annual rate of base salary at termination of employment plus the
average cash bonus paid to him during the prior three years if Chesterfield
Financial is acquired and he loses his job in the acquisition or if he loses his
job upon the occurrence of certain other events. If severance were required to
be paid in 2001 after completion of the conversion, Mr. DeHaan would receive
severance payments of approximately $__________.
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RISK FACTORS
In addition to the other information in this document, you should consider
carefully the following risk factors in deciding whether to purchase our common
stock.
Changes in Interest Rates Could Hurt Our Profitability
To be profitable, we have to earn more money in interest and other income
than we pay as interest and other expenses. Our loan portfolio primarily
consists of loans which mature in more than five years. At October 31, 2000, our
deposit accounts consisted of time deposit accounts and demand deposits such as
NOW accounts. Of our time deposits, $143.7 million, or 84.4% have remaining
terms to maturity of one year or less. If interest rates rise, the amount of
interest we pay on deposits is likely to increase more quickly than the amount
of interest we receive on our loans and securities. This could cause our profits
to decrease. If interest rates fall, many borrowers may refinance more quickly,
and interest rates on interest-earning assets could fall, perhaps faster than
the interest rates on our liabilities. This could also cause our profits to
decrease. For additional information on our exposure to interest rates, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Management of Market Risk."
Our Assets Have Decreased in the Past Year, and May Continue to do so Following
the Offering
Our assets decreased $6.6 million, or 2.2%, to $298.8 million at October
31, 2000 from $305.5 million at June 30, 2000. We do not intend to materially
change our business following the offering, and therefore our assets may
continue to decrease in the future. Any such decrease in our assets without an
offsetting increase in our return on assets would result in decreased income.
Our Emphasis on Residential Real Estate Lending May Limit our Growth and
Profitability
Historically, we have emphasized one- to four-family residential lending
instead of commercial or consumer lending, and more recently, we have
specifically emphasized the origination of shorter-term residential mortgage
(seven, 10 and 15-year) loans. As of October 31, 2000, $137.4 million, or 87.6%
of our total loan portfolio consisted of one- to four-family residential real
estate loans. The yields on residential mortgage loans are often less than the
yields on other types of loans, and the yields on shorter-term mortgage loans
are often less than the yields on 30-year mortgage loans. We intend to continue
to emphasize shorter-term, residential lending following the offering. Because
of this emphasis, any asset growth we may experience may not be as fast as that
of other financial institutions that focus on a broader range of loan products,
and our income may not grow as fast as other financial institutions that earn
higher interest rates on longer-term loans or non-residential loans.
We Anticipate a Low Return on Our Equity and Increased Non-Interest Expenses
Net income divided by average equity, known as "return on equity," is a
ratio many investors use to compare the performance of a financial institution
to its peers. We expect our return on equity to decrease as compared to our
performance in recent years until we are able to increase our total assets by
adding loans, thereby increasing net interest income. Our return on equity will
be reduced by increased equity from the conversion and increased expenses due to
the costs of being a public company, added expenses associated with our employee
stock ownership plan, and, later on, our recognition and retention plan.
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Strong Competition Both Within our Market Area and From Internet Banks May Limit
Our Growth and Profitability
We conduct most of our business in Cook and Will Counties, Illinois.
Competition in the banking and financial services industry in our market area is
intense. Our profitability depends in large part upon our continued ability to
successfully compete. We compete with commercial banks, savings institutions,
credit unions, finance companies, mutual funds, insurance companies, and
brokerage and investment banking firms. In addition, we compete with internet
banks, many of which are not located in our market area. Many of these
competitors have substantially greater resources and lending limits than we do
and offer certain services that we do not or cannot provide. This strong
competition may limit Chesterfield Federal's ability to grow in the future.
Loss of Key Officers Could Hurt Chesterfield Federal's Operations
We rely heavily on our executive officers, Michael E. DeHaan, President and
Chief Executive Officer, and Richard E. Urchell, Vice President and Secretary.
The loss of either Mr. DeHaan or Mr. Urchell would have an adverse effect on us.
We do not maintain, nor do we intend to obtain, a key-man life insurance policy
on either Mr. DeHaan or Mr. Urchell.
Our Employee Stock Benefit Plans Will Increase Our Costs
We anticipate that our employee stock ownership plan will purchase 8% of
the common stock issued in the conversion, with funds borrowed from Chesterfield
Financial. The cost of acquiring the employee stock ownership plan shares will
be between $2,108,000 at the minimum of the offering range and $2,852,000 at the
adjusted maximum of the offering range. We will record annual employee stock
ownership plan expenses in an amount equal to the fair value of shares committed
to be released to employees. If shares of common stock appreciate in value over
time, compensation expense relating to the employee stock ownership plan would
increase. We also intend to submit a recognition and retention plan to our
stockholders for approval no earlier than six months after completion of the
conversion. If the recognition and retention plan is implemented within 12
months after the conversion, our officers and directors could be awarded, at no
cost to them, up to an aggregate of 4% of the shares issued in the conversion.
These shares would be restricted as to transfer in accordance with the terms of
the plan. In the event we implement the recognition and retention plan more than
12 months after the conversion, the recognition and retention plan would not be
subject to an OTS regulation limiting the plan to no more than 4% of the shares
issued in the conversion. Assuming the shares of common stock to be awarded
under the plan are repurchased in the open market and cost the same as the
purchase price in the conversion, the reduction to stockholders' equity from the
plan would be between $1,054,000 and $1,426,000 if 4% of the shares issued in
the conversion were awarded. See "Pro Forma Data " for a discussion of the
increased benefit costs we will incur after the conversion and how these costs
could decrease our return on equity.
Management Will Have Substantial Discretion Over Investment of the Offering
Proceeds
The net offering proceeds from the conversion transaction are estimated to
range from $25.3 million to $34.5 million. We intend to use these funds for
general business purposes, giving management substantial discretion over their
investment. You may disagree with investments that management makes. See "Use of
Proceeds" for further discussion.
11
<PAGE>
Our Stock Value May Suffer from Our Ability to Impede Potential Takeovers
Provisions in our corporate documents and in Delaware corporate law, as
well as certain federal regulations, may make it difficult and expensive to
pursue a tender offer, change in control or attempt a takeover that our board of
directors opposes. As a result, you may not have an opportunity to participate
in such a transaction, and the trading price of our stock may not rise to the
level of other institutions that are more vulnerable to hostile takeovers. Anti-
takeover provisions include:
. restrictions on acquiring more than 10% of our common stock and
limitations on voting rights
. the election of members of the board of directors to staggered three-
year terms
. the absence of cumulative voting by stockholders in the election of
directors
. provisions restricting nominations of directors by stockholders
. provisions restricting the submission of stockholder proposals
. provisions restricting the calling of special meetings of stockholders
. our ability to issue preferred stock and additional shares of common
stock without stockholder approval
. super-majority voting provisions to remove directors without cause or
to amend our corporate documents
These provisions also will make it more difficult for an outsider to remove our
current board of directors or management. See "Restrictions on Acquisition of
Stock and Related Takeover Defensive Provisions" for a description of anti-
takeover provisions in our corporate documents and under Delaware law and
federal regulations.
Expected Voting Control by Management and Employees Could Enable Insiders to
Prevent a Merger That May Provide That Shareholders Receive a Premium for Their
Shares
The shares of common stock that our directors and officers intend to
purchase in the conversion, when combined with the shares that may be awarded to
participants under our employee stock ownership plan and other stock benefit
plans, could result in management and employees controlling a significant
percentage of our 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 you might like to see happen. In
addition, the total voting power of management and employees could reach in
excess of 20% of our outstanding stock. That level would enable management and
employees as a group to defeat any stockholder matter that requires an 80% vote,
such as removal of directors, approval of certain business combinations with
interested shareholders and certain amendments to our certificate of
incorporation.
12
<PAGE>
Our Employee Stock Benefit Plans May Be Dilutive
If the conversion is completed and stockholders subsequently approve a
recognition and retention plan and a stock option plan, we will issue stock to
our officers and directors through these plans. We currently intend to fund
these plans with shares repurchased in the secondary market. However, if the
shares for the recognition and retention plan are issued from our authorized but
unissued stock, your ownership percentage could be diluted by approximately
3.8%, assuming issuance of an amount equal to 4% of the shares issued in the
conversion, and the trading price of our stock may be reduced. Your ownership
percentage would also decrease by approximately 9.1% if all potential stock
options are exercised. See "Pro Forma Data" for data on the dilutive effect of
the recognition and retention plan and "Management--Benefit Plans" for a
description of the plans. These plans will also involve additional expense.
A Possible Increase in the Offering Range Would Be Dilutive
We can increase the maximum of the offering range by up to 15% to reflect
changes in market or financial conditions or to fill the order of our employee
stock ownership plan. An increase in the offering will decrease our net income
per share and our stockholders' equity per share. This would also increase the
purchase price per share as a percentage of pro forma stockholders' equity per
share and net income per share.
Our Valuation Is Not Indicative of the Future Price of Our Common Stock
We cannot assure you that if you purchase common stock in the offering you
will later be able to sell it at or above the purchase price in the offering.
The final aggregate purchase price of the common stock in the conversion will be
based upon an independent appraisal. The appraisal is not intended, and should
not be construed, as a recommendation of any kind as to the advisability of
purchasing shares of common stock. The valuation is based on estimates and
projections of a number of matters, all of which are subject to change from time
to time. See "The Conversion--Stock Pricing and Number of Shares to be Issued"
for the factors considered by FinPro in determining the appraisal.
Our Stock Price May Decline
The shares of common stock offered by this document are not savings
accounts or deposits, are not insured or guaranteed by the Federal Deposit
Insurance Corporation, the Savings Association Insurance Fund or any other
governmental agency, and involve investment risk, including the possible loss of
principal.
Due to possible continued market volatility and to other factors, including
certain risk factors discussed in this document, we cannot assure you that,
following the conversion, the trading price of our common stock will be at or
above the initial per share offering price. Publicly traded stocks, including
stocks of financial institutions, have recently experienced substantial market
price volatility. These market fluctuations may be unrelated to the operating
performance of particular companies whose shares are traded. In several cases,
common stock issued by recently converted financial institutions has traded at a
price that is below the price at which such shares were sold in the initial
offerings of those companies. The purchase price of our common stock in the
offering is based on the independent appraisal by FinPro. After our shares begin
trading, the trading price of our common stock will be determined by the
marketplace, and may be influenced by many factors, including prevailing
interest rates, investor perceptions and general industry and economic
conditions.
13
<PAGE>
Limited Market for Our Common Stock May Lower Market Price
We expect that the common stock will trade on the Nasdaq National Market
System. We cannot predict whether a liquid trading market in shares of our
common stock will develop or how liquid that market may become. Persons
purchasing shares may not be able to sell their shares when they desire if a
liquid trading market does not develop or sell them at a price equal to or above
the initial offering price of $10.00 per share even if a liquid trading market
develops.
Banking Reform Legislation Restricts the Activities in Which We May Engage
Compared to Existing Unitary Holding Companies
The Financial Services Modernization Act of 1999, which is intended to
modernize the financial services industry, allows greater affiliations by
commercial bank holding companies with financial companies such as securities
and insurance companies. Under this legislation, newly formed unitary savings
and loan holding companies, such as Chesterfield Financial, do not have the
broad powers formerly available to unitary savings and loan holding companies.
Certain unitary savings and loan holding companies are grandfathered under the
legislation, but Chesterfield Financial is not one. Consequently, Chesterfield
Financial is restricted in the activities in which it may engage more than a
grandfathered unitary savings and loan holding company. For example, unlike a
grandfathered unitary holding company, Chesterfield Financial generally does not
have the authority to engage in nonfinancial activities.
We May Suffer Losses as a Result of the Growth of our Insurance Activities
We offer property and casualty insurance on an agency basis for third-party
providers through our service corporation, Chesterfield Insurance Services, LLC.
We have expanded the size of Chesterfield Insurance in recent years by acquiring
one insurance agency during the fiscal year ended June 30, 1998 and three
insurance agencies during the fiscal year ended June 30, 1999. We have incurred
significant expenses in acquiring these insurance agencies, and we face intense
competition in the insurance services industry. Accordingly, Chesterfield
Insurance may not be able to profitably operate the acquired insurance agencies
in one combined entity. Chesterfield Insurance had net income of $3,000 for the
four months ended October 31, 2000 and net loss of $54,000 for the fiscal year
ended June 30, 2000.
14
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth selected consolidated historical financial
and other data of Chesterfield Federal for the periods and at the dates
indicated. The information is derived in part from, and should be read together
with, the Consolidated Financial Statements and Notes thereto of Chesterfield
Federal contained elsewhere in this prospectus.
<TABLE>
<CAPTION>
October 31, June 30,
--------------------- ----------------------------------------------------
2000 1999 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- -------- --------
(In Thousands)
Selected Financial Condition Data:
---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets.............................. $298,849 $302,973 $305,480 $304,107 $295,506 $296,735 $294,791
Loans receivable, net..................... 154,772 160,001 157,276 156,917 146,941 133,263 138,255
Interest-bearing deposits................. 47,773 65,134 59,933 77,673 88,078 73,979 44,669
Securities................................ 82,997 59,452 73,687 56,571 46,316 77,780 98,295
Intangible assets......................... 699 779 699 804 217 -- --
Deposits.................................. 255,820 259,709 263,350 259,131 257,686 256,270 259,582
Retained income........................... 36,062 33,581 35,155 32,822 31,164 29,172 28,066
<CAPTION>
Four Months
Ended October 31, Years Ended June 30,
--------------------- ----------------------------------------------------
2000 1999 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- -------- --------
(In Thousands)
Selected Operations Data:
------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income..................... $ 6,856 $ 6,346 $ 19,563 $ 18,848 $ 19,645 $ 19,778 $ 19,630
Total interest expense.................... 3,740 3,497 10,746 10,646 11,290 11,716 11,710
-------- -------- -------- -------- -------- -------- --------
Net interest income...................... 3,116 2,849 8,817 8,202 8,355 8,062 7,920
Provision for loan losses................. 26 40 83 150 202 84 252
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision for
loan losses.............................. 3,090 2,809 8,734 8,052 8,153 7,978 7,668
Total non-interest income................. 740 694 2,140 1,531 1,064 1,150 1,131
Total non-interest expense................ 2,451 2,334 7,220 7,006 6,115 7,425 5,762
-------- -------- -------- -------- -------- -------- --------
Income before taxes....................... 1,379 1,169 3,654 2,577 3,102 1,703 3,037
Income tax provision...................... 472 409 1,321 919 1,111 597 1,084
-------- -------- -------- -------- -------- -------- --------
Net income................................ $ 907 $ 760 $ 2,333 $ 1,658 $ 1,991 $ 1,106 $ 1,953
======== ======== ======== ======== ======== ======== ========
<CAPTION>
Four Months
Ended October 31, (1) Years Ended June 30,
--------------------- ----------------------------------------------------
2000 1999 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- -------- --------
Selected Financial Ratios and Other Data:
----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Performance Ratios:
Return on average assets (2)............. 0.90% 0.76% 0.77% 0.56% 0.68% 0.38% 0.67%
Return on retained earnings (3).......... 7.61 6.83 6.86 5.17 6.57 3.92 7.21
Interest rate spread (4)................. 2.71 2.48 2.56 2.41 2.50 2.40 2.47
Net interest margin (5).................. 3.20 2.93 3.01 2.85 2.95 2.82 2.84
Ratio of non-interest expense to
average total assets.................. 2.43 2.31 2.38 2.36 2.10 2.52 1.99
Ratio of average interest-earning
assets to average interest-bearing
liabilities............................ 112.7 112.4 112.3 111.8 111.3 110.3 108.8
Efficiency ratio(6)...................... 63.6 65.9 65.9 72.0 64.9 80.6 63.7
Asset Quality Ratios:
Non performing loans to total loans at
end of period.......................... -- 0.09 0.01 0.06 0.18 0.02 0.05
Non-performing assets to total assets at
end of period.......................... -- 0.05 -- 0.03 0.09 0.01 0.02
Allowance for loan losses to
non-performing loans................... 509.33x 9.99x 116.00x 15.91x 4.84x 37.48x 15.67x
Allowance for loan losses to loans
receivable, net......................... 0.99% 0.92% 0.96% 0.91% 0.87% 0.82% 0.73%
Capital Ratios:
Retained income to total assets at end
of period............................... 12.07 11.08 11.51 10.79 10.55 9.83 9.52
Average retained income to average assets 11.82 11.04 11.21 10.77 10.38 9.59 9.35
Other Data:
Number of branch offices................. 4 4 4 4 4 4 4
Number of loans.......................... 3,349 3,579 3,452 3,613 3,829 3,921 4,102
Number of deposit accounts............... 21,682 22,133 22,002 22,355 22,631 22,954 23,967
</TABLE>
_______________________
(1) Ratios for the four month periods have been annualized.
(2) Ratio of net income to average total assets.
(3) Ratio of net income to average equity.
(4) The difference between the weighted average yield on interest-earning
assets and the weighted average cost of average interest-bearing
liabilities.
(5) Net interest income divided by average interest-earning assets.
(6) Non-interest expense divided by the sum of net interest income and non-
interest income.
15
<PAGE>
PROPOSED MANAGEMENT PURCHASES
The following table sets forth, for each of Chesterfield Financial's
directors and executive officers and their associates, and for all of the
directors and executive officers as a group, the proposed purchases of common
stock, assuming sufficient shares are available to satisfy their subscriptions.
<TABLE>
<CAPTION>
Anticipated Anticipated
Number of Shares Dollar Amount Percent
Name and Title to be Purchased to be Purchased of Shares/(1)/
--------------------------------------- --------------- --------------- --------------
<S> <C> <C> <C>
Michael E. DeHaan, Chairman, President and
Chief Executive Officer........................ 40,000 $ 400,000 1.3%
C. C. DeHaan, Director........................... 30,000 300,000 1.0
Robert T. Mangan, Director....................... 18,000 180,000 0.6
David M. Steadman, Director...................... 20,000 200,000 0.6
Richard E. Urchell, Vice President, Secretary
and Director................................... 10,000 100,000 0.3
Donald D. Walters, Director...................... 3,000 30,000 0.1
------- ---------- ---
All directors and executive officers as a group
(six persons).................................. 121,000 $1,210,000 3.9%
======= ========== ===
</TABLE>
_______________________________________
/(1)/ Based upon the midpoint of the offering range.
In addition, the employee stock ownership plan currently intends to
purchase 8% of the common stock issued in the conversion for the benefit of
officers and employees. Stock options and stock grants may also be granted in
the future to directors, officers and employees upon the receipt of stockholder
approval of Chesterfield Financial's proposed stock benefit plans. See
"Management--Benefit Plans" for a description of these plans.
USE OF PROCEEDS
The following table presents the estimated net proceeds of the offering,
the amount to be retained by Chesterfield Financial, the amount to be
contributed to Chesterfield Federal, and the amount of Chesterfield Financial's
loan to the employee stock ownership plan. See "Pro Forma Data" for the
assumptions used to arrive at these amounts.
<TABLE>
<CAPTION>
2,635,000 3,100,000 3,565,000 4,099,750
Shares at Shares at Shares at Shares at
$10.00 $10.00 $10.00 $10.00
Per Per Per Per
Share Share Share Share
--------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
Gross proceeds............................. $ 26,350 $ 31,000 $ 35,650 $ 40,998
Less: estimated offering expenses.......... 1,082 1,150 1,150 1,150
--------- --------- --------- ---------
Net proceeds............................... $ 25,268 $ 29,850 $ 34,500 $ 39,848
========= ========= ========= =========
Amount to be contributed to Chesterfield
Federal................................. $ 12,634 $ 14,925 $ 17,250 $ 19,924
Amount of loan to employee stock
ownership plan.......................... $ 2,108 $ 2,480 $ 2,852 $ 3,280
Net amount to be retained by
Chesterfield Financial.................. $ 10,526 $ 12,445 $ 14,398 $ 16,644
</TABLE>
16
<PAGE>
Chesterfield Financial will purchase all of the capital stock of
Chesterfield Federal 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 will
increase Chesterfield Federal's capital and will support the expansion of
Chesterfield Federal's existing business activities. Chesterfield Federal will
use these funds for general business purposes, including loan originations and
investment in U.S. government and federal agency securities.
Chesterfield Financial intends to loan the employee stock ownership plan
the amount necessary to acquire an amount of shares equal to 8% of the shares
issued in the conversion. The loan to the employee stock ownership plan will be
$2,108,000 and $2,852,000 at the minimum and maximum of the offering range. See
"Management--Benefit Plans--Employee Stock Ownership Plan and Trust."
The net proceeds available to Chesterfield Federal will be used for general
corporate purposes. On a short-term basis, Chesterfield Federal may purchase
investment and mortgage-backed securities. The net proceeds received by
Chesterfield Federal will further strengthen Chesterfield Federal's capital
position, which already exceeds regulatory requirements. After the conversion,
Chesterfield Federal's tangible capital ratio will be 14.98%, based upon the
midpoint of the offering range. As a result, Chesterfield Federal will continue
to be a well-capitalized institution.
Initially, we will use the remaining net proceeds retained by us to invest
in U.S. Government and federal agency securities of various maturities, deposits
in either the FHLB of Chicago or other financial institutions, mortgage-backed
securities issued by U.S. Government agencies and government-sponsored
enterprises, or a combination of these items. Depending on market conditions or
business opportunities available to us and Chesterfield Federal, the net
proceeds may ultimately be used to:
. support Chesterfield Federal's lending activities
. support the future expansion of operations through the establishment
or acquisition of branch offices or other customer facilities or
financial institutions, although no such transactions are specifically
being considered at this time
. pay regular or special cash dividends, repurchase common stock or pay
returns of capital
Applicable conversion regulations require us to sell common stock in the
conversion in an amount equal to our estimated pro forma market value, as
determined by an independent appraisal. See "The Conversion--Stock Pricing and
Number of Shares to be Issued." As a result, we may be required to sell more
shares in the conversion than we may otherwise desire. To the extent we have
excess capital upon completion of the conversion, we intend to consider stock
repurchases, dividends and tax-free returns of capital to the extent permitted
by the Office of Thrift Supervision and deemed appropriate by the board of
directors. A return of capital is similar to a cash dividend, except for tax
purposes it is an adjustment to your tax basis rather than income to you. We
have committed to the OTS that we will not take any action toward paying a tax-
free return of capital during the first year after we complete the conversion.
Our board of directors will also consider stock repurchases after we
complete the conversion, based upon then existing facts and circumstances, as
well as applicable statutory and regulatory requirements. Such facts and
circumstances may include but not be limited to the following:
17
<PAGE>
. market and economic factors such as the price at which the stock is
trading in the market, the volume of trading, the attractiveness of
other investment alternatives in terms of the rate of return and risk
involved in the investment, the ability to increase the book value
and/or earnings per share of the remaining outstanding shares, and an
improvement in our 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
. any other circumstances in which repurchases would be in the best
interests of Chesterfield Financial and our stockholders
No stock will be repurchased by us unless Chesterfield Federal continues to
exceed all applicable regulatory requirements after the repurchases. In
addition, during the first year following the conversion, the Office of Thrift
Supervision will only allow us to purchase up to 5% of our common stock and only
if extraordinary circumstances exist in support of the repurchase. The payment
of dividends or repurchase of stock will be prohibited if Chesterfield Federal's
net worth would be reduced below the amount required for the liquidation account
to be established for the benefit of eligible account holders and supplemental
eligible account holders. See "Dividend Policy," "The Conversion--Effects of
Conversion to Stock Form on Depositors and Borrowers of Chesterfield Federal--
Liquidation Rights" and "--Restrictions on Transferability."
Our net proceeds may vary because total expenses of the conversion may be
more or less than those estimated. The net proceeds will also vary if the number
of shares to be issued in the conversion is adjusted to reflect a change in the
estimated pro forma market value of Chesterfield Federal. Payments for shares
made through withdrawals from existing deposit accounts at Chesterfield Federal
will not result in the receipt of new funds for investment by Chesterfield
Federal but will result in a reduction of Chesterfield Federal's interest
expense and liabilities as funds are transferred from interest-bearing
certificates or other deposit accounts.
DIVIDEND POLICY
We have not determined when, or if we intend to pay dividends on the common
stock. Any future payment of dividends will depend upon a number of factors,
including the amount of net proceeds retained by us in the conversion,
investment opportunities available to us, capital requirements, our financial
condition and results of operations, tax considerations, statutory and
regulatory limitations, and general economic conditions. No assurances can be
given that any dividends will be paid or that, if paid, will not be reduced or
eliminated in future periods. Special cash dividends, stock dividends or tax-
free returns of capital may be paid in addition to, or in lieu of, regular cash
dividends. However, we have committed to the OTS that we will not take any
action toward paying a tax-free return of capital during the first year after we
complete the conversion.
Chesterfield Federal will not be permitted to pay dividends on its capital
stock to Chesterfield Financial if Chesterfield Federal's stockholders' equity
would be reduced below the amount required for the liquidation account. See "The
Conversion--Liquidation Rights." For information concerning federal and state
law and regulations which apply to Chesterfield Federal in determining the
amount of proceeds which may be retained by Chesterfield Financial and regarding
a savings institution's ability to make capital distributions, including payment
of dividends to its holding company, see "Taxation--Federal Taxation" and
"Regulation--Federal Regulation of Savings Institutions--Limitation on Capital
Distributions."
18
<PAGE>
Chesterfield Financial is subject to the requirements of Delaware law,
which generally limit dividends to an amount equal to the excess of the net
assets of Chesterfield Financial over its statutory capital or, if there is no
excess, to its net profits for the current and/or immediately preceding fiscal
year. For these purposes, net assets means the amount by which total assets
exceed total liabilities, and statutory capital generally means the aggregate
par value of the outstanding shares of Chesterfield Financial's capital stock.
MARKET FOR COMMON STOCK
Because this is our initial public offering, there is no market for our
common stock at this time. After we complete the offering, we anticipate that
our common stock will be traded and quoted on the Nasdaq National Market under
the symbol "CFSL." Trident Securities has indicated its intention to make a
market in our common stock. Making a market may include the solicitation of
potential buyers and sellers in order to match buy and sell orders. However,
Trident Securities will not be subject to any obligation with respect to such
efforts.
The development of a public market having the desirable characteristics of
depth, liquidity and orderliness depends on the existence of willing buyers and
sellers, the presence of which is not within the control of Chesterfield
Financial or any market maker. There can be no assurance that persons purchasing
the common stock will be able to sell their shares at or above the subscription
price of $10.00 per share. Therefore, purchasers of the common stock should have
a long-term investment intent and should recognize that there may be a limited
trading market in the common stock. This may make it difficult to sell the
common stock after the conversion and may have an adverse effect on the price at
which the common stock can be sold.
19
<PAGE>
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
At October 31, 2000, Chesterfield Federal exceeded all of its regulatory
capital requirements. The table on the following page sets forth Chesterfield
Federal's historical capital under generally accepted accounting principles and
regulatory capital at October 31, 2000 and the pro forma capital of Chesterfield
Federal after giving effect to the conversion, based upon the sale of the number
of shares shown in the table. The pro forma capital amounts reflect the receipt
by Chesterfield Federal of 50% of the net conversion proceeds, minus the amounts
to be loaned to our employee stock ownership plan and to be contributed to our
proposed recognition and retention plan. The pro forma risk-based capital
amounts assume the investment of the net proceeds received by Chesterfield
Federal in assets which have a risk-weight of 50% under applicable regulations,
as if such net proceeds had been received and so applied at October 31, 2000.
<TABLE>
<CAPTION>
Pro Forma at October 31, 2000, Based Upon the Sale of
--------------------------------------------------------------------------------
4,099,750 Shares(1)
2,635,000 Shares 3,100,000 Shares 3,565,000 Shares at 15% above
Historical at at Minimum of at Midpoint of at Maximum of Maximum of
October 31, 2000 Offering Range Offering Range Offering Range Offering Range
---------------- ---------------- ---------------- ---------------- --------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity under generally
accepted accounting
principles................ $36,062 12.07% $45,534 14.77% $47,267 15.24% $49,034 15.73% $51,066 16.27%
======= ===== ======= ===== ======= ===== ======= ===== ======= ======
Tangible capital(2):
Actual (3)................. $35,162 11.79% $44,634 14.50% $46,367 14.98% $48,134 15,46% $50,166 16.01%
Requirement................ 4,475 1.50 4,618 1.50 4,644 1.50 4,670 1.50 4,700 1.50
------- ----- ------- ----- ------- ----- ------- ----- ------- ------
Excess................... $30,687 10.29% $40,016 13.00% $41,723 13.48% $43,464 13.96% $45,466 14.51%
======= ===== ======= ===== ======= ===== ======= ===== ======= ======
Core capital(2):
Actual (3)................. $35,162 11.79% $44,634 14.50% $46,367 14.98% $48,134 15.46% $50,166 16.01%
Requirement (4)............ 11,934 4.00 12,313 4.00 12,383 4.00 12,453 4.00 12,535 4.00
------- ----- ------- ----- ------- ----- ------- ----- ------- ------
Excess................... $23,228 7.79% $32,321 10.50% $33,984 10.98% $35,681 11.46% $37,631 12.01%
======= ===== ======= ===== ======= ===== ======= ===== ======= ======
Risk-based capital(2):
Actual (3)(5).............. $36,617 29.39% $46,08 35.64% $47,822 36.73% $49,589 37.84% $51,621 39.08%
Requirement................ 9,966 8.00 10,34 8.00 10,415 8.00 10,485 8.00 10,567 8.00
------- ----- ------ ----- ------- ----- ------- ----- ------- ------
Excess................... $26,651 21.39% $35,74 27.64% $37,407 28.73% $39,104 29.84% $41,054 31.08%
======= ===== ====== ===== ======= ===== ======= ===== ======= ======
</TABLE>
_____________________________________
/(1)/ As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the offering range of up to 15% as a
result of regulatory considerations, demand for the shares, or changes in
market conditions or general financial and economic conditions following
the commencement of the Offering.
/(2)/ Tangible capital levels are shown as a percentage of tangible assets. Core
capital levels are shown as a percentage of total adjusted assets. Risk-
based capital levels are shown as a percentage of risk-weighted assets.
/(3)/ Pro forma capital levels assume that (i) the Recognition Plan is funded
through purchases in the open market of a number of shares equal to 4% of
the common stock sold in the offering and (ii) the employee stock
ownership plan purchases 8% of the shares sold in the offering. See
"Management of the Bank" for a discussion of the Recognition Plan and
employee stock ownership plan.
/(4)/ In order to be considered "well-capitalized" under the Prompt Corrective
Action provisions of federal banking law, Chesterfield Federal must
maintain a core capital ratio of 4% of total adjusted assets. However, the
current 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 4% to 5% core capital ratio
requirement for all other thrifts. See "Regulation--Federal Regulation of
Savings Institutions--Capital Requirements."
/(5)/ Assumes net proceeds are invested in assets that carry a 50% risk-
weighting.
20
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of Chesterfield
Federal at October 31, 2000, and our pro forma consolidated capitalization after
giving effect to the conversion, based upon the sale of the number of shares
shown below and the other assumptions set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
Chesterfield Financial - Pro Forma
Based upon Sale at $10.00 Per Share
-----------------------------------------------------------
2,635,000 3,100,000 3,565,000 4,099,750
Chesterfield Shares Shares Shares Shares /(1)/
Federal (Minimum of (Midpoint of (Maximum of (15% above
Historical Offering Offering Offering Maximum of
Capitalization Range) Range) Range) Offering Range)
-------------- ------------ ------------ ----------- ---------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits/(2)/....................................... $ 255,820 $ 255,820 $ 255,820 $255,820 $255,820
=========== ========== ========== ======== ========
Stockholders' equity:
Preferred stock, $.01 par value,1,000,000 shares
authorized; none to be issued...................... $ -- $ -- $ -- $ -- $ --
Common stock, $.01 par value, 5,000,000 shares
authorized; shares to be issued as reflected/(3)/.. -- 26 31 36 41
Additional paid-in capital/(3)/..................... -- 25,242 29,819 34,464 39,807
Retained earnings/(4)/.............................. 36,062 36,062 36,062 36,062 36,062
Less:
Common stock acquired by our employee stock
ownership plan /(5)/.............................. -- 2,108 2,480 2,852 3,280
Common stock to be acquired by our
recognition and retention plan/(6)/................ -- 1,054 1,240 1,426 1,640
----------- ---------- ---------- -------- --------
Total equity........................................ $ 36,062 $ 58,168 $ 62,192 $ 66,284 $ 70,990
=========== ========== ========== ======== ========
</TABLE>
____________________________
/(1)/ As adjusted to give effect to an increase in the number of shares that
could occur due to an increase in the offering range of up to 15% to
reflect changes in market and financial conditions before we complete the
conversion or to fill the order of the employee stock ownership plan.
/(2)/ Does not reflect withdrawals from deposit accounts for the purchase of
common stock in the conversion. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
/(3)/ The sum of the par value and additional paid-in capital accounts equals
the net conversion proceeds. No effect has been given to the issuance of
additional shares of common stock pursuant to our proposed stock option
plan. We intend to adopt a stock option plan and to submit such plan to
stockholders at a meeting of stockholders to be held no earlier than six
months following completion of the conversion. If the plan is approved by
stockholders, an amount equal to 10% of the shares of common stock sold in
the conversion will be reserved for issuance under such plan. See "Pro
Forma Data" and "Management--Benefit Plans--Stock Option Plan."
/(4)/ The retained earnings of Chesterfield Federal will be substantially
restricted after the conversion. See "The Conversion--Effects of
Conversion to Stock Form on Depositors and Borrowers of Chesterfield
Federal--Liquidation Rights."
/(5)/ Assumes that 8% of the common stock will be purchased by our employee
stock ownership plan. The common stock acquired by this plan is reflected
as a reduction of stockholders' equity. Assumes the funds used to acquire
the shares will be borrowed from Chesterfield Financial. See Note 1 to the
table set forth under "Pro Forma Data" and "Management--Benefit Plans--
Employee Stock Ownership Plan and Trust."
/(6)/ Gives effect to the recognition and retention plan that we expect to adopt
after the conversion and present to stockholders for approval at a meeting
of stockholders to be held no earlier than six months after we complete
the conversion. No shares will be purchased by the recognition and
retention plan in the conversion, and such plan cannot purchase any shares
until stockholder approval has been obtained. If the recognition and
retention plan is approved by our stockholders within 12 months after the
conversion, it is expected the plan would acquire an amount of common
stock equal to 4% of the shares of common stock issued in the conversion,
or 105,400, 124,000, 142,600 and 163,990 shares at the minimum, midpoint,
maximum and 15% above the maximum of the offering range, respectively. The
table assumes that stockholder approval has been obtained and that such
shares are purchased in the open market at $10.00 per share. The common
stock so acquired by the recognition and retention plan is reflected as a
reduction in stockholders' equity. If the shares are purchased at prices
higher or lower than the initial purchase price of $10.00 per share, such
purchases would have a greater or lesser impact, respectively, on
stockholders' equity. If the recognition and retention plan purchases
authorized but unissued shares from Chesterfield Financial, such issuance
would dilute the voting interests of existing stockholders by
approximately 3.8%. If the recognition and retention plan is implemented
more than 12 months after the conversion, the plan would not be subject to
Office of Thrift Supervision regulations limiting the plan to no more than
4% of the shares of common stock issued in the conversion. See "Pro Forma
Data" and "Management--Benefit Plans--Recognition and Retention Plan."
21
<PAGE>
PRO FORMA DATA
We cannot determine the actual net proceeds from the sale of our common
stock until the conversion is completed. However, net proceeds are currently
estimated to be between $25.3 million and $34.5 million (or $39.8 million in the
event the offering range is increased by 15%) based upon the following
assumptions: (1) all shares of common stock will be sold in the subscription
offering; and (2) total expenses, including the marketing fees to be paid to
Trident Securities, will be $1,082,000 at the minimum of the offering range, and
$1,150,000 at the midpoint, maximum, and 15% above the maximum of the offering
range. Actual expenses may vary from those estimated.
We calculated pro forma net income and stockholders' equity for the four
months ended October 31, 2000 and the year ended June 30, 2000 as if the common
stock to be issued in the offering had been sold at the beginning of the
respective periods. The table assumes that the estimated adjusted net proceeds
had been invested at 6.11% for the four months ended October 31, 2000 and for
the year ended June 30, 2000, which represent the yield on the one-year U.S.
Treasury Bill as of October 31, 2000. The effect of withdrawals from deposit
accounts for the purchase of common stock has not been reflected. We assumed a
combined effective federal and state income tax rate of 38% for the four months
ended October 31, 2000 and the year ended June 30, 2000, resulting in an after-
tax yield of 3.79% for the four months ended October 31, 2000 and for the year
ended June 30, 2000. We calculated historical and pro forma per share amounts by
dividing historical and pro forma amounts by the indicated number of shares of
common stock, as adjusted to give effect to the shares purchased by the employee
stock ownership plan with respect to the net income per share calculations. See
Notes 2 and 4 to the Pro Forma Data tables. No effect has been given in the pro
forma stockholders' equity calculations for the assumed earnings on the net
proceeds. As discussed under "Use of Proceeds," Chesterfield Financial intends
to retain 50% of the net conversion proceeds.
The following pro forma information may not be representative of the
financial effects of the conversion at the date on which the conversion actually
occurs and should not be taken as indicative of future results of operations.
Pro forma stockholders' equity represents the difference between the stated
amount of our assets and liabilities computed in accordance with generally
accepted accounting principles. The pro forma stockholders' equity is not
intended to represent the fair market value of the common stock and may be
different than amounts that would be available for distribution to stockholders
in the event of liquidation. We did not reflect in the table the possible
issuance of additional shares equal to 10% of the common stock to be reserved
for future issuance pursuant to our proposed stock option plan, nor does book
value give any effect to the liquidation account to be established for the
benefit of eligible account holders and supplemental eligible account holders or
to Chesterfield Federal's bad debt reserve. See "Management--Benefit Plans" and
"The Conversion--Effects of Conversion to Stock Form on Depositors and Borrowers
of Chesterfield Federal--Liquidation Rights." The table does give effect to the
recognition and retention plan, which we expect to adopt following the
conversion and present together with the stock option plan to stockholders for
approval no earlier than six months following the conversion. If the recognition
and retention plan is approved by stockholders within 12 months after the
conversion, it is expected the recognition and retention plan would acquire an
amount of common stock equal to 4% of the shares of common stock issued in the
conversion, either through open market purchases, if permissible, or from
authorized but unissued shares of common stock. The table assumes that
stockholder approval has been obtained and that the shares acquired by the
recognition and retention plan are purchased in the open market at $10.00 per
share. There can be no assurance that stockholder approval of the recognition
and retention plan will be obtained, that the shares will be purchased in the
open market or that the purchase price will be $10.00 per share. In addition,
if the recognition and retention plan is implemented more than 12 months after
the conversion, the plan
22
<PAGE>
would not be subject to Office of Thrift Supervision regulations limiting the
plan to no more than 4% of the shares issued in the conversion.
The following tables summarize historical consolidated data of Chesterfield
Federal and pro forma data of Chesterfield Financial at or for the dates and
periods indicated based on the assumptions set forth above and in the tables and
should not be used as a basis for projection of the market value of the common
stock following the conversion.
<TABLE>
<CAPTION>
At and For the Four Months Ended October 31, 2000
-------------------------------------------------------------------
2,635,000 3,100,000 3,565,000 4,099,750
Shares Sold Shares Sold Shares Sold Shares Sold
at $10.00 at $10.00 at $10.00 at $10.00
Per Share per Share Per Share Per Share (15%
(Minimum (Midpoint (Maximum above Maximum
of Range) Range) of Range) of Range)/(9)/
----------- ---------- ---------- -------------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds.................................................. $ 26,350 $ 31,000 $ 35,650 $ 40,998
Less offering expenses.......................................... (1,082) (1,150) (1,150) (1,150)
------------ ---------- ----------- ----------
Estimated net conversion proceeds............................... 25,268 29,850 34,500 39,848
Less employee stock ownership plan adjustment................... (2,108) (2,480) (2,852) (3,280)
Less recognition and retention plan adjustment.................. (1,054) (1,240) (1,426) (1,640)
------------ ---------- ----------- ----------
Estimated adjusted net proceeds/(1)/............................ $ 22,106 $ 26,130 $ 30,222 $ 34,928
============ ========== =========== ==========
Net income:
Historical.................................................... $ 907 $ 907 $ 907 $ 907
Pro forma adjustments:........................................
Income on adjusted net proceeds/(1)/......................... 279 330 382 441
Employee stock ownership plan /(2)/.......................... (29) (34) (39) (45)
Recognition and retention plan/(3)/.......................... (44) (51) (59) (68)
------------ ---------- ----------- ----------
Pro forma net income.......................................... $ 1,113 $ 1,152 $ 1,191 $ 1,235
============ ========== =========== ==========
Net income per share/(4)/:
Historical.................................................... $ 0.37 $ 0.32 $ 0.28 $ 0.24
Pro forma adjustments:
Income on adjusted net proceeds/(1)/......................... 0.11 0.12 0.12 0.12
Employee stock ownership plan /(2)/.......................... (0.01) (0.01) (0.01) (0.01)
Recognition and retention plan/(3)/.......................... (0.02) (0.02) (0.02) (0.02)
------------ ---------- ----------- ----------
Pro forma basic and diluted net income per share................ $ 0.45 $ 0.41 $ 0.37 $ 0.33
============ ========== =========== ==========
Pro forma basic price/earnings ratio/(4)/....................... 7.41x 8.13x 9.01x 10.10x
============ ========== =========== ==========
Number of shares used in calculating net income per share/(4)/:
Basic and diluted earnings per share.......................... 2,428,884 2,857,511 3,286,138 3,779,058
============ ========== =========== ==========
Stockholders' equity:
Historical.................................................... $ 36,062 $ 36,062 $ 36,062 $ 36,062
Estimated net conversion proceeds............................. 25,268 29,850 34,500 39,848
Less employee stock ownership plan adjustment/(2)/............ (2,108) (2,480) (2,852) (3,280)
Less recognition and retention plan adjustment/(3)/........... (1,054) (1,240) (1,426) (1,640)
------------ ---------- ----------- ----------
Pro forma stockholders' equity/(5)(6)(7)/..................... $ 58,168 $ 62,192 $ 66,284 $ 70,990
============ ========== =========== ==========
Stockholders' equity per share/(8)/:
Historical.................................................... $ 13.69 $ 11.63 $ 10.12 $ 8.80
Estimated net conversion proceeds............................. 9.59 9.63 9.68 9.72
Less employee stock ownership plan adjustment/(2)/............ (0.80) (0.80) (0.80) (0.80)
Less recognition and retention plan adjustment/(3)/........... (0.40) (0.40) (0.40) (0.40)
------------ ---------- ----------- ----------
Pro forma stockholders' equity per share/(3)(5)(6)(7)/.......... $ 22.08 $ 20.06 $ 18.60 $ 17.32
============ ========== =========== ==========
Pro forma price to book ratio/(8)/.............................. 45.29% 49.85% 53.76% 57.74%
============ ========== =========== ==========
Number of shares used in equity per share calculations/(8)/..... 2,635,000 3,100,000 3,565,000 4,099,750
============ ========== =========== ==========
</TABLE>
------------------
(footnotes begin on next page)
23
<PAGE>
<TABLE>
<CAPTION>
At and For the Year Ended June 30, 2000
-----------------------------------------------------------------
2,635,000 3,100,000 3,565,000 4,099,750
Shares Sold Shares Sold Shares Sold Shares Sold
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share (15%
(Minimum (Midpoint (Maximum above Maximum
of Range) of Range) of Range) of Range)/(9)/
----------- ------------ ----------- ---------------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds..................................... $ 26,350 $ 31,000 $ 35,650 $ 40,998
Less offering expenses............................. (1,082) (1,150) (1,150) (1,150)
---------- ---------- ---------- ----------
Estimated net conversion proceeds.................. 25,268 29,850 34,500 39,848
Less employee stock ownership plan adjustment...... (2,108) (2,480) (2,852) (3,280)
Less recognition and retention plan adjustment..... (1,054) (1,240) (1,426) (1,640)
---------- ---------- ---------- ----------
Estimated adjusted net proceeds/(1)/............... $ 22,106 $ 26,130 $ 30,222 $ 34,928
========== ========== ========== ==========
Net income:
Historical....................................... $ 2,333 $ 2,333 $ 2,333 $ 2,333
Pro forma adjustments:
Income on adjusted net proceeds/(1)/............ 838 990 1,145 1,324
Employee stock ownership plan /(2)/............. (87) (103) (118) (136)
Recognition and retention plan/(3)/............. (131) (154) (177) (203)
---------- ---------- ---------- ----------
Pro forma net income............................. $ 2,953 $ 3,066 $ 3,183 $ 3,318
========== ========== ========== ==========
Net income per share/(4)/:
Historical....................................... $ 0.96 $ 0.81 $ 0.71 $ 0.61
Pro forma adjustments:
Income on adjusted net proceeds/(1)/............ 0.34 0.35 0.35 0.35
Employee stock ownership plan /(2)/............. (0.04) (0.04) (0.04) (0.04)
Recognition and retention plan/(3)/............. (0.05) (0.05) (0.05) (0.05)
---------- ---------- ---------- ----------
Pro forma basic and diluted net income per share... $ 1.21 $ 1.07 $ 0.97 $ 0.87
========== ========== ========== ==========
Pro forma basic price/earnings ratio/(4)/.......... 8.26x 9.35x 10.31x 11.49x
========== ========== ========== ==========
Number of shares used in calculating net income
per share/(4)/:
Basic and diluted earnings per share............. 2,438,253 2,868,533 3,298,813 3,793,635
========== ========== ========== ==========
Stockholders' equity:
Historical....................................... $ 35,155 $ 35,155 $ 35,155 $ 35,155
Estimated net conversion proceeds................ 25,268 29,850 34,500 39,848
Less employee stock ownership plan
adjustment/(2)/................................. (2,108) (2,480) (2,852) (3,280)
Less recognition and retention plan
adjustment/(3)/................................. (1,054) (1,240) (1,426) (1,640)
---------- ---------- ---------- ----------
Pro forma stockholders' equity/(5)(6)(7)/........ $ 57,261 $ 61,285 $ 65,377 $ 70,083
========== ========== ========== ==========
Stockholders' equity per share/(8)/:
Historical....................................... $ 13.34 $ 11.34 $ 9.86 $ 8.57
Estimated net conversion proceeds................ 9.59 9.63 9.68 9.72
Less employee stock ownership plan
adjustment/(2)/................................. (0.80) (0.80) (0.80) (0.80)
Less recognition and retention plan
adjustment/(3)/................................. (0.40) (0.40) (0.40) (0.40)
---------- ---------- ---------- ----------
Pro forma stockholders' equity per
share/(3)(5)(6)(7)/............................... $ 21.73 $ 19.77 $ 18.34 $ 17.09
========== ========== ========== ==========
Pro forma price to book ratio/(8)/................. 46.02% 50.58% 54.53% 58.51%
========== ========== ========== ==========
Number of shares used in equity per
share calculations/(8)/........................... 2,635,000 3,100,000 3,565,000 4,099,750
========== ========== ========== ==========
</TABLE>
_______________________
/(1)/ Estimated adjusted net proceeds consist of the estimated net conversion
proceeds, minus (i) the proceeds attributable to the purchase by our
employee stock ownership plan and (ii) the value of the shares to be
purchased by our recognition and retention plan after the conversion,
subject to stockholder approval, at an assumed purchase price of $10.00
per share.
/(2)/ We assumed that 8% of the shares of common stock issued in the conversion
will be purchased by our employee stock ownership plan. We also assumed
that the funds used to acquire such shares will be borrowed by the
employee stock ownership plan from Chesterfield Financial. We intend to
make annual contributions to our employee stock ownership plan over
approximately a 15-year period in an amount at least equal to the
principal and interest requirement of the debt. The pro forma net income
assumes: (a) that the loan to the employee stock ownership plan is payable
over 15 years, with the employee stock ownership plan shares having an
average fair value of $10.00 per share in accordance with SOP 93-6,
entitled "Employers' Accounting for Employee Stock Ownership Plans," of
the American Institute of Certified Public Accountants; (b) that the
employee stock ownership plan expense for the period is equivalent to the
principal payment for the period and was made
(Footnotes continue on following page)
24
<PAGE>
at the end of the period; (c) that 14,053, 16,533, 19,013 and 21,865
shares were committed to be released with respect to the year ended June
30, 2000, and that 4,684, 5,511, 6,338 and 7,288 shares were committed
to be released with respect to the four months ended October 31, 2000,
in each case at the minimum, midpoint, maximum and 15% above the maximum
of the offering range, respectively; (d) in accordance with SOP 93-6
entitled "Employers' Accounting for Employee Stock Ownership Plans,"
only the employee stock ownership plan shares committed to be released
during the period were considered outstanding for purposes of the net
income per share calculations; and (e) the effective tax rate was 38%
for the period. See "Risk Factors--Our Employee Stock Benefit Plans Will
Increase Our Costs" and "Management--Benefit Plans-- Employee Stock
Ownership Plan and Trust."
/(3)/ We assumed that the recognition and retention plan purchases 105,400,
124,000, 142,600 and 163,990 shares at the minimum, midpoint, maximum
and 15% above the maximum of the offering range, respectively, assuming
that: (a) stockholder approval of the recognition and retention plan is
received; (b) the shares were acquired by the recognition and retention
plan at the end of the period presented in open market purchases at
$10.00 per share; (c) the amortized expense for the year ended June 30,
2000 was 20% of the amount contributed and the amortized expense for the
four months ended October 31, 2000 was 6.67% of the amount contributed;
and (d) the effective tax rate applicable to such employee compensation
expense was 38% in each period. If the recognition and retention plan
purchases authorized but unissued shares instead of making open market
purchases then: (a) the voting interests of existing stockholders would
be diluted by approximately 3.85%; (b) the pro forma net income per
share for the year ended June 30, 2000 would be $1.18, $1.04, $0.94 and
$0.85, and pro forma stockholders' equity per share at June 30, 2000
would be $20.90, $19.01, $17.63 and $16.44, in each case at the minimum,
midpoint, maximum and 15% above the maximum of the offering range,
respectively; and (c) the pro forma net income per share for the four
months ended October 31, 2000 would be $0.44, $0.39, $0.35 and $0.32,
and pro forma stockholders' equity per share at October 31, 2000 would
be $21.23, $19.29, $17.88 and $16.65, in each case at the minimum,
midpoint, maximum and 15% above the maximum of the offering range,
respectively. See "Management--Benefit Plans--Recognition and Retention
Plan."
/(4)/ Basic net income per share calculations are determined by: (a) starting
with the number of shares assumed to be sold in the conversion; and (b)
in accordance with SOP 93-6, subtracting the employee stock ownership
plan shares which have not been committed for release.
Set forth below is a reconciliation of the number of shares used in
making the net income per share calculations for the four months ended
October 31, 2000:
<TABLE>
<CAPTION>
15% above
Minimum Midpoint Maximum Maximum
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total shares issued................... 2,635,000 3,100,000 3,565,000 4,099,750
Less shares sold to employee stock
ownership plan....................... 210,800 248,000 285,200 327,980
--------- --------- --------- ---------
Subtotal............................. 2,424,200 2,852,000 3,279,800 3,771,770
--------- --------- --------- ---------
Plus employee stock ownership plan
shares assumed committed to be
released............................. 4,684 5,511 6,338 7,288
--------- --------- --------- ---------
Number of shares used in calculating
basic and diluted net income per
share................................ 2,428,884 2,857,511 3,286,138 3,779,058
========= ========= ========= =========
</TABLE>
(Footnotes continue on following page)
25
<PAGE>
Set forth below is a reconciliation of the number of shares used in making the
net income per share calculations for the year ended June 30, 2000:
<TABLE>
<CAPTION>
Maximum,
Minimum Midpoint Maximum as Adjusted
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Total shares issued.......................... 2,635,000 3,100,000 3,565,000 4,099,750
Less shares sold to employee stock
ownership plan.............................. 210,800 248,000 285,200 327,980
--------- --------- --------- ---------
Subtotal.................................... 2,424,200 2,852,000 3,279,800 3,771,770
Plus employee stock ownership plan
shares assumed committed to be
released.................................... 14,053 16,533 19,013 21,865
--------- --------- --------- ---------
Number of shares used in calculating
basic and diluted net income per share...... 2,438,253 2,868,533 3,298,813 3,793,635
========= ========= ========= =========
</TABLE>
/(5)/ We did not give any effect to the issuance of additional shares of common
stock pursuant to our proposed stock option plan, which we expect to adopt
after the conversion and present to stockholders for approval at a meeting
of stockholders to be held at least six months after we complete the
conversion. If the stock option plan is approved by stockholders, an
amount equal to 10% of the common stock issued in the conversion, or
263,500, 310,000, 356,500 and 409,975 shares at the minimum, midpoint,
maximum and 15% above the maximum of the offering range, respectively,
will be reserved for future issuance upon the exercise of options to be
granted under the stock option plan. The issuance of authorized but
previously unissued shares of common stock pursuant to the exercise of
options under such plan would dilute existing stockholders' interests.
Assuming stockholder approval of the plan, that all the options were
exercised at the end of the period at an exercise price of $10.00 per
share, and that the shares to fund the recognition and retention plan are
acquired through open market purchases at $10.00 per share, (a) pro forma
net income per share for the year ended June 30, 2000 would be $1.09,
$0.96, $0.87 and $0.79, and (b) pro forma stockholders' equity per share
at June 30, 2000 would be $20.66, $18.88, $17.58 and $16.45, in each case
at the minimum, midpoint, maximum and 15% above the maximum of the
offering range, respectively. Assuming stockholder approval of the plan,
that all the options were exercised at the beginning of the period at an
exercise price of $10.00 per share, and that the shares to fund the
recognition and retention plan are acquired through open market purchases
at $10.00 per share, (a) pro forma net income per share for the four
months ended October 31, 2000 would be $0.41, $0.36, $0.33 and $0.29, and
(b) pro forma stockholders' equity per share at October 31, 2000 would be
$20.98, $19.15, $17.81 and $16.65, in each case at the minimum, midpoint,
maximum and 15% above the maximum of the offering range, respectively.
/(6)/ The retained earnings of Chesterfield Federal will be substantially
restricted after the conversion. See "Dividend Policy" and "The
Conversion--Effects of Conversion to Stock Form on Depositors and
Borrowers of Chesterfield Federal--Liquidation Rights."
/(7)/ As of October 31, 2000 and June 30, 2000, Chesterfield Federal had
intangible assets of $669,000 and $699,000, respectively. Reducing
stockholders' equity by those amounts would result in pro forma tangible
book value per share for Chesterfield Financial as of October 31, 2000 of
$21.83, $19.84, $18.41 and $17.16 at the minimum, midpoint, maximum and
15% above the maximum of the offering range, respectively, and, as of June
30, 2000, $21.46, $19.54, $18.14 and $16.92 at the minimum, midpoint,
maximum and 15% above the maximum of the offering range, respectively.
/(8)/ Based on the number of shares sold in the conversion.
/(9)/ Assumes an increase in the number of shares due to a 15% increase in the
maximum of the offering range to reflect changes in market and financial
conditions before we complete the conversion or to fill the order of the
employee stock ownership plan.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis reflects Chesterfield Federal's consolidated
financial statements and other relevant statistical data and is intended to
enhance your understanding of our financial condition and results of operations.
You should read the information in this section in conjunction with Chesterfield
Federal's data provided in this prospectus.
Forward Looking Statements
This prospectus contains certain "forward-looking statements" which may be
identified by the use of such words as "believe," "expect," "anticipate,"
"should," "planned," "estimated" and "potential." Examples of forward-looking
statements include, but are not limited to, estimates with respect to our
financial condition, results of operations and business that are subject to
various factors which could cause actual results to differ materially from these
estimates and most other statements that are not historical in nature. These
factors include, but are not limited to, general and local economic conditions,
changes in interest rates, deposit flows, demand for mortgage and other loans,
real estate values, and competition; changes in accounting principles, policies,
or guidelines; changes in legislation or regulation; and other economic,
competitive, governmental, regulatory, and technological factors affecting our
operations, pricing products and services.
General
Chesterfield Federal's results of operations depend primarily on net
interest income. Net interest income is the difference between the interest
income we earn on our interest-earning assets, consisting primarily of loans,
investment securities and interest-bearing deposits with other financial
institutions, and the interest we pay on our interest-bearing liabilities,
primarily savings accounts and time deposits. Our results of operations are also
affected by our provisions for loans losses, other income and other expense.
Other income consists primarily of insurance commissions and service charges on
deposit accounts. Other expense consists primarily of non-interest expenses,
including salaries and employee benefits, occupancy, equipment, data processing
and deposit insurance premiums. Our results of operations may also be affected
significantly by general and local economic and competitive conditions,
particularly those with respect to changes in market interest rates,
governmental policies and actions of regulatory authorities.
Business Strategy
Chesterfield Federal's current business strategy is to operate as a well-
capitalized, profitable, community-oriented savings and loan dedicated to
providing quality customer service. Generally, Chesterfield Federal has sought
to implement this strategy by emphasizing deposits as its primary source of
funds and maintaining a substantial portion of its assets in local residential
first mortgage loans. Specifically, Chesterfield Federal's business strategy
incorporates the following elements: (1) Emphasizing one- to four-family
residential real estate lending; (2) Managing interest rate risk by emphasizing
shorter-term mortgage loans and maintaining high levels of liquidity; (3)
Conducting our business as a community-oriented institution; and (4) Maintaining
asset quality and capital strength. We do not intend to change our business
strategy materially after the conversion.
Highlights of Chesterfield Federal's business strategy are as follows:
. Emphasizing One- to Four-Family Residential Real Estate Lending.
Historically, we have emphasized one- to four-family residential
lending within our market
27
<PAGE>
area. As of October 31, 2000, $137.4 million, or 87.6% of our total
loan portfolio consisted of one- to four-family residential real
estate loans. During the 16 months ended October 31, 2000, we
originated $25.9 million of one- to four-family residential real
estate loans. Although the yields on residential mortgage loans are
often less than the yields on other types of loans, we intend to
continue to emphasize one- to four-family lending because of our
expertise with this type of lending, and the relatively low
delinquency rates on these loans compared to other loans.
. Managing Interest Rate Risk by Emphasizing Shorter-Term Loans and
Maintaining High Levels of Liquidity. In recent years, we have
emphasized the origination of shorter-term residential mortgage
(seven, 10 or 15 year) loans and have maintained high levels of
liquidity. In addition, when a borrower refinances a loan during
periods of decreasing interest rates, we actively seek to reduce the
term of the refinanced loan. While short-terms loans generally offer
lower interest rates than long-term loans, short-term loans increase
monthly cash flows and reprice more quickly, allowing us greater
flexibility in periods of rising interest rates.
. Conducting our Business as a Community-Oriented Institution. We are
committed to meeting the financial needs of the communities in which
we operate. We are large enough to provide a range of personal and
business financial services, and yet are still small enough to provide
these services on a personalized and efficient basis. We believe that
we can be more effective in servicing our customers than many of our
non-local competitors because of our ability to quickly and
effectively provide senior management responses to customer needs and
inquiries. Our ability to provide these services is enhanced by the
stability of our senior management, which has an average tenure with
us of over 31 years.
. Maintaining Asset Quality and Capital Strength. Through our commitment
to conservative loan underwriting guidelines and the emphasis on
traditional residential mortgage loans, we have consistently
experienced low levels of late payments and losses on loans. As of
October 31, 2000, we had only $3,000 of nonperforming assets. In
addition, we maintain our financial strength by maintaining relatively
high capital levels. At October 31, 2000, our ratio of equity to
assets was 12.07%; this ratio will increase following the conversion.
Management of Market Risk
General. As with other financial institutions, our most significant form
of market risk is interest rate risk. Our assets, consisting primarily of
mortgage loans, have longer maturities than our liabilities, consisting
primarily of deposits. As a result, a principal part of our business strategy is
to manage interest rate risk and reduce the exposure of our net interest income
to changes in market interest rates. Accordingly, Chesterfield Federal's Board
of Directors has established an Asset/Liability Management Committee which is
responsible for evaluating the interest rate risk inherent in Chesterfield
Federal's assets and liabilities, determining the level of risk that is
appropriate given its business strategy, operating environment, capital,
liquidity and performance objectives, and managing this risk consistent with the
guidelines approved by the Board of Directors. The Asset/Liability Management
Committee consists of senior management operating under a policy adopted by the
Board of Directors and meets at least quarterly to review Chesterfield Federal's
asset/liability policies and interest rate risk position.
28
<PAGE>
In recent years, management has sought to reduce our interest rate risk by
maintaining high levels of liquidity, and emphasizing the origination of
shorter-term residential mortgage (terms of seven, 10 or 15 years) loans. In
addition, when a borrower refinances a loans during periods of decreasing
interest rates, management actively seeks to reduce the term of the refinanced
loan.
Net Portfolio Value. In past years, many savings associations measured
interest rate sensitivity by computing the "gap" between the assets and
liabilities which were expected to mature or reprice within certain time
periods, based on assumptions regarding loan prepayment and deposit decay rates
formerly provided by the Office of Thrift Supervision. However, the Office of
Thrift Supervision now requires the computation of amounts by which the net
present value of an institution's cash flow from assets, liabilities and off
balance sheet items (the institution's net portfolio value or "NPV") would
change in the event of a range of assumed changes in market interest rates. The
Office of Thrift Supervision provides all institutions that file a Consolidated
Maturity/Rate Schedule as a part of their quarterly Thrift Financial Report with
an interest rate sensitivity report of NPV. The Office of Thrift Supervision
simulation model uses a discounted cash flow analysis and an option-based
pricing approach to measuring the interest rate sensitivity of NPV. The Office
of Thrift Supervision model estimates the economic value of each type of asset,
liability and off-balance sheet contract under the assumption that the U.S.
Treasury yield curve shifts instantaneously and parallel up and down 100 to 300
basis points in 100 basis point increments. A basis point equals one-hundredth
of one percentage point, and 100 basis points equals one percentage point. A
change in interest rates to 8% from 7% would mean, for example, a 100 basis
point increase in the "Changes in Interest Rates" column below. The Office of
Thrift Supervision provides Chesterfield Federal the results of the interest
rate sensitivity model, which is based on information provided by Chesterfield
Federal, to estimate the sensitivity of NPV.
The table below sets forth, as of September 30, 2000, the estimated changes
in Chesterfield Federal's NPV that would result from the designated
instantaneous changes in the U.S. Treasury yield curve.
Net Portfolio Value as a %
Net Portfolio Equity of Present Value of Assets
------------------------------------------ --------------------------
Change in
Interest Rates Estimated Amount of %
(basis points) NPV Change Percent NPV Ratio Change
---------------- --------- --------- ------- ------------- ---------
(Dollars in Thousands)
+300 $ 32,194 $ (8,651) (21)% 10.92% (18)%
+200 35,053 (5,792) (14) 11.75 (12)
+100 38,017 (2,828) (7) 12.58 (6)
0 40,845 13.36
-100 42,859 2,014 5 13.89 4
-200 44,021 3,176 8 14.17 6
-300 45,033 4,188 10 14.41 8
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurement. Modeling changes in NPV requires making certain
assumptions that may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. In this regard, the NPV table
presented assumes that the composition of Chesterfield Federal's interest
sensitive assets and liabilities existing at the beginning of a period remain
constant over the period being measured and assumes that a particular change in
interest rates is reflected uniformly across the yield curve regardless of the
duration or repricing of specific assets and liabilities. Accordingly, although
the NPV table provides an indication of Chesterfield
29
<PAGE>
Federal's interest rate risk exposure at a particular point in time, such
measurements are not intended to and do not provide a precise forecast of the
effect of changes in market interest rates on its net interest income, and will
differ from actual results.
Average Balance Sheets
The following tables present for the periods indicated the total dollar
amount of interest income from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates. No tax equivalent adjustments were made.
All average balances are monthly average balances. Non-accruing loans have been
included in the table as loans carrying a zero yield.
<TABLE>
<CAPTION>
Four Months Ended October 31,
-----------------------------------------------------------------------
At October 31, 2000 2000 1999
---------------------- -----------------------------------------------------------------------
Average Interest Average Interest
Actual Outstanding Earned/ Outstanding Earned/
Balance Yield/Rate Balance Paid Yield/Rate Balance Paid Yield/Rate
-------- ---------- ------- -------- ---------- --------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1)(2)....... $154,772 7.41% $155,645 $ 3,962 7.64% $159,056 $ 3,954 7.46%
Securities.................... 82,997 6.07 80,739 1,580 5.87 56,156 1,019 5.44
Interest-bearing deposits..... 47,773 6.56 52,160 1,204 6.92 72,419 1,281 5.31
Other......................... 3,470 7.19 3,871 110 8.53 4,490 92 6.15
-------- -------- ------- -------- -------
Total interest-earning
assets (1)................... $289,012 6.88 $292,415 $ 6,856 7.03 $292,121 $ 6,346 6.52
-------- ------ -------- ------- -------- -------
Interest-bearing liabilities:
Passbook savings.............. $ 54,332 2.53 $ 55,152 $ 454 2.47 $ 57,546 $ 478 2.49
NOW accounts.................. 22,272 1.77 23,131 153 1.98 22,342 145 1.95
Money market accounts......... 8,926 3.04 9,464 95 3.01 10,098 93 2.76
Time deposits................. 170,290 5.41 171,684 3,038 5.31 169,964 2,781 4.91
-------- -------- ------- -------- -------
Total interest-bearing
liabilities............... $255,820 4.40 $259,431 3,740 4.32 $259,950 3,497 4.04
-------- ------ -------- ------- -------- -------
Net interest income............ $ 3,116 $ 2,849
======= =======
Net interest rate spread....... 2.48 2.71 2.48
Net earning assets............. $ 33,192 $ 32,984 $ 32,171
======== ======== ========
Net yield on average
interest-earning assets...... 3.20 2.93
Average interest-earning assets
to average interest-bearing
liabilities................... 113.0x 112.7x 112.4x
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------------------------------------------------------------------------------
2000 1999 1998
-------------------------------- -------------------------------- -------------------------------
Average Interest Average Interest Average Interest
Outstanding Earned/ Outstanding Earned/ Outstanding Earned/
Balance Paid Yield/Rate Balance Paid Yield/Rate Balance Paid Yield/Rate
------- ---- ---------- ------- ---- ---------- ------- ---- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1)...... $158,522 $11,917 7.52% $150,422 $11,609 7.72% $138,319 $11,161 8.07%
Securities................ 62,247 3,512 5.64 39,724 2,438 6.14 66,212 5,298 8.00
Interest-bearing deposits. 67,670 3,796 5.61 92,891 4,478 4.82 74,339 2,897 3.90
Other..................... 4,918 338 6.87 5,141 323 6.28 4,393 289 6.58
-------- ------- -------- ------- -------- -------
Total interest-earning
assets (1)............. $293,357 $19,563 6.67 $288,178 $18,848 6.54 $283,263 $19,645 6.94
======== ======= ======== ======= ======== =======
Interest-bearing liabilities:
Passbook savings.......... $ 57,270 $ 1,407 2.46 $ 57,883 $ 1,553 2.68 $ 57,255 $ 1,704 2.98
NOW accounts.............. 22,300 435 1.95 20,995 441 2.10 19,117 445 2.83
Money market accounts..... 10,083 281 2.79 10,868 301 2.77 11,104 354 3.19
Time deposits............. 171,545 8,623 5.03 168,031 8,351 4.97 167,052 8,787 5.26
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities........... $261,198 10,746 4.11 $257,777 10,646 4.13 $254,528 11,290 4.44
======== ------- ======== ------- ======== -------
Net interest income........ $ 8,817 $ 8,202 $ 8,355
======= ======= =======
Net interest rate spread... 2.56 2.41 2.50
Net earning assets......... $ 32,159 $ 30,401 $ 28,735
======== ======== ========
Net yield on average
interest-earning assets. 3.01 2.85 2.95
Average interest-earning assets
to average interest-bearing
liabilities............... 112.3x 111.8x 111.3x
</TABLE>
___________________________
(1) Balance calculated net of deferred loan fees, loan discounts, loans in
process and the allowance for loan losses.
(2) Yield at October 31, 2000 excludes loan fees.
Rate/Volume Analysis
The following table presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the changes related to
outstanding balances and that due to the changes in interest rates. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (i.e.,
changes in volume multiplied by old rate) and (ii) changes in rate (i.e.,
changes in rate multiplied by old volume). For purposes of this table, changes
attributable to both rate and volume, which cannot be segregated, have been
allocated proportionately to the change due to volume and the change due to
rate.
<TABLE>
<CAPTION>
Four Months Ended October 31, Years Ended June 30,
------------------------------------------------------------------------------------------------------
2000 vs. 1999 2000 vs. 1999 1999 vs. 1998
---------------------------------- ------------------------------- ------------------------------
Increase/(Decrease) Total Increase/(Decrease) Total Increase/(Decrease) Total
Due to Increase Due to Increase Due to Increase
-------------------- ------------------ ------------------
Volume Rate (Decrease) Volume Rate (Decrease) Volume Rate (Decrease)
--------- ----- ---------- ------ ---- ---------- ------ --------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable.......... $ (86) $ 94 $ 8 $ 614 $(306) $ 308 $ 948 $ (500) $ 448
Securities................ 476 85 561 1,285 (211) 1,074 (1,807) (1,053) (2,860)
Interest-bearing deposits. (411) 334 (77) (1,340) 658 (682) 811 770 1,581
Other..................... (15) 33 18 (14) 29 15 47 (13) 34
----- ---- ---- ------- ----- ------ ------- ------- -------
Total interest-earning
assets................. $ (35) $545 $510 $ 545 $ 170 $ 715 $ (1) $ (796) $ (797)
===== ==== ---- ======= ===== ------ ======= ======= -------
Interest-bearing liabilities:
Passbook savings.......... $ (20) $ (4) $(24) $ (16) $(130) $ (146) $ 19 $ (170) $ (151)
NOW accounts.............. 5 3 8 27 (33) (6) 42 (46) (4)
Money market accounts..... (6) 8 2 (22) 2 (20) (7) (46) (53)
Time deposits............. 28 229 257 176 96 272 51 (487) (436)
----- ---- ---- ------- ----- ------ ------- ------- -------
Total interest-bearing
liabilities............ $ 8 $235 243 $ 165 $ (65) 100 $ 105 $ (749) (644)
===== ==== ---- ======= ===== ------ ======= ======= -------
Net interest income........ $267 $ 615 $ (153)
==== ====== =======
</TABLE>
31
<PAGE>
Comparison of Financial Condition at October 31, 2000 and June 30, 2000
Chesterfield Federal's total assets decreased by $6.6 million, or 2.2%, to
$298.8 million at October 31, 2000 from $305.5 million at June 30, 2000. The
decrease resulted primarily from decreases in loans receivable and cash and cash
equivalents, partially offset by an increase in securities. Securities increased
by $9.3 million, or 12.6%, to $83.0 million at October 31, 2000 from $73.7
million at June 30, 2000. Management has reduced its levels of interest-bearing
deposits in other financial institutions and invested the funds in securities,
which generally have higher yields and longer terms to maturity. In addition,
the interest from certain U.S. government and agency securities is exempt from
Illinois state income tax. The securities purchased were bonds issued by the
Federal Home Loan Bank and mortgage-backed securities issued by the Federal Home
Loan Mortgage Corporation. Cash and cash equivalents decreased $13.8 million, or
20.5%, to $53.2 million at October 31, 2000 from $67.0 million at June 30, 2000
as a result of the decision by management to reduce the level of interest-
bearing deposits. Loans receivable decreased by $2.5 million, or 1.6%, to $154.8
million at October 31, 2000 from $157.3 million at June 30, 2000. Accrued
interest receivable and other assets increased $359,000, or 11.3%, to $3.5
million at October 31, 2000 from $3.2 million at June 30, 2000 primarily as a
result of increases in insurance commissions receivable at its insurance
subsidiary.
Total deposits decreased $7.5 million, or 2.9%, to $255.8 million at
October 31, 2000 from $263.3 million at June 30, 2000. All categories of
deposits decreased during this period. Time deposits decreased $2.9 million, or
1.6%, to $170.3 million at October 31, 2000 from $173.1 million at June 30,
2000. NOW accounts decreased $991,000, or 4.3%, to $22.3 million at October 31,
2000 from $23.3 million at June 30, 2000. Money market accounts decreased $1.3
million to $8.9 million at October 31, 2000 from $10.2 million at June 30, 2000.
Passbook savings decreased $2.4 million, or 4.3%, to $54.3 million at October
31, 2000 from $56.8 million at June 30, 2000. The decrease in deposits resulted
from management's decision not to match some of Chesterfield Federal's
competitors in pricing deposit products and not to offer off-term deposit
products, as well as increased competition for deposits from new financial
institutions located in Chesterfield Federal's market area. Accrued expenses and
other liabilities increased $1.4 million, or 32.6%, to $5.5 million at October
31, 2000 from $4.1 million at June 30, 2000. The increase is primarily
attributable to increases in accrued interest payable and premiums due to
insurance companies.
Retained income increased $907,000, or 2.6%, to $36.1 million at October
31, 2000 from $35.2 million at June 30, 2000 resulting from earnings during the
period.
Comparison of Financial Condition at June 30, 2000 and 1999
Chesterfield Federal's total assets increased by $1.4 million, or 0.5%, to
$305.5 million at June 30, 2000 from $304.1 million at June 30, 1999. The
increase resulted primarily from an increase in securities and loans receivable,
partially offset by a decrease in cash and cash equivalents. Securities
increased by $17.1 million, or 30.3%, to $73.7 million at June 30, 2000 from
$56.6 million at June 30, 1999 as a result of management's plan to reduce
amounts of interest-bearing deposits held. The securities purchased were bonds
issued by the Federal Home Loan Bank. Cash and cash equivalents decreased $16.5
million, or 19.7%, to $67.0 million at June 30, 2000 from $83.4 million at June
30, 1999 as a result of the aforementioned decision by management to reduce the
level of interest-bearing deposits. Loans receivable growth was relatively flat
increasing $359,000, or 0.2%, to $157.3 million at June 30, 2000 from $156.9
million at June 30, 1999. Accrued interest receivable and other assets increased
$251,000, or 8.6%, to $3.2 million at June 30, 2000 from $2.9 million at June
30, 1999 as a result of accrued interest receivable attributable to higher
securities balances.
32
<PAGE>
Total deposits increased $4.2 million, or 1.6%, to $263.3 million at June
30, 2000 from $259.1 million at June 30, 1999. Increases in time deposits, NOW
accounts and money market accounts were partially offset by declines in passbook
savings. Time deposits increased $4.0 million, or 2.4%, to $173.1 million at
June 30, 2000 from $169.2 million at June 30, 1999. NOW accounts increased $1.6
million, or 7.2%, to $23.3 million at June 30, 2000 from $21.7 million at June
30, 1999. Money market accounts increased $183,000 to $10.2 million at June 30,
2000 from $10.0 million at June 30, 1999. Passbook savings decreased $1.5
million, or 2.6%, to $56.7 million at June 30, 2000 from $58.3 million at June
30, 1999. Accrued expenses and other liabilities decreased $5.2 million, or
55.6%, to $4.1 million at June 30, 2000 from $9.3 million at June 30, 1999. This
decrease was primarily related to a $5.0 million security purchased with a trade
date of June 24, 1999 and a settlement date of July 14, 1999.
Retained income increased $2.3 million, or 7.1%, to $35.2 million at June
30, 2000 from $32.8 million at June 30, 1999 resulting from earnings during the
fiscal year.
Comparison of Operating Results for the Four Months Ended October 31, 2000 and
1999
General. Net income increased $148,000, or 19.4%, to $907,000 for the four
months ended October 31, 2000 from $760,000 for the four months ended October
31, 1999. The increase resulted from an increase in net interest income and
noninterest income and a reduction in the provision for loan losses, partially
offset by an increase in noninterest expenses.
Total Interest Income. Total interest income increased by $510,000, or
8.0%, to $6.9 million for the four months ended October 31, 2000 from $6.3
million for the four months ended October 31, 1999. The increase resulted
primarily from an increase in interest on securities partially offset by a
decrease in interest on interest-bearing deposits in other financial
institutions.
Interest on securities increased $561,000, or 55.1%, to $1.6 million for
the four months ended October 31, 2000 from $1.0 million for the four months
ended October 31, 1999. The increase resulted from a $24.5 million, or 43.8%,
increase in the average balance of securities to $80.7 million from $56.2
million and an increase in the average yield on the securities portfolio to
5.87% from 5.44%. The volume increase was the result of management reducing the
volume of interest-bearing deposits in other financial institutions and
increasing the volume of securities, discussed above.
Interest and fees on loans remained flat at $4.0 million for the four
months ended October 31, 2000 and 1999. The average yield on the loan portfolio
increased 18 basis points to 7.64% from 7.46%. This increase in yield was
partially offset by a decrease of $3.4 million, or 2.1%, in the average balance
of loans to $155.6 million from $159.1 million.
Interest on interest-bearing deposits decreased $76,000, or 5.9%, to $1.2
million for the four months ended October 31, 2000 from $1.3 million for the
four months ended October 31, 1999. The decrease resulted from a $20.3 million,
or 28.0%, decrease in the average balance of interest-bearing deposits to $52.2
million from $72.4 million. The volume decrease was partially offset by a 161
basis point increase in the yield on interest-bearing deposits to 6.92% from
5.31%. The increase in yield resulted from a general increase in shorter-term
market rates of interest.
Interest Expense. Interest expense on deposits increased $243,000, or 7.0%,
to $3.7 million for the four months ended October 31, 2000 from $3.5 million for
the four months ended October 31, 1999. Interest expense on passbook savings
accounts decreased $24,000, or 5.0%, to $454,000 from $478,000 as a result of a
$2.4 million decline in the average balance of passbook savings to $55.2 million
from $57.5 million. The average cost of passbook savings was relatively
consistent for each period. Interest expense on time deposits increased
$257,000, or
33
<PAGE>
9.2%, to $3.0 million from $2.8 million as a result of the 40 basis point
increase in the rates paid on time deposits to 5.31% from 4.91% and a $1.7
million, or 1.0%, increase in the average balance of time deposits to $171.7
million from $170.0 million. The increase in rates resulted from a general
increase in shorter-term market rates of interest.
Net Interest Income. Net interest income increased $267,000, or 9.4%, to
$3.1 million for the four months ended October 31, 2000 from $2.8 million for
the four months ended October 31, 1999. The net interest rate spread and the net
interest margin increased during the period. The net interest spread increased
23 basis points to 2.71% from 2.48% while the net interest margin increased 27
basis points to 3.20% from 2.93%.
Provision for Loan Losses. We establish provisions for loan losses, which
are charged to operations, in order to maintain the allowance for loan losses at
a level we believe is appropriate to absorb future charge-offs of loans deemed
uncollectible. In evaluating the level of the allowance for loan losses,
management considers historical loss experience, the nature and volume of the
loan portfolio, adverse situations that may affect the borrower's ability to
repay, estimated value of any underlying collateral, peer group information and
prevailing economic conditions. This evaluation is inherently subjective as it
requires estimates that are susceptible to significant revision as more
information becomes available or as future events change. Based on our
evaluation of these factors, management made provisions of $26,000 and $40,000
for the four months ended October 31, 2000 and 1999, respectively. The
provisions for the four months ended October 31, 2000 and 1999 were reflective
of management's evaluation of the loan portfolio within the context of the
factors stated above. The provisions relate directly to the charge-offs recorded
during the periods and credit quality concerns associated with certain community
development loans. This resulted in the allowance for loan losses increasing to
0.99% of loans outstanding at October 31, 2000 from 0.92% at October 31, 1999.
The amount of the allowance is based on estimates and the ultimate losses may
vary from such estimates. Management assesses the allowance for loan losses on a
quarterly basis and makes provisions for loan losses as necessary in order to
maintain the adequacy of the allowance. While management uses available
information to recognize losses on loans, future loan loss provisions may be
necessary based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the allowance for loan losses and may require us to
recognize additional provisions based on their judgment of information available
to them at the time of their examination. Management believes that the allowance
for loan losses at October 31, 2000 and 1999 was adequate.
Noninterest Income. Noninterest income includes insurance commissions,
service charges on deposit accounts and other income. Total noninterest income
increased $46,000, or 6.6%, to $740,000 for the four months ended October 31,
2000 from $694,000 for the four months ended October 31, 1999. Insurance
commissions increased $45,000, or 8.1%, as a result of the continued emphasis
management has placed on this revenue stream, including the acquisition of three
insurance agencies during the fiscal year ended June 30, 1999 and one agency
during the fiscal year ended June 30, 1998.
Noninterest Expense. Total noninterest expense increased $116,000, or 5.0%,
to $2.4 million for the four months ended October 31, 2000 from $2.3 million for
the four months ended October 31, 1999.
Salaries and employee benefits is the largest component of noninterest
expense and represented 58.3% and 56.6% of total noninterest expense for the
four months ended October 31, 2000 and 1999. Total salaries and employee
benefits increased $107,000, or 8.1%, to $1.4 million for the four months ended
October 31, 2000 from $1.3 million for the four months ended October 31, 1999.
Approximately 27% of this increase is attributable to retirement and other
34
<PAGE>
benefit plans. The total number of full-time equivalent employees remained
constant at 95 as of October 31, 2000 and 1999.
Equipment expense increased $31,000, or 21.9%, to $174,000 for the four
months ended October 31, 2000 from $143,000 for the four months ended October
31, 1999. The increase is primarily attributable to increased depreciation
charges and cost of maintenance agreements on equipment.
Federal deposit insurance expense decreased $32,000, or 43.8%, to $41,000
for the four months ended October 31, 2000 from $72,000 for the four months
ended October 31, 1999. The reduction in federal deposit insurance premium
expense resulted primarily from a scheduled decrease in insurance rates
effective January 1, 2000.
Provision for Income Taxes. The provision for income taxes increased to
$472,000, or 34.2% of income before income taxes for the four months ended
October 31, 2000, from $409,000, or 35.0% for the four months ended October 31,
1999. The decrease in the effective tax rate is primarily attributable to a
decrease in Illinois state income taxes.
Comparison of Operating Results for the Years Ended June 30, 2000 and 1999
General. Net income increased $675,000, or 40.7%, to $2.3 million for the
fiscal year ended June 30, 2000 from $1.7 million for the fiscal year ended June
30, 1999. The increase resulted from an increase in net interest income and
noninterest income and a reduction in the provision for loan losses, partially
offset by an increase in noninterest expenses.
Total Interest Income. Total interest income increased by $715,000, or
3.8%, to $19.6 million for the fiscal year ended June 30, 2000 from $18.8
million for the fiscal year ended June 30, 1999. The increase resulted primarily
from increases in interest and fees on loans and interest on securities
partially offset by a decrease in interest on interest-bearing deposits in other
financial institutions.
Interest and fees on loans increased $308,000, or 2.7%, to $11.9 million
for the fiscal year ended June 30, 2000 from $11.6 million for the fiscal year
ended June 30, 1999. The increase resulted from an $8.1 million, or 5.4%,
increase in the average balance of loans to $158.5 million from $150.4 million.
This increase in volume was partially offset by a 20 basis point decline in the
average yield on the loan portfolio to 7.52% from 7.72%.
Interest on securities increased $1.1 million, or 44.0%, to $3.5 million
for the fiscal year ended June 30, 2000 from $2.4 million for the fiscal year
ended June 30, 1999. The increase resulted from a $22.5 million, or 56.7%,
increase in the average balance of securities to $62.2 million from $39.7
million partially offset by a decrease in the average yield on the securities
portfolio to 5.64% from 6.14%. The volume increase was the result of management
reducing the volume of interest-bearing deposits in other financial institutions
and increasing the volume of securities.
Interest on interest-bearing deposits decreased $682,000, or 15.2%, to $3.8
million for the fiscal year ended June 30, 2000 from $4.5 million for the fiscal
year ended June 30, 1999. The decrease resulted from a $25.2 million, or 27.2%,
decrease in the average balance of interest-bearing deposits to $67.7 million
from $92.9 million. The volume decrease was partially offset by a 79 basis point
increase in the yield on interest-bearing deposits to 5.61% from 4.82%. The
increase in yield resulted from a general increase in shorter-term market rates
of interest.
Interest Expense. Interest expense on deposits increased $100,000, or .9%,
to $10.8 million for the fiscal year ended June 30, 2000 from $10.7 million for
the fiscal year ended June
35
<PAGE>
30, 1999. Interest expense on passbook savings accounts decreased $146,000, or
9.4%, to $1.4 million from $1.6 million as a result of a 22 basis point decline
in the average cost of passbook savings accounts to 2.46% from 2.68%. The
average balance of passbook savings accounts was relatively consistent as it
declined 1.1% to $57.3 million from $57.9 million. Interest expense on time
deposits increased $272,000, or 3.3%, to $8.6 million from $8.4 million as a
result a $3.5 million, or 2.1%, increase in the average balance of time deposits
to $171.5 million from $168.0 million. The rates paid on time deposits increased
6 basis points to 5.03% from 4.97%.
Net Interest Income. Net interest income increased $615,000, or 7.5%, to
$8.8 million for the fiscal year ended June 30, 2000 from $8.2 million for the
fiscal year ended June 30, 1999. The net interest rate spread and the net
interest margin increased during the period. The net interest spread increased
15 basis points to 2.56% from 2.41% while the net interest margin increased 16
basis points to 3.01% from 2.85%.
Provision for Loan Losses. Management made provisions of $83,000 and
$150,000 for the fiscal years ended June 30, 2000 and 1999, respectively. The
provision for the year ended June 30, 2000 related primarily to credit quality
concerns associated with certain community development loans and charge-offs
recorded during the year. This resulted in the allowance for loan losses
increasing to 0.95% of loans outstanding at June 30, 2000 from 0.90% at June 30,
1999. The amount of the allowance is based on estimates and the ultimate losses
may vary from such estimates. Management believes that the allowance for loan
losses at June 30, 2000 and 1999 was adequate.
Noninterest Income. Noninterest income includes insurance commissions,
service charges on deposit accounts and other income. Total noninterest income
increased $609,000, or 39.8%, to $2.1 million for the fiscal year ended June 30,
2000 from $1.5 million for the fiscal year ended June 30, 1999. Insurance
commissions increased $591,000, or 53.0%, as a result of the continued emphasis
management has placed on this revenue stream, including the acquisition of three
insurance agencies during the fiscal year ended June 30, 1999 and one agency
during the fiscal year ended June 30, 1998.
Noninterest Expense. Total noninterest expense increased $213,000, or 3.0%,
to $7.2 million for the fiscal year ended June 30, 2000 from $7.0 million for
the fiscal year ended June 30, 1999.
Salaries and employee benefits is the largest component of noninterest
expense and represented 57.5% and 58.2% of total noninterest expense for the
fiscal year ended June 30, 2000 and 1999. Total salaries and employee benefits
increased $71,000, or 1.7%, to $4.1 million for the fiscal year ended June 30,
2000 from the fiscal ended June 30, 1999. The increase is primarily attributable
to higher salary expenses at both the bank and insurance subsidiary, partially
offset by a reduction in retirement and other benefit expenses. The decrease in
retirement and other benefit expenses is primarily attributable to the
supplemental benefit plan for inside directors. The total number of full-time
equivalent employees remained constant at 96 as of June 30, 2000 and 1999.
Equipment expense increased $77,000, or 19.4%, to $473,000 for the fiscal
year ended June 30, 2000 from $396,000 for the fiscal year ended June 30, 1999.
The increase is primarily attributable to increased depreciation charges and
costs of maintenance agreements on computer equipment purchased during the
fiscal year ended June 30, 1999.
Data processing expense decreased $109,000, or 26.0%, to $310,000 for the
fiscal year ended June 30, 2000 from $419,000 for the fiscal year ended June 30,
1999. The decrease related to expenditures made in fiscal 1999 relating to the
installation of a network computer system and preparation for Year 2000.
36
<PAGE>
Federal deposit insurance expense decreased $50,000, or 22.5%, to $171,000
for the fiscal year ended June 30, 2000 from $220,000 for the fiscal year ended
June 30, 1999. The reduction in federal deposit insurance premium expense
resulted primarily from a scheduled decrease in insurance rates effective
January 1, 2000.
Other expense increased $203,000, or 17.0%, to $1.4 million for the fiscal
year ended June 30, 2000 from $1.2 million for the fiscal year ended June 30,
1999. The increase in other expense is primarily related to the insurance
subsidiary's increased operating expenses associated with greater activity and
goodwill amortization as a result of the acquisitions of insurance agencies
completed during fiscal years 1998 and 1999.
Provision for Income Taxes. The provision for income taxes increased to
$1.3 million, or 36.1% of income before income taxes for the fiscal year ended
June 30, 2000, from $919,000, or 35.7% for the fiscal year ended June 30, 1999.
Comparison of Operating Results for the Years Ended June 30, 1999 and 1998
General. Net income decreased $333,000, or 16.7%, to $1.7 million for the
fiscal year ended June 30, 1999 from $2.0 million for the fiscal year ended June
30, 1998. The decrease resulted from a decrease in net interest income and an
increase in noninterest expenses, partially offset by an increase in noninterest
income and a reduction in the provision for loan losses.
Total Interest Income. Total interest income decreased $798,000, or 4.1%,
to $18.8 million for the fiscal year ended June 30, 1999 from $19.6 million for
the fiscal year ended June 30, 1998. The decrease resulted primarily from
decreases in interest and fees on loans and interest on securities partially
offset by an increase in interest on interest-bearing deposits.
Interest and fees on loans increased $448,000, or 4.0%, to $11.6 million
for the fiscal year ended June 30, 1999 from $11.2 million for the fiscal year
ended June 30, 1998. The increase resulted from a $12.1 million, or 8.8%,
increase in the average balance of loans to $150.4 million from $138.3 million.
This increase in volume was partially offset by a 35 basis point decline in the
average yield on the loan portfolio to 7.72% from 8.07%.
Interest on securities decreased $2.9 million, or 54.0%, to $2.4 million
for the fiscal year ended June 30, 1999 from $5.3 million for the fiscal year
ended June 30, 1998. The decrease resulted from a $26.4 million, or 40.0%,
decrease in the average balance of securities to $39.7 million from $66.2
million and a 186 basis point decrease in the yield on securities to 6.14% from
8.00%. The decline in the average balance of securities was a result of
management's reinvestment of maturing securities into interest-bearing deposits.
The yield on the securities decreased as a result of the maturity of certain
mortgage-backed securities and collateralized mortgage obligations.
Interest on interest-bearing deposits increased $1.6 million, or 54.6%, to
$4.5 million for the fiscal year ended June 30, 1999 from $2.9 million for the
fiscal year ended June 30, 1998. The increase resulted from an $18.6 million, or
25.0%, increase in the average balance of interest-bearing deposits to $92.9
million from $74.3 million and a 92 basis point increase in the yield on
interest-bearing deposits to 4.82% from 3.90%.
Interest Expense. Interest expense on deposits decreased $644,000, or 5.7%,
to $10.7 million for the fiscal year ended June 30, 1999 from $11.3 million for
the fiscal year ended June 30, 1998. Interest expense on passbook savings
accounts decreased $151,000, or 8.9%, to $1.6 million from $1.7 million as a
result of a 30 basis point decline in the average cost of passbook savings
accounts to 2.68% from 2.98%. The average balance of passbook savings accounts
was relatively consistent as it increased 1.1% to $57.9 million from $57.3
million. Interest expense
37
<PAGE>
on time deposits decreased $436,000, or 5.0%, to $8.4 million from $8.8 million
as a result of a 29 basis point decline in the rates paid on time deposits to
4.97% from 5.26%. The average balance of time deposits increased $979,000, or
.6%, to $168 million from 167 million.
Net Interest Income. Net interest income decreased $153,000, or 1.8%, to
$8.2 million for the fiscal year ended June 30, 1999 from $8.4 million for the
fiscal year ended June 30, 1998. The net interest rate spread and the net
interest margin decreased during the period. The net interest spread decreased 9
basis points to 2.41% from 2.50% while the net interest margin increased 10
basis points to 2.85% from 2.95%.
Provision for Loan Losses. Management made provisions of $150,000 and
$202,000 for the fiscal years ended June 30, 1999 and 1998, respectively. The
provisions for the year ended June 30, 1999 related primarily to credit quality
concerns associated with certain community development loans and an increase in
the concentration of loans to one borrower. This resulted in the allowance for
loan losses increasing to 0.90% of loans outstanding at June 30, 1999 from 0.87%
at June 30, 1998. Management believes that the allowance for loan losses at June
30, 1999 and 1998 was adequate.
Noninterest Income. Noninterest income includes insurance commissions,
service charges on deposit accounts and other income. Total noninterest income
increased $467,000, or 43.9%, to $1.5 million for the fiscal year ended June 30,
1999 from $1.1 million for the fiscal year ended June 30, 1998. Insurance
commissions increased $413,000, or 58.8%, as a result of the continued emphasis
management has placed on this revenue stream, including the acquisition of three
insurance agencies during the fiscal year ended June 30, 1999 and one agency
during the fiscal year ended June 30, 1998.
Noninterest Expense. Total noninterest expense increased $891,000, or
14.6%, to $7.0 million for the fiscal year ended June 30, 1999 from $6.1 million
for the fiscal year ended June 30, 1998.
Salaries and employee benefits is the largest component of noninterest
expense and represented 58.2% and 59.5% of total noninterest expense for the
fiscal year ended June 30, 1999 and 1998. Total salaries and employee benefits
increased $440,000, or 12.1%, to $4.1 million for the fiscal year ended June 30,
1999 from $3.6 million for the fiscal ended June 30, 1998. The increase is
primarily attributable to higher salary expenses at the insurance subsidiary as
a result of the acquisition of three insurance agencies completed during fiscal
1999. The total number of full-time equivalent employees increased 7.9% to 96 as
of June 30, 1999 from 89 as of June 30, 1998.
Equipment expense increased $101,000, or 34.2%, to $396,000 for the fiscal
year ended June 30, 1999 from $295,000 for the fiscal year ended June 30, 1998.
The increase is primarily attributable to increased depreciation charges and
costs of maintenance agreements on computer equipment purchased during the
fiscal year ended June 30, 1999.
Data processing expense increased $138,000, or 48.8%, to $419,000 for the
fiscal year ended June 30, 1999 from $282,000 for the fiscal year ended June 30,
1998. The increase related to expenditures relating to installation of a new
network computer system and preparation for Year 2000.
Other expense increased $241,000, or 25.2%, to $1.2 million for the fiscal
year ended June 30, 1999 from $957,000 for the fiscal year ended June 30, 1998.
The increase in other expense is primarily related to the insurance subsidiary's
increased operating expenses associated with greater activity and goodwill
amortization as a result of the acquisitions of insurance agencies completed
during fiscal years 1998 and 1999.
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<PAGE>
Provision for Income Taxes. The provision for income taxes decreased to
$919,000, or 35.7% of income before income taxes for the fiscal year ended June
30, 1999, from $1.1 million, or 35.8% for the fiscal year ended June 30, 1998.
Liquidity and Capital Resources
Chesterfield Federal's liquidity management objective is to ensure the
availability of sufficient cash flows to meet all financial commitments and to
capitalize on opportunities for expansion. Liquidity management addresses the
ability to meet deposit withdrawals on demand or at contractual maturity, and to
fund new loans and investments as opportunities arise. Chesterfield Federal's
primary sources of internally generated funds are principal and interest
payments on loans receivable, cash flows generated from operations, and cash
flows generated by investments. External sources of funds primarily consist of
increases in deposits.
Chesterfield Federal is required under applicable federal regulations to
maintain specified levels of "liquid" investments in qualifying types of United
States Government, federal agency and other investments having maturities of
five years or less. Current Office of Thrift Supervision regulations require
that a savings association maintain liquid assets of not less than 4% of its
average daily balance of net withdrawable deposit accounts and borrowings
payable in one year or less. Monetary penalties may be imposed for failure to
meet applicable liquidity requirements. At October 31, 2000, Chesterfield
Federal's liquidity, as measured for regulatory purposes, was in excess of the
minimum Office of Thrift Supervision requirement. Chesterfield Federal will
receive 50% of the net proceeds in the offering, or approximately $12.6 million
at the minimum of the offering range and $17.3 million at the maximum of the
offering range. Management of Chesterfield Federal intends to initially invest a
substantial portion of these funds in shorter-term investments that are
considered "liquid" investments, and, as a result, Chesterfield Federal's
liquidity will initially increase due to the proceeds received from the stock
offering. The effects of the stock offering on liquidity are likely to decrease
over time as the offering proceeds are deployed into other investments and
activities, such as funding new loans or acquiring additional branch offices,
and for general corporate purposes.
At October 31, 2000, Chesterfield Federal had loan commitments of $3.5
million and unused lines of credit of $15.6 million. Chesterfield Federal
believes it has adequate resources to fund loan commitments as they arise. If
Chesterfield Federal requires funds beyond its internal funding capabilities,
advances from the Federal Home Loan Bank of Chicago are available. At October
30, 2000, approximately $143.7 million of time deposits were scheduled to mature
within one year, and we expect that a portion of these time deposits will not be
renewed upon maturity.
After the conversion, Chesterfield Financial does not intend to engage in
any significant business activity other than owning the common stock of
Chesterfield Federal. In order to provide sufficient funds for operations,
Chesterfield Financial expects to retain and invest 50% of the net proceeds of
the stock offering remaining after making the loan to the employee stock
ownership plan. In the future, Chesterfield Financial's primary source of funds,
other than income from its investment and principal and interest payments
received with respect to the employee stock ownership plan loan, is expected to
be dividends from Chesterfield Federal. As a stock savings and loan association,
Chesterfield Federal is subject to regulatory limitations on its ability to pay
cash dividends.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement, as amended by
SFAS No. 137, establishes comprehensive
39
<PAGE>
accounting and reporting requirements for derivative instruments and hedging
activities. Beginning July 1, 2000, this new accounting standard required all
derivatives to be recorded at fair value. Unless designated as hedges, changes
in these fair values will be recorded in the income statement. Fair value
changes involving hedges will generally be recorded by offsetting gains and
losses on the hedge and on the hedged item, even if the fair value of the hedged
item is not otherwise recorded. The statement also permits certain
reclassification of securities among the trading, available-for-sale and held-
to-maturity classifications. The adoption of this standard had no impact on the
financial statements of Chesterfield Federal.
Impact of Inflation and Changing Prices
The consolidated financial statements and related notes of Chesterfield
Federal have been prepared in accordance with generally accepted accounting
principles ("GAAP"). GAAP generally requires the measurement of financial
position and operating results in terms of historical dollars without
consideration for changes in the relative purchasing power of money over time
due to inflation. The impact of inflation is reflected in the increased cost of
our operations. Unlike industrial companies, our assets and liabilities are
primarily monetary in nature. As a result, changes in market interest rates have
a greater impact on performance than the effects of inflation.
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<PAGE>
BUSINESS OF CHESTERFIELD FINANCIAL CORP.
Chesterfield Financial is a Delaware corporation organized in January 2001
by Chesterfield Federal for the purpose of becoming a savings and loan holding
company of Chesterfield Federal. We will purchase all of the capital stock of
Chesterfield Federal to be issued in the conversion in exchange for 50% of the
net conversion proceeds and will retain the remaining 50% of the net proceeds as
our initial capitalization. Immediately following the conversion, our only
significant assets will be the capital stock of Chesterfield Federal, our loan
to the employee stock ownership plan, and the remainder of the net conversion
proceeds retained by us. The business and management of Chesterfield Financial
will initially primarily consist of the business and management of Chesterfield
Federal.
BUSINESS OF
CHESTERFIELD FEDERAL SAVINGS AND LOAN ASSOCIATION OF CHICAGO
Market Area
Chesterfield Federal has been, and continues to be, a community-oriented
savings institution offering a variety of financial products to meet the needs
of the communities it serves. Chesterfield Federal's lending and deposit-
gathering area is concentrated in the neighborhoods surrounding its four
offices; its main office and one branch office in Chicago, one branch office in
Palos Hills, which is located in Cook County, and one branch office in
Frankfort, which is located in Will County. While the City of Chicago
experienced a population decrease of 4.6% between 1990 and 1998, the population
of Palos Hills and Frankfort increased 6.3% and 49.5%, respectively, over the
same period. The City of Chicago Government is the largest employer in the City
of Chicago, and general building companies and healthcare providers comprise the
two largest types of business in each of Chicago, Palos Hills and Frankfort.
However, the economy in Chesterfield Federal's market area is not dependent on
any single employer or type of business.
Competition
We face significant competition in both originating loans and attracting
deposits. The Chicago metropolitan area has a high concentration of financial
institutions, most of whom are significantly larger institutions that have
greater financial resources than we do, and all of which are our competitors to
varying degrees. Our competition for loans comes principally from commercial
banks, savings banks, mortgage banking companies, credit unions and insurance
companies and other financial service companies. Our most direct competition for
deposits has historically come from commercial banks, savings banks and credit
unions. We face additional competition for deposits from non-depository
competitors such as the mutual fund industry, securities and brokerage firms and
insurance companies. The Gramm-Leach-Bliley Act, which permits affiliation among
banks, securities firms and insurance companies, also will change the
competitive environment in which we conduct business.
Lending Activities
General. Our loan portfolio is comprised mainly of one-to four-family
residential real estate loans. The vast majority of these loans have fixed rates
of interest. In addition to residential real estate loans, our loan portfolio
consists primarily of home equity lines of credit and consumer loans. At October
31, 2000, our loans totaled $156.9 million, of which $137.4 million, or 87.6%
were secured by one-to four-family residential real estate, $5.5 million, or
3.5% were secured by multi-family residential real estate, $10.7 million, or
6.8% were home equity lines of credit and $3.3 million, or 2.1% were consumer
loans.
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<PAGE>
Loan Portfolio Composition. The following table shows the composition of
our loan portfolio in dollar amounts and in percentages (before deductions for
loans in process, deferred fees and allowances for losses) as of the dates
indicated.
<TABLE>
<CAPTION>
October 31, June 30,
--------------------------------------------------------------------------------------
2000 2000 1999 1998 1997 1996
---------------- --------------- ---------------- --------------- ---------------- ----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
-----------------
One- to four-family........ $137,396 87.6% $140,120 87.7% $140,351 87.5% $127,428 84.4% $111,926 82.2% $116,008 82.1%
Home equity................ 10,720 6.8 11,002 6.9 11,413 7.1 14,114 9.4 15,310 11.2 16,215 11.5
Multi-family and other..... 5,476 3.5 5,693 3.5 6,058 3.8 6,362 4.2 5,993 4.5 6,317 4.5
------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total real estate loans.. 153,592 97.9 156,815 98.1 157,822 98.4 147,904 98.0 133,229 97.9 138,540 98.1
------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Other Loans:
-----------
Consumer Loans:
Loans on deposits.......... 1,231 0.8 1,161 0.7 1,038 0.6 1,146 0.8 1,050 0.8 979 0.7
Automobile, stock secured,
second mortagages and
other.................... 2,075 1.3 1,842 1.2 1,574 1.0 1,839 1.2 1,831 1.3 1,708 1.2
------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total consumer loans..... 3,306 2.1 3,003 1.9 2,612 1.6 2,985 2.0 2,881 2.1 2,687 1.9
------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans.............. 156,898 100.0% 159,818 100.0% 160,434 100.0% 150,889 100.0% 136,110 100.0% 141,227 100.0%
===== ===== ===== ===== ===== =====
Less:
----
Undisbursed portion of
loans in process.......... 78 480 1,422 1,911 952 1,120
Unearned discounts and
deferred loan fees........ 520 554 663 754 808 849
Allowance for loan losses.. 1,528 1,508 1,432 1,283 1,087 1,003
-------- -------- -------- -------- -------- --------
Total loans receivable,
net....................... $154,772 $157,276 $156,917 $146,941 $133,263 $138,255
======== ======== ======== ======== ======== ========
</TABLE>
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<PAGE>
One-to Four-family Residential Real Estate Loans. We emphasize the
origination of loans secured by first mortgage liens on one-to four-family
residential property. As of October 31, 2000, these loans totaled $137.4
million, or 87.6% of our total loan portfolio. We originate loans for our own
portfolio, and intend to continue to do so, as our residential mortgage loan
documents contain provisions which are more favorable to borrowers than set
forth in the seller/servicer guidelines of entities like Fannie Mae or Freddie
Mac.
We offer one-to four-family residential mortgage loans with terms of seven,
10, 15 and 30 years. Of these loans, $136.3 million, or 99.2% had fixed rates of
interest and the remaining $1.1 million, or 0.8% had adjustable rates of
interest. All of our fixed-rate mortgage loans are fully amortized over the term
of the loan. In an effort to increase our originations of shorter-term loans, we
more aggressively price the interest rates on loans with terms of seven, 10 and
15 years than on 30-year loans.
Adjustable-rate mortgages are offered with initial rates which are fixed
for one year and adjust annually thereafter. Our adjustable rate loans have a 2%
cap on the annual rate adjustment, with a 6% rate adjustment cap over the life
of the loan. We currently price our adjustable rate mortgage loans using the
National Monthly Median Cost of Funds for SAIF Insured Institutions as the index
rate plus a margin of 2.5%.
Home Equity Loans. We offer home equity lines of credit, the total of which
amounted to $10.7 million, or 6.8% of our total loan portfolio as of October 31,
2000. Home equity lines of credit are generally made only for owner-occupied
homes, and are secured by first or second mortgages on residences. We generally
offer these loans with a maximum loan to appraised value ratio of 75% (including
senior liens on the subject property). We currently offer these loans for a
period of 10 years, and at rates of prime plus 1%.
Consumer Loans. We are authorized to make loans for a wide variety of
personal or consumer purposes. As of October 31, 2000, consumer loans totaled
$3.3 million, or 2.1% of our total loan portfolio. Our consumer loans consist
primarily of home improvement loans and loans secured by deposit accounts, but
we also offer automobile, stock secured, and unsecured personal loans. Our
procedure for underwriting consumer loans includes an assessment of the
applicant's credit history and ability to meet existing obligations and payments
of the proposed loan, as well as an evaluation of the value of the collateral
security, if any. Consumer loans generally entail greater risk than residential
mortgage loans, particularly in the case of loans that are unsecured or are
secured by assets that tend to depreciate in value, such as automobiles. In such
cases, repossessed collateral for a defaulted consumer loan may not provide an
adequate source of repayment for the outstanding loan and the remaining value
often does not warrant further substantial collection efforts against the
borrower.
Multi-Family Loans. At October 31, 2000, $5.5 million, or 3.5% of our total
loan portfolio consisted of loans secured by multi-family real estate. As of
that date, the average principal amount outstanding was $149,000. We originate
fixed-rate multi-family real estate loans with amortization schedules of up to
20 years. We generally lend up to 70% of the property's appraised value.
Appraised values are determined by our own in-house appraiser or independent
appraisers that we designate. If deemed necessary, we obtain an environmental
assessment from an independent engineering firm of any environmental risks that
may be associated with a particular building or the site. In deciding to
originate a multi-family loan, we will review the creditworthiness of the
borrower, the expected cash flows from the property securing the loan, the cash
flow requirements of the borrower, the value of the property and the quality of
the management involved with the property. We generally obtain the personal
guarantee of the principals when originating multi-family real estate loans.
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<PAGE>
Multi-family real estate lending is generally considered to involve a
higher degree of credit risk than one- to four-family residential lending. Such
lending may involve large loan balances concentrated on a single borrower or
group of related borrowers. In addition, the payment experience on loans secured
by income producing properties is typically dependent on the successful
operation of the related real estate project. Consequently the repayment of the
loan may be subject to adverse conditions in the real estate market or the
economy generally.
Loan Originations, Purchases, Sales and Servicing. Although we originate
both fixed-rate and adjustable-rate loans, our ability to generate each type of
loan depends upon borrower demand, market interest rates, borrower preference
for fixed- versus adjustable-rate loans, and the interest rates offered on each
type of loan by other lenders in our market area. This includes competing banks,
savings institutions, credit unions, and mortgage banking companies, as well as
life insurance companies, and Wall Street conduits that also actively compete
for local real estate loans. Loan originations are derived from a number of
sources, including branch office personnel, existing or prior customers and
walk-in customers. We have very few referrals from real estate brokers.
Our loan origination activity may be adversely affected by a rising
interest rate environment that typically results in decreased loan demand.
Accordingly, the volume of loan originations and the profitability of this
activity can vary from period to period. We have not originated any loans for
sale in the secondary market, as our residential mortgage loan documents contain
provisions which are more favorable to borrowers than set forth in the
seller/servicer guidelines of entities like Fannie Mae or Freddie Mac. We
currently do not service any loans for others.
The following table shows our loan origination and repayment activities for
the periods indicated. We did not purchase or sell any loans during the periods
indicated.
<TABLE>
<CAPTION>
Four Months
Ended October 31, Years Ended June 30,
---------------------- -----------------------------------
2000 1999 2000 1999 1998
--------- --------- ---------- ----------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Originations by Type:
--------------------
Adjustable rate:
Real estate -
- one-to four-family.................. $ 357 $ -- $ 568 $ -- $ 97
- home equity......................... 2,015 2,171 6,014 6,418 7,516
--------- --------- ---------- ----------- ---------
Total adjustable-rate..................... 2,372 2,171 6,582 6,418 7,613
--------- --------- ---------- ----------- ---------
Fixed rate:
Real estate -
- one-to four-family.................. 3,803 9,429 21,215 42,939 39,085
- multi-family and other.............. -- 265 370 694 1,295
Non-real estate - consumer.................... 803 738 2,740 1,724 2,222
--------- --------- ---------- ----------- ---------
Total fixed-rate.......................... 4,606 10,432 24,325 45,357 42,602
--------- --------- ---------- ----------- ---------
Total loans originated.................... 6,978 12,603 30,907 51,775 50,215
--------- --------- ---------- ----------- ---------
Repayments:
----------
Principal repayments.......................... 9,898 10,505 31,523 42,230 35,436
--------- --------- ---------- ----------- ---------
Increase (decrease) in other items, net........ 416 986 975 431 (1,101)
--------- --------- ---------- ----------- ---------
Net increase (decrease)................... $ (2,504) $ 3,084 $ 359 $ 9,976 $ 13,678
========= ========= ========== =========== =========
</TABLE>
Loan Approval Procedures and Authority. Our lending activities are subject
to written, non-discriminatory underwriting standards and the loan origination
procedures adopted by management and the Board of Directors. All loans,
regardless of size or type, are initially reviewed by a loan officer. Due to
their experience and length of employment with Chesterfield Federal, all of
Chesterfield Federal's loan officers have the authority to approve residential
mortgage loans in amounts up to $500,000. All such approvals must be ratified by
at least two members of the Executive Loan Committee, which consists of
President and Chief Executive Officer Michael E. DeHaan, Vice President and
Secretary Richard E. Urchell, Vice President
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<PAGE>
Peter I. Hahto, Director Robert T. Mangan and Vice President Robert J. Cusack.
Any loan application for which a loan officer recommends denial is re-reviewed
by at least two members of our Second Review Committee, which consists of
President and Chief Executive Officer Michael E. DeHaan, Vice President and
Secretary Richard E. Urchell, Vice President and Compliance Officer Raymond M.
Janacek and Vice President Robert J. Cusack. Any two members of this committee
have the authority to approve an application that was denied previously. Loans
in excess of $500,000 must be approved by the entire Board of Directors.
Insurance Activities
Chesterfield Insurance Services, LLC, is a service corporation of
Chesterfield Federal. Chesterfield Insurance offers property and casualty
insurance on an agency basis for third-party providers. In an effort to offer a
more comprehensive selection of services to existing and potential customers, we
have expanded the size of Chesterfield Insurance in recent years by acquiring
one insurance agency during the fiscal year ended June 30, 1998 and three
insurance agencies during the fiscal year ended June 30, 1999. During the four
months ended October 31, 2000 and the fiscal years ended June 30, 2000 and 1999,
Chesterfield Insurance generated $601,000, $1.7 million and $1.1 million,
respectively, in insurance commissions. As of October 31, 2000, Chesterfield
Insurance had 18 employees.
Asset Quality
Delinquent Loans. The following table sets forth Chesterfield Federal's
loan delinquencies by type, by amount and by percentage of type at October 31,
2000.
<TABLE>
<CAPTION>
Loans Delinquent For
------------------------------------------------------
60-89 Days 90 Days and Over Total Delinquent Loans
-------------------------- ------------------------- -------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-family..... 1 $ 35 .03% 1 $ 3 --% 2 $ 38 .03%
Home equity............. -- -- -- -- -- -- -- -- --
Multi-family and other.. -- -- -- -- -- -- -- -- --
Consumer.................. -- -- -- -- -- -- -- -- --
------ ------ -------- ------ ------ -------- ------ ------ --------
Total................ 1 $ 35 .02% 1 $ 3 --% 2 $ 38 .02%
====== ====== ======== ====== ====== ======== ====== ====== ========
</TABLE>
Loan Delinquencies and Collection Procedures. When a borrower fails to make
required payments on a loan, we take a number of steps to induce the borrower to
cure the delinquency and restore the loan to a current status. In the case of
mortgage loans, a reminder notice is sent 15 days after an account becomes
delinquent. Should the borrower not remit the entire payment due by the end of
the month, then a letter that includes information regarding home-ownership
counseling organizations is sent to the borrower. During the first 15 days of
the following month, a second letter is sent, and we will also attempt to
establish telephone contact with the borrower. At this time, and after reviewing
the cause of the delinquency and the borrower's previous loan payment history,
we may agree to accept repayment over a period of time which will generally not
exceed 60 days. However, should a loan become delinquent two or more payments,
and the borrower is either unwilling or unable to repay the delinquency over a
period of time acceptable to us, we will send a notice of default by both
regular and certified mail. This notice will provide the borrower with the terms
which must be met to cure the default, and will again include information
regarding home-ownership counseling.
In the event the borrower does not cure the default within 30 days of the
postmark of the notice of default, we may instruct our attorneys to institute
foreclosure proceedings depending on
45
<PAGE>
the loan-to-value ratio or our relationship with the borrower. We hold property
foreclosed upon as other real estate owned. We carry foreclosed real estate at
its fair market value less estimated selling costs. If a foreclosure action is
commenced and the loan is not brought current or paid in full before the
foreclosure sale, we will either sell the real property securing the loan at the
foreclosure sale or sell the property as soon thereafter as practical. In the
case of consumer loans, customers are mailed reminder notices when the loan is
three days past due. Late notices are mailed when the loan is ten days past due
and we also attempt to establish telephone contact with the borrower. If
collection efforts are unsuccessful, accounts are written off when the
delinquency exceeds 90 days.
Our policies require that management continuously monitor the status of the
loan portfolio and report to the Board of Directors on a monthly basis. These
reports include information on delinquent loans and foreclosed real estate and
our actions and plans to cure the delinquent status of the loans and to dispose
of any real estate acquired through foreclosure.
Non-Performing Loans. All loans are reviewed on a regular basis and are
placed on a non-accrual status when, in the opinion of management, there is
reasonable probability of loss of principal or the collection of additional
interest is deemed insufficient to warrant further accrual. Generally, we place
all loans 90 days or more past due on non-accrual status. In addition, we place
any loan on non-accrual if any part of it is classified as loss or if any part
has been charged-off. When a loan is placed on non-accruing status, total
interest accrued and unpaid to date is reversed. Subsequent payments are either
applied to the outstanding principal balance or recorded as interest income,
depending on the assessment of the ultimate collectability of the loan.
Generally, consumer loans are charged-off before they become 120 days
delinquent.
As of October 31, 2000, our total nonaccrual loans amounted to $3,000
compared to $13,000 at June 30, 2000, and $90,000 at June 30, 1999.
The table below sets forth the amounts and categories of non-performing
assets in our loan portfolio. For all years presented, we had no troubled debt
restructurings (which involve forgiving a portion of interest or principal on
any loans or making loans at a rate materially less than that of market rates).
Foreclosed assets include assets acquired in settlement of loans.
<TABLE>
<CAPTION>
October 31, June 30,
------------- ----------------------------------------
2000 1999 2000 1999 1998 1997 1996
----- ----- ----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Non-accruing loans:
One- to four-family......................... $ 3 $ 10 $ 12 $ 9 $ 69 $ 29 $ 64
Home equity................................. -- 124 -- 81 174 -- --
Consumer.................................... -- 3 1 -- 22 -- --
----- ----- ----- ----- ----- ----- -----
Total...................................... 3 147 13 90 265 29 64
----- ----- ----- ----- ----- ----- -----
Accruing loans delinquent more than 90 days.. -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- -----
Foreclosed assets............................ -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- -----
Total non-performing assets.................. $ 3 $ 147 $ 13 $ 90 $ 265 $ 29 64
===== ===== ===== ===== ===== ===== =====
Total as a percentage of total assets........ --% .05% --% .03% .09% .01% .02%
===== ===== ===== ===== ===== ===== =====
</TABLE>
For the year ended June 30, 2000 and for the four months ended October 31,
2000, gross interest income which would have been recorded had the non-accruing
loans been current in accordance with their original terms was immaterial.
Troubled Debt Restructurings. A troubled debt restructuring occurs when we,
for economic or legal reasons related to a borrower's financial difficulties,
grant a concession to the borrower, either as a deferment or reduction of
interest or principal, that we would not otherwise
46
<PAGE>
consider. We had no troubled debt restructurings as of October 31, 2000, June
30, 2000, and June 30, 1999.
Real Estate Owned. Real estate owned consists of property acquired through
formal foreclosures or by deed in lieu of foreclosure and is recorded at the
lower of recorded investment or fair value. Write-downs from recorded investment
to fair value which are required at the time of foreclosure are charged to the
allowance for loan losses. After transfer, the property is carried at the lower
of recorded investment or fair value, less estimated selling expenses.
Adjustments to the carrying value of such properties that result from subsequent
declines in value are charged to operations in the period in which the declines
occur. As of October 31, and June 30, 2000, we held no property that was
classified as real estate owned.
Classification of Assets. Our policies, consistent with regulatory
guidelines, provide for the classification of loans and other assets such as
securities that are considered to be of lesser quality as substandard, doubtful,
or loss assets. An asset is considered substandard if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. Substandard assets include those characterized by
the distinct possibility that the savings institution will sustain some loss if
the deficiencies are not corrected. Assets classified as doubtful have all of
the weaknesses inherent in those classified substandard with the added
characteristic that the weaknesses present make collection or liquidation in
full, on the basis of currently existing facts, conditions, and values, highly
questionable and improbable. Assets classified as loss are those considered
uncollectible and of such little value that their continuance as assets is not
warranted. Assets that do not expose us to risk sufficient to warrant
classification in one of the aforementioned categories, but which possess some
weaknesses, are required to be designated as special mention by management.
When we classify assets as either substandard or doubtful, we allocate for
analytical purposes a portion of general valuation allowances or loss reserves
to such assets as deemed prudent by management. General allowances represent
loss allowances that have been established to recognize the inherent risk
associated with lending activities, but which have not been allocated to
particular problem assets. When we classify problem assets as loss, we are
required either to establish a specific allowance for losses equal to 100% of
the amount of the assets so classified, or to charge-off such amount. Our
determination as to the classification of assets and the amount of valuation
allowances are subject to review by regulatory agencies, which can order the
establishment of additional loss allowances. Management regularly reviews our
asset portfolio to determine whether any assets require classification in
accordance with applicable regulations.
On the basis of management's review of our asset portfolio at October 31,
2000, we had classified $546,000 of our assets as substandard, and none of our
assets as special mention, doubtful or loss.
Potential Problem Loans. From August 1997 through December 1999,
Chesterfield Federal originated $509,000 of outstanding community development
loans to a real estate development company to acquire vacant lots and
deteriorated buildings in an area located 1.5 miles from Chesterfield Federal's
main office. The borrower is attempting to find developers to upgrade the
acquired parcels with commercial development. Chesterfield Federal has not
placed the loans on non-accrual status as the loans are currently performing in
accordance with the terms of the agreements. However, due to the deteriorating
value of the property securing the loans and due to the possibility that these
loans will not be paid in full, Chesterfield Federal has classified these loans
as "substandard" for regulatory purposes, as discussed above in
"--Classification of Assets."
47
<PAGE>
Chesterfield Federal also has originated over 30 loans to a single customer
which aggregated $2.2 million as of October 31, 2000. These loans are
collateralized by one-to four-family residential property, and repayment of the
loans is highly dependant on the rental cash flow from these properties. These
loans are currently performing in accordance with the terms of the loan
agreements and have not been classified by management for regulatory purposes.
Allowance for Loan Losses. The following table sets forth information
regarding our allowance for loan losses and other ratios at or for the dates
indicated.
<TABLE>
<CAPTION>
Four Months
Ended October 31, Years Ended June 30,
------------------- --------------------------------------------
2000 1999 2000 1999 1998 1997 1996
------ ------ ------ ------ ------ ----- -----
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period................. $1,508 $1,432 $1,432 $1,283 $1,087 $1,003 $ 751
Charge-offs:
One- to four-family.......................... -- -- -- -- -- -- --
Home equity.................................. -- -- -- -- 6 -- --
Multi-family and other....................... -- -- -- -- -- -- --
Consumer..................................... 6 3 7 1 -- -- --
------ ------ ------ ------ ------ ------ ------
6 3 7 1 6 -- --
------ ------ ------ ------ ------ ------ ------
Recoveries..................................... -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net charge-offs................................ 6 3 7 1 6 -- --
Additions charged to operations................ 26 40 83 150 202 84 252
------ ------ ------ ------ ------ ------ ------
Balance at end of period....................... $1,528 $1,469 $1,508 $1,432 $1,283 $1,087 $1,003
====== ====== ====== ====== ====== ====== ======
Allowance for loan losses to
loans receivable, net, at end of period...... 0.99% 0.92% 0.96% 0.91% 0.87% 0.82% 0.73%
====== ====== ====== ====== ====== ====== ======
Ratio of net charge-offs during the period to
average non-performing loans................. 75.00% 2.53% 9.72% 0.98% 6.12% --% --%
====== ====== ====== ====== ====== ====== ======
</TABLE>
The allowance for loan losses is a valuation account that reflects our
evaluation of the losses inherent in our loan portfolio. We maintain the
allowance through provisions for loan losses that we charge to income. We
charge losses on loans against the allowance for loan losses when we believe the
collection of loan principal is unlikely.
Our evaluation of risk in maintaining the allowance for loan losses
includes the review of all loans on which the collectibility of principal may
not be reasonably assured. We consider the following factors as part of this
evaluation: our historical loan loss experience, known and inherent risks in the
loan portfolio, the estimated value of the underlying collateral, peer group
information and current economic and market trends. There may be other factors
that may warrant our consideration in maintaining an allowance at a level
sufficient to provide for probable losses. This evaluation is inherently
subjective as it requires estimates that are susceptible to significant
revisions as more information becomes available or as future events change.
Although we believe that we have established and maintained the allowance for
loan losses at adequate levels, future additions may be necessary if economic
and other conditions in the future differ substantially from the current
operating environment.
In addition, the Office of Thrift Supervision, as an integral part of its
examination process, periodically reviews our loan and foreclosed real estate
portfolios and the related allowance for loan losses and valuation allowance for
foreclosed real estate. The Office of Thrift Supervision may require us to
increase the allowance for loan losses or the valuation allowance for foreclosed
real estate based on their judgments of information available to them at the
time of their examination, thereby adversely affecting our results of
operations.
48
<PAGE>
Allocation of the Allowance for Loans Losses. The following table presents
our allocation of the allowance for loan losses by loan category and the
percentage of loans in each category to total loans at the periods indicated.
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------------------
October 31, 2000 2000 1999
------------------------------ ------------------------------ -------------------------------
Percent Percent Percent
of Loans of Loans of Loans
Loan in Each Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans Allowance Category Loans
--------- -------- -------- --------- -------- -------- --------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family......... $ 589 $137,396 87.6% $ 575 $140,120 87.7% $ 491 $140,351 87.5%
Home equity................. 23 10,720 6.8 23 11,002 6.9 25 11,413 7.1
Multi-family and other...... 4 5,476 3.5 5 5,693 3.5 5 6,058 3.8
Consumer.................... 15 3,306 2.1 14 3,003 1.9 13 2,612 1.6
Unallocated................. 897 -- -- 891 -- -- 893 -- --
------ -------- ----- ------ -------- ----- ------ -------- -----
Total...................... $1,528 $156,898 100.0% $1,508 $159,818 100.0% $1,432 $160,434 100.0%
====== ======== ===== ====== ======== ===== ====== ======== =====
June 30,
----------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------- ------------------------------ -----------------------------
Percent Percent Percent
of Loans of Loans of Loans
Loan in Each Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans Allowance Category Loans
--------- -------- -------- --------- -------- -------- --------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family......... $ 385 $127,428 84.4% $ 206 $111,920 82.2% $ 108 $116,008 82.1%
Home equity................. 30 14,114 9.4 32 15,310 11.2 34 16,215 11.5
Multi-family and other...... 5 6,362 4.2 5 5,993 4.5 5 6,317 4.5
Consumer.................... 14 2,985 2.0 14 2,881 2.1 12 2,687 1.9
Unallocated................. 849 -- -- 830 -- -- 844 -- --
------ -------- ----- ------ -------- ----- ------ -------- -----
Total...................... $1,283 $150,889 100.0% $1,087 $136,110 100.0% $1,003 $141,227 100.0%
====== ======== ===== ====== ======== ===== ====== ======== =====
</TABLE>
Investment Activities
Chesterfield Federal 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 Chicago, certificates of deposit of federally insured
institutions, certain bankers' acceptances and federal funds. Within certain
regulatory limits, Chesterfield Federal may also invest a portion of its assets
in commercial paper and corporate debt securities. We are also required to
maintain an investment in FHLB stock. Chesterfield Federal 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, "SFAS No. 115"
"Accounting for Certain Investments in Debt and Equity Securities," requires
that securities be categorized as "held to maturity," "trading securities" or
"available for sale," based on management's intent as to the ultimate
disposition of each security. SFAS No. 115 allows debt securities to be
classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold those securities to maturity. Securities that might be sold in response
to changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity."
Debt and equity securities held for current resale are classified as
"trading securities." These securities are reported at fair value, and
unrealized gains and losses on the securities would be included in earnings.
Chesterfield Federal does not currently use or maintain a trading account. Debt
and equity securities not classified as either "held to maturity" or "trading
49
<PAGE>
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. Chesterfield Federal has classified all of its securities
as held to maturity.
All of our securities carry market risk insofar as increases in market
rates of interest may cause a decrease in their market value. Many also carry
prepayment risk insofar as they may be called prior to maturity in times of low
market interest rates, so that we may have to invest the funds at a lower
interest rate. Our investment policy does not permit engaging directly in
hedging activities or purchasing high risk mortgage derivative products.
Investments in securities are made based on certain considerations, which
include the interest rate, tax considerations, yield, settlement date and
maturity of the security, our liquidity position, and anticipated cash needs and
sources. The effect that the proposed security would have on our credit and
interest rate risk and risk-based capital is also considered. We purchase
securities to provide necessary liquidity for day-to-day operations, and when
investable funds exceed loan demand.
Generally, the investment policy of Chesterfield Federal, as established by
the Board of Directors, is to invest funds among various categories of
investments and maturities based upon our liquidity needs, asset/liability
management policies, investment quality, marketability and performance
objectives.
Our securities are mainly composed of securities issued by the U.S.
Government and government agencies, although from time to time we make other
investments as permitted by applicable laws and regulations.
The following table sets forth the composition of our securities, net of
premiums and discounts, at the dates indicated.
<TABLE>
<CAPTION>
October 31, June 30,
------------------- ------------------------------------------------------------
2000 2000 1999 1998
------------------- ------------------ ---------------- -------------------
Book % of Book % of Book % of Book % of
Value Total Value Total Value Total Value Total
------- ------- ------- ------- ------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities held for
investment:
U.S. government securities............ $ -- --% $ -- --% $ -- --% $ 5,000 10.5%
Federal agency obligations - FHLB..... 75,000 88.6 70,000 93.0 50,000 86.0 30,000 62.8
Mortgage-backed securities - FHLMC.... 7,507 8.9 3,196 4.2 6,075 10.5 9,857 20.6
Collateralized mortgage obligations... -- -- -- -- -- -- 959 2.0
Tax increment allocation note......... 490 0.6 490 0.7 496 0.8 500 1.0
FHLB stock............................ 1,670 1.9 1,610 2.1 1,540 2.7 1,462 3.1
------- ----- ------- ----- ------- ----- ------- -----
Total investment securities
and FHLB stock...................... $84,667 100.0% $75,297 100.0% $58,111 100.0% $47,778 100.0%
======= ===== ======= ===== ======= ===== ======= =====
Average remaining life of
investment securities................. 1.3 years 1.6 years 1.8 years 0.9 years
Other interest-earning assets:
Interest-bearing deposits with banks.. $47,773 96.3% $59,932 95.7% $77,673 96.5% $88,078 95.7%
Federal funds sold.................... 1,800 3.7 2,700 4.3 2,800 3.5 4,000 4.3
------- ----- ------- ----- ------- ----- ------- -----
Total................................ $49,573 100.0% $62,632 100.0% $80,473 100.0% $92,078 100.0%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
50
<PAGE>
Carrying Values, Yields and Maturities. The following table sets forth the
scheduled maturities, carrying values, market value and weighted average yields
for our investment securities at October 31, 2000.
<TABLE>
<CAPTION>
October 31, 2000
------------------------------------------------------------------------------------
Less Than 1 to 5 5 to 10 Over
1 Year Years Years 10 Years Total Securities
----------- ----------- ----------- ----------- --------------------------------
Book Value Book Value Book Value Book Value Book Value Market Value
----------- ----------- ----------- ----------- ------------------ ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Federal agency obligations - FHLB... $40,000 $35,000 $ -- $ -- $75,000 $74,752
Tax increment allocation note....... 17 112 198 163 490 490
Mortgage backed securities - FHLMC.. -- -- -- -- 7,507 7,546
------- ------- ----- ----- ------- -------
Total securities................... $40,017 $35,112 $ 198 $ 163 $82,997 $82,788
======= ======= ===== ===== ======= =======
Weighted average yield 5.36 % 7.09% 8.50% 8.50% 6.00%
</TABLE>
Sources of Funds
General. Deposits have been our primary source of funds for lending and
other investment purposes. In addition to deposits, we derive funds primarily
from principal and interest payments on loans. These loan repayments are a
relatively stable source of funds, while deposit inflows and outflows are
significantly influenced by general interest rates and money market conditions.
Borrowings could be used on a short-term basis to compensate for reductions in
the availability of funds from other sources and may be used on a longer-term
basis for general business purposes.
Deposits. Our deposits are attracted principally from residents within our
primary market area. Deposit account terms vary, with the principal differences
being the minimum balance required, the time periods the funds must remain on
deposit and the interest rate. We are not currently using, nor have we used in
the past, brokers to obtain deposits. Our deposit products include demand and
NOW, money market, savings, and term certificate accounts. Interest rates paid,
maturity terms, service fees and withdrawal penalties are established by
Chesterfield Federal on a periodic basis. Management determines the rates and
terms based on rates paid by competitors, our needs for funds or liquidity,
growth goals and federal and state regulations.
Deposit Activity. The following table sets forth Chesterfield Federal's
deposit flows during the periods indicated.
<TABLE>
<CAPTION>
Four Months
Ended October 31, Years Ended June 30,
-------------------- ----------------------------------
2000 1999 2000 1999 1998
--------- -------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Opening balance.............. $ 263,350 $ 259,131 $ 259,131 $ 257,686 $ 256,270
Deposits..................... 103,927 97,935 306,464 293,490 287,138
Withdrawals.................. (114,527) (100,152) (313,002) (302,698) (297,024)
Interest credited............ 3,070 2,795 10,757 10,653 11,302
--------- --------- --------- --------- ---------
Ending balance............... $ 255,820 $ 259,709 $ 263,350 $ 259,131 $ 257,686
========= ========= ========= ========= =========
Net increase (decrease)...... $ (7,530) $ 578 $ 4,219 $ 1,445 $ 1,416
========= ========= ========= ========= =========
Percent increase (decrease).. (2.9)% 0.2% 1.6% 0.6% 0.5%
========= ========= ========= ========= =========
</TABLE>
51
<PAGE>
Deposit Accounts. The following table sets forth the dollar amount of
savings deposits in the various types of deposit programs we offered as of the
dates indicated.
<TABLE>
<CAPTION>
October 31, June 30,
-------------------------------------------------------------------
2000 2000 1999 1998
----------------- ------------------- -------------------- -------------------
Amount Percent Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Transactions and Savings Deposits:
---------------------------------
Passbook Savings 2.50 %.......... $ 54,332 21.2% $ 56,760 21.5% $ 58,258 22.4% $ 57,603 22.3%
NOW Accounts 1.50% - 1.75%....... 22,272 8.7 23,263 8.8 21,705 8.4 19,961 7.7
Money Market Accounts 3.00%...... 8,926 3.4 10,185 3.9 10,003 3.9 11,173 4.4
-------- ------ -------- ------ -------- ------ -------- ------
Total Non-Certificates........... 85,530 33.3 90,208 34.2 89,966 34.7 88,737 34.4
-------- ------ -------- ------ -------- ------ -------- ------
Time Deposits:
-------------
0.00 - 3.99%.................... 231 0.1 281 0.1 199 0.1 169 0.1
4.00 - 5.99%.................... 163,915 63.9 165,555 62.8 159,303 61.4 158,516 61.4
6.00 - 7.99%.................... 5,801 2.3 6,970 2.7 9,346 3.6 9.970 3.9
8.00 - 9.99%.................... 343 0.1 336 0.1 317 0.1 294 0.1
-------- ----- -------- ------ -------- ------ -------- ------
Total Time Deposits.............. 170,290 66.4 173,142 65.7 169,165 65.2 168,949 65.5
-------- ----- -------- ------ -------- ------ -------- ------
Accrued Interest................. 789 0.3 371 0.1 309 0.1 320 0.1
-------- ----- -------- ------ -------- ------ -------- ------
Total Deposits................... $256,609 100.0% $263,721 100.0% $259,440 100.0% $258,006 100.0%
======== ===== ======== ====== ======== ====== ======== ======
</TABLE>
Time Deposit Maturity Schedule. The following table presents, by rate
category, the remaining period to maturity of time deposit accounts outstanding
as of October 31, 2000.
<TABLE>
<CAPTION>
Maturity Date
---------------------------------------------------------------------------------------------
Interest Rate 1 Year or Less Over 1 to 2 Years Over 2 to 3 Years Over 3 Years Total
-------------------- -------------- ----------------- ----------------- ------------- --------
<S> <C> <C> <C> <C> <C>
0.00%-1.99%......... $ 231 $ -- $ -- $ -- $ 231
2.00% - 4.00%....... 143,140 9,577 8,603 2,595 163,915
4.01% - 6.00%....... 341 3,069 807 1,584 5,801
6.01% -8.00%........ -- 169 174 -- 343
-------- ------- ------ ------ --------
Total............... $143,712 $12,815 $9,584 $4,179 $170,290
======== ======= ====== ====== ========
</TABLE>
Large Certificates. The following table indicates the amount of our
certificates of deposit and other deposits by time remaining until maturity as
of October 31, 2000.
<TABLE>
<CAPTION>
Maturity
------------------------------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 Months Total
-------- ------- ------- --------- --------
<S> <C> <C> <C> <C> <C>
Time deposits less than $100,000......... $65,650 $19,762 $17,528 $21,886 $124,826
Time deposits of $100,000 or more........ 31,924 4,681 4,167 4,692 45,464
------- ------- ------- ------- --------
Total time deposits...................... $97,574 $24,443 $21,695 $26,578 $170,290
======= ======= ======= ======= ========
</TABLE>
Borrowings. Chesterfield Federal may obtain advances from the FHLB of
Chicago upon the security of the common stock it owns in that bank and certain
of its residential mortgage loans and mortgage-backed securities, provided
certain standards related to creditworthiness have been met. These advances are
made pursuant to several credit programs, each of which has its own interest
rate and range of maturities. FHLB advances are generally available to meet
seasonal and other withdrawals of deposit accounts and to permit increased
lending.
Chesterfield Federal did not borrow any funds, including FHLB advances,
during the four months ended October 31, 2000 and 1999 and the fiscal years
ended June 30, 2000, 1999 and 1998.
52
<PAGE>
Employees
At October 31, 2000, Chesterfield Federal had a total of 91 full-time and
19 part-time employees, including 18 employed by Chesterfield Insurance
Services, LLC, Chesterfield Federal's wholly-owned subsidiary. Chesterfield
Federal's employees are not represented by any collective bargaining group.
Management considers its employee relations to be good.
Properties
At October 31, 2000, we conducted our business from our main office at
10801 South Western Avenue, Chicago, Illinois. The following table sets forth
certain information with respect to the offices of Chesterfield Federal at
October 31, 2000.
Original
Leased Year
or Leased or Date of Lease
Location Owned Acquired Expiration
-------- ----- -------- -------------
10801 South Western Avenue Owned 1965 N/A
Chicago, Illinois 60643
10701 South Western Avenue Owned 1981 N/A
Chicago, Illinois 60643
10135 S. Roberts Road Leased 1976 10/14/06
Palos Hills, Illinois 60465
22 West Lincoln Highway Owned 1974 N/A
Frankfort, Illinois 60423
Legal Proceedings
Chesterfield Federal is involved, from time to time, as plaintiff or
defendant in various legal actions arising in the normal course of its
businesses. At October 31, 2000, Chesterfield Federal was not involved in any
material legal proceedings.
Service Corporation Activities
As a federally chartered savings association, Chesterfield Federal is
permitted by OTS regulations to invest up to 2% of its assets in the stock of,
or loans to, service corporation subsidiaries. Chesterfield Federal may invest
an additional 1% of its assets in service corporations where such additional
funds are used for inner-city or community development purposes and up to 50% of
its total capital in conforming loans to service corporations in which it owns
more than 10% of the capital stock. In addition to investments in service
corporations, federal associations are permitted to invest an unlimited amount
in operating subsidiaries engaged solely in activities in which a federal
association may engage. At October 31, 2000, Chesterfield Federal owned 100% of
Chesterfield Insurance Services, LLC.
REGULATION
Chesterfield Federal is examined and supervised extensively by the Office
of Thrift Supervision and the Federal Deposit Insurance Corporation.
Chesterfield Federal is a member of and owns stock in the Federal Home Loan Bank
of Chicago, which is one of the twelve regional banks in the Federal Home Loan
Bank System. This regulation and supervision establishes a
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comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the insurance fund and depositors.
Chesterfield Federal also is regulated by the Board of Governors of the Federal
Reserve System, governing reserves to be maintained against deposits and other
matters. The Office of Thrift Supervision examines Chesterfield Federal and
prepares reports for the consideration of Chesterfield Federal's Board of
Directors on any deficiencies that they may find in Chesterfield Federal's
operations. Chesterfield Federal's relationship with its depositors and
borrowers also is regulated to a great extent by both federal and state laws,
especially in matters concerning the ownership of savings accounts and the form
and content of Chesterfield Federal's mortgage documents. Any change in this
regulation, whether by the Federal Deposit Insurance Corporation, Office of
Thrift Supervision, or Congress, could have a material adverse impact on
Chesterfield Financial and Chesterfield Federal and their operations.
Federal Regulation of Savings Institutions
Business Activities. The activities of federal savings associations are
subject to extensive regulation including restrictions or requirements with
respect to loans to one borrower, the percentage of non-mortgage loans or
investments to total assets, capital distributions, permissible investments and
lending activities, liquidity, transactions with affiliates and community
reinvestment. The description of statutory provisions and regulations
applicable to savings associations set forth herein does not purport to be a
complete description of these statutes and regulations and their effect on
Chesterfield Federal.
Loans to One Borrower. Federal savings associations generally may not make
a loan or extend credit to a single or related group of borrowers in excess of
15% of unimpaired capital and surplus on an unsecured basis. An additional
amount may be lent, equal to 10% of unimpaired capital and surplus, if the loan
is secured by readily marketable collateral, which is defined to include certain
securities and bullion, but generally does not include real estate. As of
October 31, 2000 Chesterfield Federal was in compliance with its loans-to-one-
borrower limitations.
Qualified Thrift Lender Test. As a federal savings association,
Chesterfield Federal is required to satisfy a qualified thrift lender test
whereby it must maintain at least 65% of its "portfolio assets" in "qualified
thrift investments" consisting primarily of residential mortgages and related
investments, including mortgage-backed and related securities. "Portfolio
assets" generally means total assets less specified liquid assets up to 20% of
total assets, goodwill and other intangible assets, and the value of property
used to conduct business. A savings association that fails the qualified thrift
lender test must either convert to a bank charter or operate under specified
restrictions. As of October 31, 2000, Chesterfield Federal maintained 69.6% of
its portfolio assets in qualified thrift investments and, therefore, met the
qualified thrift lender test.
Capital Distributions. OTS regulations govern capital distributions by
savings institutions, which include cash dividends, stock repurchases and other
transactions charged to the capital account of a savings institution to make
capital distributions. A savings institution must file an application for OTS
approval of the capital distribution if either (1) the total capital
distributions for the applicable calendar year exceed the sum of the
institution's net income for that year to date plus the institution's retained
net income for the preceding two years, (2) the institution would not be at
least adequately capitalized following the distribution, (3) the distribution
would violate any applicable statute, regulation, agreement or OTS-imposed
condition, or (4) the institution is not eligible for expedited treatment of its
filings. If an application is not required to be filed, savings institutions
which are a subsidiary of a holding company, as well as certain other
institutions, must still file a notice with the OTS at least 30 days before the
board of directors declares a dividend or approves a capital distribution.
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Any additional capital distributions would require prior regulatory
approval. In the event Chesterfield Federal's capital fell below its fully
phased-in requirement or the Office of Thrift Supervision notified it that it
was in need of more than normal supervision, Chesterfield Federal's ability to
make capital distributions could be restricted. In addition, the Office of
Thrift Supervision could prohibit a proposed capital distribution by any
institution, which would otherwise be permitted by the regulation, if the Office
of Thrift Supervision determines that the distribution would constitute an
unsafe or unsound practice.
Liquidity. Chesterfield Federal is required to maintain an average daily
balance of specified liquid assets equal to a quarterly average of not less than
a specified percentage of its net withdrawable deposit accounts plus borrowings
payable in one year or less. The current requirement is 4%. Chesterfield
Federal's liquidity ratio at September 30, 2000, was 54.2%, which exceeded the
applicable requirements.
Community Reinvestment Act and Fair Lending Laws. Savings associations
have a responsibility under the Community Reinvestment Act and related
regulations of the Office of Thrift Supervision to help meet the credit needs of
their communities, including low- and moderate-income neighborhoods. In
addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit
lenders from discriminating in their lending practices on the basis of
characteristics specified in those statutes. An institution's failure to comply
with the provisions of the Community Reinvestment Act could, at a minimum,
result in regulatory restrictions on its activities, and failure to comply with
the Equal Credit Opportunity Act and the Fair Housing Act could result in
enforcement actions by the Office of Thrift Supervision, as well as other
federal regulatory agencies and the Department of Justice. Chesterfield Federal
received a satisfactory Community Reinvestment Act rating under the current
Community Reinvestment Act regulations in its most recent federal examination by
the Office of Thrift Supervision.
Transactions with Related Parties. Chesterfield Federal's authority to
engage in transactions with related parties or "affiliates" or to make loans to
specified insiders, is limited by Sections 23A and 23B of the Federal Reserve
Act. The term "affiliates" for these purposes generally means any company that
controls or is under common control with an institution, including Chesterfield
Financial and its non-savings institution subsidiaries. Section 23A limits the
aggregate amount of certain "covered" transactions with any individual affiliate
to 10% of the capital and surplus of the savings institution and also limits the
aggregate amount of covered transactions with all affiliates to 20% of the
savings institution's capital and surplus. Covered transactions with affiliates
are required to be secured by collateral in an amount and of a type described in
Section 23A and the purchase of low quality assets from affiliates is generally
prohibited. Section 23B provides that covered transactions with affiliates,
including loans and asset purchases, must be on terms and under circumstances,
including credit standards, that are substantially the same or at least as
favorable to the institution as those prevailing at the time for comparable
transactions with non-affiliated companies. In addition, savings institutions
are prohibited from lending to any affiliate that is engaged in activities that
are not permissible for bank holding companies and no savings institution may
purchase the securities of any affiliate other than a subsidiary.
Chesterfield Federal's authority to extend credit to executive officers,
directors and 10% stockholders, as well as entities controlled by these persons,
is currently governed by Sections 22(g) and 22(h) of the Federal Reserve Act,
and also by Regulation O. Among other things, these regulations generally
require these loans to be made on terms substantially the same as those offered
to unaffiliated individuals and do not involve more than the normal risk of
repayment. However, recent regulations now permit executive officers and
directors to receive the same terms through benefit or compensation plans that
are widely available to other employees, as long as the director or executive
officer is not given preferential treatment compared to other participating
employees. Regulation O also places individual and aggregate
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limits on the amount of loans Chesterfield Federal may make to these persons
based, in part, on Chesterfield Federal's capital position, and requires
approval procedures to be followed. At October 31, 2000, Chesterfield Federal
was in compliance with these regulations.
Enforcement. The Office of Thrift Supervision has primary enforcement
responsibility over savings institutions and has the authority to bring
enforcement action against all "institution-related parties," including
stockholders, and attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors of the institutions, receivership, conservatorship or the termination
of deposit insurance. Civil penalties cover a wide range of violations and
actions, and range up to $25,000 per day, unless a finding of reckless disregard
is made, in which case penalties may be as high as $1 million per day. The
Federal Deposit Insurance Corporation also has the authority to recommend to the
Director of the Office of Thrift Supervision that enforcement action be taken
with respect to a particular savings institution. If action is not taken by the
Director, the Federal Deposit Insurance Corporation has authority to take such
action under specified circumstances.
Standards for Safety and Soundness. Federal law requires each federal
banking agency to prescribe for all insured depository institutions standards
relating to, among other things, internal controls, information systems and
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, compensation, and such other operational and managerial
standards as the agency deems appropriate. The federal banking agencies adopted
Interagency Guidelines Prescribing Standards for Safety and Soundness to
implement the safety and soundness standards required under the Federal law.
The guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. The guidelines address internal
controls and information systems; internal audit systems; credit underwriting;
loan documentation; interest rate risk exposure; asset growth; and compensation,
fees and benefits. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard. If an institution fails to meet these
standards, the appropriate federal banking agency may require the institution to
submit a compliance plan.
Capital Requirements.
OTS capital regulations require savings institutions to meet three minimum
capital standards: a 1.5% tangible capital ratio, a 4% leverage ratio (3% for
institutions receiving the highest rating on the CAMELS rating system) and an 8%
risk-based capital ratio. In addition, the prompt corrective action standards
discussed below also establish, in effect, a minimum 2% tangible capital
standard, a 4% leverage ratio (3% for institutions receiving the highest rating
on the CAMELS financial institution rating system), and, together with the risk-
based capital standard itself, a 4% Tier 1 risk-based capital standard. OTS
regulations also require that, in meeting the tangible, leverage and risk-based
capital standards, institutions must generally deduct investments in and loans
to subsidiaries engaged in activities as principal that are not permissible for
a national bank.
The risk-based capital standard for savings institutions requires the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight
factor of 0% to 100%, assigned by the OTS capital regulation based on the risks
believed inherent in the type of asset. Core (Tier 1) capital is defined as
common stockholders'
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equity (including retained earnings), certain noncumulative perpetual preferred
stock and related surplus and minority interests in equity accounts of
consolidated subsidiaries less intangibles other than certain mortgage servicing
rights and credit card relationships. The components of supplementary capital
currently include cumulative preferred stock, long-term perpetual preferred
stock, mandatory convertible securities, subordinated debt and intermediate
preferred stock, the allowance for loan and lease losses limited to a maximum of
1.25% of risk-weighted assets and up to 45% of unrealized gains on
available-for-sale equity securities with readily determinable fair market
values. Overall, the amount of supplementary capital included as part of total
capital cannot exceed 100% of core capital.
The capital regulations also incorporate an interest rate risk component.
Savings institutions with "above normal" interest rate risk exposure are subject
to a deduction from total capital for purposes of calculating their risk-based
capital requirements. For the present time, the OTS has deferred implementation
of the interest rate risk capital charge. At October 31, 2000, Chesterfield
Federal met each of its capital requirements.
Prompt Corrective Regulatory Action
Under the Office of Thrift Supervision Prompt Corrective Action
regulations, the Office of Thrift Supervision is required to take supervisory
actions against undercapitalized institutions, the severity of which depends
upon the institution's level of capital. Generally, a savings institution that
has total risk-based capital of less than 8.0% or a leverage ratio or a Tier 1
core capital ratio that is less than 4.0% is considered to be undercapitalized.
A savings institution that has the total risk-based capital less than 6.0%, a
Tier 1 core risk-based capital ratio of less than 3.0% or a leverage ratio that
is less than 3.0% is considered to be "significantly undercapitalized" and a
savings institution that has a tangible capital to assets ratio equal to or less
than 2.0% is deemed to be "critically undercapitalized." Generally, the banking
regulator is required to appoint a receiver or conservator for an institution
that is "critically undercapitalized." The regulation also provides that a
capital restoration plan must be filed with the Office of Thrift Supervision
within 45 days of the date an institution receives notice that it is
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." In addition, numerous mandatory supervisory actions become
immediately applicable to the institution, including, but not limited to,
restrictions on growth, investment activities, capital distributions, and
affiliate transactions. The Office of Thrift Supervision could also take any
one of a number of discretionary supervisory actions against undercapitalized
institutions, including the issuance of a capital directive and the replacement
of senior executive officers and directors.
Insurance of Deposit Accounts
The Federal Deposit Insurance Corporation has adopted a risk-based deposit
insurance assessment system. The Federal Deposit Insurance Corporation assigns
an institution to one of three capital categories based on the institution's
financial information, as of the reporting period ending seven months before the
assessment period, and one of three supervisory subcategories within each
capital group. The three capital categories are well capitalized, adequately
capitalized and undercapitalized. The supervisory subgroup to which an
institution is assigned is based on a supervisory evaluation provided to the
Federal Deposit Insurance Corporation by the institution's primary federal
regulator and information which the Federal Deposit Insurance Corporation
determines to be relevant to the institution's financial condition and the risk
posed to the deposit insurance funds. An institution's assessment rate depends
on the capital category and supervisory category to which it is assigned. The
Federal Deposit Insurance Corporation is authorized to raise the assessment
rates. The Federal Deposit Insurance Corporation has exercised this authority
several times in the past and may raise insurance premiums in the future. If
this type of action is taken by the Federal Deposit Insurance Corporation, it
could have an adverse effect on the earnings of Chesterfield Federal.
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Federal Home Loan Bank System
Chesterfield Federal is a member of the Federal Home Loan Bank System,
which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan
Bank System provides a central credit facility primarily for member
institutions. Chesterfield Federal, as a member of the Federal Home Loan Bank
of Chicago, is required to acquire and hold shares of capital stock in that
Federal Home Loan Bank in an amount at least equal to 1% of the aggregate
principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year, or 1/20 of its borrowings from the
Federal Home Loan Bank, whichever is greater. As of June 30, 2000, Chesterfield
Federal was in compliance with this requirement. The Federal Home Loan Banks
are required to provide funds for the resolution of insolvent thrifts and to
contribute funds for affordable housing programs. These requirements could
reduce the amount of dividends that the Federal Home Loan Banks pay to their
members and could also result in the Federal Home Loan Banks imposing a higher
rate of interest on advances to their members.
Federal Reserve System
The Federal Reserve Board regulations require savings institutions to
maintain noninterest-earning reserves against their transaction accounts, such
as negotiable order of withdrawal and regular checking accounts. At June 30,
2000, Chesterfield Federal was in compliance with these reserve requirements.
The balances maintained to meet the reserve requirements imposed by the Federal
Reserve Board may be used to satisfy liquidity requirements imposed by the
Office of Thrift Supervision.
Holding Company Regulation
Chesterfield Financial will be a nondiversified unitary savings and loan
holding company within the meaning of federal law. Under prior law, a unitary
savings and loan holding company, such as Chesterfield Financial, was not
generally restricted as to the types of business activities in which it may
engage, provided that Chesterfield Federal continued to be a qualified thrift
lender. See "--Federal Regulation of Savings Institutions--Qualified Thrift
Lender Test." The Gramm-Leach-Bliley Act of 1999, however, restricts unitary
savings and loan holding companies not existing or applied for before May 4,
1999 to activities permissible for financial holding companies under the law or
for multiple savings and loan holding companies. Chesterfield Financial will not
qualify to be grandfathered and will be limited to the activities permissible
for financial holding companies or multiple savings and loan holding companies.
A financial holding company may engage in activities that are financial in
nature, incidental to financial activities or complementary to a financial
activity. A multiple savings and loan holding company is generally limited to
activities permissible for bank holding companies under Section 4(c)(8) of the
Bank Holding Company Act, subject to the prior approval of the Office of Thrift
Supervision, and certain additional activities authorized by Office of Thrift
Supervision regulation.
A savings and loan holding company is prohibited from, directly or
indirectly, acquiring more than 5% of the voting stock of another savings
institution or savings and loan holding company without prior written approval
of the Office of Thrift Supervision and from acquiring or retaining control of a
depository institution that is not insured by the Federal Deposit Insurance
Corporation. In evaluating applications by holding companies to acquire savings
institutions, the Office of Thrift Supervision considers the financial and
managerial resources and future prospects of the holding company and institution
involved, the effect of the acquisition on the risk to the deposit insurance
funds, the convenience and needs of the community and competitive factors.
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The Office of Thrift Supervision may not approve any acquisition that would
result in a multiple savings and loan holding company controlling savings
institutions in more than one state, subject to two exceptions: (1) the approval
of interstate supervisory acquisitions by savings and loan holding companies and
(2) the acquisition of a savings institution in another state if the laws of the
state of the target savings institution specifically permit such acquisitions.
The states vary in the extent to which they permit interstate savings and loan
holding company acquisitions.
Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, federal regulations do prescribe such restrictions
on subsidiary savings institutions as described below. Chesterfield Federal must
notify the Office of Thrift Supervision 30 days before declaring any dividend to
Chesterfield Financial. In addition, the financial impact of a holding company
on its subsidiary institution is a matter that is evaluated by the Office of
Thrift Supervision and the agency has authority to order cessation of activities
or divestiture of subsidiaries deemed to pose a threat to the safety and
soundness of the institution.
The Office of Thrift Supervision has proposed new rules which would require
savings and loan holding companies to notify the Office of Thrift Supervision
prior to engaging in transactions which (i) when combined with other debt
transactions engaged in during a 12-month period, would increase the holding
company's consolidated debt by 5% or more; (ii) when combined with other asset
acquisitions engaged in during a 12-month period, would result in asset
acquisitions of greater than 15% of the holding company's consolidated assets;
or (iii) when combined with any other transactions engaged in during a 12-month
period, would reduce the holding company's consolidated tangible capital to
consolidated tangible assets by 10% or more during the 12-month period. The
Office of Thrift Supervision has proposed to exempt from this rule holding
companies whose consolidated tangible capital exceeds 10% following the
transactions.
The Office of Thrift Supervision has also proposed new rules which would
codify the manner in which the Office of Thrift Supervision reviews the capital
adequacy of savings and loan holding companies and determines when a holding
company must maintain additional capital. The Office of Thrift Supervision is
not currently proposing to establish uniform capital adequacy guidelines for all
savings and loan holding companies.
Chesterfield Financial and Chesterfield Federal are unable to predict
whether or when these proposed regulations will be adopted, and what effect, if
any, the adoption of these regulations would have on their business.
Federal Securities Laws
Chesterfield Financial has filed with the Securities and Exchange
Commission a registration statement under the Securities Act of 1933, as
amended, for the registration of the common stock to be issued pursuant to the
conversion. Upon completion of the conversion, Chesterfield Financial common
stock will be registered with the Securities and Exchange Commission under the
Securities Exchange Act of 1934. Chesterfield Financial will then be subject to
the information, proxy solicitation, insider trading restrictions and other
requirements under the Securities Exchange Act of 1934.
The registration under the Securities Act of 1933 of shares of the common
stock to be issued in the conversion does not cover the resale of the shares.
Shares of the common stock purchased by persons who are not affiliates of
Chesterfield Financial may be resold without registration. Shares purchased by
an affiliate of Chesterfield Financial will be subject to the resale
restrictions of Rule 144 under the Securities Act of 1933. If Chesterfield
Financial meets the current public information requirements of Rule 144 under
the Securities Act of 1933, each
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affiliate of Chesterfield Financial who complies with the other conditions of
Rule 144, including those that require the affiliate's sale to be aggregated
with those of 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 Chesterfield Financial, or the
average weekly volume of trading in the shares during the preceding four
calendar weeks. Provision may be made in the future by Chesterfield Financial to
permit affiliates to have their shares registered for sale under the Securities
Act of 1933.
TAXATION
Federal Taxation
For federal income tax purposes, Chesterfield Financial and Chesterfield
Federal will file a consolidated federal income tax return on a calendar year
basis using the accrual method of accounting.
As a result of the enactment of the Small Business Job Protection Act of
1996, all savings banks and savings associations may convert to a commercial
bank charter, diversify their lending, or be merged into a commercial bank
without having to recapture any of their pre-1988 tax bad debt reserve
accumulations. However, transactions which would require recapture of the pre-
1988 tax bad debt reserve include redemption of Chesterfield Federal's stock,
payment of dividends or distributions in excess of earnings and profits, or
failure by the institution to qualify as a bank for federal income tax purposes.
At October 31, 2000, Chesterfield Federal had a balance of approximately $6.7
million of pre-1988 bad debt reserves. A deferred tax liability has not been
provided on this amount as management does not intend to make distributions,
redeem stock or fail certain bank tests that would result in recapture of the
reserve.
Deferred income taxes arise from the recognition of items of income and
expense for tax purposes in years different from those in which they are
recognized in the consolidated financial statements. Chesterfield Financial
will account for deferred income taxes by the asset and liability method,
applying the enacted statutory rates in effect at the balance sheet date to
differences between the book basis and the tax basis of assets and liabilities.
The resulting deferred tax liabilities and assets will be adjusted to reflect
changes in the tax laws.
Chesterfield Financial will be subject to the corporate alternative minimum
tax to the extent it exceeds Chesterfield Financial's regular income tax for the
year. The alternative minimum tax will be imposed at the rate of 20% of a
specially computed tax base. Included in this base are a number of preference
items, including interest on certain tax-exempt bonds issued after August 7,
1986, and an "adjusted current earnings" computation which is similar to a tax
earnings and profits computation. In addition, for purposes of the alternative
minimum tax, the amount of alternative minimum taxable income that may be offset
by net operating losses is limited to 90% of alternative minimum taxable income.
State Taxation
Illinois State Taxation. Chesterfield Financial is required to file
Illinois income tax returns and pay tax at an effective tax rate of 7.18% of
Illinois taxable income. For these purposes, Illinois taxable income generally
means federal taxable income subject to certain modifications, the primary one
of which is the exclusion of interest income on United States obligations.
Delaware Taxation. As a Delaware holding company not earning income in
Delaware, Chesterfield Financial is exempt from Delaware corporate income tax
but is required to file an annual report with and pay an annual franchise tax to
the State of Delaware.
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MANAGEMENT
Directors and Executive Officers of Chesterfield Financial
The Board of Directors of Chesterfield Financial currently consists of six
members, each of whom is also a director of Chesterfield Federal. See "--
Directors of Chesterfield Federal." Each Director of Chesterfield Financial has
served as such since Chesterfield Financial's incorporation in December 2000.
Directors of Chesterfield Financial will serve three-year staggered terms. The
terms of the current directors of Chesterfield Financial are the same as their
terms as directors of Chesterfield Federal. See "--Directors of Chesterfield
Federal."
The following individuals hold positions as executive officers of
Chesterfield Financial as is set forth below opposite their names:
Name Position
---- --------
Michael E. DeHaan President and Chief Executive Officer
Richard E. Urchell Vice President and Secretary
The executive officers of Chesterfield Financial are elected annually and
hold office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors.
It is not anticipated that the executive officers of Chesterfield Financial
will receive any remuneration in this capacity as executive officers of the
holding company. For information regarding compensation of directors and
executive officers of Chesterfield Federal, see "--Meetings of the Board of
Directors and Committees of Chesterfield Federal," "--Compensation of the Board
of Directors of Chesterfield Federal" and "--Executive Compensation."
Committees of Chesterfield Financial
Chesterfield Financial formed standing Audit, Nominating and Compensation
Committees in connection with its organization in January 2001. The holding
company was not incorporated in fiscal 2000 and therefore the committees did not
meet during that fiscal year.
The Audit Committee will review audit reports and related matters to ensure
effective compliance with regulations and internal policies and procedures.
This committee also will act on the recommendation by management of an
accounting firm to perform the holding company's annual audit and acts as a
liaison between the auditors and the Board. The current members of this
committee are Directors Steadman, Walters and Mangan.
The Nominating Committee will meet annually in order to nominate candidates
for membership on the Board of Directors. This committee is comprised of the
Board members who are not standing for election.
The Compensation Committee will establish the holding company's
compensation policies and review compensation matters. The current members of
this Committee are Directors Steadman and Mangan.
Directors and Executive Officers of Chesterfield Federal
Prior to the conversion, the direction and control of Chesterfield Federal,
as a mutual savings institution, had been vested in its Board of Directors.
Upon conversion of Chesterfield
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Federal to stock form, each of the directors of Chesterfield Federal will
continue to serve as a director of the converted association. The Board of
Directors of Chesterfield Federal currently consists of six directors. The
directors are divided into three classes. One-third of the directors are elected
at each annual meeting of stockholders. Because Chesterfield Financial will own
all of the issued and outstanding shares of capital stock of the converted
association after the conversion, directors of the holding company will elect
the directors of Chesterfield Federal.
The following table sets forth certain information regarding the
directors and executive officers of Chesterfield Federal and the holding
company:
<TABLE>
<CAPTION>
Position(s) Held with Director Director Term
Name Chesterfield Federal Age/(1)/ Since Expires
---- ---------------------- -------- -------- -------
<S> <C> <C> <C> <C>
Michael E. DeHaan/(2)/ President, Chief Executive Officer 56 1974 2004
and Director
C.C. DeHaan/(2)/ Director 68 1967 2003
Robert T. Mangan Director 71 1979 2002
David M. Steadman Director 51 1988 2004
Richard E. Urchell Director, Vice President and Secretary 64 1995 2003
Donald D. Walters Director 71 1987 2002
</TABLE>
_________________________
/(1)/ At October 31, 2000.
/(2)/ Michael E. DeHaan and C.C. DeHaan are second cousins.
The business experience of each director is set forth below. All
directors have held their present position for at least the past five years,
except as otherwise indicated.
Michael E. DeHaan. Mr. DeHaan has been employed by Chesterfield Federal
since 1967, and has served as President and Chief Executive Officer since 1983
and Chairman of the Board since 1991.
C.C. DeHaan. Prior to his retirement in 1993, Mr DeHaan served as
President of Chesterfield Federal's wholly-owned subsidiary, Chesterfield
Service Corporation (now named Chesterfield Insurance Services, LLC.).
Robert T. Mangan. Mr. Mangan is the Secretary/Treasurer of Mangan
Realty, where he has worked since 1960.
David M. Steadman. Mr. Steadman is a self-employed attorney and real
estate broker, and has owned Steadman Realty Co. since 1981.
Richard E. Urchell. Mr. Urchell has been employed by Chesterfield
Federal since 1977, and has served as Vice President and Secretary since 1992.
Donald D. Walters. Prior to his retirement in 1994, Mr. Walters served
as Vice President and Treasurer of Chesterfield Federal.
Meetings of the Board of Directors of Chesterfield Federal
The Board of Directors met 12 times during the year ended June 30, 2000.
During fiscal 2000, no director of Chesterfield Federal attended fewer than 75%
of the aggregate of the total number of Board meetings and the total number of
meetings held by the committees of the Board of Directors on which he served.
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Compensation of the Board of Directors of Chesterfield Federal
Directors were paid an annual retainer fee of $15,000 for the year ended
June 30, 2000. Directors do not receive additional fees for their service on
committees. For a discussion of additional benefits that may be received by
directors following the conversion, see "--Benefit Plans--Stock Option Plan" and
"--Recognition and Retention Plan."
Supplemental Benefit Plan for Outside Directors. Chesterfield Federal
maintains a supplemental benefit plan for outside directors to provide
retirement income to participants upon their resignation or termination from the
Board of Directors. Messrs. C.C. DeHaan, Robert Mangan, David Steadman, and
Donald Walters are the initial participants in this plan. The Board may, in its
discretion, designate additional outside directors as participants. The plan
administrator maintains an account for each participant. Participants become
vested in their retirement benefits under this plan upon completion of four
years of continuous service. Notwithstanding the foregoing, a participant will
become vested in his retirement benefit upon the earlier of his death, his
disability, or upon a change in control; provided that if a participant resigns
from the Board or is not reelected prior to becoming vested in his retirement
benefit, he will not be entitled to any benefit under this plan. Retirement
benefits are payable in installments of $1,000 per month for a period of 120
months. Notwithstanding the foregoing, upon a change in control, a participant
will be entitled to the present value of his vested retirement benefit (or, if
payments have already commenced, the remainder thereof) in the form of a lump
sum, payable as soon as practicable following the change in control. If a
participant dies before payments of his vested retirement benefit have
commenced, or after payments have commenced, payments will be made to his
beneficiary. The plan is considered an unfunded plan for tax and ERISA
purposes. All obligations arising under the plan are payable from the general
assets of Chesterfield Federal; however, the Chesterfield Federal has
established a rabbi trust to ensure that sufficient assets will be available to
pay the benefits under the plan.
Deferred Compensation Plan for Directors. Chesterfield Federal maintains
an unfunded deferred compensation plan for directors pursuant to which directors
may elect to defer all or a portion of their annual fees. Interest on the
deferred fees will be credited at the greater rate of 7%, with daily
compounding, or the rate offered by Chesterfield Federal to individual customers
on the first day of each calendar year for 18-month IRA accounts. Upon a
participant's death, retirement, resignation or removal, amounts deferred under
this plan, including accumulated interest, will be paid to the participant or
his beneficiary over a period of up to ten years, as determined by a majority
vote of the remaining directors. Payments will commence on the first day of the
calendar year following the year in which the director ceases to be a director.
Upon the death of a former director prior to the expiration of the period during
which the deferred amounts are payable, the balance of the deferred fees and
interest will be paid either in installments to the participant's beneficiary or
in a lump sum, as determined by the Board. The plan is considered an unfunded
plan for tax and ERISA purposes. All obligations arising under the plan are
payable from the general assets of Chesterfield Federal; however, the
Chesterfield Federal has established a rabbi trust to ensure that sufficient
assets will be available to pay the benefits under the plan.
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Executive Compensation
The following table sets forth information concerning the compensation paid
or granted to Chesterfield Federal's Chief Executive Officer. No other
executive officer of Chesterfield Federal had aggregate annual compensation in
excess of $100,000 in fiscal 2000.
<TABLE>
<CAPTION>
Annual Compensation/(1)/
------------------------
Other
Name and Principal Fiscal Annual All Other
Position Year/(1)/ Salary Bonus Compensation Compensation
------------------------- ------------ ---------- --------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Michael E. DeHaan,
President, Chief Executive
Officer and Director 2000 $199,600 $11,700 $15,000/(2)/ $ --
</TABLE>
--------------------------
/(1)/ Summary Compensation information is excluded for the fiscal years ended
June 30, 1999 and 1998, as Chesterfield Federal was not a public company
during such periods.
/(2)/ Consists of director's fees of $15,000. Does not include the aggregate
amount of other personal benefits, which did not exceed 10% of the total
salary and bonus reported.
Benefit Plans
General. Chesterfield Federal currently provides health care
benefits, including medical, disability and group life insurance, subject to
certain deductibles and copayments, for its full time employees.
Employment Agreement. Chesterfield Federal intends to enter into an
employment agreement with Mr. DeHaan which will provide for a term of 36 months.
On each anniversary date, the agreement may be extended for an additional 12
months, so that the remaining term shall be 36 months. If the agreement is not
renewed, the agreement will expire 36 months following the anniversary date.
The current annual base salary for Mr. DeHaan is $______. The base salary may
be increased but not decreased. In addition to the base salary, the agreement
provides for, among other things, insurance benefits and participation in other
employee and fringe benefits applicable to executive personnel. The agreement
provides for termination of executive by Chesterfield Federal for cause at any
time. In the event Chesterfield Federal terminates the executive's employment
during the term of the agreement for reasons other than cause, or in the event
of the executive's resignation from Chesterfield Federal upon (1) failure to re-
elect the executive to his current offices, (2) a material change in the
executive's functions, duties or responsibilities, or relocation of his
principal place of employment by more than 30 miles, (3) liquidation or
dissolution of Chesterfield Federal, or (4) a breach of the agreement by
Chesterfield Federal, the executive, or in the event of death, his beneficiary
would be entitled to severance pay in an amount equal to approximately $_______
if termination occurs in 2001. Chesterfield Federal would also continue the
executive's life, medical and dental coverage for the remaining unexpired term
of the agreement. In the event the payments to the executive would include an
"excess parachute payment" as defined in the Internal Revenue Code, the payments
would be reduced in order to avoid having an excess parachute payment. The
agreement may be revised based upon comments of the Office of Thrift
Supervision.
The executive's employment may be terminated upon his attainment of
age 65 or such later age as may be required by law or consented to by the board
of directors. Upon Mr. DeHaan's retirement, he will be entitled to all benefits
available to him under any retirement or other benefit plan maintained by
Chesterfield Federal. In the event of the executive's disability
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for a period of six months, Chesterfield Federal may terminate the agreement
provided that Chesterfield Federal will be obligated to pay the executive a bi-
weekly payment equal to three quarters of the executive's bi-weekly rate of base
salary, reduced by any benefits paid to the executive pursuant to any disability
insurance policy or similar arrangement maintained by Chesterfield Federal. The
disability payments shall end on the earlier of (i) the date the executive
returns to full-time employment with Chesterfield Federal or another employer,
(ii) his attainment of age 65, or (iii) his death.
Severance Plan for Officers and Employees. Chesterfield Federal intends to
enter into a severance plan for the benefit of its officers and employees. Any
employee who has worked at Chesterfield Federal for one or more years is
eligible to participate in the plan. Upon a change in control of Chesterfield
Federal followed within two years by the involuntary or, in certain instances,
voluntary termination of the employee's employment, other than termination for
cause, Chesterfield Federal or its successor will pay the employee an amount
equal to the following: for every two years of employment, one month's base
salary or rate of pay paid by Chesterfield Federal or its successor for the last
full calendar month of employment prior to such termination. The maximum cash
severance benefit for employees is six months of salary. An employee who has
worked for Chesterfield Federal for at least one year but less than two years,
will be entitled to one month's severance benefits. In addition, Chesterfield
Federal will continue life and medical coverage for one month for every two year
of the employee's employment, up to six months of coverage.
Upon a change in control of Chesterfield Federal followed within two years
by the involuntary or in certain instances, voluntary termination of a
participating officer's employment, other than termination for cause,
Chesterfield Federal or its successor will pay the executive an amount equal to
the wages, salary, bonus and incentive cash compensation paid by Chesterfield
Federal to the officer for the 12 month period ending on the date of
termination. In addition, Chesterfield Federal will continue life and medical
coverage for a period of 12 months following the officer's termination of
employment. Employees who are covered by an employment agreement are not
eligible for the severance.
Employee Stock Ownership Plan and Trust. Chesterfield Federal intends to
implement the employee stock ownership plan in connection with the conversion.
Employees with at least one year of employment with Chesterfield Federal and who
have attained age 21 are eligible to participate. As part of the conversion, the
employee stock ownership plan intends to borrow funds from Chesterfield
Financial and use those funds to purchase a number of shares equal to up to 8.0%
of the common stock to be issued in the conversion. Collateral for the loan
will be the common stock purchased by the employee stock ownership plan . The
loan will be repaid principally from Chesterfield Federal's discretionary
contributions to the employee stock ownership plan over a period of up to 20
years, provided that the loan documents will permit repayment over a shorter
period, without penalty for prepayments. It is anticipated that the interest
rate for the loan will be a floating rate equal to the prime rate. Shares
purchased by the employee stock ownership plan will be held in a suspense
account for allocation among participants as the loan is repaid.
Contributions to the employee stock ownership plan and shares released from
the suspense account in an amount proportional to the repayment of the employee
stock ownership plan loan will be allocated among employee stock ownership plan
participants on the basis of compensation in the year of allocation. A
participant who terminates employment for reasons other than death, retirement,
or disability prior to five years of credited service under the employee stock
ownership plan will forfeit his benefits. Nonvested benefits will become fully
vested upon five years of credited service, or prior to five years of credited
service in connection with a participants death or disability or termination of
the plan. Vested benefits will be payable in the form of common stock and/or
cash. Chesterfield Federal's contributions to the employee
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stock ownership plan are discretionary, subject to the loan terms and tax law
limits; therefore, benefits payable under the employee stock ownership plan
cannot be estimated. Pursuant to SOP 93-6, Chesterfield Federal is required to
record compensation expense in an amount equal to the fair market value of the
shares released from the suspense account. In the event of a change in control
(as defined in the plan) the employee stock ownership plan will terminate.
In connection with the establishment of the employee stock ownership plan,
Chesterfield Federal will establish a committee of nonemployee directors to
administer the employee stock ownership plan. Chesterfield Federal will appoint
an independent financial institution or its outside directors to serve as
trustee of the employee stock ownership plan. The employee stock ownership plan
trustee, subject to its fiduciary duty, must vote all allocated shares held in
the employee stock ownership plan in accordance with the instructions of
participating employees. Under the employee stock ownership plan, nondirected
shares and shares held in the suspense account will be voted in a manner
calculated to most accurately reflect the instructions it has received from
participants regarding the allocated stock, so long as such vote is in
accordance with the provisions of ERISA.
Supplemental Benefit Plan. Chesterfield Federal maintains a supplemental
benefit plan for inside directors to provide retirement income to participants
upon their separation from service due to termination of employment, death,
disability, or upon a change in control. Messrs. Michael DeHaan and Richard
Urchell are the initial participants in this plan. The Board of Directors may,
in its discretion, designate additional inside directors as participants. In
the case of Director DeHaan, the total retirement benefit from this plan, when
added to his benefits under the tax-qualified plan (other than the employee
stock ownership plan) and the OBRA Recapture Plan is intended to provide an
annual retirement benefit equal to 70% of his salary. In the case of Director
Urchell, his retirement benefit under this plan will be an annual payment of
$24,000 (without offset for other retirement benefits). Upon retirement,
Messrs. DeHaan and Urchell will be entitled to their account balances, payable
in annual installments over periods of 20 and 15 years, respectively, unless
they elect another form of payment. In the event of a participant's death
before payments under this plan have commenced or before benefits are completely
paid, benefits will be paid to the participant's beneficiary. The plan is
considered an unfunded plan for tax and ERISA purposes. All obligations arising
under the plan are payable from the general assets of Chesterfield Federal;
however, the Chesterfield Federal has established a rabbi trust to ensure that
sufficient assets will be available to pay the benefits under the plan. The
following amounts have been credited to Mr. DeHaan's account: $295,488 in fiscal
1998 and 1999 and $84,425 in fiscal 2000. Mr. Urchell's account was credited
with $59,139 in fiscal 1998 and 1999, and $16,897 in fiscal 2000.
OBRA Recapture Benefit Plan. Chesterfield Federal maintains a supplemental
benefit plan to provide retirement income to a participant that he would
otherwise be entitled to receive under Chesterfield Federal's tax-qualified
plans but for the cut-backs in benefits due to certain tax law limits enacted
under the Omnibus Budget Reconciliation Act of 1993 ("OBRA"). Mr. Michael
DeHaan is currently the only participant in this plan. The account of the
participant is credited annually with the amount by which the participant's
maximum contribution, as defined in the OBRA Recapture Plan, under a tax-
qualified plan (including the employee stock ownership plan) exceeds his actual
contribution, as defined in the OBRA Recapture Plan. The participant's account
is also credited annually with interest at a rate equal to the greater of: (1)
7% per annum, compounded daily, or (2) the interest rate for one-year
certificate of deposits as paid by Chesterfield Federal, provided, however, that
the portion of the participant's account that is attributable to the differences
between the maximum and actual contribution under the employee stock ownership
plan may be invested in common stock of Chesterfield Financial. In addition,
with respect to a participant eligible to participate as of the effective date
of the plan, an amount will be credited to the account of each such participant
in an amount equal to the amount that would have been in such participant's
account, as of that date, had the Plan been in effect on
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July 1, 1994. Upon the participant's separation from service, the participant
will be entitled to his vested account balance, payable, at the participant's
election, either in a lump sum or in annual installments. If the participant
dies before receiving his entire vested account balance, the remainder of his
account balance will be paid to the participant's beneficiary in a lump sum.
Stock Option Plan. Chesterfield Financial expects to adopt a stock option
plan for directors, officers and employees of the holding company and
Chesterfield Federal after the conversion. Applicable regulations prohibit the
holding company from implementing this plan until six months after the
conversion and, if implemented within the first twelve months after the
conversion, require that approval of the holders of a majority of the
outstanding shares of the holding company be obtained.
Chesterfield Financial expects to adopt a stock option plan that will
authorize a committee of non-employee directors or the full board of the holding
company to grant options to purchase up to 10% of the shares issued in the stock
offering over a period of 10 years. The committee will decide which directors,
officers and employees will receive options and what the terms of those options
will be. Generally, no stock option will permit its recipient to purchase shares
at a price that is less than the fair market value of a share on the date the
option is granted, and no option will have a term that is longer than 10 years.
If Chesterfield Financial implements a stock option plan before the first
anniversary of the conversion, current regulations will require that the holding
company:
. Limit the total number of shares that are optioned to outside
directors to 30% of the shares authorized for the plan.
. Limit the number of shares that are optioned to any one outside
director to 5% of the shares authorized for the plan and the number of
shares that are optioned to any officer or employee to 25% of the
shares that are authorized for the plan.
. Not permit the options to become vested at a more rapid rate than 20%
per year beginning on the first anniversary of stockholder approval of
the plan.
. Not permit accelerated vesting for any reason other than death or
disability.
Chesterfield Financial may obtain the shares needed for this plan by
issuing additional shares or through stock repurchases.
Recognition and Retention Plan. Chesterfield Financial expects to
implement a recognition and retention plan for the directors, officers and
employees of Chesterfield Federal and Chesterfield Financial after the
conversion. Applicable regulations prohibit Chesterfield Financial from
implementing this plan until six months after the conversion and, if implemented
within the first twelve months after the conversion, require that Chesterfield
Financial first obtain the approval of the holders of a majority of its
outstanding shares.
In the event the recognition and retention plan is implemented within 12
months after the conversion, Chesterfield Financial expects that the plan will
authorize a committee of non-employee directors or the full board of
Chesterfield Financial to make restricted stock awards of up to 4% of the shares
issued in the stock offering. In the event Chesterfield Financial initially
implements the recognition and retention plan more than 12 months after the
conversion, the recognition and retention plan will not be subject to an OTS
regulation limiting the plan to no more than 4% of the shares issued in the
conversion. The committee will decide which directors, officers and employees
will receive restricted stock and what the terms of those awards will be.
Chesterfield Financial may obtain the shares needed for this plan by issuing
additional shares or through stock repurchases. If Chesterfield Financial
implements a recognition and retention plan
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<PAGE>
before the first anniversary of the conversion, current regulations will require
that Chesterfield Financial:
. Limit the total number of shares that are awarded to outside directors
to 30% of the shares authorized for the plan.
. Limit the number of shares that are awarded to any one outside
director to 5% of the shares authorized for the plan and the number of
shares that are awarded to any officer or employee to 25% of the
shares that are authorized for the plan.
. Not permit the awards to become vested at a more rapid rate than 20%
per year beginning on the first anniversary of stockholder approval of
the plan.
. Not permit accelerated vesting for any reason other than death or
disability.
Restricted stock awards under this plan may feature employment restrictions
that require continued employment for a period of time for the award to be
vested. Awards are not vested unless the specified employment restrictions are
met. However, pending vesting, the award recipient may have voting and dividend
rights. When an award becomes vested, the recipient must include the current
fair market value of the vested shares in his income for federal income tax
purposes. Chesterfield Federal and Chesterfield Financial will be allowed a
federal income tax deduction in the same amount. Chesterfield Federal and
Chesterfield Financial will have to recognize a compensation expense for
accounting purposes ratably over the vesting period.
Transactions with Certain Related Persons
In the ordinary course of business, Chesterfield Federal makes loans
available to its directors, officers and employees. Such loans are made in the
ordinary course of business on the same terms, including interest rates and
collateral, as comparable loans to other borrowers. It is the belief of
management that these loans neither involve more than the normal risk of
collectibility nor present other unfavorable features.
THE CONVERSION
The Board of Directors of Chesterfield Federal and the OTS have approved
the plan of conversion, subject to approval by the members of Chesterfield
Federal entitled to vote on the matter and the satisfaction of certain other
conditions. OTS approval, however, is not a recommendation or endorsement of the
plan. Certain terms used in the following summary are defined in the plan of
conversion, a copy of which may be obtained by contacting Chesterfield Federal.
General
On October 17, 2000, the Board of Directors unanimously adopted the plan,
subject to approval by the OTS and the voting members of Chesterfield Federal.
Pursuant to the plan, Chesterfield Federal will convert from a federal mutual
savings and loan association to a federal stock savings association, with the
concurrent formation of a holding company. The OTS has approved the plan,
subject to its approval by the affirmative vote of the members of Chesterfield
Federal holding not less than a majority of the total number of votes eligible
to be cast at a Special Meeting called for that purpose to be held on April __,
2001.
The plan of conversion provides generally that Chesterfield Federal will
convert from a federally chartered mutual savings and loan association to a
federally chartered stock savings and
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loan association; the common stock will be offered by Chesterfield Financial 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 community offering to certain members of the general public, with
preference given to natural persons and trusts of natural persons residing in
Cook or Will Counties, Illinois, 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 Chesterfield Financial
will purchase all of the capital stock of Chesterfield Federal to be issued in
the conversion. The conversion will be completed only upon the sale of at least
$26,350,000 of common stock to be issued under the plan of conversion.
As part of the conversion, Chesterfield Financial is making a subscription
offering of its common stock to holders of subscription rights in the following
order of priority. First, depositors of Chesterfield Federal with $50.00 or more
on deposit as of June 30, 1999. Second, Chesterfield Federal's employee stock
ownership plan. Third, depositors of Chesterfield Federal with $50.00 or more on
deposit as of December 31, 2000. Fourth, depositors of Chesterfield Federal as
of _______________________, 2001 who are not depositors with $50 or more on
deposit as of June 30, 1999 and borrowers of Chesterfield Federal with loans
outstanding as of _____________________, 2001.
Shares of common stock not subscribed for in the subscription offering may
be offered for sale in the community offering. The 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 community offerings may be offered
in the syndicated community offering. Regulations require that the community and
syndicated community offerings be completed within 45 days after completion of
the fully extended subscription offering unless extended by Chesterfield Federal
or Chesterfield Financial with the approval of the regulatory authorities. If
the syndicated community offering is determined not to be feasible, the Board of
Directors of Chesterfield Federal 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 Chesterfield Federal.
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 Chesterfield Federal.
The completion of the offering, however, will depend on market conditions
and other factors beyond Chesterfield Federal'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 community or syndicated
community offerings or other sale of the common stock.
Orders for shares of common stock will not be filled until at least
2,635,000 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 expiration date of the
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 maintain, modify 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 Chesterfield Federal'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 Chesterfield Federal's passbook rate from the date payment
is received until the conversion is terminated.
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Purposes of Conversion
The Board of Directors and management believe that the conversion is in the
best interests of Chesterfield Federal, its members and the communities it
serves. Chesterfield Federal's Board of Directors has formed Chesterfield
Financial to serve as a holding company, with Chesterfield Federal as its
subsidiary, after the conversion. By converting to the stock form of
organization, Chesterfield Financial and Chesterfield Federal 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
Chesterfield Federal believes that the conversion offers a number of advantages
which will be important to the future growth and performance of Chesterfield
Federal. The capital raised in the conversion is intended to support
Chesterfield Federal'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 Chesterfield Federal's management, members and others the
opportunity to become stockholders of Chesterfield Financial and participate
more directly in, and contribute to, any future growth of Chesterfield Financial
and Chesterfield Federal. The conversion will also enable Chesterfield Financial
and Chesterfield Federal 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.
Effects of Conversion to Stock Form on Depositors and Borrowers of Chesterfield
Federal
Voting Rights. Upon conversion, neither deposit account holders nor
borrowers will have voting rights in Chesterfield Federal or Chesterfield
Financial and will therefore not be able to elect directors of either entity or
to control their affairs. These rights are currently accorded to deposit
account holders and certain borrowers with regard to Chesterfield Federal.
Subsequent to conversion, voting rights will be vested exclusively in
Chesterfield Financial as the sole stockholder of Chesterfield Federal. Voting
rights as to Chesterfield Financial will be held exclusively by its
stockholders. Each purchaser of Chesterfield Financial common stock shall be
entitled to vote on any matters to be considered by Chesterfield Financial
stockholders. A stockholder will be entitled to one vote for each share of
common stock owned, subject to certain limitations applicable to holders of 10%
or more of the shares of the common stock. See "Restrictions on Acquisitions of
Stock and Related Takeover Defensive Provisions." Chesterfield Financial intends
to supply each stockholder with annual reports and proxy statements.
Deposit Accounts and Loans. The terms of Chesterfield Federal's deposit
accounts, the balances of the individual accounts and the existing FDIC
insurance coverage will not be affected by the conversion. Furthermore, the
conversion will not affect the loan accounts, the balances of these accounts, or
the obligations of the borrowers under their individual contractual arrangements
with Chesterfield Federal.
Tax Effects. Chesterfield Federal has received an opinion from Luse Lehman
Gorman Pomerenk & Schick, P.C. with regard to federal income taxation, and an
opinion of Crowe, Chizek and Company LLP, with regard to Illinois taxation, to
the effect that the adoption and implementation of the plan of conversion set
forth herein will not be taxable for federal or Illinois tax purposes to
Chesterfield Federal or Chesterfield Financial. See "--Income Tax
Consequences."
Liquidation Rights in Present Mutual Association. In addition to the
protection of FDIC insurance up to applicable limits, in the event of a complete
liquidation each holder of a deposit account in Chesterfield Federal in its
present mutual form would receive his pro rata share of any assets of
Chesterfield Federal remaining after payment of claims of all creditors,
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including the claims of all depositors in the amount of the withdrawal value of
their accounts. Each depositor's pro rata share of the remaining assets, would
be in the same proportion as the balance in his or her deposit account to the
aggregate balance in all deposit accounts in Chesterfield Federal at the time of
liquidation.
Liquidation Rights in Proposed Converted Association. After conversion
each deposit account holder, in the event of a complete liquidation, would have
a claim of the same general priority as the claims of all other general
creditors of Chesterfield Federal in addition to the protection of FDIC
insurance up to applicable limits. Except as described below, the deposit
account holder's claim would be solely in the amount of the balance in his or
her deposit account plus accrued interest and the holder would have no interest
in the value of Chesterfield Federal above that amount.
The plan of conversion provides that there shall be established, upon the
completion of the conversion, a special "liquidation account" for the benefit of
eligible account holders and supplemental eligible account holders in an amount
equal to the net worth of Chesterfield Federal as of the date of its latest
consolidated statement of financial condition contained in the final prospectus
relating to the conversion. Each eligible account holder and supplemental
eligible account holder would have an initial interest in the liquidation
account for each qualifying deposit account held in Chesterfield Federal on the
qualifying date. An eligible account holder's or supplemental eligible account
holder's interest as to each deposit account would be in the same proportion as
the balance in his or her account on the applicable eligibility date, was to the
aggregate balance in all qualifying deposit accounts on such date. For accounts
in existence on both dates, separate subaccounts shall be determined on the
basis of the qualifying deposits in the accounts on the record dates. However,
if an eligible account holder or supplemental eligible account holder should
reduce the amount in the qualifying deposit account on any annual closing date
of Chesterfield Federal to a level less than the lowest amount in such account
on the applicable eligibility date, and on any subsequent closing date, then the
account holder's interest in this special liquidation account would be reduced
by an amount proportionate to any such reduction, and the account holder's
interest would cease to exist if such qualifying deposit account were closed.
The interest in the special liquidation account would never be increased
despite any increase in the balance of the account holders' related accounts
after conversion.
Any assets remaining after the above liquidation rights of eligible account
holders and supplemental eligible account holders were satisfied would be
distributed to Chesterfield Financial as the sole stockholder of Chesterfield
Federal.
No merger, consolidation, purchase of bulk assets with assumption of
deposit accounts and other liabilities, or similar transaction, whether
Chesterfield Federal, or another federally-insured institution is the surviving
institution, is deemed to be a complete liquidation for purposes of distribution
of the liquidation account. In any such transaction, the liquidation account
would be assumed by the surviving institution. The OTS has stated that the
consummation of a transaction of the type described in the preceding sentence in
which the surviving entity is not a federally-insured institution would be
reviewed on a case-by-case basis to determine whether the transaction should
constitute a "complete liquidation" requiring distribution of any then remaining
balance in the liquidation account.
Common Stock. For information as to the characteristics of the common
stock to be issued under the plan of conversion, see "Dividend Policy" and
"Description of Capital Stock."
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Common stock issued under the plan of conversion cannot, and will not, be
insured by the FDIC or any other government agency.
Offering of Common Stock
Under the plan of conversion, up to 3,565,000 shares of Chesterfield
Financial common stock will be offered for sale, subject to certain restrictions
described below through a subscription and community offering.
Subscription Offering. The subscription offering will expire at 12:00 noon,
central time, on April __, 2001 unless otherwise extended by Chesterfield
Federal and Chesterfield Financial. Regulations of the OTS require that all
shares to be offered in the conversion be sold within a period ending not more
than 45 days after the expiration date of the subscription offering or such
longer period as may be approved by the OTS or, despite approval of the plan of
conversion by members, the conversion will not be effected. This period expires
on ________, 2001, unless extended with the approval of the OTS. If the
conversion is not completed by ________, 2001, all subscribers will have the
right to modify or rescind their subscriptions and to have their subscription
funds returned promptly with interest. In the event of such an extension, all
subscribers will be notified in writing of the time period within which
subscribers must notify Chesterfield Federal of their intention to maintain,
modify or rescind their subscriptions. If the subscriber rescinds or does not
respond in any manner to Chesterfield Federal's notice, the funds submitted will
be refunded to the subscriber with interest at Chesterfield Federal's current
passbook savings rate, and/or the subscriber's withdrawal authorizations will be
terminated. In the event that the conversion is not effected, all funds
submitted and not previously refunded pursuant to the subscription and community
offering will be promptly refunded to subscribers with interest at Chesterfield
Federal's current passbook savings rate, and all withdrawal authorizations will
be terminated.
Subscription Rights. 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 Chesterfield Federal as of June 30, 1999 will receive nontransferable
subscription rights to subscribe for up to the greater of $300,000 of common
stock, one-tenth of one percent of the total offering of common stock or 15
times the product, rounded down to the next whole number, obtained by
multiplying the total number of shares of common stock to be issued by a
fraction of which the numerator is the amount of qualifying deposit of the
eligible account holder and the denominator is the total amount of qualifying
deposits of all eligible account holders. If the exercise of subscription rights
in this category results in an oversubscription, shares of common stock will be
allocated among subscribing eligible account holders so as to permit each 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 among the remaining subscribing eligible account holders whose
subscriptions remain unfilled in the proportion that the amounts of their
respective qualifying deposits bear to the total amount of qualifying deposits
of all remaining eligible account holders whose subscriptions remain unfilled;
however, no fractional shares shall be issued. If the amount so allocated
exceeds the amount subscribed for by any one or more eligible
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account holders, the excess shall be reallocated, one or more times as
necessary, among those eligible account holders whose subscriptions are still
not fully satisfied on the same principle until all available shares have been
allocated or all subscriptions satisfied. Subscription rights received by
officers and directors in this category based on their increased deposits in
Chesterfield Federal in the one year period preceding June 30, 1999 are
subordinated to the subscription rights of other eligible account holders.
Category 2: Tax-Qualified Employee Plans. The plan of conversion provides
that tax-qualified employee plans of Chesterfield Federal, such as the employee
stock ownership plan, shall receive nontransferable subscription rights to
purchase up to 10% of the shares of common stock issued in the conversion. The
employee stock ownership 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 above the maximum of the valuation range, 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 the holding company.
Category 3: Supplemental Eligible Account Holders. To the extent that there
are sufficient shares remaining after satisfaction of subscriptions by eligible
account holders and the employee stock ownership plan, each depositor with
$50.00 or more on deposit as of December 31, 2000 will receive nontransferable
subscription rights to subscribe for up to the greater of $300,000 of common
stock, one-tenth of one percent of the total offering of common stock or 15
times the product, rounded down to the next whole number, obtained by
multiplying the total number of shares of common stock to be issued by a
fraction of which the numerator is the amount of qualifying deposits of the
supplemental eligible account holder and the denominator is the total amount of
qualifying deposits of all supplemental eligible account holders. If the
exercise of subscription rights in this category results in an oversubscription,
shares of common stock will be allocated among subscribing supplemental eligible
account holders so as to permit each supplemental eligible account holder, to
the extent possible, to purchase a number of shares sufficient to make his or
her total allocation equal 100 shares or the number of shares actually
subscribed for, whichever is less. Thereafter, unallocated shares will be
allocated among subscribing supplemental eligible account holders
proportionately, based on the amount of their respective qualifying deposits as
compared to total qualifying deposits of all subscribing supplemental eligible
account holders.
Category 4: Other Members. Each depositor of Chesterfield Federal as of
___________, 2001 and each borrower with a loan outstanding on ___________, 2001
will receive nontransferable subscription rights to purchase up to the greater
of $300,000 of common stock or one-tenth of one percent of the total offering of
common stock, in the conversion to the extent shares are available following
subscriptions by eligible account holders, Chesterfield Federal'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 other members number of votes as
compared to the total number of votes of all subscribing other members.
Chesterfield Federal and Chesterfield Financial will make reasonable
efforts to comply with the securities laws of all states in the United States in
which persons entitled to subscribe for shares pursuant to the plan of
conversion reside. However, no shares will be offered or sold under the plan of
conversion to any such person who resides in a foreign country or resides in a
state of the United States in which a small number of persons otherwise eligible
to subscribe for shares under the plan of conversion reside or as to which
Chesterfield Federal and Chesterfield Financial determine that compliance with
the securities laws of such state would be
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impracticable for reasons of cost or otherwise, including, but not limited to, a
requirement that Chesterfield Federal or Chesterfield Financial or any of their
officers, directors or employees register, under the securities laws of such
state, as a broker, dealer, salesman or agent. No payments will be made in lieu
of the granting of subscription rights to any such person.
Community Offering. Any shares of common stock which remain unsubscribed
for in the subscription offering will be offered by Chesterfield Financial in a
community offering to members of the general public to whom Chesterfield
Financial delivers a copy of this prospectus and a stock order form, with
preference given to natural persons residing in Cook and Will Counties,
Illinois. Such persons, together with associates of and persons acting in
concert with such persons, may purchase up to $300,000 of common stock. The
community offering, if any, may be concurrent with, during or promptly after the
subscription offering, and may terminate at any time without notice, but may not
terminate later than ___________, 2001, unless extended with the approval of the
OTS. Subject to any required regulatory approvals, Chesterfield Financial will
determine the advisability of a community offering, the commencement and
termination dates of any such offering, and the methods of finding potential
purchasers in such offering, in its discretion based upon market conditions. The
opportunity to subscribe for shares of common stock in the community offering
category is subject to the right of Chesterfield Financial and Chesterfield
Federal, in their sole discretion, to accept or reject any such orders in whole
or in part either at the time of receipt of an order or as soon as practicable
thereafter.
If there are not sufficient shares available to fill orders in the
community offering, such stock will be allocated first to each natural person
residing in Cook or Will Counties whose order is accepted by Chesterfield
Federal, in an amount equal to the lesser of 1,000 shares or the number of
shares subscribed for by each such subscriber residing in Cook or Will Counties,
if possible. Thereafter, unallocated shares will be allocated among the
subscribers residing in Cook or Will Counties, whose orders remain unsatisfied
in the same proportion that the unfilled subscription of each bears to the total
unfilled subscriptions of all subscribers residing in Cook or Will Counties
whose subscription remains unsatisfied. If there are any shares remaining,
shares will be allocated to other members of the general public who subscribe in
the community offering applying the same allocation described above for
subscribers residing in Cook or Will Counties.
Syndicated Community Offering. All shares of common stock not purchased in
the subscription and community offerings, if any, may be offered for sale to the
general public in a syndicated community offering through a syndicate of
registered broker-dealers to be formed and managed by Trident Securities, a
division of McDonald Investments, Inc. Chesterfield Financial and Chesterfield
Federal expect to market any shares which remain unsubscribed after the
subscription and community offerings through a syndicated community offering.
Chesterfield Financial and Chesterfield Federal 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 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.
The price at which common stock is sold in the syndicated community
offering will be the same price as in the subscription and community offerings.
Subject to overall purchase limitations, no person will be permitted to
subscribe in the syndicated community offering for more than $300,000 or 30,000
shares of common stock.
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Trident Securities may enter into agreements with selected dealers to
assist in the sale of the shares in the syndicated community offering. No orders
may be placed or filled by or for a selected dealer during the subscription
offering. After the close of the subscription offering, Trident Securities will
instruct selected dealers as to the number of shares to be allocated to each
selected dealer. Only after the close of the subscription offering and upon
allocation of shares to selected dealers may selected dealers take orders from
their customers. During the subscription and community offerings, selected
dealers may only solicit indications of interest from their customers to place
orders with Chesterfield Financial as of a certain order date for the purchase
of shares of common stock. When and if Trident Securities and Chesterfield
Financial believe that enough indications of interest and orders have not been
received in the subscription and community offerings to consummate the
conversion, Trident Securities will request, as of the order date, selected
dealers to submit orders to purchase shares for which they have previously
received indications of interest from their customers. Selected dealers will
send confirmations of the orders to such customers on the next business day
after the order date. Selected dealers will debit the accounts of their
customers on the settlement date which date will be three business days from the
order 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 established by Chesterfield Federal for each selected
dealer. Each customer's funds so forwarded to Chesterfield Federal, along with
all other accounts held in the same title, will be insured by the FDIC up to
$100,000 in accordance with applicable FDIC regulations. After payment has been
received by Chesterfield Federal from selected dealers, funds will earn interest
at Chesterfield Federal's passbook rate until the consummation or termination of
the conversion. Funds will be promptly returned, with interest, in the event the
conversion is not consummated as described above.
The syndicated community offering will terminate no more than 45 days
following the subscription expiration date, unless extended by Chesterfield
Financial and Chesterfield Federal with the approval of the OTS.
Limitations on Purchase of Shares. The plan also provides for certain
additional limitations to be placed upon the purchase of shares in the
conversion. Specifically, the maximum purchase of common stock in the
Subscription Offering by a person or group of persons acting through a single
account is $300,000, and no person, other than Chesterfield Federal's employee
stock ownership plan, by himself or herself or with an associate, and no group
of persons acting in concert, may subscribe for or purchase more than $400,000
of common stock offered in the conversion. Officers and directors and their
associates may not purchase, in the aggregate, more than 29% of the shares to be
sold in the conversion. For purposes of the plan, the members of the Board of
Directors are not deemed to be acting in concert solely by reason of their Board
membership. Moreover, any shares attributable to the officers and directors and
their associates, but held by a tax-qualified employee plan other than that
portion of a plan which is self-directed, shall not be included in calculating
the number of shares which may be purchased under the limitations in this
paragraph. Shares purchased by employees who are not officers or directors of
Chesterfield Federal, or their associates, are not subject to this limitation.
The term "associate" is used above to indicate any of the following
relationships with a person:
. any corporation or organization, other than Chesterfield Financial or
Chesterfield Federal or a majority-owned subsidiary of Chesterfield
Financial or Chesterfield Federal, 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 security;
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. any trust or other estate in which such person has a substantial
beneficial interest or as to which such person serves as trustee or in
a similar fiduciary capacity; and
. any relative or spouse of such person or any relative of such spouse
who has the same home as such person or who is a director or officer
of Chesterfield Financial or Chesterfield Federal or any subsidiary of
Chesterfield Financial or Chesterfield Federal.
As used above, the term "acting in concert" means:
. knowing participation in a joint activity or interdependent conscious
parallel action towards a common goal whether or not pursuant to an
express agreement;
. a combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any contract,
understanding, relationship, agreement or other arrangement, whether
written or otherwise; or
. a person or company which acts in concert with another person or
company ("other party") shall also be deemed to be acting in concert
with any person or company who is also acting in concert with that
other party, except that any tax-qualified employee plan will not be
deemed to be acting in concert with its trustee or a person who serves
in a similar capacity solely for the purpose of determining whether
stock held by the trustee and stock held by the plan will be
aggregated.
Persons or companies who file jointly a Form 13-D or Form 13-G with any
regulatory agency will be deemed to be acting in concert.
The Boards of Directors of Chesterfield Financial and Chesterfield Federal
may, in their sole discretion, decrease the maximum purchase limitation referred
to above or increase the maximum purchase limitation up to 9.99% of the shares
being offered in the conversion, provided that orders for shares exceeding 5.0%
of the shares being offered in the conversion shall not exceed, in the
aggregate, 10% of the shares being offered in the conversion. Requests to
purchase additional shares of Chesterfield Financial common stock under this
provision will be allocated by the Boards of Directors on a pro rata basis
giving priority in accordance with the priority rights set forth above.
Depending upon market and financial conditions, and subject to certain
regulatory limitations, the Boards of Directors of Chesterfield Financial and
Chesterfield Federal, with the approval of the OTS and without further approval
of the members, may increase or decrease any of the above purchase limitations
at any time. To the extent that shares are available, each subscriber must
subscribe for a minimum of 25 shares. In computing the number of shares to be
allocated, all numbers will be rounded down to the next whole number.
Common stock purchased in the conversion will be freely transferable except
for shares purchased by executive officers and directors of Chesterfield Federal
or Chesterfield Financial and except as described below. See "- Restrictions on
Transferability." In addition, under National Association of Securities Dealers,
Inc. ("NASD") guidelines, members of the NASD and their associates are subject
to certain restrictions on transfer of securities purchased in accordance with
subscription rights and to certain reporting requirements upon purchase of such
securities.
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Restrictions on Transferability of Subscription Rights
Subscription rights are nontransferable. Chesterfield Federal may
reasonably investigate to determine compliance with this restriction. 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. Chesterfield Federal and Chesterfield Financial will pursue any
and all legal and equitable remedies in the event they become aware of the
transfer of subscription rights and will not honor orders known by them to
involve the transfer of such rights. 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 Chesterfield Federal and
Chesterfield Financial.
Marketing Arrangements
Chesterfield Financial and Chesterfield Federal have engaged Trident
Securities, a Division of McDonald Investments, as a financial advisor and
marketing agent in connection with the offering of the common stock, and Trident
Securities has agreed to use its best efforts to solicit subscriptions and
purchase orders for shares of common stock in the offerings. Trident Securities
is a member of the NASD and an SEC-registered broker-dealer. Trident Securities
will assist Chesterfield Federal in the conversion by acting as marketing
advisor with respect to the subscription offering and will represent
Chesterfield Federal as placement agent on a best efforts basis in the sale of
the common stock in the community offering if one is held; conducting training
sessions with directors, officers and employees of Chesterfield Federal
regarding the conversion process; and assisting in the establishment and
supervision of Chesterfield Federal's stock information center and, with
management's input, will train Chesterfield Federal'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 and Chesterfield Federal
concerning fee structure, Trident Securities will receive a management fee of
$20,000, plus a commission of 1.6% of the aggregate dollar amount of stock sold
in the subscription and community offering, excluding any shares of stock sold
to Chesterfield Federal's directors and executive officers, their associates and
Chesterfield Federal's employee benefit plans. Trident Securities will receive
no commission for shares sold in excess of the midpoint of the offering range.
In the event that a selected dealers agreement is entered into in connection
with a syndicated community offering, Chesterfield Federal will pay a fee to be
determined to such selected dealers, for shares sold by an NASD member firm
pursuant to a selected dealers agreement. Fees to Trident Securities and to any
other broker-dealer may be deemed to be underwriting fees, and Trident
Securities and such broker-dealers may be deemed to be underwriters. Trident
Securities will also be reimbursed for its reasonable out of pocket expenses in
an amount not to exceed $50,000, including legal fees and expenses, unless a
resolicitation occurs or the offering is otherwise extended. Trident Securities
has been paid $10,000 as an advance against these expenses. Chesterfield
Financial and Chesterfield Federal have agreed to indemnify Trident Securities
for reasonable costs and expenses in connection with certain claims or
liabilities, including certain liabilities under the Securities Act.
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Description of Sales Activities
Directors and executive officers of Chesterfield Financial and Chesterfield
Federal, may to a limited extent and subject to applicable state law,
participate in the solicitation of offers to purchase common stock. Other
employees of Chesterfield Federal may participate in the subscription and
community offering in administrative capacities, providing clerical work in
effecting a sales transaction or answering questions of a potential purchaser
provided that the content of the employee's responses is limited to information
contained in the prospectus or other offering document. Other questions of
prospective purchasers will be directed to registered representatives of Trident
Securities. Such other employees have been instructed not to solicit offers to
purchase common stock or provide advice regarding the purchase of common stock.
Sales of common stock by directors, executive officers and registered
representatives will be made from the stock information center. Chesterfield
Financial will rely on Rule 3a4-1 under the Exchange Act, and sales of common
stock will be conducted within the requirements of Rule 3a4-1, so as to permit
officers, directors and employees to participate in the sale of common stock
except in some states where only registered broker-dealers may sell. No
officer, director or employee of Chesterfield Financial or Chesterfield Federal
will be compensated in connection with his participation by the payment of
commissions or other remuneration based either directly or indirectly on the
transactions in the common stock.
Stock Pricing and Number of Shares to be Issued
Federal regulations require that the aggregate purchase price of the
securities sold in a conversion must be based on an appraised aggregate market
value of the institution as converted, as determined by an independent
valuation. FinPro, which is experienced in the valuation and appraisal of
business entities, including thrift institutions involved in the conversion
process, was retained by Chesterfield Federal to prepare an appraisal of the
estimated pro forma market value of the common stock.
FinPro will receive a fee of $16,000 for its appraisal, and $18,000 for its
assistance in preparation of Chesterfield Federal's business plan plus
reasonable out-of-pocket expenses. Chesterfield Financial has agreed to
indemnify FinPro under certain circumstances against liabilities and expenses,
including legal fees, arising out of, related to, or based upon the conversion.
FinPro has prepared an appraisal of the estimated pro forma market value of
Chesterfield Financial and Chesterfield Federal as converted taking into account
the formation of Chesterfield Financial as the holding company for Chesterfield
Federal. For its analysis, FinPro undertook substantial investigations to learn
about Chesterfield Federal'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, FinPro reviewed Chesterfield Federal's Form AC
Application for Approval of Conversion and Chesterfield Financial's Form S-1
Registration Statement. Furthermore, FinPro visited Chesterfield Federal's
facilities and had discussions with Chesterfield Federal's management and its
special conversion legal counsel, Luse Lehman Gorman Pomerenk & Schick, P.C. No
detailed individual analysis of the separate components of Chesterfield
Financial's or Chesterfield Federal's assets and liabilities was performed in
connection with the evaluation.
In estimating the pro forma market value of Chesterfield Financial and
Chesterfield Federal as converted, FinPro's analysis utilized three selected
valuation procedures, the Price/Book method, the Price/Earnings method, and the
Price/Assets method, all of which are
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described in its report. FinPro placed the greatest emphasis on the
Price/Earnings and the Price/Book methods in estimating pro forma market value.
In applying these procedures, FinPro reviewed, among other factors, the economic
make-up of Chesterfield Federal's primary market area, Chesterfield Federal's
financial performance and condition in relation to publicly traded institutions
that FinPro deemed comparable to Chesterfield Federal, the specific terms of the
offering of Chesterfield Financial'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.
FinPro's analysis provides an approximation of the pro forma market value of
Chesterfield Financial and Chesterfield Federal 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
Chesterfield Financial 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 issued in the conversion and purchases in the open market by
the recognition and retention plan of a number of shares equal to 4% of the
common stock issued 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, FinPro has advised Chesterfield Financial
and Chesterfield Federal that, in its opinion, as of January 18, 2001, the
aggregate estimated pro forma market value of Chesterfield Financial and
Chesterfield Federal, as converted was within the valuation range of $26,350,000
to $35,650,000 with a midpoint of $31,000,000. After reviewing the methodology
and the assumptions used by FinPro in the preparation of the appraisal, the
Board of Directors established the estimated valuation range which is equal to
the valuation range of $26,350,000 to $35,650,000 with a midpoint of
$31,000,000. Assuming that the shares are sold at $10.00 per share in the
conversion, the estimated number of shares would be between 2,635,000 and
3,565,000 with a midpoint of 3,100,000. The purchase price of $10.00 was
determined by discussion among the Boards of Directors of Chesterfield Federal
and Chesterfield Financial 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 Chesterfield Financial 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 Chesterfield Federal, regulatory guidelines or national or
local economic conditions.
FinPro's appraisal report is filed as an exhibit to the registration
statement that Chesterfield Financial has filed with the Securities and Exchange
Commission. See "Where You Can Find More Information."
If, upon completion of the subscription offering, at least the minimum
number of shares are subscribed for, FinPro, after taking into account factors
similar to those involved in its prior appraisal, will determine its estimate of
the pro forma market value of Chesterfield Financial and Chesterfield Federal as
converted, as of the close of the subscription offering.
No sale of the shares will take place unless prior thereto FinPro confirms
to the Office of Thrift Supervision that, to the best of FinPro'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
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aggregate basis was incompatible with its estimate of the total pro forma market
value of Chesterfield Financial and Chesterfield Federal 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 such circumstances, subscribers would have the
right to modify or rescind their subscriptions and to have their subscription
funds returned promptly with interest and holds on funds authorized for
withdrawal from deposit accounts would be released or reduced.
Depending upon market and financial conditions, the number of shares sold
may be more than 4,099,750 shares or less than 2,635,000 shares. If the total
amount of shares sold is less than 2,635,000 or more than 4,099,750 (15% above
the maximum of the estimated valuation range), for aggregate gross proceeds of
less than $26,350,000 or more than $40,997,500, subscription funds will be
returned promptly with interest to each subscriber unless he or she indicates
otherwise. If FinPro 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 Chesterfield Federal and Chesterfield Financial, 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, FinPro relied upon the truthfulness, accuracy
and completeness of all documents Chesterfield Federal furnished to it. FinPro
also considered financial and other information from regulatory agencies, other
financial institutions, and other public sources, as appropriate. While FinPro
believes this information to be reliable, FinPro does not guarantee the accuracy
or completeness of the information and did not independently verify the
financial statements and other data provided by Chesterfield Federal and
Chesterfield Financial or independently value the assets or liabilities of
Chesterfield Financial and Chesterfield Federal. The appraisal by FinPro 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.
Procedure for Purchasing Shares in the Subscription and 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 Chesterfield Federal,
must be received by Chesterfield Federal by 12:00 noon, Central time, on April
______, 2001. Order forms that are not received by that time or are executed
defectively or are received without full payment or without appropriate
withdrawal instructions will not be accepted. Chesterfield Financial and
Chesterfield Federal 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 Chesterfield
Financial and Chesterfield Federal of the terms and conditions of the plan of
conversion and of the order form will be final.
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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 Chesterfield Federal 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 Chesterfield Federal 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, they must list all accounts on
the order form giving all names on 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 Chesterfield Federal's stock information center; by check, bank draft, or
money order; or by authorization of withdrawal from deposit accounts maintained
with Chesterfield Federal. 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 Chesterfield Federal's current passbook savings 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 Chesterfield Federal to withdraw the amount of
the aggregate purchase price from his or her deposit account, Chesterfield
Federal 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. Chesterfield Federal 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 Chesterfield Federal'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.
Individual retirement accounts maintained in Chesterfield Federal do not
permit investment in the common stock. A depositor interested in using his or
her Individual Retirement Account funds to purchase common stock must do so
through a self-directed individual retirement account. Since Chesterfield
Federal 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
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trustee offering a self-directed individual retirement account program with the
agreement that the funds will be used to purchase Chesterfield Financial'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 Chesterfield
Federal now holds the depositor's Individual Retirement Account funds. An annual
administrative fee may be payable to the new trustee. Depositors interested in
using funds in an individual retirement account at Chesterfield Federal to
purchase common stock should contact the stock information center no later than
________, 2001 so that the necessary forms may be forwarded for execution and
returned before the subscription offering ends. In addition, federal laws and
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 Chesterfield Federal 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 on April ____, 2001, 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. Chesterfield Federal will accept for processing only orders
submitted on original order forms. Chesterfield Federal 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.
Risk of Delayed Offering
In the event that all shares of the common stock are not sold in the
subscription offering and concurrent community offering, Chesterfield Federal
and Chesterfield Financial may extend the community offering for a period of up
to 45 days from the date of the expiration of the subscription offering.
Further extensions are subject to OTS approval and may be granted for successive
periods, but not beyond 24 months from the date of the special meeting.
A material delay in the completion of the sale of all unsubscribed shares
in the community offering may result in a significant increase in the costs in
completing the conversion. Significant changes in Chesterfield Federal's
operations and financial condition, the aggregate market value of the shares to
be issued in the conversion and general market conditions may occur during such
material delay. In the event the conversion is not consummated within 24 months
after the date of the special meeting, Chesterfield Federal would charge accrued
conversion costs to then current period operations.
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Approval, Interpretation, Amendment and Termination
All interpretations of the plan of conversion, as well as the completeness
and validity of order forms, will be made by Chesterfield Federal and
Chesterfield Financial and will be final, subject to the authority of the OTS
and the requirements of applicable law. The plan of conversion provides that,
if deemed necessary or desirable by the Boards of Directors of Chesterfield
Federal and Chesterfield Financial, the plan of conversion may be substantively
amended by the Boards of Directors of Chesterfield Federal and Chesterfield
Financial, as a result of comments from regulatory authorities or otherwise, at
any time but only with the concurrence of the OTS. Moreover, if the plan of
conversion is amended, subscriptions which have been received prior to such
amendment will not be refunded if such amendment is not material to the
transaction or otherwise required by the OTS.
The plan of conversion will terminate if the sale of all shares is not
completed within 24 months after the date of the special meeting. The plan of
conversion may be terminated by the Board of Directors of Chesterfield Federal
with the concurrence of the OTS at any time. A specific resolution approved by
a two-thirds vote of the Board of Directors would be required to terminate the
plan of conversion prior to the end of such 24-month period.
Restrictions on Repurchase of Stock
Under Office of Thrift Supervision regulations, savings associations and
their holding companies may not for a period of one year from the date of an
institution's mutual-to-stock conversion repurchase any of its common stock from
any person, except in 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. Where extraordinary
circumstances exist, the Office of Thrift Supervision may approve the open
market repurchase of up to 5% of a savings association's or its holding
company's capital stock during the first year following the conversion. To
receive such approval, the savings association must establish compelling and
valid business purposes for the repurchase to the satisfaction of the Office of
Thrift Supervision. Furthermore, repurchase of any common stock are prohibited
if they 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.
Shares of common stock purchased in the offering by directors and officers
of Chesterfield Financial 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 Chesterfield
Financial. Shares of common stock received by directors or officers through the
employee stock ownership plan or the recognition and retention 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 Chesterfield Financial to directors and officers shall bear a
legend giving appropriate notice of the restriction and, in addition,
Chesterfield Financial will give appropriate instructions to the transfer agent
for Chesterfield Financial'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 Chesterfield Financial
by directors, executive officers, or any person who was an executive officer or
director of Chesterfield Federal 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,
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except with the prior written approval of the OTS. This restriction does not
apply, however, to negotiated transactions involving more than 1% of
Chesterfield Financial's outstanding common stock or to the purchase of stock
under the stock option plan.
Chesterfield Financial 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 Chesterfield Financial may be resold without registration. Shares
purchased by an affiliate of Chesterfield Financial will have resale
restrictions under Rule 144 of the Securities Act. If Chesterfield Financial
meets the current public information requirements of Rule 144 under the
Securities Act, each affiliate of Chesterfield Financial 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
Chesterfield Financial or the average weekly volume of trading in the shares
during the preceding four calendar weeks. Provision may be made in the future by
Chesterfield Financial 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.
Income Tax Consequences
Consummation of the conversion is expressly conditioned upon prior receipt
by Chesterfield Federal of either a ruling from the Internal Revenue Service or
an opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. with respect to federal
taxation, and a ruling of the Illinois taxation authorities or an opinion with
respect to Illinois taxation, to the effect that consummation of the conversion
will not be taxable to the converted association or Chesterfield Financial.
Luse Lehman Gorman Pomerenk & Schick, P.C. has issued an opinion with
respect to the proposed conversion of Chesterfield Federal to the effect that:
1. no gain or loss will be recognized by Chesterfield Federal in its mutual
or stock form by reason of the conversion;
2. no gain or loss will be recognized by Chesterfield Federal or
Chesterfield Financial on the receipt by Chesterfield Federal of money
from Chesterfield Financial in exchange for shares of Chesterfield
Financial's capital stock or by Chesterfield Financial upon the receipt
of money from the sale of its common stock;
3. the basis of the assets of Chesterfield Federal in the stock form will
be the same as immediately prior to the conversion;
4. the holding period of the assets of Chesterfield Federal in the stock
form will include the holding period of Chesterfield Federal in the
mutual form;
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5. no gain or loss will be recognized to Chesterfield Federal's account
holders upon the issuance to them of accounts in Chesterfield Federal
immediately after the conversion, in the same dollar amounts and on the
same terms and conditions as their accounts at Chesterfield Federal in
its mutual form, plus interest in the liquidation account;
6. no gain or loss will be recognized to account holders upon the receipt
or exercise of subscription rights in the conversion, except if
subscription rights are deemed to have value as discussed below;
7. the tax basis of account holders' accounts in Chesterfield Federal
immediately after the conversion will be the same as the tax basis of
their accounts immediately before conversion;
8. the tax basis of each account holder's interest in the liquidation
account will be zero; and
9. 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.
The opinion from Luse Lehman Gorman Pomerenk & Schick, P.C. is based, among
other things, on certain assumptions, including the assumptions that the
exercise price of the subscription rights to purchase Chesterfield Financial
common stock will be approximately equal to the fair market value of that stock
at the time of the completion of the proposed conversion. Chesterfield Financial
and Chesterfield Federal have received an opinion from FinPro stating that
pursuant to FinPro's valuation, subscription rights issued in connection with
the conversion will have no value. The opinion of FinPro and the federal and
state tax opinions, respectively, referred to herein are filed as exhibits to
the Registration Statement. See "Where You Can Find More Information."
If it is subsequently established that the subscription rights received by
such persons have an ascertainable fair market value, then, in such event, the
subscription rights will be taxable to the recipient in the amount of their fair
market value. In this regard, the subscription rights may be taxed partially or
entirely at ordinary income tax rates.
With respect to Illinois taxation, Chesterfield Federal has received an
opinion from Crowe, Chizek and Company LLP to the effect that, assuming the
conversion does not result in any federal taxable income, gain or loss to
Chesterfield Federal in its mutual or stock form, Chesterfield Financial, the
account holders, borrowers, officers, directors and employees and tax-qualified
employee plans of Chesterfield Federal, the conversion should not result in any
Illinois income tax liability to such entities or persons.
Unlike a private letter ruling, the opinions of Luse Lehman Gorman Pomerenk
& Schick, P.C., Crowe, Chizek and Company LLP and FinPro have no binding effect
or official status, and no assurance can be given that the conclusions reached
in any of those opinions would be sustained by a court if contested by the IRS
or the Illinois tax authorities.
RESTRICTIONS ON ACQUISITIONS OF STOCK AND
RELATED TAKEOVER DEFENSIVE PROVISIONS
Although the Boards of Directors of Chesterfield Federal and Chesterfield
Financial are not aware of any effort that might be made to obtain control of
Chesterfield Financial after
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conversion, the Boards of Directors, as discussed below, believe that it is
appropriate to include certain provisions as part of Chesterfield Financial's
articles of incorporation to protect the interests of Chesterfield Financial and
its stockholders from takeovers which the Board of Directors of Chesterfield
Financial might conclude are not in the best interests of Chesterfield Federal,
Chesterfield Financial or Chesterfield Financial's stockholders.
The following discussion is a general summary of the material provisions of
Chesterfield Financial's certificate of incorporation and bylaws, Chesterfield
Federal's charter and bylaws and certain other regulatory provisions which may
be deemed to have an "anti-takeover" effect. The following description of
certain of these provisions is necessarily general and, with respect to
provisions contained in Chesterfield Financial's certificate of incorporation
and bylaws and Chesterfield Federal's proposed stock charter and bylaws,
reference should be made in each case to the document in question, each of which
is part of Chesterfield Federal's application to the OTS and Chesterfield
Financial's Registration Statement filed with the SEC. See "Where You Can Find
Additional Information."
Provisions of Chesterfield Financial's Certificate of Incorporation and Bylaws
Restrictions on Call of Special Meetings. The certificate of incorporation
provides that a special meeting of stockholders may be called by the Chairman of
the Board of Chesterfield Financial or pursuant to a resolution adopted by a
majority of the board of directors. Stockholders are not authorized to call a
special meeting of stockholders.
Absence of Cumulative Voting. The certificate of incorporation provides
that there shall be no cumulative voting rights in the election of directors.
Authorization of Preferred Stock. The certificate of incorporation
authorizes 1,000,000 shares of preferred stock, par value $0.01 per share.
Chesterfield Financial is authorized to issue preferred stock from time to time
in one or more series subject to applicable provisions of law; and the board of
directors is authorized to fix the designations, and relative preferences,
limitations, voting rights, if any, including without limitation, offering
rights of such shares (which could be a multiple or as a separate class). In
the event of a proposed merger, tender offer or other attempt to gain control of
Chesterfield Financial that the board of directors does not approve, it might be
possible for the board of directors to authorize the issuance of a series of
preferred stock with rights and preferences that would impede the completion of
such a transaction. An effect of the possible issuance of preferred stock,
therefore, may be to deter a future takeover attempt. The board of directors
has no present plans or understandings for the issuance of any preferred stock
but it may issue any preferred stock on terms which the board deems to be in the
best interests of Chesterfield Financial and its stockholders.
Limitation on Voting Rights. The certificate of incorporation provides
that (i) no person shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of any class of equity security of
Chesterfield Financial; and that (ii) shares beneficially owned in violation of
the stock ownership restriction described above shall not be entitled to vote
and shall not be voted by any person or counted as voting stock in connection
with any matter submitted to a vote of stockholders. For these purposes, a
person (including management) who has obtained the right to vote shares of the
common stock pursuant to revocable proxies shall not be deemed to be the
"beneficial owner" of those shares if that person is not otherwise deemed to be
a beneficial owner of those shares.
Amendments to Certificate of Incorporation and Bylaws. Amendments to the
certificate of incorporation must be approved by Chesterfield Financial's board
of directors and also by a
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majority of the outstanding shares of Chesterfield Financial's voting stock;
provided, however, that approval by at least 80% of the outstanding voting stock
is generally required for certain provisions (i.e., provisions relating to the
call of special stockholder meetings, cumulative voting, limitation on voting
rights and director liability).
The bylaws may be amended by the affirmative vote of the total number of
directors of Chesterfield Financial or the affirmative vote of at least 80% of
the total votes eligible to be voted at a duly constituted meeting of
stockholders.
Restrictions in Chesterfield Federal's Federal Stock Charter and Bylaws
Although the Board of Directors of Chesterfield Federal is not aware of any
effort that might be made to obtain control of Chesterfield Federal after the
conversion, the Board of Directors believes that it is appropriate to adopt
provisions permitted by federal regulation to protect the interests of the
converted association and its stockholders from any hostile takeover. These
provisions may, indirectly, inhibit a change in control of Chesterfield
Financial, as Chesterfield Federal's sole stockholder.
Chesterfield Federal's federal stock charter will contain a provision
whereby the acquisition of beneficial ownership of more than 10% of the issued
and outstanding shares of any class of equity securities of Chesterfield Federal
by any person (i.e., any individual, corporation, group acting in concert,
trust, partnership, joint stock company or similar organization), either
directly or through an affiliate, will be prohibited for a period of five years
following the date of completion of the conversion. If shares are acquired in
violation of this provision of Chesterfield Federal's federal stock charter, all
shares beneficially owned by any person in excess of 10% will be considered
"excess shares" and will not be counted as shares entitled to vote and will not
be voted by any person or counted as voting shares in connection with any
matters submitted to the stockholders for a vote. If holders of revocable
proxies for more than 10% of the shares of the common stock of Chesterfield
Financial seek, among other things, to elect one-third or more of Chesterfield
Financial's Board of Directors, to cause Chesterfield Financial's stockholders
to approve the acquisition or corporate reorganization of Chesterfield Financial
or to exert a continuing influence on a material aspect of the business
operations of Chesterfield Financial, which actions could indirectly result in a
change in control of Chesterfield Federal, the Board of Directors of
Chesterfield Federal will be able to assert this provision of Chesterfield
Federal's federal stock charter against such holders. Although the Board of
Directors of Chesterfield Federal is not currently able to determine when and if
it would assert this provision of Chesterfield Federal's federal stock charter,
the Board, in exercising its fiduciary duty, may assert this provision if it
were deemed to be in the best interests of Chesterfield Federal, Chesterfield
Financial and its stockholders. It is unclear, however, whether this provision,
if asserted, would be successful against such persons in a proxy contest which
could result in a change in control of Chesterfield Federal indirectly through a
change in control of Chesterfield Financial.
In addition, stockholders will not be permitted to cumulate their votes in
the election of Directors. Furthermore, Chesterfield Federal's Bylaws provide
for the election of three classes of directors to staggered terms.
Finally, the federal stock charter provides for the issuance of shares of
preferred stock on terms, including conversion and voting rights, as may be
determined by Chesterfield Federal's Board of Directors without stockholder
approval. Although Chesterfield Federal has no arrangements, understandings or
plans at the present time for the issuance or use of the shares of undesignated
preferred stock proposed to be authorized, the Board believes that the
availability of such shares will provide Chesterfield Federal with increased
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flexibility in structuring possible future financings and acquisitions and in
meeting other corporate needs that may arise. If a proposed merger, tender offer
or other attempt to gain control of Chesterfield Federal occurs of which
management does not approve, the Board can authorize the issuance of one or more
series of preferred stock with rights and preferences which could impede the
completion of such a transaction. An effect of the possible issuance of such
preferred stock, therefore, may be to deter a future takeover attempt. The Board
does not intend to issue any preferred stock except on terms which the Board
deems to be in the best interest of Chesterfield Federal and its then existing
stockholders.
Federal Regulations
A federal regulation prohibits any person prior to the completion of a
conversion from transferring, or entering into any agreement or understanding to
transfer, the legal or beneficial ownership of the subscription rights issued
under a plan of conversion or the stock to be issued upon their exercise. This
regulation also prohibits any person prior to the completion of a conversion
from offering, or making an announcement of an offer or intent to make an offer,
to purchase such subscription rights or stock. For three years following
conversion, this regulation prohibits any person, without the prior approval of
the OTS, from acquiring or making an offer, if opposed by the institution, to
acquire more than 10% of the stock of any converted savings institution if such
person is, or after consummation of such acquisition would be, the beneficial
owner of more than 10% of such stock. In the event that any person, directly or
indirectly, violates this regulation, the securities beneficially owned by such
person in excess of 10% shall not be counted as shares entitled to vote and
shall not be voted by any person or counted as voting shares in connection with
any matter submitted to a vote of stockholders.
Federal law provides that no company "directly or indirectly or acting in
concert with one or more persons, or through one or more subsidiaries, or
through one or more transactions," may acquire "control" of a savings and loan
association at any time without the prior approval of the OTS. "Acting in
concert" is defined very broadly. In addition, federal regulations require
that, prior to obtaining control of a savings and loan association, a person,
other than a company, must give 60 days' prior notice to the OTS and have
received no OTS objection to such acquisition of control. Any company that
acquires such control becomes a "savings and loan holding company" subject to
registration, examination and regulation as a savings and loan holding company.
Under federal law, as well as the regulations referred to below, the term
"savings and loan association" includes state and federally chartered
institutions whose accounts are insured by the Savings Association Insurance
Fund and federally chartered savings banks whose accounts are insured by the
FDIC's Bank Insurance Fund and holding companies thereof.
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 and
loan association's directors, or a determination by the OTS that the acquirer
has the power to direct, or directly or indirectly to exercise a controlling
influence over, the management or policies of the institution. Acquisition of
more than 10% of any class of a savings and loan association's voting stock, if
the acquirer also is subject to any one of eight "control factors," constitutes
a rebuttable determination of control under the regulations. Such control
factors include the acquirer being one of the two largest stockholders. The
determination of control may be rebutted by submission to the OTS, prior to the
acquisition of stock or the occurrence of any other circumstances giving rise to
such determination, of a statement setting forth facts and circumstances which
would support a finding that no control relationship will exist and containing
certain undertakings. The regulations provide that persons or companies which
acquire beneficial ownership exceeding 10% or more of any class of a savings and
loan association's stock must file with the OTS a certification that the holder
is not in
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control of such institution, is not subject to a rebuttable determination of
control and will take no action which would result in a determination or
rebuttable determination of control without prior notice to or approval of the
OTS, as applicable.
DESCRIPTION OF CAPITAL STOCK
General
Chesterfield Financial is authorized to issue 5,000,000 shares of common
stock having a par value of $0.01 per share and 1,000,000 shares of preferred
stock. Chesterfield Financial currently expects to issue in the conversion up
to 3,565,000, subject to adjustment, shares of common stock in the offering.
Chesterfield Financial does not intend to issue shares of preferred stock in the
conversion. Each share of Chesterfield Financial 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 $10.00 per share subscription price
for the common stock, in accordance with the plan of conversion, all of the
common stock will be duly authorized, fully paid and nonassessable.
The common stock of Chesterfield Financial will represent nonwithdrawable
capital, will not be an account of an insurable type, and will not be insured by
the Federal Deposit Insurance Corporation or any other government agency.
Common Stock
Dividends. Chesterfield Financial can pay dividends out of statutory
surplus or from net profits if, as and when declared by its Board of Directors.
The payment of dividends by Chesterfield Financial is subject to limitations
that are imposed by law and applicable regulation. The holders of common stock
of Chesterfield Financial will be entitled to receive and share equally in
dividends as may be declared by the Board of Directors of Chesterfield Financial
out of funds legally available therefor. If Chesterfield Financial issues
preferred stock, the holders thereof may have a priority over the holders of the
common stock with respect to dividends.
Voting Rights. Upon the conversion, the holders of common stock of
Chesterfield Financial will possess exclusive voting rights in Chesterfield
Financial. They will elect Chesterfield Financial's Board of Directors and act
on other matters as are required to be presented to them under Delaware law or
as are otherwise presented to them by the Board of Directors. Generally, 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 Chesterfield
Financial issues preferred stock, holders of the preferred stock may also
possess voting rights. Certain matters require an 80% stockholder vote.
As a federal stock savings association, corporate powers and control of
Chesterfield Federal are vested in its Board of Directors, who elect the
officers of Chesterfield Federal and who fill any vacancies on the Board of
Directors as it exists upon the conversion. Voting rights of Chesterfield
Federal are vested exclusively in the owners of the shares of capital stock of
Chesterfield Federal, which will be Chesterfield Financial, and voted at the
direction of Chesterfield Financial's Board of Directors. Consequently, the
holders of the common stock will not have direct control of Chesterfield
Federal.
Liquidation. In the event of any liquidation, dissolution or winding up of
Chesterfield Financial, Chesterfield Financial, as holder of Chesterfield
Federal's capital stock, would be
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entitled to receive, after payment or provision for payment of all debts and
liabilities of Chesterfield Federal, including all deposit accounts and accrued
interest thereon, and after distribution of the balance in the special
liquidation account to Eligible Account Holders and Supplemental Eligible
Account Holders, all assets of Chesterfield Federal available for distribution.
In the event of liquidation, dissolution or winding up of Chesterfield
Financial, 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 Chesterfield Financial available for distribution. If preferred stock
is issued, the holders thereof may have a priority over the holders of the
common stock in the event of liquidation or dissolution.
Preemptive Rights. Holders of the common stock of Chesterfield Financial
will not be entitled to preemptive rights with respect to any shares which may
be issued. The common stock is not subject to redemption.
Preferred Stock
None of the shares of Chesterfield Financial's authorized preferred stock
will be issued in the conversion. Preferred stock may be issued with
preferences and designations as the Board of Directors may from time to time
determine. The Board of Directors can, without stockholder approval, issue
preferred stock with voting, dividend, liquidation and conversion rights 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.
LEGAL AND TAX MATTERS
The legality of the common stock and the federal income tax consequences of
the conversion will be passed upon for Chesterfield Federal and Chesterfield
Financial by the firm of Luse Lehman Gorman Pomerenk & Schick, P.C., Washington,
D.C. The Illinois state income tax consequences of the conversion will be
passed upon for Chesterfield Federal and Chesterfield Financial by Crowe, Chizek
and Company LLP, Oak Brook, Illinois. Luse Lehman Gorman Pomerenk & Schick,
P.C. and Crowe, Chizek and Company LLP have consented to the references herein
to their opinions. Certain legal matters regarding the conversion will be
passed upon for Trident Securities by Silver, Freedman & Taff, L.L.P.
CHANGE IN ACCOUNTANTS
On August 17, 2000, Chesterfield Federal's Board of Directors appointed
Crowe, Chizek and Company LLP as Chesterfield Federal's independent auditors and
determined not to reappoint Ernst & Young LLP. The report of Ernst & Young LLP
on the financial statements as of and for the two fiscal years ended June 30,
1999 did not contain an adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope, or accounting principles.
During Chesterfield Federal's two most recent fiscal years preceding such change
in accountants and any subsequent interim period preceding such change in
accountants, there were no disagreements with Ernst & Young LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope of procedure, nor were there any other events that required reporting
under SEC regulations.
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EXPERTS
The consolidated financial statements of Chesterfield Federal at June 30,
2000 and for the year then ended, appearing in this Prospectus and registration
statement have been audited by Crowe, Chizek and Company LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of Chesterfield Federal at June 30,
1999, and for each of the two years in the period ended June 30, 1999, appearing
in this Prospectus and registration statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
FinPro has consented to the publication herein of the summary of its report
to Chesterfield Federal and Chesterfield Financial setting forth its opinion as
to the estimated pro forma market value of the common stock upon the completion
of the conversion and its valuation with respect to subscription rights.
WHERE CAN YOU FIND MORE INFORMATION
Chesterfield Financial has filed with the SEC a registration statement
under the Securities Act, with respect to the common stock offered hereby. As
permitted by the rules and regulations of the SEC, this prospectus does not
contain all the information set forth in the registration statement. Such
information can be examined without charge at the public reference facilities of
the SEC located at 450 Fifth Street, NW, Washington, D.C. 20549, and copies of
such material can be obtained from the SEC at prescribed rates. The
registration statement also is available through the SEC's world wide web site
on the internet at http://www.sec.gov. The statements contained herein as to
the contents of any contract or other document filed as an exhibit to the
registration statement are, of necessity, brief descriptions thereof and are not
necessarily complete but do contain all material information regarding such
documents; each such statement is qualified by reference to such contract or
document.
Chesterfield Federal has filed an Application for Conversion with the OTS
with respect to the conversion. Pursuant to the rules and regulations of the
OTS, this prospectus omits certain information contained in that Application.
The Application may be examined at the principal offices of the OTS, 1700 G
Street, N.W., Washington, D.C. 20552 and at the Central Regional Office of the
OTS located at 200 West Madison Street, Suite 1300, Chicago, Illinois 60606.
In connection with the conversion, Chesterfield Financial will register the
common stock with the SEC under Section 12(g) of the Exchange Act; and, upon
such registration, Chesterfield Financial and the holders of its common stock
will become subject to the proxy solicitation rules, reporting requirements and
restrictions on stock purchases and sales by directors, officers and greater
than 10% stockholders, the annual and periodic reporting and certain other
requirements of the Exchange Act. Under the plan, Chesterfield Financial has
undertaken that it will not terminate such registration for a period of at least
three years following the conversion.
A copy of the certificate of incorporation and bylaws of Chesterfield
Financial are available without charge from Chesterfield Federal.
91
<PAGE>
CHESTERFIELD FEDERAL SAVINGS
AND LOAN ASSOCIATION OF CHICAGO
Chicago, Illinois
FINANCIAL STATEMENTS
CONTENTS
REPORT OF INDEPENDENT AUDITORS........................................ F-2
CONSOLIDATED BALANCE SHEETS........................................... F-4
CONSOLIDATED STATEMENTS OF INCOME..................................... F-5
CONSOLIDATED STATEMENTS OF RETAINED INCOME............................ F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS................................. F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................ F-9
F-1
<PAGE>
[Letterhead of Crowe, Chizek and Company LLP]
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Chesterfield Federal Savings and
Loan Association of Chicago
Chicago, Illinois
We have audited the consolidated balance sheet of Chesterfield Federal Savings
and Loan Association of Chicago as of June 30, 2000 and the related consolidated
statements of income, retained income, and cash flows for the year then ended.
These financial statements are the responsibility of the Association's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of Chesterfield Federal Savings and
Loan Association of Chicago as of June 30, 2000 and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Oak Brook, Illinois
December 5, 2000
F-2
<PAGE>
Report of Independent Auditors
------------------------------
Board of Directors
Chesterfield Federal Savings & Loan Association of Chicago
We have audited the accompanying consolidated balance sheet of Chesterfield
Federal Savings and Loan Association of Chicago as of June 30, 1999, and the
related consolidated statements of income, retained income, and cash flows for
each of the two years in the period ended June 30, 1999. These financial
statements are the responsibility of the Association's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Chesterfield
Federal Savings and Loan Association of Chicago as of June 30, 1999, and the
consolidated results of its operations and its cash flows for each of the two
years in the period ended June 30, 1999, in conformity with accounting
principles generally accepted in the United States.
\s\ Ernst & Young LLP
Chicago, Illinois
August 24, 1999
F-3
<PAGE>
CHESETERFIELD FEDDERAL SAVINGS
AND LOAN ASSOCIATION OF CHICAGO
CONSOLIDATED BALANCE SHEETS
________________________________________________________________________________
<TABLE>
<CAPTION>
October 31,
2000 -------- June 30,--------
--------
[Unaudited) 2000 1999
--------- ---- ----
<S> <C> <C> <C>
ASSETS
Cash and due from financial
institutions $ 3,627,876 $ 4,322,043 $ 2,951,674
Interest-bearing deposits 47,773,395 59,932,660 77,672,841
Federal funds sold 1,800,000 2,700,000 2,800,000
------------ ------------ ------------
Cash and cash equivalents 53,201,271 66,954,703 83,424,515
Securities held-to-maturity (fair value:
October 31, 2000 - $82,787,814;
June 30, 2000 - $72,630,683;
June 30, 1999 - $55,961,119) 82,997,474 73,686,770 56,570,871
Loans, net 154,771,961 157,276,256 156,917,137
Federal Home Loan Bank stock 1,670,000 1,609,800 1,540,300
Premises and equipment, net 2,666,220 2,769,739 2,723,243
Accrued interest receivable and other
assets 3,541,981 3,182,708 2,931,324
------------ ------------ ------------
Total assets $298,848,907 $305,479,976 $304,107,390
============ ============ ============
LIABILITIES AND RETAINED
INCOME
Deposits $255,819,767 $263,349,988 $259,130,516
Advance payments by borrowers for
taxes and insurance 1,476,760 2,835,261 2,838,636
Accrued expenses and other liabilities 5,489,927 4,139,706 9,316,694
------------ ------------ ------------
Total liabilities 262,786,454 270,324,955 271,285,846
Retained income 36,062,453 35,155,021 32,821,544
------------ ------------ ------------
Total liabilities and retained income $298,848,907 $305,479,976 $304,107,390
============ ============ ============
</TABLE>
________________________________________________________________________________
See accompanying notes to consolidated financial statements
F-4
<PAGE>
CHESETERFIELD FEDDERAL SAVINGS
AND LOAN ASSOCIATION OF CHICAGO
CONSOLIDATED STATEMENTS OF INCOME
________________________________________________________________________________
<TABLE>
<CAPTION>
Four Months Ended Years Ended
----- October 31, ----- -------------- June 30, --------------
----------- --------
2000 1999 2000 1999 1998
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Interest and dividend income
Loans, including fees $ 3,960,592 $ 3,953,857 $ 11,916,860 $ 11,608,837 $ 11,161,239
Securities 1,580,487 1,019,176 3,511,688 2,437,980 5,298,179
Interest-bearing deposits 1,204,409 1,280,394 3,795,864 4,477,961 2,897,289
Other 110,167 92,485 338,743 323,537 289,239
---------- ---------- ----------- ----------- -----------
6,855,655 6,345,912 19,563,155 18,848,315 19,645,946
Interest expense on deposits 3,739,901 3,496,757 10,746,121 10,646,140 11,290,315
---------- ---------- ----------- ----------- -----------
Net interest income 3,115,754 2,849,155 8,817,034 8,202,175 8,355,631
Provision for loan losses 26,000 40,000 83,000 150,000 202,000
---------- ---------- ----------- ----------- -----------
Net interest income after
provision for loan losses 3,089,754 2,809,155 8,734,034 8,052,175 8,153,631
Noninterest income
Insurance commissions 601,207 556,239 1,705,376 1,114,850 702,147
Service charges on
deposit accounts 99,442 93,427 280,853 266,155 230,627
Other 39,737 44,649 153,814 150,322 131,358
---------- ---------- ----------- ----------- -----------
740,386 694,315 2,140,043 1,531,327 1,064,132
Noninterest expense
Salaries and employee
benefits 1,428,832 1,322,262 4,149,079 4,077,817 3,637,874
Occupancy 251,548 237,492 716,088 695,496 706,909
Equipment 174,405 143,120 473,118 396,167 295,185
Data processing 102,597 98,298 310,433 419,322 281,725
Federal deposit insurance 40,731 72,439 170,613 220,266 236,975
Other 452,695 460,832 1,400,368 1,197,305 956,629
---------- ---------- ----------- ----------- -----------
2,450,808 2,334,443 7,219,699 7,006,373 6,115,297
---------- ---------- ----------- ----------- -----------
Income before income taxes 1,379,332 1,169,027 3,654,378 2,577,129 3,102,466
Income tax expense 471,900 409,300 1,320,901 919,102 1,111,070
---------- ---------- ----------- ----------- -----------
Net income $ 907,432 $ 759,727 $ 2,333,477 $ 1,658,027 $ 1,991,396
========== ========== =========== =========== ===========
</TABLE>
________________________________________________________________________________
See accompanying notes to consolidated financial statements
F-5
<PAGE>
CHESTERFIELD FEDERAL SAVINGS
AND LOAN ASSOCIATION OF CHICAGO
CONSOLIDATED STATEMENTS OF RETAINED INCOME
________________________________________________________________________________
<TABLE>
<CAPTION>
Four Months Ended Years Ended
October 31, June 30,
------------------------- -------------------------------------
2000 1999 2000 1999 1998
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Retained income at
beginning of period $35,155,021 $32,821,544 $32,821,544 $31,163,517 $29,172,121
Net income 907,432 759,727 2,333,477 1,658,027 1,991,396
----------- ----------- ----------- ----------- -----------
Retained income at
end of period $36,062,453 $33,581,271 $35,155,021 $32,821,544 $31,163,517
=========== =========== =========== =========== ===========
</TABLE>
________________________________________________________________________________
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
CHESTERFIELD FEDERAL SAVINGS
AND LOAN ASSOCIATION OF CHICAGO
CONSOLIDATED STATEMENTS OF CASH FLOWS
________________________________________________________________________________
<TABLE>
<CAPTION>
Four Months Ended Years Ended
October 31, June 30,
---------------------------- -------------------------------------------
2000 1999 2000 1999 1998
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net income $ 907,432 $ 759,727 $ 2,333,477 $ 1,658,027 $ 1,991,396
Adjustments to reconcile
net income to net cash
provided by operating
activities
Provision for loan losses 26,000 40,000 83,000 150,000 202,000
Depreciation and
amortization 148,710 148,117 451,325 388,884 301,215
Deferred income tax
benefit (103,194) (120,636) (391,908) (154,191) (443,374)
Net amortization of
securities (834) (1,900) (3,869) (9,870) (44,191)
Amortization of
intangibles 29,815 24,395 104,548 39,146 -
Net change in:
Deferred loan
origination fees (34,323) (104,635) (108,611) (90,420) (55,178)
Accrued interest
receivable and
other assets (285,894) (163,941) 35,976 (264,865) 1,031,039
Accrued expenses
and other liabilities 1,350,221 785,758 (176,988) 499,002 265,658
------------ ------------ ------------ ------------ ------------
Net cash from
operating activities 2,037,933 1,366,885 2,326,950 2,215,713 3,248,565
Cash flows from investing activities
Activity in held-to-maturity
securities:
Maturities and
prepayments 690,130 2,120,943 2,887,970 59,754,573 57,008,556
Purchases (10,000,000) (10,000,000) (25,000,000) (65,000,000) (30,500,000)
Purchase of Federal
Home Loan Bank stock (60,200) - (69,500) (78,300) -
Loan originations and
payments, net 2,512,618 (3,019,235) (333,508) (10,035,249) (13,825,192)
Additions to premises
and equipment (45,191) (67,402) (497,821) (434,320) (558,195)
Purchase of insurance
agencies - - - (655,858) (225,000)
------------ ------------ ------------ ------------ ------------
Net cash from
investing activities (6,902,643) (10,965,694) (23,012,859) (16,449,154) 11,900,269
</TABLE>
________________________________________________________________________________
(Continued)
F-7
<PAGE>
CHESTERFIELD FEDERAL SAVINGS
AND LOAN ASSOCIATION OF CHICAGO
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Four Months Ended Years Ended
October 31, June 30,
------------------------- -----------------------------------------
2000 1999 2000 1999 1998
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from financing
activities
Net change in deposits $ (7,530,221) $ 578,843 $ 4,219,472 $ 1,445,009 $ 1,415,233
Net change in advance
payments by borrowers
for taxes and insurance (1,358,501) 1,741,494 (3,375) (879) 98,603
------------ ----------- ------------ ------------ -----------
Net cash from
financing activities 8,888,722 2,320,337 4,216,097 1,444,130 1,513,836
------------ ----------- ------------ ------------ -----------
Net change in cash and
cash equivalents (13,753,432) (7,278,472) (16,469,812) (12,789,311) 16,662,570
Beginning cash and
cash equivalents 66,954,703 83,424,515 83,424,515 96,213,826 79,551,256
------------ ----------- ------------ ------------ -----------
Ending cash and
cash equivalents $ 53,201,271 $76,146,043 $ 66,954,703 $ 83,424,515 $96,213,826
============ =========== ============ ============ ===========
Supplemental cash flow
information:
Interest paid $ 3,322,684 $ 3,078,025 $ 10,683,738 $ 10,656,892 $11,296,332
Income taxes paid 300,000 250,000 1,740,000 1,062,029 1,428,712
Supplemental noncash
disclosures:
Due to/from broker for
securities transactions $ - $(5,000,000) $ (5,000,000) $ 5,000,000 $(5,000,000)
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
F-8
<PAGE>
CHESTERFIELD FEDERAL SAVINGS
AND LOAN ASSOCIATION OF CHICAGO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Principles of Consolidation: The consolidated
----------------------------------------------------
financial statements include Chesterfield Federal Savings and Loan Association
of Chicago ("the Association") and its wholly owned subsidiary, Chesterfield
Insurance Services, LLC ("CIS"). Intercompany transactions and balances are
eliminated in consolidation.
The Association provides financial services through its three full-service
offices located on the southwest side of Chicago, Palos Hills, and Frankfort,
Illinois. The Association is principally engaged in the business of attracting
savings deposits from the general public and investing these funds to originate
one-to-four-family residential real estate loans. Other financial instruments
that potentially represent concentrations of credit risk include deposit
accounts in other financial institutions. CIS sells commercial and personal
lines of insurance, including mortgage, life, and disability insurance.
Use of Estimates: To prepare financial statements in conformity with generally
----------------
accepted accounting principles, management makes estimates and assumptions based
on available information. These estimates and assumptions affect the amounts
reported in the financial statements and the disclosures provided, and future
results could differ. The allowance for loan losses and fair values of
financial instruments are particularly subject to change.
Cash Flows: Cash and cash equivalents include cash, deposits with other
----------
financial institutions under 90 days, and federal funds sold. Net cash flows
are reported for loan and deposit transactions.
Securities: Securities are classified as held-to-maturity and carried at
----------
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available-for-sale when they might be
sold before maturity. Securities available-for-sale are carried at fair value,
with unrealized holding gains and losses reported in other comprehensive income.
Other securities such as Federal Home Loan Bank stock are carried at cost.
Securities are written down to fair value when a decline in fair value is not
temporary.
Loans: Loans that management has the intent and ability to hold for the
-----
foreseeable future or until maturity or payoffs are reported at the principal
balance outstanding, net of deferred loan fees and costs and an allowance for
loan losses. Loan origination fees, net of loan origination costs, are deferred
and recognized as interest income over the contractual life of the loan using
the interest method.
Loans are placed on nonaccrual or charged off if collection of principal and
interest is doubtful. Interest accrued but not collected is reversed against
interest income. Interest received is recognized on the cash basis or cost
recovery method, until qualifying for return to accrual
--------------------------------------------------------------------------------
(Continued)
F-9
<PAGE>
CHESTERFIELD FEDERAL SAVINGS
AND LOAN ASSOCIATION OF CHICAGO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses: The allowance for loan losses is established as
-------------------------
losses are estimated to have occurred through a provision for loan losses
charged to earnings. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance. The allowance for
loan losses is evaluated quarterly based on management's periodic review of loan
collectibility in light of historical experience, the nature and volume of the
loan portfolio, adverse situations that may affect the borrower's ability to
repay, estimated value of any underlying collateral, and prevailing economic
conditions. This evaluation is inherently subjective as it requires estimates
that are susceptible to significant revision as more information becomes
available or as future events change.
A loan is impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature
such as residential mortgage and consumer loans and on an individual loan basis
for other loans. If a loan is impaired, a portion of the allowance is allocated
so that the loan is reported, net, at the present value of estimated future cash
flows using the loan's existing rate or at the fair value of collateral if
repayment is expected solely from the collateral. The Association did not have
any loans that were deemed impaired as of October 31, 2000 (unaudited) or June
30, 2000 or 1999.
Foreclosed Assets: Assets acquired through or instead of loan foreclosure are
-----------------
initially recorded at fair value when acquired, establishing a new cost basis.
If fair value declines, a valuation allowance is recorded through expense.
Costs after acquisition are expensed.
Premises and Equipment: Land is carried at cost. Premises and equipment are
----------------------
stated at cost less accumulated depreciation. Depreciation is computed over the
assets useful lives using the straight-line method. The cost of leasehold
improvements is amortized using the straight-line method over the term of the
lease.
Intangibles: Purchased intangibles, primarily goodwill and a non-compete
-----------
agreement related to CIS acquisitions, are recorded at cost and amortized over
the estimated life. Goodwill amortization is straight-line over ten years, and
the non-compete agreement is straight-line over seven years.
Long-Term Assets: Premises and equipment and other long-term assets are
----------------
reviewed for impairment when events indicate that their carrying amount may not
be recoverable from future undiscounted cash flows. If impaired, the assets are
recorded at discounted amounts.
Income Taxes: Income tax expense is the total of the current year income tax
------------
due or refundable and the change in deferred tax assets and liabilities.
Deferred tax assets and liabilities are the expected future tax amounts for the
temporary differences between carrying amounts and tax
--------------------------------------------------------------------------------
(Continued)
F-10
<PAGE>
CHESTERFIELD FEDERAL SAVINGS
AND LOAN ASSOCIATION OF CHICAGO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
bases of assets and liabilities, computed using enacted tax rates. A valuation
allowance, if needed, reduces deferred tax assets to the amount expected to be
realized.
Financial Instruments: Financial instruments include off-balance-sheet credit
---------------------
instruments, such as commitments to make loans and unused lines of credit,
issued to meet customer-financing needs. The face amount for these items
represents the exposure to loss, before considering customer collateral or
ability to repay. Such financial instruments are recorded when they are funded.
New Accounting Pronouncements: Beginning July 1, 2000, a new accounting
------------------------------
standard requires all derivatives to be recorded at fair value. Unless
designated as hedges, changes in these fair values will be recorded in the
income statement. Fair value changes involving hedges will generally be
recorded by offsetting gains and losses on the hedge and on the hedged item,
even if the fair value of the hedged item is not otherwise recorded. This
pronouncement did not have any effect on the financial statements.
Loss Contingencies: Loss contingencies, including claims and legal actions
------------------
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will
have a material effect on the consolidated financial statements.
Restrictions on Cash: The Association was required to have $446,000
---------------------
(unaudited), $487,000, and $429,000 of cash on hand to meet regulatory reserve
requirements at October 31, 2000 and June 30, 2000 and 1999.
Fair Value of Financial Instruments: Fair values of financial instruments are
-----------------------------------
estimated using relevant market information and other assumptions, as more fully
disclosed in a separate note. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.
Reclassifications: Some items in prior years' financial statements were
-----------------
reclassified to conform to the current presentation.
--------------------------------------------------------------------------------
(Continued)
F-11
<PAGE>
CHESTERFIELD FEDERAL SAVINGS
AND LOAN ASSOCIATION OF CHICAGO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 2 - SECURITIES
Securities, all classified as held-to-maturity, were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
October 31, 2000 (Unaudited)
----------------------------
U.S. federal agency $75,000,000 $ 68,024 $ 316,104 $74,751,920
FHLMC mortgage-backed 7,507,088 40,845 2,425 7,545,508
Tax increment allocation note 490,386 - - 490,386
----------- ---------- ---------- -----------
Total $82,997,474 $ 108,869 $ 318,529 $82,787,814
=========== ========== ========== ===========
June 30, 2000
-------------
U.S. federal agency $70,000,000 $ - $1,039,008 $68,960,992
FHLMC mortgage-backed 3,196,384 - 17,079 3,179,305
Tax increment allocation note 490,386 - - 490,386
----------- ---------- ---------- -----------
Total $73,686,770 $ - $1,056,087 $72,630,683
=========== ========== ========== ===========
June 30, 1999
-------------
U.S. federal agency $50,000,000 $ - $ 587,970 $49,412,030
FHLMC mortgage-backed 6,074,716 - 21,782 6,052,934
Tax increment allocation note 496,155 - - 496,155
----------- ---------- ---------- -----------
Total $56,570,871 $ - $ 609,752 $55,961,119
=========== ========== ========== ===========
</TABLE>
Contractual maturities of debt securities were as follows. Securities not due
at a single maturity date, primarily mortgage-backed securities, are shown
separately.
<TABLE>
<CAPTION>
October 31, 2000 June 30, 2000
------------------------ ------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Due in one year or less $40,017,308 $39,692,905 $25,017,308 $24,726,541
Due from one to five years 35,111,539 35,187,862 45,111,539 44,363,298
Due from five to ten years 198,077 198,077 198,077 198,077
Due after ten years 163,462 163,462 163,462 163,462
Mortgage-backed 7,507,088 7,545,508 3,196,384 3,179,305
----------- ----------- ----------- -----------
Total $82,997,474 $82,787,814 $73,686,770 $72,630,683
=========== =========== =========== ===========
</TABLE>
--------------------------------------------------------------------------------
(Continued)
F-12
<PAGE>
CHESTERFIELD FEDERAL SAVINGS
AND LOAN ASSOCIATION OF CHICAGO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 2 - SECURITIES (Continued)
A security was pledged to a depositor at June 30, 2000 and October 31, 2000
(unaudited) with a carrying amount of $1,000,000.
At October 31, 2000 (unaudited) and year end 2000 and 1999, there were no
holdings of securities of any one issuer, other than the U.S. government and its
agencies, in an amount greater than 10% of retained income.
NOTE 3 - LOANS
Loans were as follows:
<TABLE>
<CAPTION>
October 31, June 30,
--------------------------
2000 2000 1999
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Mortgage loans $142,872,710 $145,813,058 $146,409,227
Home equity loans 10,720,169 11,002,422 11,412,859
Consumer 3,305,502 3,003,060 2,612,543
------------ ------------ ------------
Subtotal 156,898,381 159,818,540 160,434,629
Less: Allowance for loan losses 1,528,479 1,508,020 1,432,360
Net deferred loan fees 519,941 554,264 662,875
Undisbursed loan funds 78,000 480,000 1,422,257
------------ ------------ ------------
Loans, net $154,771,961 $157,276,256 $156,917,137
============ ============ ============
</TABLE>
The Association's lending activities have concentrated primarily on the
southwest side of Chicago, Illinois in the Association's immediate geographic
area. The largest portion of the Association's loans are originated for the
purpose of enabling borrowers to purchase residential real estate property
secured by first liens on such property and generally maintain loan-to-value
ratios of greater than 80%. At October 31, 2000 (unaudited) and June 30, 2000,
approximately 88% of the Association's mortgage loans were secured by owner-
occupied, one-to-four-family residential property.
--------------------------------------------------------------------------------
(Continued)
F-13
<PAGE>
CHESTERFIELD FEDERAL SAVINGS
AND LOAN ASSOCIATION OF CHICAGO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 3 - LOANS (Continued)
Activity in the allowance for loan losses for the year was as follows.
<TABLE>
<CAPTION>
Four Months Ended Years Ended
October 31, June 30,
----------------------- -------------------------------------
2000 1999 2000 1999 1998
---------- ---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Beginning balance $1,508,020 $1,432,360 $1,432,360 $1,283,525 $1,087,142
Provision for loan losses 26,000 40,000 83,000 150,000 202,000
Loans charged-off (5,541) (3,228) (7,340) (1,165) (5,617)
Recoveries - - - - -
---------- ---------- ---------- ---------- ----------
Ending balance $1,528,479 $1,469,132 $1,508,020 $1,432,360 $1,283,525
========== ========== ========== ========== ==========
</TABLE>
Nonperforming loans were as follows.
<TABLE>
<CAPTION>
October 31, June 30, June 30,
2000 2000 1999
---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
Loans past due over 90 days still on accrual $ - $ - $ -
Nonaccrual loans 3,394 12,921 90,076
</TABLE>
Nonperforming loans includes all smaller balance homogeneous loans, such as
residential mortgage and consumer loans, that are collectively evaluated for
impairment.
NOTE 4 - PREMISES AND EQUIPMENT
Premises and equipment were as follows.
<TABLE>
<CAPTION>
October 31, June 30,
----------------------
2000 2000 1999
---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
Land $ 559,163 $ 559,163 $ 559,163
Buildings 4,217,571 4,217,571 3,860,204
Leasehold improvements 296,354 296,354 296,354
Parking lot improvements 86,235 86,235 81,303
Furniture, fixtures, and equipment 2,799,362 2,754,171 2,638,326
---------- ---------- ----------
7,958,685 7,913,494 7,435,350
Less accumulated depreciation and
amortization 5,292,465 5,143,755 4,712,107
---------- ---------- ----------
$2,666,220 $2,769,739 $2,723,243
========== ========== ==========
</TABLE>
--------------------------------------------------------------------------------
(Continued)
F-14
<PAGE>
CHESTERFIELD FEDERAL SAVINGS
AND LOAN ASSOCIATION OF CHICAGO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
NOTE 4 - PREMISES AND EQUIPMENT (Continued)
Rent commitments under a noncancelable operating lease of premises as of June
30, 2000 were as follows, before considering renewal options that generally are
present.
2001 $ 93,456
2002 100,536
2003 104,076
2004 104,076
2005 112,749
Thereafter 130,095
----------
$ 644,988
==========
NOTE 5 - INTANGIBLE ASSETS
CIS has acquired the customer lists, expirations files, customer account
records, goodwill, going-concern value, and other intangible assets of various
insurance agencies. These acquisitions were all accounted for using the purchase
method of accounting and resulted in goodwill being recorded, which is being
amortized on a straight-line basis over ten years.
In addition to the goodwill recorded related to the purchase of one of the
insurance agencies, a $105,000 intangible was recorded relating to a noncompete
agreement with the owner, which is being amortized over seven years.
Goodwill of $740,000 is reported net of accumulated amortization of $153,000
(unaudited), $128,000, and $38,000 at October 31, 2000 and June 30, 2000, and
June 30, 1999. These intangible assets are included in accrued interest
receivable and other assets in the consolidated balance sheet.
NOTE 6 - ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows.
October 31, June 30, June 30,
2000 2000 1999
---- ---- ----
(Unaudited)
Investment securities $ 1,162,769 $ 1,140,287 $ 670,923
Loans receivable 142,902 142,899 122,622
Other 10,000 29,908 24,990
------------ ------------ ------------
$ 1,315,671 $ 1,313,094 $ 818,535
============ ============ ============
________________________________________________________________________________
(Continued)
F-15
<PAGE>
CHESTERFIELD FEDERAL SAVINGS
AND LOAN ASSOCIATION OF CHICAGO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
NOTE 7 - DEPOSITS
Deposits were as follows.
October 31, ------June 30,------
-------
2000 2000 1999
----- ---- ----
(Unaudited)
Passbook savings $ 54,332,465 $ 56,760,296 $ 58,258,127
NOW accounts 22,271,643 23,262,611 21,705,303
Money market accounts 8,926,090 10,185,482 10,002,321
Time deposits 170,289,569 173,141,599 169,164,765
------------- ------------- -------------
$ 255,819,767 $ 263,349,988 $ 259,130,516
============= ============= =============
Time deposits of $100,000 or more were $45,464,000 (unaudited), $44,901,000, and
$43,352,000 at October 31, 2000 and June 30, 2000 and 1999.
Scheduled maturities of time deposits were as follows.
October 31, June 30,
2000 2000
---- ----
(Unaudited)
2001 $ 143,711,553 $ 144,250,222
2002 12,814,974 13,931,597
2003 9,583,902 9,335,984
2004 1,818,870 2,906,511
2005 2,360,270 2,691,780
Thereafter - 25,505
------------- -------------
$ 170,289,569 $ 173,141,599
============= =============
Deposits from principal officers, directors, and their affiliates as of October
31 and June 30, 2000 were approximately $1,152,000 (unaudited) and $1,251,000.
NOTE 8 - RETIREMENT PLAN AND OTHER BENEFIT PLANS
The Association has a self-administered Employee Retirement Plan, which covers
substantially all employees with one or more years of service. The
Association's obligations under the Plan are limited to annual contributions
based upon each employee's compensation.
The Association has a Supplemental Benefit Plan for Inside Directors. The Plan
is unfunded and provides for fixed amounts plus interest to be credited to
participants' accounts over five years, with amounts fully vested at the time
they are credited. A participant is entitled to
________________________________________________________________________________
(Continued)
F-16
<PAGE>
CHESTERFIELD FEDERAL SAVINGS
AND LOAN ASSOCIATION OF CHICAGO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 8 - RETIREMENT PLAN AND OTHER BENEFIT PLANS (Continued)
benefit payments upon their separation from service, as defined. Benefits
accrued were $941,000 (unaudited), $887,000, and $734,000 at October 31, 2000
and June 30, 2000 and 1999.
The Association has a Retirement Benefit Plan for Outside Directors. The Plan is
unfunded and provides for fixed monthly payments over ten years. A participant
is vested upon completion of four years of continuous service, and payments
begin upon termination of service with the Board of Directors. Benefits accrued
were $281,000 (unaudited), $246,000, and $153,000 at October 31, 2000 and June
30, 2000 and 1999.
The following schedule summarizes expenses recorded related to benefit plans:
<TABLE>
<CAPTION>
Four Months Ended Years Ended
------October 31,---- -----------June 30,----------------
----------- --------
2000 1999 2000 1999 1998
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Employee retirement
plan $121,826 $100,715 $326,286 $280,191 $284,498
Supplemental Benefit
Plan for Inside Directors 54,445 50,903 152,708 355,313 354,628
Retirement Benefit Plan
for Outside Directors 34,981 30,904 92,713 81,365 71,609
-------- -------- -------- -------- --------
Total expense $211,252 $182,522 $571,707 $716,869 $710,735
======== ======== ======== ======== ========
</TABLE>
Certain members of the Board of Directors have deferred some of their fees in
consideration for future payments, including interest. Amounts deferred were
approximately $1,755,000 (unaudited), $1,686,000, and $1,592,000 as of October
31, 2000 and June 30, 2000 and 1999.
NOTE 9 - INCOME TAXES
Income tax expense (benefit) was as follows.
<TABLE>
<CAPTION>
Four Months Ended Years Ended
------October 31,---- -----------June 30,------------------
----------- --------
2000 1999 2000 1999 1998
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Current $ 575,094 $ 529,936 $1,712,809 $1,073,293 $1,554,444
Deferred (103,194) (120,636) (391,908) (154,191) (443,374)
--------- --------- ---------- ---------- ----------
Total $ 471,900 $ 409,300 $1,320,901 $ 919,102 $1,111,070
========= ========= ========== ========== ==========
</TABLE>
--------------------------------------------------------------------------------
(Continued)
F-17
<PAGE>
CHESTERFIELD FEDERAL SAVINGS
AND LOAN ASSOCIATION OF CHICAGO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES (Continued)
Effective tax rates differ from the federal statutory rate of 34% applied to
financial statement income due to the following.
<TABLE>
<CAPTION>
Four Months Ended Years Ended
------October 31,---- ---------------June 30,--------------
----------- --------
2000 1999 2000 1999 1998
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Federal statutory rate
times income before
income taxes $468,969 $397,469 $1,242,489 $ 876,223 $1,054,838
Effect of:
Nondeductible life
insurance premiums 773 2,567 2,318 7,703 5,903
State taxes, net of
federal benefit (4,005) 6,347 22,930 - -
Other, net 6,163 2,917 53,164 35,176 50,329
-------- -------- ---------- ----------- ----------
Total $471,900 $409,300 $1,320,901 $ 919,102 $1,111,070
======== ======== ========== =========== ==========
</TABLE>
Year-end deferred tax assets and liabilities were due to the following.
<TABLE>
<CAPTION>
October 31, ---------June 30,------
--------
2000 2000 1999
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 592,132 $ 584,207 $ 487,002
Deferred loan fees 172,289 182,314 190,555
Deferred director fees 613,430 613,430 508,375
Inside director nonqualified retirement plan 364,633 343,540 249,587
Outside director nonqualified retirement plan 108,836 95,284 52,103
Other 26,479 22,867 12,430
---------- ----------- -----------
Total $1,877,799 $ 1,841,642 $ 1,500,052
========== =========== ===========
</TABLE>
--------------------------------------------------------------------------------
(Continued)
F-18
<PAGE>
CHESTERFIELD FEDERAL SAVINGS
AND LOAN ASSOCIATION OF CHICAGO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 9 - INCOME TAXES (Continued)
<TABLE>
<CAPTION>
October 31, -------June 30,-----
--------
2000 2000 1999
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Deferred tax liabilities:
Loan loss reserve recapture $ (278,135) $ (320,925) $ (394,322)
Depreciation (67,630) (65,112) (57,145)
FHLB stock dividend (127,469) (127,469) (92,969)
Post 1994 loan fees (291,391) (309,599) (319,745)
Accrued FHLB dividends (3,874) (11,272) (8,487)
Prepaid FDIC premiums - - (12,668)
Prepaid insurance (15,803) (8,055) (27,678)
Prepaid service contracts (22,114) (33,736) (18,409)
Other (57,408) (54,693) (49,756)
---------- ---------- ----------
Total $ (863,824) $ (930,861) $ (981,179)
========== ========== ==========
Net deferred income tax assets $1,013,975 $ 910,781 $ 518,873
========== ========== ==========
</TABLE>
No valuation allowance for deferred tax assets was necessary as of October 31,
2000 (unaudited) and June 30, 2000 and 1999.
Federal income tax laws provided additional bad debt deductions through 1987,
totaling $6,700,000. Accounting standards do not require a deferred tax
liability to be recorded on this amount, which liability otherwise would total
$2,300,000 at October 31, 2000 (unaudited) and June 30, 2000. If the Bank were
liquidated or otherwise ceased to be a bank or if tax laws were to change, this
amount would be charged to earnings.
NOTE 10 - REGULATORY MATTERS
The Association is subject to regulatory capital requirements administered by
federal banking agencies. Capital adequacy guidelines and, additionally for
banks, prompt corrective action regulations involve quantitative measures of
assets, liabilities, and certain off-balance-sheet items calculated under
regulatory accounting practices. Capital amounts and classifications are also
subject to qualitative judgments by regulators. Failure to meet capital
requirements can initiate regulatory action.
Prompt corrective action regulations provide five classifications: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and capital restoration plans are required.
--------------------------------------------------------------------------------
(Continued)
F-19
<PAGE>
CHESTERFIELD FEDERAL SAVINGS
AND LOAN ASSOCIATION OF CHICAGO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 10 - REGULATORY MATTERS (Continued)
Actual and required capital amounts (in thousands) and ratios are presented
below.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------- ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------- -----
October 31, 2000 (Unaudited)
-----------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital to risk-
weighted assets $36,617 29.39% $ 9,966 8.0% $12,458 10.0%
Tier 1 (Core) Capital to risk-
weighted assets 35,162 28.23 4,983 4.0 7,475 6.0
Tier 1 (Core) Capital to
adjusted assets 35,162 11.79 11,934 4.0 14,918 5.0
June 30, 2000
-------------
Total Capital to risk-
weighted assets 35,747 28.34 10,095 8.0 12,619 10.0
Tier 1 Capital to risk-
weighted assets 34,224 27.13 5,047 4.0 7,571 6.0
Tier 1 Capital to
adjusted assets 34,224 11.22 12,209 4.0 15,261 5.0
June 30, 1999
-------------
Total Capital to risk-
weighted assets 33,007 26.06 10,131 8.0 12,664 10.0
Tier 1 (Core) Capital to risk-
weighted assets 31,595 24.95 5,066 4.0 7,598 6.0
Tier 1 (Core) Capital to
adjusted assets 31,595 10.42 12,122 4.0 15,154 5.0
</TABLE>
As of October 31, 2000 (unaudited) and June 30, 2000, the most recent
notification from regulatory authorities categorized the Association as well
capitalized under the regulatory framework for prompt corrective action. There
are no conditions or events since that notification that management believes
have changed the institution's category.
The following is a reconciliation of the Association's equity under generally
accepted accounting principles (GAAP) to regulatory capital as of June 30, 2000:
(In thousands)
--------------
GAAP equity $35,155
Disallowed intangible assets (704)
Nonqualifying equity instruments (227)
-------
Tier I capital 34,224
Other equity instruments 227
General regulatory loan loss reserves 1,296
-------
--------------------------------------------------------------------------------
(Continued)
F-20
<PAGE>
CHESTERFIELD FEDERAL SAVINGS
AND LOAN ASSOCIATION OF CHICAGO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 11 - OFF-BALANCE-SHEET ACTIVITIES
Some financial instruments, such as loan commitments, credit lines, letters of
credit, and overdraft protection, are issued to meet customer financing needs.
These are agreements to provide credit or to support the credit of others, as
long as conditions established in the contract are met, and usually have
expiration dates. Commitments may expire without being used. Off-balance-sheet
risk to credit loss exists up to the face amount of these instruments, although
material losses are not anticipated. The same credit policies are used to make
such commitments as are used for loans, including obtaining collateral at
exercise of the commitment.
The contractual amount of financial instruments with off-balance-sheet risk was
as follows.
<TABLE>
<CAPTION>
October 31, 2000 June 30, 2000 June 30, 1999
---------------- ------------- -------------
(Unaudited)
Fixed Variable Fixed Variable Fixed Variable
Rate Rate Rate Rate Rate Rate
---- ----- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Commitments
to make loans $3,435,200 $ 37,000 $2,225,100 $ 356,800 $4,461,300 $ 271,000
Unused lines
of credit - 15,578,974 - 16,533,095 - 17,743,135
</TABLE>
Commitments to make loans are generally made for periods of 60 days or less. As
of October 31, 2000 (unaudited), fixed rate loan commitments had interest rates
ranging from 7.25% to 8.70% and maturities ranging from 7 years to 30 years. As
of June 30, 2000 fixed rate loan commitments had interest rates ranging from
7.65% to 8.45% and maturities ranging from 10 years to 30 years. As of June 30,
1999, fixed rate loan commitments had interest rates ranging from 6.00% to 7.50%
and maturities ranging from 7 years to 30 years.
--------------------------------------------------------------------------------
(Continued)
F-21
<PAGE>
CHESTERFIELD FEDERAL SAVINGS
AND LOAN ASSOCIATION OF CHICAGO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 12 - FAIR VALUES OF FINANCIAL INSTRUMENTS
Carrying amount and estimated fair values of financial instruments were as
follows.
<TABLE>
<CAPTION>
October 31, 2000 June 30, 2000 June 30, 1999
--------------------------- --------------------------- ---------------------------
(Unaudited)
Carrying Fair Carrying Fair Carrying Fair
Value Value Amount Value Amount Value
------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Financial assets
Cash and cash
equivalents $ 53,201,271 $ 53,201,271 $ 66,954,703 $ 66,954,703 $ 83,424,515 $ 83,424,515
Securities held-
to-maturity 82,997,474 82,787,814 73,686,770 72,630,683 56,570,871 55,961,119
Loans, net 154,771,961 153,834,025 157,276,256 155,429,230 156,917,137 160,109,378
Federal Home
Loan Bank stock 1,670,000 1,670,000 1,609,800 1,609,800 1,540,300 1,540,300
Accrued interest
receivable 1,315,671 1,315,671 1,313,094 1,313,094 818,535 818,535
Financial liabilities
Deposits 255,819,767 254,947,677 263,349,988 261,840,993 259,130,516 259,554,727
Accrued interest
payable 788,646 788,646 371,429 371,429 309,046 309,046
</TABLE>
The methods and assumptions used to estimate fair value are described as
follows.
Carrying amount is the estimated fair value for cash and cash equivalents,
Federal Home Loan Bank stock, accrued interest receivable and payable, deposits
with no maturities, and variable rate loans or deposits that reprice frequently
and fully. Security fair values are based on market prices or dealer quotes
and, if no such information is available, on the rate and term of the security
and information about the issuer. For fixed rate loans or deposits and for
variable rate loans or deposits with infrequent repricing or repricing limits,
fair value is based on discounted cash flows using current market rates applied
to the estimated life and credit risk. The fair value of off-balance-sheet items
is based on the current fees or cost that would be charged to enter into or
terminate such arrangements and are not deemed material.
While these estimates of fair value are based on management's judgment of the
most appropriate factors as of the balance sheet date, there is no assurance
that the estimated fair values would have been realized if the assets were
disposed of or the liabilities settled at that date, since market values may
differ depending on various circumstances. The estimated fair values would also
not apply to subsequent dates.
In addition, other assets and liabilities that are not financial instruments,
such as premises and equipment, are not included in the above disclosures.
Also, non-financial instruments typically not recognized on the balance sheet
may have value but are not included in the above disclosures. These include,
among other items, the estimated earnings power of core deposits, the trained
workforce, customer goodwill, and similar items.
-------------------------------------------------------------------------------
(Continued)
F-22
<PAGE>
CHESTERFIELD FEDERAL SAVINGS
AND LOAN ASSOCIATION OF CHICAGO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 13 - ADOPTION OF PLAN OF CONVERSION
On October 17, 2000, the Board of Directors of the Association adopted a Plan of
Conversion to convert from a federal mutual savings bank to a federal stock
savings bank with the concurrent formation of a holding company. The conversion
will be accomplished through the amendment of the Association's charter and the
sale of the proposed holding company's common stock in an amount equal to the
consolidated pro forma market value of the holding company and the Association
after giving effect to the conversion. A subscription offering of the shares of
common stock will be offered initially to the Association's eligible deposit
account holders, then to other members of the Association. Any shares of the
holding company's common stock not sold in the subscription offering will be
offered for sale to the general public, giving preference to the Association's
market area.
At the time of conversion, the Association will establish a liquidation account
in an amount equal to its total net worth as of the latest statement of
financial condition appearing in the final prospectus. The liquidation account
will be maintained for the benefit of eligible depositors who continue to
maintain their accounts at the Association after the conversion. The
liquidation account will be reduced annually to the extent that eligible
depositors have reduced their qualifying deposits. Subsequent increases will
not restore an eligible account holder's interest in the liquidation account.
In the event of a complete liquidation, each eligible depositor will be entitled
to receive a distribution from the liquidation account in an amount
proportionate to the current adjusted qualifying balances for accounts then
held. The liquidation account balance is not available for payment of
dividends.
Conversion costs will be deferred and deducted from the proceeds of the shares
sold in the conversion. If the conversion is not completed, all costs will be
charged to expense. At October 31, 2000 (unaudited), $5,000 has been deferred.
-------------------------------------------------------------------------------
F-23
<PAGE>
================================================================================
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information that is different. If the
laws of your state or other jurisdiction prohibit us from offering our common
stock to you, then this prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of our common stock. Neither the delivery of
this prospectus nor any sale hereunder shall imply that there has been no change
in our affairs since any of the dates as of which information is furnished
herein since the dare hereof.
Our Table of Contents
is located on the inside of the
front cover page of this document.
Until _________, 2001 or 90 days after commencement of the syndicated
community offering, if any, whichever is later, all dealers effecting
transactions in our common stock may be required to deliver a prospectus. This
is in addition to the obligation of dealers to deliver a prospectus when acting
as underwriters and with respect to any unsold allotments or subscriptions.
3,565,000 Shares
(Anticipated Maximum)
(Subject to Increase to Up to 4,099,750 Shares)
Chesterfield Financial Corp.
(Proposed Holding Company for
Chesterfield Federal and Loan
Association of Chicago)
COMMON STOCK
---------------------
PROSPECTUS
---------------------
Trident Securities
A Division of McDonald Investments, Inc.
March __, 2001
================================================================================
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Amount
------
* Legal Fees and Expenses............................ $ 120,000
* Printing, Postage, Mailing and EDGAR............... 175,000
* Appraisal and Business Plan Fees and Expenses...... 39,000
* Blue Sky Fees and Expenses......................... 5,000
* Accounting Fees and Expenses....................... 120,000
* Conversion Data Processing......................... 12,500
** Marketing Agent Fees and Expenses.................. 500,000
* Marketing Agent Counsel Fees....................... 40,000
* Filing Fees (NASD, OTS and SEC).................... 30,000
* Nasdaq Listing Fees................................ 55,000
* Other Expenses..................................... 53,000
----------
* Total.............................................. $1,150,000
==========
---------------
* Estimated
** Chesterfield Federal Savings and Loan Association of Chicago and
Chesterfield Financial Corp. have retained Trident Securities ("Trident")
to assist in the sale of common stock on a best efforts basis in the
Subscription and Community Offerings. For purposes of computing estimated
expenses, it has been assumed that Trident will receive fees of
approximately $500,000, exclusive of expenses (including attorneys' fees)
of $50,000.
Item 14. Indemnification of Directors and Officers
Indemnification of Directors and Officers of Chesterfield Financial Corp.
Article NINTH of the Certificate of Incorporation of Chesterfield Financial
Corp. (the "Corporation") sets forth circumstances under which directors,
officers, employees and agents of the Corporation may be insured or indemnified
against liability which they incur in their capacities as such:
NINTH:
-----
A. Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent or in any other capacity while serving as a Director,
Officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment), against all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered by
such indemnitee in connection therewith; provided, however, that, except as
provided in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
B. The right to indemnification conferred in Section A of this Article
NINTH shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final
<PAGE>
disposition (hereinafter an "advancement of expenses"); provided, however, that,
if the Delaware General Corporation Law requires, an advancement of expenses
incurred by an indemnitee in his or her capacity as a Director or Officer (and
not in any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, service to an employee benefit plan)
shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (hereinafter a "final
adjudication") that such indemnitee is not entitled to be indemnified for such
expenses under this Section or otherwise. The rights to indemnification and to
the advancement of expenses conferred in Sections A and B of this Article NINTH
shall be contract rights and such rights shall continue as to an indemnitee who
has ceased to be a Director, Officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article NINTH is not paid in
full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in
any such suit, or in a suit brought by the Corporation to recover an advancement
of expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit. In
(i) any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking the Corporation shall be entitled to recover such expenses upon a
final adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the indemnitee has not met such
applicable standard of conduct, shall create a presumption that the indemnitee
has not met the applicable standard of conduct or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any suit brought by
the indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this Article NINTH or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article NINTH shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, the Corporation's
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any Director, Officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article NINTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
Item 15. Recent Sales of Unregistered Securities. Not Applicable.
Item 16. Exhibits and Financial Statement Schedules:
<PAGE>
The exhibits and financial statement schedules filed as part of this
registration statement are as follows:
(a) List of Exhibits
1.1 Engagement Letter between Chesterfield Financial Corp. and Trident
Securities
1.2 Form of Agency Agreement among Chesterfield Financial Corp, Chesterfield
Federal Savings and Loan Association of Chicago and Trident Securities*
2 Plan of Conversion and Reorganization
3.1 Certificate of Incorporation of Chesterfield Financial Corp.
3.2 Bylaws of Chesterfield Financial Corp.
4 Form of Common Stock Certificate of Chesterfield Financial Corp.
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. regarding legality of
securities being registered
8.1 Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C.*
8.2 State Tax Opinion of Crowe, Chizek and Company LLP*
8.3 Letter from FinPro, Inc. with respect to Subscription Rights
10.1 Form of Employment Agreement*
10.2 Form of Severance Agreement*
16 Letter Regarding Certified Public Accountants
21 Subsidiaries of the Registrant
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick, P.C. (contained in opinion
filed as Exhibit 5)
23.2 Consent of Crowe, Chizek and Company LLP
23.3 Consent of Ernst & Young, LLP
23.4 Consent of FinPro, Inc.
24 Power of Attorney (set forth on Signature Page)
99.1 Appraisal and Business Plan Agreement between Chesterfield Financial Corp.
and FinPro, Inc.
99.2 Appraisal Report of FinPro, Inc.**
99.3 Marketing Materials
99.4 Order and Acknowledgment Form*
99.5 Proxy Statement
99.6 Prospectus Supplement*
____________________________
* To be filed supplementally or by amendment.
<PAGE>
** To be filed supplementally or by amendment; supporting financial schedules
filed pursuant to Rule 202 of Regulation S-T.
(b) Financial Statement Schedules
No financial statement schedules are filed because the required
information is not applicable or is included in the consolidated financial
statements or related notes.
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) To provide to the underwriter at the closing specified in the
underwriting agreements, 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 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant 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
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant 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 Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the questions 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>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Chicago, state of
Illinois on January 16, 2001.
CHESTERFIELD FINANCIAL CORP.
By: \s\ Michael E. DeHaan
---------------------
Michael E. DeHaan
President and Chief Executive Officer
(Duly Authorized Representative)
POWER OF ATTORNEY
We, the undersigned directors and officers of Chesterfield Financial Corp.
(the "Company") hereby severally constitute and appoint Michael E. DeHaan as our
true and lawful attorney and agent, to do any and all things in our names in the
capacities indicated below which said Michael E. DeHaan may deem necessary or
advisable to enable the Company to comply with the Securities Act of 1933, and
any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the registration statement on Form S-1 relating
to the offering of the Company's Common Stock, including specifically, but not
limited to, power and authority to sign for us in our names in the capacities
indicated below the registration statement and any and all amendments (including
post-effective amendments) thereto; and we hereby approve, ratify and confirm
all that said Michael E. DeHaan shall do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and as of the dates indicated.
Signatures Title Date
---------- ----- ----
\s\ Michael E. DeHaan President, Chief Executive January 16, 2001
------------------------ Officer and Director (Principal
Michael E. DeHaan Executive Officer)
\s\ Karen M. Wirth Treasurer January 16, 2001
------------------------ (Principal Financial and
Karen M. Wirth Accounting Officer)
\s\ C. C. DeHaan Director January 16, 2001
------------------------
C. C. DeHaan
\s\ Robert T. Mangan Director January 16, 2001
------------------------
Robert T. Mangan
<PAGE>
\s\ David M. Steadman Director January 16, 2001
------------------------
David M. Steadman
Vice President, Secretary and January 16, 2001
\s\ Richard E. Urchell Director
------------------------
Richard E. Urchell
\s\ Donald D. Walters Director January 16, 2001
------------------------
Donald D. Walters
<PAGE>
As filed with the Securities and Exchange Commission on January 18, 2001
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
EXHIBITS
TO
REGISTRATION STATEMENT
ON
FORM S-1
---------------
CHESTERFIELD FINANCIAL CORP.
================================================================================
<PAGE>
EXHIBIT INDEX
=============
1.1 Engagement Letter between Chesterfield Financial Corp. and Trident
Securities
1.2 Form of Agency Agreement among Chesterfield Financial Corp, Chesterfield
Federal Savings and Loan Association of Chicago and Trident Securities*
2 Plan of Conversion and Reorganization
3.1 Certificate of Incorporation of Chesterfield Financial Corp.
3.2 Bylaws of Chesterfield Financial Corp.
4 Form of Common Stock Certificate of Chesterfield Financial Corp.
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. regarding legality
of securities being registered
8.1 Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C.*
8.2 State Tax Opinion of Crowe, Chizek and Company LLP*
8.3 Letter from FinPro, Inc. with respect to Subscription Rights
10.1 Form of Employment Agreement*
10.2 Form of Severance Agreement*
16 Letter Regarding Certified Public Accountants
21 Subsidiaries of the Registrant
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick, P.C. (contained in
opinion filed as Exhibit 5)
23.2 Consent of Crowe, Chizek and Company LLP
23.3 Consent of Ernst & Young, LLP
23.4 Consent of FinPro, Inc.
24 Power of Attorney (set forth on Signature Page)
99.1 Appraisal and Business Plan Agreement between Chesterfield Financial
Corp. and FinPro, Inc.
99.2 Appraisal Report of FinPro, Inc.**
99.3 Marketing Materials
99.4 Order and Acknowledgment Form*
99.5 Proxy Statement
99.6 Prospectus Supplement*
____________________
* To be filed supplementally or by amendment.
** To be filed supplementally or by amendment; supporting financial
schedules filed pursuant to Rule 202 of Regulation S-T.
