As filed with the Securities and Exchange Commission on March 12, 2021
Registration No. 333-_________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Catalyst Bancorp, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Louisiana | 6035 | 86-2411762 | ||
(State or Other Jurisdiction of
Incorporation or Organization) |
(Primary Standard Industrial
Classification Code Number) |
(I.R.S. Employer
Identification Number) |
235 N. Court Street
Opelousas, Louisiana 70570
(337) 948-3033
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
Joseph B. Zanco
President and Chief Executive Officer
Catalyst Bancorp, Inc.
235 N. Court Street
Opelousas, Louisiana 70570
(337) 948-3033
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)
Copies to:
Hugh T. Wilkinson, Esquire Eric M. Marion, Esquire Silver, Freedman, Taff & Tiernan LLP 3299 K Street, N.W., Suite 100 Washington, D.C. 20007 (202) 295-4500 |
Michael J. Brown, Esquire Thomas P. Hutton, Esquire Luse Gorman, PC 5335 Wisconsin Avenue, NW, Suite 780 Washington, DC 20015 202-274-2000 |
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 under the Securities Act of 1933, check the following box: x
If this Form is filed to register additional shares for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ |
Non-accelerated filer | x | Smaller reporting company | x |
Emerging growth company | x |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ¨
CALCULATION OF REGISTRATION FEE
Title of each class of securities to be registered |
Amount
to
be
|
Proposed
maximum offering price per share |
Proposed
offering price |
Amount of registration fee |
||||||||||
Common Stock, $0.01 par value per share | 5,091,625 shares | $ | 10.00 | $ | 50,916,250 | $ | 5,554.97 |
(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 statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
PROSPECTUS
CATALYST BANCORP, INC.
(Proposed Holding Company for St. Landry Homestead Federal Savings Bank)
Up to 4,427,500 Shares of Common Stock
(Subject to increase to up to 5,091,625 Shares)
We are offering shares of common stock for sale in connection with the conversion of St. Landry Homestead Federal Savings Bank from the mutual to stock form of organization. Currently, there is no established trading market for our common stock. We have applied to list our common stock on the Nasdaq Capital Market under the symbol “CLST”. We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012.
The shares of common stock are first being offered in a subscription offering to eligible depositors of St. Landry Homestead Federal Savings Bank and to St. Landry Homestead Federal Savings Bank’s tax-qualified employee stock ownership plan. Shares not purchased in the subscription offering may be offered for sale to the general public in a community offering, with a preference given to residents of communities served by St. Landry Homestead Federal Savings Bank. Any shares of common stock not purchased in the subscription or community offerings may be offered for sale to the public in a syndicated offering through a syndicate of broker-dealers. The syndicated offering may commence before the subscription and community offerings (including any extensions) have expired. No shares purchased in the subscription offering or the community offering will be issued until the completion of any syndicated offering. The subscription, community and syndicated offerings are collectively referred to as the “offerings.”
Our shares of common stock are being offered in a range from 3,272,500 shares to 4,427,500 shares. We may sell up to 5,091,625 shares of common stock as a result of demand for the shares of common stock or changes in market conditions, without resoliciting subscribers. We must sell a minimum of 3,272,500 shares in order to complete the offering.
The minimum order is 25 shares of common stock. Generally, no individual may purchase more than 15,000 shares of common stock, and no individual or other person, along with their associates and those with whom they are acting in concert, may purchase more than 25,000 shares of common stock. The subscription and community offerings are expected to expire at 5:00 p.m., Central Time, on __________________ __, 2021. We may extend this expiration time and date, without notice to you, until ________________ __, 2021. Once submitted, stock orders are irrevocable unless the subscription and community offerings are terminated or extended, with regulatory approval, beyond ______________ __, 2021, or the number of shares of common stock offered for sale is increased to more than 5,091,625 shares or decreased to less than 3,272,500 shares. If the subscription and community offerings are extended beyond _______________ __, 2021, we will notify all subscribers and give them an opportunity to confirm, change or cancel their orders. If you do not respond to this notice, we will promptly return your funds with interest or cancel your deposit account withdrawal authorization. If the number of shares to be sold in the offering is increased to more than 5,091,625 shares or decreased to less than 3,272,500 shares, we will resolicit subscribers, and all funds delivered to us to purchase shares of common stock in the subscription and community offerings will be returned promptly with interest. Funds received in the subscription and the community offerings will be held in a segregated account at St. Landry Homestead Federal Savings Bank and will earn interest at 0.15% per annum until completion or termination of the offering.
We expect our directors and executive officers, together with their associates, to subscribe for an aggregate 155,000 shares of common stock. They will pay the same $10.00 per share offering price as paid by all other persons who purchase shares in the offering.
Piper Sandler & Co. is assisting us in selling the shares on a best efforts basis in the subscription and community offerings, and will serve as sole manager for any syndicated offering. Piper Sandler & Co. is not required to purchase any shares of common stock that are sold in the subscription offering, community offering or syndicated offering.
OFFERING SUMMARY
Price: $10.00 per Share
Minimum |
Midpoint |
Maximum |
Adjusted Maximum |
|||||||||||||
Number of shares | 3,272,500 | 3,850,000 | 4,427,500 | 5,091,625 | ||||||||||||
Gross offering proceeds | $ | 32,725,000 | $ | 38,500,000 | $ | 44,275,000 | $ | 50,916,250 | ||||||||
Estimated offering expenses, excluding selling agent fees | $ | 1,090,000 | $ | 1,090,000 | $ | 1,090,000 | $ | 1,090,000 | ||||||||
Selling agent fees (1)(2) | $ | 257,013 | $ | 304,830 | $ | 352,647 | $ | 407,637 | ||||||||
Estimated net proceeds | $ | 31,377,987 | $ | 37,105,170 | $ | 42,832,353 | $ | 49,418,613 | ||||||||
Estimated net proceeds per share | $ | 9.59 | $ | 9.64 | $ | 9.67 | $ | 9.71 |
(1) | See “Pro Forma Data” and “The Conversion and Offering—Plan of Distribution; Selling Agent and Underwriting Compensation” for information regarding compensation to be received by Piper Sandler & Co. in the subscription and community offerings and the compensation to be received by Piper Sandler & Co. and other participating broker-dealers in the syndicated offering. |
(2) | Excludes records agent fees and expenses payable to Piper Sandler & Co., which are included in estimated offering expenses. See “The Conversion and Offering – Records Management.” |
This investment involves a degree of risk, including the possible loss of principal. See “Risk Factors” beginning on page 13.
Shares of our common stock are not deposits or accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or by any other government agency. Neither the Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, nor any state securities regulator has approved or disapproved of these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.
Piper Sandler
For assistance, please contact the Stock Information Center at (___) ___-______.
The date of this prospectus is ___________ __, 2021.
MAP OF OUR OFFICE LOCATIONS
[To be inserted.]
TABLE OF CONTENTS
Page
i
The following summary explains material information in this prospectus, but it may not contain all of the information that is important to you. Before making an investment decision, you should read carefully this entire document, including the financial statements and the notes thereto and the section entitled “Risk Factors.” The terms “we,” “our,” and “us” refer to Catalyst Bancorp, Inc. and St. Landry Homestead Federal Savings Bank, unless the context indicates another meaning.
Catalyst Bancorp, Inc.
Catalyst Bancorp, Inc., is a Louisiana corporation which was incorporated by St. Landry Homestead Federal Savings Bank in February 2021. The offering of common stock by means of this prospectus is being made by Catalyst Bancorp in connection with the conversion of St. Landry Homestead Federal Savings Bank from a mutual savings bank to a stock savings bank. Upon completion of the conversion, Catalyst Bancorp will become the savings and loan holding company for St. Landry Homestead Federal Savings Bank by owning all of the outstanding shares of capital stock of St. Landry Homestead Federal Savings Bank. As a savings and loan holding company, Catalyst Bancorp will be regulated by the Federal Reserve Board. To date, Catalyst Bancorp has engaged in organizational activities only. Following the conversion, Catalyst Bancorp’s primary business activity will relate to owning all of the outstanding shares of capital stock of St. Landry Homestead Federal Savings Bank.
St. Landry Homestead Federal Savings Bank
St. Landry Homestead Federal Savings Bank is a federally-chartered mutual savings bank that serves the banking needs of customers in our market area in the Acadiana region of south central Louisiana. We operate from our headquarters and main banking office in Opelousas, Louisiana, as well as three additional full service branch offices located in St. Landry Parish (including a newly constructed branch opened in July 2019) and one branch office located in Lafayette Parish, Louisiana, which was opened in October 2020. Our primary business activity is attracting deposits from the general public and using those funds primarily to originate loans and purchase investment securities. We are subject to comprehensive regulation and examination by the Office of the Comptroller of the Currency.
At December 31, 2020, we had total assets of $224.7 million, total deposits of $164.6 million and equity of $50.6 million. Our headquarters and main banking office is located at 235 North Court Street, Opelousas, Louisiana. Our website address is www.stlandryhomestead.com. Information on our website is not and should not be considered a part of this prospectus.
St. Landry Homestead Federal Savings Bank dates its founding to 1922. We have operated as a traditional savings bank focused primarily on serving the banking needs of customers in St. Landry Parish and its environs. Historically, our lending focus has been on making long-term loans to individuals secured by first mortgages on the borrower’s residence. At December 31, 2020, $99.9 million, or 65.8% of our total loan portfolio, consisted of one- to four-family residential mortgage loans. In recent periods, our growth has been relatively limited. Our total assets amounted to $224.7 million at December 31, 2020, a $6.2 million, or 2.8%, increase compared to December 31, 2019. Our net loans receivable decreased by $12.8 million, or 7.9%, during 2020.
We have undertaken a revised business strategy designed to make St. Landry Homestead Federal Savings Bank a more dynamic community bank with an enhanced emphasis on serving the banking needs of small- to mid-sized businesses and professionals located in the bank’s current market areas and surrounding areas, while continuing to serve our traditional customer base. We expect to focus on moderately growing our asset size, improving and diversifying our loan and deposit products and services to facilitate growth in our business and professional customer base and targeting expansion opportunities in Lafayette Parish and other areas that we serve in the Acadiana region of south central Louisiana. In August 2020, we hired Joseph B. Zanco as President and Chief Executive Officer of St. Landry Homestead Federal Savings Bank in order to spearhead our efforts. Mr. Zanco has nearly 20 years experience as a community bank executive including over 12 years serving as Executive Vice President and Chief Financial Officer of a Lafayette based bank holding company which successfully completed its initial public stock offering, acquired five other institutions and grew to $2.5 billion in total assets during his tenure. Since joining St. Landry Homestead Federal Savings Bank, Mr. Zanco has enhanced the executive management team by hiring a Chief Risk Officer with nearly 40 years banking experience and two new commercial bankers. We believe that these recent hires, together with the anticipated successful completion of our mutual-to-stock conversion, will provide a strong foundation for us to achieve our business strategy.
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Business Strategy
Our business strategy is focused on transforming St. Landry Homestead Federal Savings Bank into a more dynamic institution by embracing a relationship-oriented community bank model targeting small- to mid-sized businesses and business professionals in our market areas while continuing to serve our traditional customer base. Highlights of our business strategy, which is designed to facilitate our ability to operate and grow as a profitable community-based banking institution, include the following:
• | Growing the loan portfolio with greater diversification. Our primary lending focus has been the origination of one- to four-family residential mortgage loans. At December 31, 2020, $99.9 million, or 65.8% of our loan portfolio, was secured by single-family residential mortgage loans. We believe increased commercial lending offers an opportunity to enhance our profitability and our growth prospects. We intend to increase our commercial lending activities, particularly with respect to commercial real estate loans, commercial and industrial loans and multi-family residential real estate loans. We plan to emphasize building full-service banking relationships with small- to mid-sized businesses and business professionals in our market area. We anticipate that our commercial real estate lending originations will focus on loans ranging in size from $500,000 to $2.0 million and that the focus of our commercial and industrial lending originations will be on loans ranging in size from $100,000 to $500,000. |
• | Grow our franchise organically through enhanced banking products and services. We expect to embark on a strategy of prudent growth following the conversion and offering. We believe we have an opportunity to grow organically by focusing on building relationships with small- to mid-sized businesses and business professionals in our market area and by enhancing the products and services we offer. We expect to increase our commercial loan originations while building strong relationships with an increased base of small- to mid-sized business and professional banking customers. To accomplish our goal, we are reviewing policies and procedures to facilitate our abilities to compete for new business customers. We will continue to enhance our staff capacity through training and hiring of new employees as needed to facilitate our growth. In addition, we continue to review our technology and infrastructure and will implement new and enhanced technology tools and on-line services preferred by many of our existing and prospective customers. |
• | Recruiting and retaining top talent and personnel. Mr. Zanco was hired as our new President and Chief Executive Officer in August 2020. Since then, we have also hired a new Chief Risk Officer and two commercial bankers. Recruiting and retaining talented individuals to guide us through the implementation of our business strategy will be critical to our success. While we believe we have assembled a strong management team, we will continue assessing our personnel needs and expect to add new bankers and management staff in order to complement the group that we have assembled. Critical to our efforts to attract and retain talent is our mutual-to-stock conversion and the adoption and implementation of employee stock benefit plans, consistent with federal banking regulations, after the conversion. |
• | Expand our franchise through de novo branching and possible acquisition of other financial institutions. We opened an additional office in Opelousas, Louisiana in July 2019, and expanded our branch network into Lafayette Parish with our Carencro office which was opened in October 2020. We are planning to add to our presence in Lafayette Parish and are currently reviewing sites to add an additional de novo branch office in the Lafayette area by the end of 2021. In addition, after the conversion and offering, we believe there will be opportunities for expansion through acquisitions of other financial institutions in our current market area and adjoining markets in south Louisiana. While we do not currently have any understandings or agreements regarding any specific transactions, the conversion and offering will enhance our ability to undertake future acquisitions. |
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• | Rebranding our banking franchise. Once we have largely implemented our business strategy, we expect to rebrand St. Landry Homestead Federal Savings Bank. Such re-branding efforts may include a new name, a new marketing campaign, updated on-line and website materials and new signage and logos to capture and reflect the new focus of the bank. |
• | Manage credit risk to reduce our level of non-performing assets. We believe that strong asset quality is a key to long-term financial success. Our strategy for credit risk management focuses on an experienced team of credit professionals, well-defined credit policies and procedures, appropriate loan underwriting criteria and active credit monitoring. Our ratio of non-performing assets to total assets was 0.93% at December 31, 2020. |
Reasons for the Conversion
Our primary reasons for converting and raising additional capital through the offering are to:
• | Enhance our capital base to support growth on a prudent basis. We intend to grow our franchise, both organically and through strategic transactions as opportunities arise, on a prudent basis. While we currently exceed all regulatory capital requirements, the offering proceeds will strengthen our capital position and support our planned growth. In addition, the offering proceeds will enhance our lending capacity by increasing our legal lending limit. We believe this increased capacity will improve our competitive position relative to the many larger banks operating in our market area. |
• | Offer our employees and directors an equity ownership interest in St. Landry Homestead Federal Savings Bank. We believe that the conversion and offering will enable us to attract and retain directors, management and employees through various stock-based benefit plans, including an employee stock ownership plan and one or more equity incentive plans. |
• | Facilitate future mergers and acquisitions, if available, on a prudent basis. Although we do not currently have any understandings or agreements regarding any specific transactions, the additional capital raised in the offering may be used to finance mergers with, and acquisitions of, other financial institutions, asset portfolios and branch offices when and if attractive opportunities arise. |
• | Offer our depositors an equity ownership interest. The offering will allow us to offer our depositors the ability to acquire our common stock, and, thus, have an equity interest in our future. |
Terms of the Offering
We are offering between 3,272,500 and 4,427,500 shares of Catalyst Bancorp common stock in a subscription offering first to eligible depositors of St. Landry Homestead Federal Savings Bank and to our tax-qualified employee stock ownership plan, and, to the extent shares remain available, to the general public in a community offering. If necessary, we will also offer shares to the general public in a syndicated offering. The number of shares of common stock to be sold may be increased to up to 5,091,625 shares as a result of demand for the shares of common stock in the offering or changes in market conditions. Unless the number of shares of common stock to be offered is increased to more than 5,091,625 shares or decreased to fewer than 3,272,500 shares, or the subscription and community offerings are extended beyond ___________ __, 2021, subscribers will not have the opportunity to change or cancel their stock orders once submitted. If the subscription and community offerings are extended past _________ __, 2021, all subscribers will be notified and given an opportunity to confirm, change or cancel their orders. If you do not respond to this notice, your order will be canceled and we will promptly return your funds with interest at 0.15% per annum or cancel your deposit account withdrawal authorization. If the number of shares to be sold is increased to more than 5,091,625 shares or decreased to less than 3,272,500 shares, all subscribers’ stock orders will be canceled, all withdrawal authorizations will be canceled and funds delivered to us to purchase shares of common stock in the subscription and community offerings will be returned promptly with interest at the same rate. We will then resolicit subscribers, giving them an opportunity to place new orders for a period of time. No shares purchased in the subscription offering and community offering will be issued until the completion of any syndicated offering.
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The purchase price of each share of common stock offered for sale in the offering is $10.00. All investors will pay the same purchase price per share, regardless of whether the shares are purchased in the subscription offering, the community offering or the syndicated offering. Investors will not be charged a commission to purchase shares of common stock in the offering. Piper Sandler & Co., our marketing agent in the subscription and community offerings, will use its best efforts to assist us in selling shares of our common stock in the subscription and community offerings but is not obligated to purchase any shares of common stock in the subscription and community offerings.
How We Determined the Offering Range and the $10.00 per Share Offering Price
The amount of common stock we are offering for sale is based on an independent appraisal of the estimated market value of Catalyst Bancorp, assuming the offering has been completed. RP Financial, LC., our independent appraiser, has estimated that, at February 5, 2021, and assuming we had undertaken the offering, this market value, was $38.5 million. Based on applicable regulations, this market value forms the midpoint of a valuation range with a minimum of $32.7 million and a maximum of $44.3 million. Based on this valuation range and the offering price of $10.00 per share, Catalyst Bancorp is offering for sale a range of shares of common stock, from 3,272,500 shares to 4,427,500 shares. The $10.00 per share price was selected primarily because it is the price most commonly used in mutual-to-stock conversion transactions undertaken by financial institutions. If demand for shares or market conditions warrant, the appraisal can be increased by up to 15%, which would result in an appraised value of $50.9 million, and we may sell up to 5,091,625 shares of common stock.
RP Financial advised our board of directors that the appraisal was prepared in conformance with the regulatory appraisal methodology, which requires a valuation based on an analysis of the trading prices of comparable public companies whose stock have traded for at least one year prior to the valuation date. RP Financial selected a group of 10 comparable public companies for this analysis.
RP Financial considered adjustments to the pro forma market value based on a comparison of Catalyst Bancorp with the peer group. The independent valuation is also based on an analysis of a peer group of publicly traded bank holding companies and savings and loan holding companies that RP Financial considered comparable to Catalyst Bancorp under regulatory guidelines applicable to the independent valuation. Under these guidelines, a minimum of ten peer group companies are selected from the universe of all publicly-traded financial institutions with relatively comparable resources, strategies and financial and other operating characteristics. Such companies must also be traded on an exchange (such as Nasdaq or the New York Stock Exchange). The peer group companies selected for Catalyst Bancorp also consisted of fully-converted stock institutions that were not subject to an actual or rumored acquisition and that had been in fully-converted form for at least one year. In addition, RP Financial limited the peer group companies to the following two selection criteria: (i) institutions located in the Southeast and Southwest with assets less than $750 million, tangible equity-to-assets ratios of greater than 7.0%, and positive core earnings; (ii) institutions located in the Midwest, Mid-Atlantic and Northeast with assets less than $750 million, tangible equity-to-assets ratios of greater than 7.0%, and positive core earnings.
The appraisal is based in part on St. Landry Homestead Federal Savings Bank’s financial condition and results of operations, the pro forma effect of the additional capital raised by the sale of shares of common stock in the offering, and an analysis of a peer group of 10 publicly-traded bank holding companies and savings and loan holding companies that RP Financial considers comparable to Catalyst Bancorp. The appraisal peer group consists of the following companies, all of which are traded on the Nasdaq Stock Market.
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The following table presents a summary of selected pricing ratios for Catalyst Bancorp (on a pro forma basis) at and for the 12-months ended December 31, 2020, and for the peer group companies based on earnings and other information at and for the 12-months ended September 30, 2020, with stock prices at February 5, 2021, as reflected in the appraisal report. Compared to the average pricing of the peer group, our pro forma pricing ratios at the midpoint of the offering range indicated a discount of 48.99% on a price-to-book value basis and a discount of 50.01% on a price-to-tangible book value basis.
Price-to-earnings
multiple (1) |
Price-to-
book value ratio |
Price-to-tangible book
value ratio |
||||||||||
Catalyst Bancorp (pro forma assuming completion of offering) (2) | ||||||||||||
Adjusted Maximum | NM | 54.23 | % | 54.23 | % | |||||||
Maximum | NM | 50.25 | % | 50.25 | % | |||||||
Midpoint | NM | 46.34 | % | 46.34 | % | |||||||
Minimum | NM | 41.93 | % | 41.93 | % | |||||||
Valuation of peer group companies (historical) | ||||||||||||
Averages | 12.04 | x | 90.84 | % | 92.70 | % | ||||||
Medians | 10.30 | x | 92.53 | % | 92.73 | % |
(1) | Price-to-earnings multiples calculated by RP Financial are based on an estimate of “core” or recurring earnings. These ratios are different than those presented in “Pro Forma Data.” |
The pro forma calculations for Catalyst Bancorp are based on the following assumptions:
• | A number of shares equal to 8% of the shares sold in the offering are purchased by the employee stock ownership plan, with the expense to be amortized over 20 years; |
• | A number of shares equal to 4% of the shares sold in the offering are purchased by a stock-based benefit plan, with the expense to be amortized over five years; and |
• | A number of options equal to 10% of the shares sold in the offering are granted under a stock-based benefit plan, with option expense of $3.17 per option amortized over five years. |
The independent appraisal does not indicate trading market value. Do not assume or expect that our valuation as indicated in the appraisal means that after the offering the shares of our common stock will trade at or above the $10.00 per share price. Furthermore, RP Financial used the pricing ratios presented in the appraisal to estimate our pro forma appraised value for regulatory purposes and not to compare the relative value of shares of our common stock with the value of the capital stock of the peer group. The value of the capital stock of a particular company may be affected by a number of factors such as financial performance, asset size and market location.
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For a more complete discussion of the amount of common stock we are offering for sale and the independent appraisal, see “The Conversion and Offering—Stock Pricing and Number of Shares to be Issued.”
How We Intend to Use the Proceeds from the Offering
We intend to invest at least 50% of the net proceeds from the offering in St. Landry Homestead Federal Savings Bank, fund the loan to our employee stock ownership plan to finance its purchase of shares of common stock in the offering, and retain the remainder of the net proceeds at Catalyst Bancorp.
Assuming we sell 3,850,000 shares of common stock in the offering at the midpoint of the offering range, resulting in estimated net proceeds of $37.1 million, we intend to invest $18.6 million in St. Landry Homestead Federal Savings Bank, lend $3.1 million to our employee stock ownership plan to fund its purchase of shares of common stock (which may include, subject to market conditions, open market purchases after the completion of the conversion and offering if the employee stock ownership plan is unable to purchase its shares in the subscription offering due to an oversubscription by our eligible account holders), and retain the remaining $15.5 million of the net proceeds at Catalyst Bancorp. Assuming we sell 5,091,625 shares of common stock in the offering at the adjusted maximum of the offering range, resulting in estimated net proceeds of $49.4 million, we intend to invest $24.7 million in St. Landry Homestead Federal Savings Bank, lend $4.1 million to our employee stock ownership plan to fund its purchase of shares of common stock, and retain the remaining $20.6 million of the net proceeds at Catalyst Bancorp.
Catalyst Bancorp may use the funds it retains for investment, for capital management strategies, including the repurchase of shares of common stock, to acquire other financial institutions or financial services companies, to pay cash dividends and for other general corporate purposes. St. Landry Homestead Federal Savings Bank may use the proceeds it receives to support increased lending and investment or to acquire other financial institutions or financial services companies. We do not currently have any agreement or understanding regarding any acquisition transaction.
See “How We Intend to Use the Proceeds from the Offering” for more information on the proposed use of the proceeds from the offering.
Persons Who May Order Shares of Common Stock in the Offering
We are offering the shares of common stock in a subscription offering in the following descending order of priority:
PRIORITY 1: | ELIGIBLE ACCOUNT HOLDERS (St. Landry Homestead Federal Savings Bank depositors with a balance of at least $50 at the close of business on December 31, 2019); |
PRIORITY 2: | OUR EMPLOYEE STOCK OWNERSHIP PLAN; |
PRIORITY 3: | SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (St. Landry Homestead Federal Savings Bank depositors with a balance of at least $50 at the close of business on _______ __, 2021); and |
PRIORITY 4: | OTHER MEMBERS (St. Landry Homestead Federal Savings Bank depositors at the close of business on ______ ___, 2021). |
Shares of common stock not purchased in the subscription offering may be offered for sale to the general public in a community offering, with a preference given first to natural persons (including trusts of natural persons) residing in St. Landry Parish and the adjacent parishes of Acadia Parish, Lafayette Parish, St. Martin Parish, Point Coupée Parish, Avoyelles Parish and Evangeline Parish. The community offering may begin concurrently with, during or promptly after the subscription offering. We also may offer for sale shares of common stock not purchased in the subscription offering and the community offering through a syndicated offering. Piper Sandler & Co. will act as sole manager for the syndicated offering. We have the right to accept or reject, in our sole discretion and reasonably consistent with achieving a reasonably wide distribution of the common stock, orders received in the community offering or syndicated offering, and our interpretation of the terms and conditions of the plan of conversion will be final. Any determination to accept or reject stock orders in the community offering or syndicated offering will be based on the facts and circumstances then available to us.
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If we receive orders for more shares than we are offering, we may not be able to fully or partially fill your order. See “The Conversion and Offering” for a detailed description of the subscription offering, the community offering, the syndicated offering, as well as a discussion regarding allocation procedures.
Limits on How Much Common Stock You May Purchase
The minimum number of shares of common stock that may be purchased is 25 shares.
Generally, no individual may purchase more than 15,000 shares ($150,000) of common stock. If any of the following persons purchase shares of common stock, their purchases, in all categories of the offering, when combined with your purchases, cannot exceed 25,000 shares ($250,000) of common stock:
• | most companies, trusts or other entities in which you are a senior officer, partner, trustee or have a substantial beneficial interest; or |
• | your spouse or any relative of you or your spouse living in your house or who is a director, trustee, or officer of Catalyst Bancorp or St. Landry Homestead Federal Savings Bank; or |
• | other persons who may be your associates or persons acting in concert with you. |
Unless we determine otherwise, persons having the same address and persons exercising subscription rights through qualifying deposit accounts registered to the same address will be subject to the overall purchase limitation of 25,000 shares ($250,000).
Subject to regulatory approval, we may increase or decrease the purchase limitations at any time. See “The Conversion and Offering—Additional Limitations on Common Stock Purchases.”
How You May Purchase Shares of Common Stock in the Subscription Offering and the Community Offering
In the subscription offering and community offering, you may pay for your shares by:
(i) | personal check, bank check or money order made payable to Catalyst Bancorp, Inc.; or |
(ii) | authorizing us to withdraw available funds from the types of deposit account(s) at St. Landry Homestead Federal Savings Bank listed on the stock order form. |
St. Landry Homestead Federal Savings Bank is prohibited from lending funds to anyone to purchase shares of common stock in the offering. Additionally, you may not use a line of credit check from St. Landry Homestead Federal Savings Bank or any type of third party check (such as a check payable to you and endorsed over to Catalyst Bancorp) to pay for shares of common stock. No wire transfer will be accepted without our prior approval. You may not authorize direct withdrawal from an individual retirement account (“IRA”) at St. Landry Homestead Federal Savings Bank. See “—Using IRA Funds to Purchase Shares of Common Stock.”
You may subscribe for shares of common stock in the subscription and community offerings by delivering a signed and completed original stock order form, together with full payment payable to Catalyst Bancorp, Inc. or authorization to withdraw funds from one or more of your deposit accounts at St. Landry Homestead Federal Savings Bank, provided that we receive your stock order form before 5:00 p.m., Central Time, on ____________ __, 2021, which is the end of the subscription offering period. You may submit your stock order form and payment by mail using the stock order reply envelope provided or by overnight delivery to our Stock Information Center, which is located at __________________________________, Louisiana. You may also hand-deliver stock order forms to the Stock Information Center. We will accept hand-delivered stock order forms only at this location. We will not accept stock order forms at our banking offices. Do not mail stock order forms to any of St. Landry Homestead Federal Savings Bank’s banking offices.
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See “The Conversion and Offering—Procedure for Purchasing Shares in Subscription and Community Offerings—Payment for Shares” for a complete description of how to purchase shares in the subscription and community offerings.
Using IRA Funds to Purchase Shares of Common Stock
You may be able to subscribe for shares of common stock using funds in your IRA. If you wish to use some or all of the funds in an IRA at St. Landry Homestead Federal Savings Bank, the applicable funds must be transferred to a self-directed account maintained by an independent trustee, such as a brokerage firm, and the purchase must be made through that account. If you do not have such an account, you will need to establish one before placing your stock order. A one-time and/or annual administrative fee may be payable to the independent trustee. Because individual circumstances differ and the processing of retirement fund orders takes additional time, we recommend that you contact our Stock Information Center promptly, preferably at least two weeks before the ______________ __, 2021 offering deadline, for assistance with purchases using your IRA or other retirement account you may have at St. Landry Homestead Federal Savings Bank or elsewhere. Whether you may use such funds to purchase shares in the offering may depend on timing constraints and, possibly, limitations imposed by the institution where the funds are held.
See “The Conversion and Offering—Procedure for Purchasing Shares in Subscription and Community Offerings—Payment for Shares” and “—Using Individual Retirement Account Funds.”
Market for Common Stock
We have applied to list our common stock on the Nasdaq Capital Market under the symbol “CLST.” Piper Sandler & Co. has advised us that it intends to make a market in our common stock following the offering, but is not obligated to do so.
Our Dividend Policy
We have not determined whether we will pay dividends on the common stock. After the offering, we will consider a policy of paying regular cash dividends. Our ability to pay dividends will depend on a number of factors, including capital requirements, regulatory limitations and our operating results and financial condition. Initially, our ability to pay dividends will be limited to the net proceeds retained by Catalyst Bancorp and earnings from the investment of such proceeds, as well as dividends from St. Landry Homestead Federal Savings Bank, if any. At the maximum of the offering range, Catalyst Bancorp will retain approximately $17.9 million of the net proceeds. Additionally, funds could be provided by St. Landry Homestead Federal Savings Bank through dividends; however, the ability of St. Landry Homestead Federal Savings Bank to dividend funds to Catalyst Bancorp is subject to regulatory limitations. For information regarding our proposed dividend policy, see “Our Dividend Policy.”
Stock Purchases by Directors and Executive Officers
We expect our directors and executive officers, together with their associates, to subscribe for 155,000 shares of common stock in the offering, representing 4.7% of shares to be outstanding at the minimum of the offering range and 3.5% of shares to be sold in the offering at the maximum of the offering range. They will pay the same $10.00 per share price that will be paid by all other persons who purchase shares of common stock in the offering. See “Proposed Management Purchases.”
Deadline for Orders of Shares of Common Stock in the Subscription and Community Offerings
The deadline for ordering shares of common stock in the subscription and community offerings is 5:00 p.m., Central Time, on ____________ __, 2021, unless we extend this deadline. If you wish to order shares of common stock, a properly completed and signed original stock order form, together with full payment, must be received (not postmarked) by this time.
Although we will make reasonable attempts to provide this prospectus and offering materials to holders of subscription rights, the subscription offering and all subscription rights will expire at 5:00 p.m., Central Time, on ______________ __, 2021, whether or not we have been able to locate each person entitled to subscription rights.
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See “The Conversion and Offering—Procedure for Purchasing Shares in Subscription and Community Offerings—Expiration Date” for a complete description of the deadline for ordering shares in the offering.
You May Not Sell or Transfer Your Subscription Rights
Applicable regulations prohibit you from transferring your subscription rights. If you order shares of common stock in the subscription offering, you must sign a written certification that you are purchasing the common stock for yourself and that you have no agreement or understanding to sell or transfer your subscription rights or the shares that you are purchasing. We intend to take legal action, including reporting persons to federal or state agencies, against anyone who we believe has sold or transferred his or her subscription rights. We will not accept your order if we have reason to believe that you have sold or transferred your subscription rights. On the order form, you cannot add the names of other individuals for joint stock registration unless they are also named on the qualifying deposit account, and you cannot delete names of other individuals except in the case of certain orders placed through an IRA, Keogh, 401(k) or similar plan or unless a named eligible depositor has died. Doing so may jeopardize your subscription rights. In addition, the stock order form requires that you list all deposit accounts, giving all names on each account and the account number at the applicable eligibility date. Failure to provide this information, or providing incomplete or incorrect information, may result in a loss of part or all of your share allocation if there is an oversubscription.
Delivery of Shares of Common Stock
All shares of common stock sold will be issued in book entry form. Stock certificates will not be issued. A statement reflecting ownership of shares of common stock issued in the subscription and community offerings will be mailed by our transfer agent to the persons entitled thereto at the registration address noted by them on their stock order forms as soon as practicable following consummation of the offering. We expect trading in the stock to begin on the day of completion of the offering or the next business day. The offering is expected to be completed as soon as practicable following satisfaction of the conditions described below in “—Conditions to Completion of the Conversion.” Until a statement reflecting ownership of shares of common stock is available and delivered to purchasers, purchasers might not be able to sell the shares of common stock that they purchased, even though the common stock will have begun trading. Your ability to sell your shares of common stock before receiving your statement will depend on arrangements you may make with a brokerage firm.
Conditions to Completion of the Conversion
We cannot complete the conversion and offering unless:
• | The plan of conversion is approved by the required votes of the depositors of St. Landry Homestead Federal Savings Bank at a special meeting of depositors to be held on _____________ __, 2021; |
• | We receive orders for at least the minimum number of shares of common stock offered in the offering; and |
• | We receive final regulatory approval from the Office of the Comptroller of the Currency to complete the conversion and offering. |
Steps We May Take if We Do Not Receive Orders for the Minimum Number of Shares
If we do not receive orders for at least 3,272,500 shares of common stock, we may take several steps in order to sell the minimum number of shares of common stock in the offering range. Specifically, we may:
(i) | increase the purchase limitations; and/or |
(ii) | seek regulatory approval to extend the offering beyond ___________ __, 2021, so long as we resolicit subscribers who previously submitted subscriptions in the offering. |
If we extend the offering past ___________ __, 2021, all subscribers will be notified and given an opportunity to confirm, change or cancel their orders. If you do not respond to this notice, we will cancel your stock order and promptly return your funds with interest at 0.15% per annum for funds received in the subscription and community offering or cancel your deposit account withdrawal authorization. If one or more purchase limitations are increased, subscribers in the subscription offering who ordered the maximum amount will be given the opportunity to increase their subscriptions up to the then-applicable limit.
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Possible Change in the Offering Range
RP Financial will update its appraisal before we complete the offering. If, as a result of demand for the shares or changes in market conditions, RP Financial determines that our pro forma market value has increased, we may sell up to 5,091,625 shares in the offering without further notice to you. If, however, the updated appraisal indicates our pro forma market value is either below $32.7 million or above $50.9 million, then, after consulting with the Office of the Comptroller of the Currency, we may:
• | terminate the offering and promptly return all funds (with interest paid on funds received in the subscription and community offerings); |
• | set a new offering range; or |
• | take such other actions as may be permitted by the Office of the Comptroller of the Currency and the Securities and Exchange Commission. |
If we set a new offering range, we will promptly return funds, with interest at 0.15% per annum for funds received for purchases in the subscription and community offerings, and cancel any authorization to withdraw funds from deposit accounts for the purchase of shares of common stock. We will then resolicit subscribers, allowing them to place a new stock order for a period of time.
Possible Termination of the Offering
We may terminate the offering at any time with regulatory approval. If we terminate the offering, we will promptly return your funds with interest at 0.15% per annum, and we will cancel deposit account withdrawal authorizations.
Benefits to Management and Potential Dilution to Shareholders Resulting from the Offering
We expect our employee stock ownership plan, which is a tax-qualified retirement plan for the benefit of all employees of St. Landry Homestead Federal Savings Bank, to purchase up to 8% of the shares of common stock we sell in the offering. If market conditions warrant, in the judgment of its trustees, the employee stock ownership plan’s subscription order may not be filled in the subscription offering and the employee stock ownership plan may elect to purchase shares in the open market following the completion of the offering, subject to the approval of the Office of the Comptroller of the Currency.
We intend to implement one or more new stock-based benefit plans no earlier than six months after completion of the offering. Shareholder approval of these plans would be required. We have not determined whether we will adopt the plans within 12 months following the completion of the offering or more than 12 months following the completion of the offering. If we implement stock-based benefit plans within 12 months following the completion of the offering, the stock-based benefit plans would reserve a number of shares (i) up to 4% of the shares of common stock sold in the offering, for awards of restricted stock to key employees and directors, at no cost to the recipients, and (ii) up to 10% of the shares of common stock sold in the offering for issuance pursuant to the exercise of stock options by key employees and directors. These percentage limitations are required by the Office of the Comptroller of the Currency regulations. If the stock-based benefit plans are adopted more than 12 months after the completion of the offering, they would not be subject to the percentage limitations set forth above. Our employment agreement with Mr. Zanco provides that we will offer him the maximum allocation allowed for stock options and restricted stock awards (currently 25% of the respective plans), and that he will receive a $100,000 bonus upon completion of the conversion.
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The following table summarizes the number of shares of common stock and the aggregate dollar value of grants that are available under one or more stock-based benefit plans if such plans reserve for restricted stock awards and stock options, respectively, a number of shares of common stock equal to 4% and 10% of the shares sold in the offering. The table shows the dilution to shareholders if all such shares are issued from authorized but unissued shares, instead of shares purchased in the open market. The table also sets forth the number of shares of common stock to be acquired by the employee stock ownership plan for allocation to all qualifying employees.
Number of Shares to be Granted or Purchased |
Value of Grants
(In thousands) (1) |
|||||||||||||||||||||||||||
At
Minimum of Offering Range |
At
Adjusted Maximum of Offering Range |
As a
Percentage of Common Stock to be Sold in the Offering |
As a
Percentage of Common Stock to be Outstanding |
Dilution
Resulting From Issuance of Shares for Stock-Based Benefit Plans |
At
Minimum of Offering Range |
At
Adjusted Maximum of Offering Range |
||||||||||||||||||||||
Employee stock ownership plan(2) | 261,800 | 407,330 | 8.00 | % | 8.00 | % | 0.00 | % | $ | 2,618,000 | $ | 4,073,300 | ||||||||||||||||
Restricted stock awards | 130,900 | 203,665 | 4.00 | 4.00 | 3.85 | 1,309,000 | 2,036,650 | |||||||||||||||||||||
Stock options | 327,250 | 509,163 | 10.00 | 10.00 | 9.09 | 1,037,383 | 1,614,045 | |||||||||||||||||||||
Total | 719,950 | 1,120,158 | 22.00 | % | 22.00 | % | 12.28 | % | $ | 4,964,383 | $ | 7,723,995 |
(1) | The actual value of restricted stock awards will be determined based on their fair value at the date of grant. For purposes of this table, the fair value for awards is assumed to be the same as the offering price of $10.00 per share. The fair value of stock options has been estimated at $3.17 per option using the Black-Scholes option pricing model with the following assumptions: a grant-date share price and option exercise price of $10.00; an expected option term of 10 years; no dividend yield; a risk-free rate of return of 0.93%; and expected volatility of 22.94%. The actual value of option grants will be determined by the grant-date fair value of the options, which will depend on a number of factors, including the valuation assumptions used and the option pricing model ultimately adopted. |
(2) | No dilution is reflected for the employee stock ownership shares because such shares are assumed to be purchased in the offering. |
Tax Consequences
Catalyst Bancorp and St. Landry Homestead Federal Savings Bank have received an opinion of counsel, Silver, Freedman, Taff & Tiernan LLP, regarding the material federal income tax consequences, and have received the opinion of Castaing, Hussey & Lolan, LLC regarding the material Louisiana income tax consequences, of the conversion and offering. As a general matter, the conversion and offering will not be a taxable transaction for purposes of federal or state income taxes to Catalyst Bancorp, St. Landry Homestead Federal Savings Bank or persons eligible to subscribe for shares of stock in the subscription offering.
Emerging Growth Company Status
We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012. For as long as we so qualify we exempt ourselves from various reporting requirements applicable to other public companies but not to emerging growth companies. See “Risk Factors—Risks Related to the Offering—We are an emerging growth company, and any decision by us to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors” and “Supervision and Regulation—Emerging Growth Company Status.”
We intend to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.
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Risk Factors
An investment in Catalyst Bancorp’s common stock is subject to risk, including risks related to our business and this offering.
Specific risks related to our business include, but are not limited to, those related to the ongoing coronavirus disease 2019 (“COVID-19”) pandemic and the associated economic slowdown; our emphasis on residential mortgage lending; our planned increase in commercial and multi-family real estate and commercial lending; our allowance for loan losses; the susceptibility of the markets we operate in to natural disasters; the geographic concentration of our loan portfolio and local and national economic conditions; our net loss for the year ended December 31, 2020 and our prospects for profitability in the near-term; economic conditions in our local market areas; our business strategy to grow our business and operations; our dependence on our management team; our strategy to grow through mergers and acquisitions; our branch office strategy; our liquidity management; competition within our market area; changes in interest rates; reputation risk; our dependence on information technology and telecommunications systems and third-party service providers; cybersecurity risks; our ability to keep pace with technological changes; operational risks resulting from the high volume of transactions we process; acts of terrorism or other external events; and changes in and compliance with laws and regulations and accounting rules and best practices.
Specific risks related to this offering include, but are not limited to, those related to the future trading price of the common stock of Catalyst Bancorp; the trading market for the common stock of Catalyst Bancorp; the broad discretion we have over the use of the net offering proceeds; the intended new stock-based benefit plans; the return on equity after the completion of the offering; anti-takeover factors; the potential lack of dividends on our common stock; the potential for delay in an investor’s ability to sell shares of common stock immediately following the offering; the irrevocability of your investment decision; and, our status as an emerging growth company.
Before making an investment decision, you should read this entire document carefully, including the section entitled “Risk Factors” that follows and that discusses the above risks in further detail.
How You Can Obtain Additional Information—Stock Information Center
Our banking personnel may not, by law, assist with investment-related questions about the offering. If you have any questions regarding the conversion and offering, call our Stock Information Center at (___) ___-____. The Stock Information Center is open Monday through Friday between __:__a.m. and __:__ p.m., Central Time. The Stock Information Center will be closed on weekends and bank holidays.
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You should consider carefully the following risk factors, in addition to all other information in this prospectus, in evaluating an investment in our common stock.
|
Risks Related to Our Business
Risks Related to the COVID-19 Pandemic and the Associated Economic Slowdown
The widespread outbreak of COVID-19 pandemic has adversely affected, and will likely continue to adversely affect, our business, financial condition, and results of operations. Moreover, the longer the pandemic persists, the more material the ultimate effects are likely to be.
The COVID-19 pandemic continues to negatively impact economic and commercial activity and financial markets, both globally and within the United States. In our market area, stay-at-home orders and travel restrictions — and similar orders imposed across the United States to restrict the spread of COVID-19 — resulted in significant business and operational disruptions, including business closures, supply chain disruptions, and mass layoffs and furloughs. Local jurisdictions have subsequently lifted stay-at-home orders and moved to phased reopening of businesses, although capacity restrictions and health and safety recommendations that encourage continued physical distancing and working remotely have limited the ability of businesses to return to pre-pandemic levels of activity.
We have implemented business continuity plans and continue to provide financial services to clients, while taking health and safety measures such as limiting access to the interior of our facilities, frequently cleaning our facilities, and using a remote workforce where possible. Despite these safeguards, we may nonetheless experience business disruptions.
The COVID-19 pandemic has negatively affected our business and is likely to continue to do so. As of December 31, 2020, we had provided $3.5 million in Paycheck Protection Program (“PPP”) loans for 86 new and existing customers. During the year ended December 31, 2020, we also granted eligible loan modifications in the form of payment deferral of principal for $23.9 million of loans under the 2020 Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. Generally, these modifications included the deferral of principal payments for a period of three months and a three-month extension of the maturity date. At December 31, 2020, we had five loans with an outstanding balance of $1.5 million on COVID-19 related extensions. In addition, at December 31, 2020, included in our commercial real estate loans portfolio were nine loans, with an aggregate outstanding balance of $11.7 million at such date, which were secured by hotel properties. While all of such loans were performing in accordance with their terms at such date, the hospitality industry has been particularly hard-hit by the COVID-19 pandemic, and we are closely monitoring our loans in the hotel segment.
The extent to which COVID-19 will continue to negatively affect our business is unknown and will depend on the geographic spread of the virus, the overall severity of the disease, the duration of the pandemic, the actions undertaken by national, state and local governments and health officials to contain the virus or treat its effects, and how quickly and to what extent economic conditions improve and normal business and operating conditions resume. The longer the pandemic persists, the more material the ultimate effects are likely to be.
The continued spread of COVID-19 and the efforts to contain the virus, including stay-at-home orders and travel restrictions, could, among other things: (1) cause changes in consumer and business spending, borrowing and saving habits, which may affect the demand for loans and other products and services we offer, as well as the creditworthiness of potential and current borrowers; (2) cause our borrowers to be unable to meet existing payment obligations, particularly those borrowers that may be disproportionately affected by business shut downs and travel restrictions, such as those operating in the lodging, retail, travel and entertainment industries, resulting in increases in loan delinquencies, problem assets, and foreclosures; (3) cause the value of collateral for loans, especially real estate, to decline in value; (4) reduce the availability and productivity of our employees; (5) require us to increase our allowance for credit losses; (6) cause our vendors and counterparties to be unable to meet existing obligations to us; (7) negatively impact the business and operations of third party service providers that perform critical services for our business; (8) impede our ability to close mortgage loans, if appraisers and title companies are unable to perform their functions; (9) cause the value of our securities portfolio to decline; and (10) cause the net worth and liquidity of loan guarantors to decline, impairing their ability to honor commitments to us.
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Any one or a combination of the above events could have a material, adverse effect on our business, financial condition, and results of operations.
Risks Related to Our Lending Activities
Our emphasis on residential mortgage loans exposes us to lending risks.
At December 31, 2020, $99.9 million, or 65.8%, of our loan portfolio was secured by one- to four-family residential real estate and we intend to continue to make loans of this type after the offering. One- to four-family residential mortgage lending is generally sensitive to regional and local economic conditions that significantly impact the ability of borrowers to meet their loan payment obligations, making loss levels difficult to predict. Declines in real estate values could cause some of our residential mortgages to be inadequately collateralized, which would expose us to a greater risk of loss if we seek to recover on defaulted loans by selling the real estate collateral. In addition, a significant portion of our one- to four-family residential loans are considered non-conforming loans, for various reasons, and are not readily saleable into the secondary market.
Our planned increase in commercial and multi-family real estate and commercial lending could expose us to increased lending risks and related loan losses.
At December 31, 2020, we had an aggregate of $41.8 million in commercial real estate, multi-family and commercial and industrial loans (which include non-residential real estate loans, multi-family loans and commercial business loans), which represented 27.6% of our total loan portfolio at that date. Our current business strategy is to increase our originations of commercial real estate loans and commercial and industrial loans in accordance with our underwriting guidelines. Commercial real estate loans generally expose a lender to greater risk of non-payment and loss than one- to four-family residential mortgage loans because repayment of the loans often depends on the successful operation of the properties and the income stream of the borrowers. Such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to one- to four-family residential mortgage loans.
The offering will allow us to increase our loans-to-one borrower limit which may result in larger loan balances. In addition, to the extent that borrowers have more than one commercial loan outstanding, an adverse development with respect to one loan or one credit relationship could expose us to a significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential real estate loan. Furthermore, if loans that are collateralized by commercial real estate become troubled and the value of the real estate has been significantly impaired, then we may not be able to recover the full contractual amount of principal and interest that we anticipated at the time we originated the loan, which could cause us to increase our provision for loan losses and adversely affect our operating results and financial condition.
If our allowance for loan losses is not sufficient to cover actual loan losses, our results of operations would be negatively affected.
In determining the amount of the allowance for loan losses, we analyze, among other things, our loss and delinquency experience by portfolio segments and we consider the effect of existing economic conditions. In addition, we make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. If the actual results are different from our estimates, or our analyses are inaccurate, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, which would require additions to our allowance and would decrease our net income. Our emphasis on loan growth and on increasing our portfolio, as well as any future credit deterioration, will require us to increase our allowance further in the future.
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In addition, Federal banking regulators periodically review our allowance for loan losses and could require us to increase our provision for loan losses. Any increase in our allowance for loan losses or loan charge-offs resulting from these regulatory reviews may have a material adverse effect on our results of operations and financial condition.
The markets in which we operate are susceptible to hurricanes and other natural disasters, which could result in a disruption of our operations and increases in loan losses.
A significant portion of our business is generated from markets in southern Louisiana that have been, and may continue to be, damaged by major hurricanes, floods, tropical storms, tornadoes and other natural disasters. Natural disasters can disrupt our operations, cause widespread property damage, and severely depress the local economies in which we operate. Natural disasters could harm our operations directly through interference with communications and damage to our facilities and our operational, financial and management information systems, any of which could impair our ability to conduct business. In addition, if the economies in our primary markets experience an overall decline as a result of adverse weather or other natural disasters, demand for loans and our other products and services could be reduced. The rates of delinquencies, foreclosures, bankruptcies and losses in our loan portfolios may increase substantially, as uninsured property losses or sustained job interruption or loss may materially impair borrowers’ abilities to repay their loans. Moreover, the value of real estate or other collateral that secures our loans could be materially and adversely affected by a natural disaster. A natural disaster could, therefore, result in decreased revenue and increased loan losses. All of these consequences could have a material adverse effect on our business, financial condition and results of operations.
The geographic concentration of our loan portfolio and lending activities makes us vulnerable to a downturn in our local market area.
While there is not a single employer or industry in our market area on which a significant number of our customers are dependent, a substantial portion of our loan portfolio is comprised of loans secured by property located in the Acadiana region, particularly in St. Landry Parish and contiguous parishes in south central Louisiana. This makes us vulnerable to a downturn in the local economy and real estate markets. Adverse conditions in the local economy such as unemployment, recession, a catastrophic event or other factors beyond our control could impact the ability of our borrowers to repay their loans, which could impact our net interest income. Decreases in local real estate values caused by economic conditions, recent changes in tax laws or other events could adversely affect the value of the property used as collateral for our loans, which could cause us to realize a loss in the event of a foreclosure. Further, deterioration in local economic conditions could drive the level of loan losses beyond the level we have provided for in our allowance for loan losses, which in turn could necessitate an increase in our provision for loan losses and a resulting reduction to our earnings and capital.
Economic conditions could result in increases in our level of non-performing loans and/or reduce demand for our products and services, which could have an adverse effect on our results of operations.
Prolonged deteriorating economic conditions could significantly affect the markets in which we do business, the value of our loans and investment securities, and our ongoing operations, costs and profitability. Further, declines in real estate values and sales volumes and elevated unemployment levels may result in higher loan delinquencies, increases in our non-performing and classified assets and a decline in demand for our products and services. These events may cause us to incur losses and may adversely affect our financial condition and results of operations. Reduction in problem assets can be slow, and the process can be exacerbated by the condition of the properties securing non-performing loans and the foreclosure process in Louisiana, where the majority of our borrowers reside. To the extent that we must work through the resolution of assets, economic problems may cause us to incur losses and adversely affect our capital, liquidity, and financial condition.
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Risks Related to our Business Strategy
We incurred a net loss in the year ended December 31, 2020, and we may not achieve significant profitability from our business strategies and growth plan in the near term.
During the year ended December 31, 2020, we had a net loss of $684,000. Our loss in 2020 compared to net income of $1.3 million in the year ended December 31, 2019, primarily was the result of a $1.6 million increase in non-interest expense, which included $1.5 million (pre-tax) in prepayment penalties recognized on Federal Home Loan Bank advances, and a $910,000 increase in the provision for loan losses.
We believe growth and expansion of our business operations is essential to our future profitability. We expect to incur expenses related to the implementation of our growth plan, including possible hiring initiatives, and the development and marketing of new products and services. In addition, the conversion and offering will have a short-term adverse impact on our operating results, due to additional costs related to becoming a public company, increased compensation expenses associated with our employee stock ownership plan and the possible implementation of a stock-based benefit plan after the completion of the conversion and offering.
Our ability to achieve profitability depends upon a number of factors, including, we believe, most importantly our ability to increase our revenues and grow our asset size. In order to grow, we need to successfully implement our business strategy, including increasing our loan originations, especially commercial loans, while managing expenses. Our ability to achieve profitability will also be affected by competition with other financial institutions, changes to the interest rate environment that may reduce our profit margins or impair our business strategy, adverse changes in the securities markets, changes in laws or government regulations, changes in consumer spending, borrowing, or saving, and changes in accounting policies, as well as other risks and uncertainties described in this “Risk Factors” section.
We are not in a high-growth market area, and continued adverse economic conditions, especially affecting our market area, could adversely affect our financial condition and results of operations. Additionally, economic growth in the United States has been slow and unemployment levels are high.
Our success depends primarily on the general economic conditions in our market area which we consider to be St. Landry Parish, Lafayette Parish and adjoining areas in the Acadiana region of south central Louisiana. We have relatively few loans outside of our market area, and, as a result, we have a greater risk of loan defaults and losses in the event of an economic downturn in our market area, as adverse economic conditions may have a negative effect on the ability of our borrowers to make timely payments of their loans. According to the United States census, the estimated July 2019 population of St. Landry Parish was 82,124, representing a 1.5% decrease from the 2010 census population of 83,390. The estimated July 2019 population of Lafayette Parish was 244,390, a 10.2% increase from the 2010 census population. During the same period, the population in Louisiana is estimated to have grown by 2.5%. According to U.S. Census data, the median household income in St. Landry Parish and Lafayette Parish, in 2019 dollars (for 2015-2019), was $36,403 and $56,999, respectively, compared to median household income of $49,969 and $62,843, respectively, for Louisiana and the United States for such period. For the same period, 22.6% and 16.6% of residents of St. Landry Parish and Lafayette Parish, respectively, lived below the poverty level.
Unlike larger banks that are more geographically diversified, we provide banking and financial services to customers primarily in this area. The local economic conditions in our market area, therefore, have a significant impact on our lending, the ability of the borrowers to repay their loans and the value of the collateral securing loans.
Our business strategy includes loan growth, and our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively. Growing our operations could also cause our expenses to increase faster than our revenues.
Our business strategy primarily focuses on loan growth, funded by deposits. Achieving such growth may require us to attract customers that currently bank at other financial institutions in our market area. Our ability to successfully grow will depend on a variety of factors, including our ability to attract and retain experienced bankers, the continued availability of desirable business opportunities, the level of competition from other financial institutions in our market area and our ability to manage our growth. Growth opportunities may not be available or we may not be able to manage our growth successfully. If we do not manage our growth effectively, our financial condition and operating results could be negatively affected. Furthermore, there can be considerable costs involved in opening branches and expanding lending capacity, and generally a period of time is required to generate the necessary revenues to offset these costs, especially in areas in which we do not have an established presence. Accordingly, any such business expansion can be expected to negatively impact our earnings until certain economies of scale are reached. Our expenses could be further increased if we encounter delays in executing our business strategy.
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We depend on our management team and other key personnel to implement our business strategy and execute successful operations and we could be harmed by the loss of their services or the inability to hire additional personnel.
We depend on the services of the members of our senior management team who direct our strategy and operations. Our executive officers and lending personnel possess substantial expertise, extensive knowledge of our markets and key business relationships, and will be integral in implementing our business strategy. Any one of them could be difficult to replace. Our loss of these persons, or our inability to hire additional qualified personnel, could impact our ability to implement our business strategy and could have a material adverse effect on our results of operations and our ability to compete in our markets. See “Management.”
We are subject to certain risks in connection with our strategy of growing through mergers and acquisitions.
We expect that acquisitions of banking institutions and other financial service companies within and surrounding our market area will be a component of our business strategy. We anticipate that we will seek to acquire other banking institutions, other financial services companies or branches of financial institutions in the future. Acquisitions typically involve the payment of a premium over book and trading values and, therefore, may result in the dilution of our tangible book value per share. Our ability to engage in future mergers and acquisitions depends on various factors, including: (1) our ability to identify suitable merger partners and acquisition opportunities; (2) our ability to finance and complete transactions on acceptable terms and at acceptable prices; and (3) our ability to receive the necessary regulatory and, when required, shareholder approvals. Our inability to engage in an acquisition or merger for any of these reasons could have an adverse impact on the implementation of our business strategies. Furthermore, mergers and acquisitions involve a number of risks and challenges, including (1) our ability to achieve planned synergies and to integrate the branches and operations we acquire, and the internal controls and regulatory functions of the acquired entity into our current operations and (2) the diversion of management’s attention from existing operations, which may adversely affect our ability to successfully conduct our business and negatively impact our financial results.
The building of market share through our branch office strategy, and our ability to achieve profitability on new branch offices, may increase our expenses and negatively affect our earnings.
We have opened two new branch banking offices in the past two years and we expect to open an additional branch office in Lafayette Parish by year-end 2021. We may open additional offices within our market area and adjacent markets after the conversion as part of our efforts to grow our deposit base. There are considerable costs involved in opening branch offices, especially in light of the capabilities needed to compete in today’s environment. Moreover, new branch offices generally require a period of time to generate sufficient revenues to offset their costs, especially in areas in which we do not have an established presence. Accordingly, new branch offices could negatively impact our earnings and may do so for some period of time. Our investments in products and services, and the related personnel required to implement new policies and procedures, take time to earn returns and can be expected to negatively impact our earnings for the foreseeable future. The profitability of our expansion strategy will depend on whether the income that we generate from the new branch offices will offset the increased expenses resulting from operating these branch offices.
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Risks Related to Our Business and Industry Generally
Ineffective liquidity management could adversely affect our financial results and condition.
Effective liquidity management is essential for the operation of our business. We require sufficient liquidity to meet customer loan requests, customer deposit maturities/withdrawals, payments on our debt obligations as they come due and other cash commitments under both normal operating conditions and other unpredictable circumstances causing industry or general financial market stress. Our access to funding sources in amounts adequate to finance our activities on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy generally. Factors that could detrimentally impact our access to liquidity sources include a downturn in the geographic markets in which our loans and operations are concentrated or difficult credit markets. Our access to deposits may also be affected by the liquidity needs of our depositors. In particular, a majority of our liabilities are checking accounts and other liquid deposits, which are payable on demand or upon several days’ notice, while by comparison, a substantial majority of our assets are loans, which cannot be called or sold in the same time frame. Although we have historically been able to replace maturing deposits and advances as necessary, we might not be able to replace such funds in the future, especially if a large number of our depositors seek to withdraw their accounts, regardless of the reason. A failure to maintain adequate liquidity could materially and adversely affect our business, results of operations or financial condition.
Strong competition within our market area could hurt our profits and slow growth.
Our profitability depends upon our continued ability to compete successfully in our market area. We face intense competition both in making loans and attracting deposits. We continue to face stiff competition for one- to four-family residential loans from other financial service providers, including large national residential lenders, local community banks and credit unions. Other competitors for one- to four-family residential loans include credit unions and mortgage brokers which keep overhead costs and mortgage rates down by selling loans and not holding or servicing them. Our competitors for commercial real estate loans include other community banks and commercial lenders, some of which are larger than us and have greater resources and lending limits than we have and offer services that we do not provide. Price competition for loans and deposits might result in us earning less on our loans and paying more on our deposits, which reduces net interest income. We expect competition to remain strong in the future.
We are a community bank and our ability to maintain our reputation is critical to the success of our business. The failure to do so may adversely affect our performance.
We are a community bank and our reputation is one of the most valuable assets of our business. A key component of our business strategy is to rely on our reputation for customer service and knowledge of local markets to expand our presence by capturing new business opportunities from existing and prospective customers in our market area and contiguous areas. As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers. If our reputation is negatively affected by the actions of our employees, by our inability to conduct our operations in a manner that is appealing to current or prospective customers or otherwise, our business and operating results may be materially adversely affected.
We are dependent on our information technology and telecommunications systems and third-party service providers; systems failures, interruptions and cybersecurity breaches could have a material adverse effect on us.
Our business is dependent on the successful and uninterrupted functioning of our information technology and telecommunications systems and third-party service providers. The failure of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations. Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions. If significant, sustained or repeated, a system failure or service denial could compromise our ability to operate effectively, damage our reputation, result in a loss of customer business, and/or subject us to additional regulatory scrutiny and possible financial liability, any of which could have a material adverse effect on us.
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Our third-party service providers may be vulnerable to unauthorized access, computer viruses, phishing schemes and other security breaches. We likely will expend additional resources to protect against the threat of such security breaches and computer viruses, or to alleviate problems caused by such security breaches or viruses. To the extent that the activities of our third-party service providers or the activities of our customers involve the storage and transmission of confidential information, security breaches and viruses could expose us to claims, regulatory scrutiny, litigation costs and other possible liabilities.
Security breaches and cybersecurity threats could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive data, including our proprietary business information and that of our customers, suppliers and business partners, as well as personally identifiable information about our customers and employees. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. We, our customers, and other financial institutions with which we interact, are subject to ongoing, continuous attempts to penetrate key systems by individual hackers, organized criminals, and in some cases, state-sponsored organizations. While we have established policies and procedures to prevent or limit the impact of cyber-attacks, there can be no assurance that such events will not occur or will be adequately addressed if they do. In addition, we also outsource certain cybersecurity functions, such as penetration testing, to third party service providers, and the failure of these service providers to adequately perform such functions could increase our exposure to security breaches and cybersecurity threats. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other malicious code and cyber-attacks that could have an impact on information security. Any such breach or attacks could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such unauthorized access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties; disrupt our operations and the services we provide to customers; damage our reputation; and cause a loss of confidence in our products and services, all of which could adversely affect our financial condition and results of operations.
We must keep pace with technological change to remain competitive.
Financial products and services have become increasingly technology-driven. Our ability to meet the needs of our customers competitively, and in a cost-efficient manner, is dependent on the ability to keep pace with technological advances and to invest in new technology as it becomes available, as well as related essential personnel. In addition, technology has lowered barriers to entry into the financial services market and made it possible for financial technology companies and other non-bank entities to offer financial products and services traditionally provided by banks. The ability to keep pace with technological change is important, and the failure to do so, due to cost, proficiency or otherwise, could have a material adverse impact on our business and therefore on our financial condition and results of operations.
Because the nature of the financial services business involves a high volume of transactions, we face significant operational risks.
We operate in diverse markets and rely on the ability of our employees and systems to process a high number of transactions. Operational risk is the risk of loss resulting from our operations, including but not limited to, the risk of fraud by employees or outside persons, the execution of unauthorized transactions by employees, errors relating to transaction processing and technology, breaches of our internal control system and compliance requirements, and business continuation and disaster recovery. Insurance coverage may not be available for such losses, or where available, such losses may exceed insurance limits. This risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulations, adverse business decisions or their implementation, and customer attrition due to potential negative publicity. Although our control testing has not identified any significant deficiencies in our internal control system, a breakdown in our internal control system, improper operation of our systems or improper employee actions could result in material financial loss to us, the imposition of regulatory action, and damage to our reputation.
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Acts of terrorism and other external events could impact our business.
Financial institutions have been, and continue to be, targets of terrorist threats aimed at compromising operating and communication systems. Such events could cause significant damage, impact the stability of our facilities and result in additional expenses, impair the ability of our borrowers to repay their loans, reduce the value of collateral securing repayment of our loans, and result in the loss of revenue. The occurrence of any such event could have a material adverse effect on our business, operations and financial condition.
Regulation of the financial services industry is intense, and we may be adversely affected by changes in laws and regulations.
St. Landry Homestead Federal Savings Bank is subject to extensive government regulation, supervision and examination by the Office of the Comptroller of the Currency. In addition, Catalyst Bancorp will be subject to extensive regulation, supervision and examination by the Federal Reserve Board. Such regulation, supervision and examination govern the activities in which we may engage and are intended primarily for the protection of the deposit insurance fund and St. Landry Homestead Federal Savings Bank’s depositors and not for the protection of shareholders. Federal and state regulatory agencies have the ability to take strong supervisory actions against financial institutions that have experienced increased loan production and losses and other underwriting weaknesses or have compliance weaknesses. These actions include the entering into of formal or informal written agreements and cease and desist orders that place certain limitations on their operations. If we were to become subject to a regulatory action, such action could negatively impact our ability to execute our business plan, and result in operational restrictions, as well as our ability to grow, pay dividends, repurchase stock or engage in mergers and acquisitions. See “Supervision and Regulation — Federal Banking Regulation — Capital Requirements” for a discussion of regulatory capital requirements.
A tightening of credit markets and liquidity risk could impair our ability to fund operations and jeopardize our financial condition.
Liquidity is essential to our business. A tightening of the credit markets and the inability to obtain adequate funding to replace deposits and fund continued loan growth may affect asset growth, our earnings capability and capital levels negatively. We rely on a number of different sources in order to meet our potential liquidity demands. Our primary sources of liquidity are increases in deposit accounts, including brokered deposits, as well as cash flows from loan payments and our securities portfolio. Borrowings, especially from the Federal Home Loan Bank, also provide us with a source of funds to meet liquidity demands. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities or on terms that are acceptable to us could be impaired by factors that affect us specifically, or the financial services industry or economy in general. Factors that could detrimentally impact our access to liquidity sources include adverse regulatory action against us or a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated. Our ability to borrow also could be impaired by factors that are not specific to us, such as a disruption in the financial markets, negative views and expectations about the prospects for the financial services industry or deterioration in credit markets.
Future changes in interest rates could reduce our profits and affect the value of our assets and liabilities.
Net income is the amount by which net interest income and non-interest income exceed non-interest expense, the provision for loan losses and taxes. Net interest income makes up a majority of our net income and is based on the difference between:
• | the interest income we earn on interest-earning assets, such as loans and securities; and |
• | the interest expense we pay on interest-bearing liabilities, such as deposits and borrowings. |
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The rates we earn on our assets and the rates we pay on our liabilities are generally fixed for a contractual period of time. Like many financial institutions, our liabilities generally have shorter contractual maturities than our assets. This imbalance can create significant earnings volatility because market interest rates change over time. In addition, changes in interest rates can affect the average life of loans and mortgage-backed and related securities. In a period of rising interest rates, the interest income we earn on our assets may not increase as rapidly as the interest we pay on our liabilities. A decline in interest rates results in increased prepayments of loans and mortgage-backed and related securities as borrowers refinance their debt to reduce their borrowing costs. This creates reinvestment risk, which is the risk that we may not be able to reinvest prepayments at rates that are comparable to the rates we earned on the prepaid loans or securities. Furthermore, an inverted interest rate yield curve, where short-term interest rates (which are usually the rates at which financial institutions borrow funds) are higher than long-term interest rates (which are usually the rates at which financial institutions lend funds for fixed-rate loans) can reduce a financial institution’s net interest margin and create financial risk for financial institutions that originate longer-term, fixed-rate mortgage loans. At December 31, 2020, 25.3% of our loans with maturities after December 31, 2021 consisted of fixed-rate loans.
Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our financial condition, liquidity and results of operations. Changes in the level of interest rates also may negatively affect the value of our assets and liabilities and ultimately affect our earnings.
We monitor interest rate risk through the use of simulation models, including estimates of net portfolio value (“NPV”), which is the estimated market value of assets minus the market value of liabilities adjusted for off-balance sheet items, would change in the event of a range of assumed changes in market interest rates. As of December 31, 2020, in the event of an immediate and sustained 300 basis point increase in interest rates, we estimate that we would experience a 2.7% decrease in NPV. For further discussion of how changes in interest rates could impact us, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Exposure to Changes in Interest Rates.”
Changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations and/or increase our costs of operations.
St. Landry Homestead Federal Savings Bank is subject to extensive regulation, supervision and examination by the Office of the Comptroller of the Currency, and Catalyst Bancorp will be subject to extensive regulation, supervision and examination by the Federal Reserve Board. Such regulation and supervision govern the activities in which an institution and its holding company may engage and are intended primarily for the protection of the federal deposit insurance fund and the depositors of St. Landry Homestead Federal Savings Bank, rather than for our shareholders. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for loan and lease losses. These regulations, along with existing tax, accounting, securities, insurance and monetary laws, rules, standards, policies, and interpretations, control the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial reporting and disclosures. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations. Further, changes in accounting standards can be both difficult to predict and involve judgment and discretion in their interpretation by us and our independent accounting firm. These changes could materially impact, potentially even retroactively, how we report our financial condition and results of operations. See “— We are subject to an extensive body of accounting rules and best practices. Periodic changes to such rules may change the treatment and recognition of critical financial line items and affect our profitability.”
We are subject to an extensive body of accounting rules and best practices. Periodic changes to such rules may change the treatment and recognition of critical financial line items and affect our profitability.
The nature of our business makes us sensitive to the large body of accounting rules in the United States. From time to time, the governing bodies that oversee changes to accounting rules and reporting requirements may release new guidance for the preparation of our financial statements. These changes can materially impact how we record and report our financial condition and results of operations. In some instances, we could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements. Changes which have been approved for future implementation, or which are currently proposed or expected to be proposed or adopted include requirements that we calculate the allowance for loan and lease losses on the basis of the current expected credit losses over the lifetime of our loans, referred to as the CECL model, which is expected to be applicable to us, as an emerging growth company, beginning in 2023. CECL adoption will have broad impact on our financial statements, which will affect key profitability and solvency measures, including, but not limited to higher loan loss reserve levels and related deferred tax assets. Increased reserve levels also may lead to a reduction in capital levels. Any such changes could have a material adverse effect on our business, financial condition and results of operations.
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Under the CECL model, banks will be required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the “incurred loss” model required under current GAAP, which delays recognition until it is probable a loss has been incurred. The forward-looking modeling required by CECL relies on a number of macroeconomic variables. Unexpected changes to such indicators between periods could potentially result in greater earnings volatility from period to period. Our reserves may need to be adjusted in response to not only our actual experience, but also to external factors. If we are required to materially increase the level of the allowance for loan losses for any reason, such increase could adversely affect our business, financial condition and results of operations.
An additional impact of CECL will be the asymmetry in accounting between loan related income, which will continue to be recognized on a periodic basis based on the effective interest method, and the related credit losses, which will be recognized up front at origination. This will make periods of loan expansion seem less profitable due to the immediate recognition of expected credit losses. Periods of stable or declining loan levels will look comparatively more profitable as the income trickles in for loans, where losses had been previously recognized.
Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions.
The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are suspected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions, including restrictions on pursuing acquisitions or establishing new branches. The policies and procedures we have adopted that are designed to assist in compliance with these laws and regulations may not be effective in preventing violations of these laws and regulations. Furthermore, these rules and regulations continue to evolve and expand. Although to date we have not been subject to any fines or other sanctions related to these rules and regulations, there can be no assurance that we will not suffer any penalties or other consequences in the future.
The cost of additional finance and accounting systems, procedures, compliance and controls in order to satisfy our new public company reporting requirements will increase our expenses.
As a result of the completion of this offering, we will become a public reporting company. We expect that the obligations of being a public company, including the substantial public reporting obligations, will require significant expenditures and place additional demands on our management team. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company. However, the measures we take may not be sufficient to satisfy our obligations as a public company. Any failure to achieve and maintain an effective internal control environment could have a material adverse effect on our business and stock price. In addition, we may need to hire additional compliance, accounting and financial staff with appropriate public company experience and technical knowledge, and we may not be able to do so in a timely fashion. As a result, we may need to rely on outside consultants to provide these services for us until qualified personnel are hired. These obligations will increase our operating expenses and could divert our management’s attention from our operations.
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Changes in management’s estimates and assumptions may have a material impact on our financial statements and our financial condition or operating results.
In preparing this prospectus as well as periodic reports we will be required to file under the Securities Exchange Act of 1934, including our financial statements, our management is and will be required under applicable rules and regulations to make estimates and assumptions as of a specified date. These estimates and assumptions are based on management’s best estimates and experience as of that date and are subject to substantial risk and uncertainty. Materially different results may occur as circumstances change and additional information becomes known. Areas requiring significant estimates and assumptions by management include our evaluation of the adequacy of our allowance for loan and lease losses and our determinations with respect to amounts owed for income taxes.
We are subject to environmental liability risk associated with lending activities or properties we own.
A significant portion of our loan portfolio is secured by real estate, and we could become subject to environmental liabilities with respect to one or more of these properties, or with respect to properties that we own in operating our business. During the ordinary course of business, we may foreclose on and take title to properties securing defaulted loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous conditions or toxic substances are found on these properties, we may be liable for remediation costs, as well as for personal injury and property damage, civil fines and criminal penalties regardless of when the hazardous conditions or toxic substances first affected any particular property. Environmental laws may require us to incur substantial expenses to address unknown liabilities and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. Our policies, may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on us.
Risks Related to the Offering
The future price of our common stock may be less than the $10.00 per share purchase price in the offering.
If you purchase shares of common stock in the offering, you may not be able to sell them later at or above the $10.00 per share purchase price in the offering. In some cases, shares of common stock issued by newly converted financial institutions or mutual holding companies have traded below the initial offering price. The aggregate purchase price of the shares of common stock sold in the offering will be based on an independent appraisal. The independent 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 independent appraisal is based on certain estimates, assumptions and projections, all of which are subject to change from time to time. After the 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, the overall performance of the economy, changes in federal tax laws, new regulations, investor perceptions of Catalyst Bancorp and the outlook for the financial services industry in general. Price fluctuations in our common stock may be unrelated to our operating performance.
The capital we raise in the offering may negatively impact our return on equity until we can fully implement our business plan. This could negatively affect the trading price of our shares of common stock.
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. Although we anticipate increasing net interest income using proceeds of the offering, our return on equity will be reduced by the capital raised in the offering, higher expenses from the costs of being a public company, and added expenses associated with our employee stock ownership plan and the stock-based benefit plans we intend to adopt. Until we can implement our business plan and increase our net interest income through investment of the proceeds of the offering, we expect our return on equity to remain relatively low compared to our peer group, which may reduce the value of our shares.
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We have broad discretion in using the proceeds of the offering. Our failure to effectively deploy the net proceeds of the offering may have an adverse effect on our financial performance and the value of our common stock.
We intend to invest between $15.7 million and $21.4 million, or $24.7 million if the offering is increased by 15%, of the net proceeds of the offering in St. Landry Homestead Federal Savings Bank. We also expect to use a portion of the net proceeds we retain to fund a loan to the employee stock ownership plan for the purchase of shares of common stock in the offering by the employee stock ownership plan. We may use the remaining net proceeds to invest in short-term investments and for general corporate purposes, including, subject to regulatory limitations, the repurchase of shares of common stock and the payment of dividends. St. Landry Homestead Federal Savings Bank generally intends to use the net proceeds it receives to fund new loans, expand its retail banking franchise by establishing or acquiring new branches or by acquiring other financial institutions or other financial services companies, or for other general corporate purposes. With the exception of the loan to the employee stock ownership plan, we have not allocated specific amounts of the net proceeds for any purposes, and we will have significant flexibility in determining the amount of the net proceeds we apply to different uses and the timing of such applications. Also, certain of these uses, such as any potential acquisition, paying dividends and repurchasing common stock, may require prior regulatory approval. We have not established a timetable for reinvesting the net proceeds, and we cannot predict how long it will take to reinvest the net proceeds. Our failure to utilize these funds effectively and timely would reduce our profitability and may adversely affect the value of our common stock.
At December 31, 2020, St. Landry Homestead Federal Savings Bank had equity of $50.6 million, and for the year ended December 31, 2020 a return on average equity of -1.33%. Upon completion of the conversion, Catalyst Bancorp, on a consolidated basis, will have shareholders’ equity of between $78.1 million and $93.9 million at the minimum and adjusted maximum of the offering range, respectively. For additional information see “How We Intend to Use the Proceeds from the Offering.”
There may be a limited trading market in our common stock, which would hinder your ability to sell our common stock and may lower the market price of the stock.
We have never issued capital stock and there is no established market for our common stock. We expect that our common stock will be quoted on the Nasdaq Capital Market under the symbol “CLST” upon conclusion of the offering, subject to completion of the offering and compliance with certain conditions, including having 300 “round lot” shareholders (shareholders owning more than 100 shares) and at least three companies making a market for our common stock. Piper Sandler & Co. has advised us that it intends to make a market in shares of our common stock following the offering, but it is not obligated to do so or to continue to do so once it begins. While we will attempt before completion of the offering to obtain commitments from at least two other broker-dealers to make a market in shares of our common stock, we may not be able to obtain such commitments. This would result in our common stock not being listed for trading on the Nasdaq Capital Market, which could reduce the liquidity of our common stock.
The development of an active trading market depends on the existence of willing buyers and sellers, the presence of which is not within our control, or that of any market maker. The number of active buyers and sellers of the shares of common stock at any particular time may be limited. Under such circumstances, you could have difficulty selling your shares of common stock on short notice, and, therefore, you should not view the shares of common stock as a short-term investment.
Our stock-based and other benefit plans will increase our costs, which will reduce our net income.
We intend to adopt new stock-based benefit plans after the conversion and offering, subject to shareholder approval, which will increase our annual compensation and benefit expenses related to the stock options and stock awards granted to participants under the new stock-based benefit plans. The actual amount of these new stock-related compensation and benefit expenses will depend on the number of options and stock awards actually granted under the plans, the fair market value of our stock or options on the date of grant, the vesting period, and other factors that we cannot predict at this time. If we adopt stock-based benefit plans within 12 months following the conversion, the total shares of common stock reserved for issuance pursuant to awards of restricted stock and grants of options under such plans would be limited to 4% and 10%, respectively, of the total shares of our common stock sold in the offering. If we award restricted shares of common stock or grant options in excess of these amounts under stock-based benefit plans adopted more than 12 months after the completion of the offering, our costs would increase further.
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We also will recognize expense for our employee stock ownership plan when shares are committed to be released to participants’ accounts, and we will recognize expense for restricted stock awards and stock options over the vesting period of awards made to recipients. The expense in the first year following the offering for shares purchased by the employee stock ownership plan in the offering and for our new stock-based benefit plans has been estimated to be approximately $934,000 ($789,000 after tax) at the adjusted maximum of the offering range as set forth in the pro forma financial information under “Pro Forma Data,” assuming the $10.00 per share offering price as fair market value. Actual expense may be higher if the price of our common stock at the time the shares are allocated or awarded is greater than $10.00 per share.
For further discussion of our proposed stock-based plans, see “Management — New Benefit Plans — Employee Stock Ownership Plan” and “— Stock Option and Recognition and Retention Plans.”
The implementation of our stock-based benefit plans may dilute your ownership interest.
We intend to adopt stock-based benefit plans following the conversion and offering. The stock-based benefit plan will be funded through either open market purchases, if permitted, or from the issuance of authorized but unissued shares. Our ability to repurchase shares of common stock to fund these plans will be subject to many factors, including applicable regulatory restrictions on common stock repurchases, the availability of stock in the market, the trading price of the stock, our capital levels, alternative uses for our capital and our financial performance. While our intention is to fund the new stock-based benefit plans through open market purchases, shareholders would experience a reduction in ownership interest totaling 12.3% in the event newly issued shares are used to fund stock options and restricted stock awards in an amount equal to 10.0% and 4.0%, respectively, of the total shares issued in the offering.
Various factors may make takeover attempts more difficult to achieve.
Certain provisions of our articles of incorporation and bylaws and state and federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire control of Catalyst Bancorp without our board of directors’ prior approval.
Under Federal Reserve Board regulations no person may directly or indirectly acquire or offer to acquire beneficial ownership of more than 10% of our common stock without prior approval of the Federal Reserve Board. Under federal law, subject to certain exemptions, a person, entity or group must notify the Federal Reserve Board before acquiring control of a savings and loan holding company. Acquisition of 10% or more of any class of voting stock of a savings and loan holding company creates a rebuttable presumption that the acquirer “controls” the holding company. Also, a savings and loan holding company must obtain the prior approval of the Federal Reserve Board before, among other things, acquiring direct or indirect ownership or control of more than 5% of any class of voting shares of any bank, including St. Landry Homestead Federal Savings Bank.
There also are provisions in our articles of incorporation that may be used to delay or block a takeover attempt, including a provision that prohibits any person from acquiring or voting more than 10% of the shares of common stock outstanding. Furthermore, shares of restricted stock and stock options that we may grant to employees and directors, stock ownership by our management and directors and other factors may make it more difficult for companies or persons to acquire control of Catalyst Bancorp without the consent of our board of directors. Taken as a whole, these statutory provisions and provisions in our articles of incorporation could result in our being less attractive to a potential acquirer and thus could adversely affect the market price of our common stock.
See “Restrictions on Acquisition of Catalyst Bancorp” for a discussion of applicable Federal Reserve Board regulations regarding acquisitions and provisions in our articles of incorporation and bylaws that could impact acquisitions of control of Catalyst Bancorp.
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You may not receive dividends on our common stock.
Holders of our common stock are only entitled to receive such dividends as our board of directors may declare out of funds legally available for such payments. The declaration and payment of future cash dividends will be subject to, among other things, regulatory restrictions, our then current and projected consolidated operating results, financial condition, tax considerations, future growth plans, general economic conditions, and other factors our board of directors deems relevant. Catalyst Bancorp will depend primarily upon the proceeds it retains from the offering as well as earnings of St. Landry Homestead Federal Savings Bank to provide funds to pay dividends on our common stock. The payment of dividends by Catalyst Bancorp also is subject to certain regulatory restrictions. Federal law generally prohibits a depository institution from making any capital distributions (including payment of a dividend) to its parent holding company if the depository institution would thereafter be or continue to be undercapitalized, and dividends by a depository institution are subject to additional limitations. As a result, any payment of dividends in the future by Catalyst Bancorp will depend, in large part, on St. Landry Homestead Federal Savings Bank’s ability to satisfy these regulatory restrictions and its earnings, capital requirements, financial condition and other factors.
You may not be able to sell your shares of common stock until you have received a statement reflecting ownership of shares, which will affect your ability to take advantage of changes in the stock price immediately following the offering.
A statement reflecting ownership of shares of common stock purchased in the offering may not be delivered for several days after the completion of the offering and the commencement of trading in the common stock. Your ability to sell the shares of common stock before receiving your ownership statement will depend on arrangements you may make with a brokerage firm, and you may not be able to sell your shares of common stock until you have received your ownership statement. As a result, you may not be able to take advantage of fluctuations in the price of the common stock immediately following the offering.
You may not revoke your decision to purchase Catalyst Bancorp common stock in the subscription or community offerings after you send us your order.
Funds submitted or automatic withdrawals authorized in connection with the purchase of shares of common stock in the subscription and community offerings will be held by us until the completion or termination of the conversion and offering, including any extension of the expiration date and consummation of a syndicated offering. Because completion of the conversion and offering will be subject to regulatory approvals and an update of the independent appraisal prepared by RP Financial, LC., among other factors, there may be one or more delays in completing the conversion and offering. Orders submitted in the subscription and community offerings are irrevocable, and purchasers will have no access to their funds unless the offering is terminated, or extended beyond ____________, or the number of shares to be sold in the offering is increased to more than 5,091,625 shares or decreased to fewer than 3,272,500 shares.
We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.
We are an emerging growth company, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation or on any golden parachute payments not previously approved. As an emerging growth company, we also will not be subject to Section 404(b) of the Sarbanes-Oxley Act of 2002, which would require that our independent auditors review and attest as to the effectiveness of our internal control over financial reporting. We intend to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.
26
We could remain an “emerging growth company” for up to five years, or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (c) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three-year period.
As a result, our shareholders may not have access to certain information they may deem important, and investors may find our common stock less attractive if we choose to rely on these exemptions. This could result in a less active trading market for our common stock and the price of our common stock may be more volatile.
27
SELECTED FINANCIAL AND OTHER DATA
Set forth below is selected financial and other data of St. Landry Homestead Federal Savings Bank at and for the dates indicated. The following is only a summary and should be read in conjunction with the business and financial information regarding St. Landry Homestead Federal Savings Bank included elsewhere in this prospectus, including the financial statements beginning on page F-1 of this prospectus. The information at and for the years ended December 31, 2020 and 2019 is derived in part from the audited financial statements that appear elsewhere in this prospectus.
At December 31, | ||||||||
2020 | 2019 | |||||||
(In thousands) | ||||||||
Selected Financial Condition Data: | ||||||||
Total assets | $ | 224,652 | $ | 218,473 | ||||
Cash and cash equivalents | 25,245 | 17,909 | ||||||
Investment securities: | ||||||||
Held to maturity | 17,523 | 13,129 | ||||||
Available for sale | 20,730 | 14,221 | ||||||
FHLB stock | 1,394 | 1,372 | ||||||
Loans receivable, net | 148,778 | 161,582 | ||||||
Total deposits | 164,598 | 141,629 | ||||||
FHLB advances | 8,838 | 25,000 | ||||||
Total equity | 50,603 | 51,168 |
At December 31, |
||||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Selected Operating Data: | ||||||||
Total interest income | $ | 8,490 | $ | 8,968 | ||||
Total interest expense | 1,705 | 1,907 | ||||||
Net interest income | 6,785 | 7,061 | ||||||
Provision for loan losses | 985 | 75 | ||||||
Net interest income after provision for loan losses | 5,800 | 6,986 | ||||||
Total non-interest income | 966 | 954 | ||||||
Total non-interest expense | 7,914 | 6,268 | ||||||
Income (loss) before income taxes | (1,148 | ) | 1,672 | |||||
Income taxes | (464 | ) | 334 | |||||
Net income (loss) | $ | (684 | ) | $ | 1,338 | |||
Selected Performance Ratios:(1) | ||||||||
Average yield on interest-earning assets | 3.90 | % | 4.31 | % | ||||
Average rate on interest-bearing liabilities | 1.09 | % | 1.24 | % | ||||
Average interest rate spread(2) | 2.81 | % | 3.07 | % | ||||
Net interest margin(2) | 3.12 | % | 3.39 | % | ||||
Average interest-earning assets to average interest-bearing liabilities | 138.83 | % | 135.07 | % | ||||
Net interest income after provision for loan losses to non-interest expense | 73.29 | % | 111.46 | % | ||||
Total non-interest expense to average assets | 3.40 | % | 2.83 | % | ||||
Efficiency ratio(3) | 102.10 | % | 78.20 | % | ||||
Return on average assets (ratio of net income to average total assets) | -0.29 | % | 0.60 | % | ||||
Return on average equity (ratio of net income to average total equity) | -1.33 | % | 2.67 | % |
(Footnotes
on following page)
28
At or For the Year Ended
December 31, |
||||||||
2020 | 2019 | |||||||
Asset Quality Ratios:(4) | ||||||||
Non-accrual loans as a percent of total loans outstanding | 0.85 | % | 0.97 | % | ||||
Non-performing assets as a percent of total assets(5) | 0.93 | % | 1.31 | % | ||||
Non-performing assets and troubled debt restructurings as a percent of total assets(5) | 2.60 | % | 1.97 | % | ||||
Allowance for loan losses as a percent of total loans outstanding | 1.99 | % | 1.27 | % | ||||
Allowance for loan losses as a percent of non-performing loans | 180.74 | % | 114.55 | % | ||||
Net charge-offs to average loans receivable | 0.02 | % | 0.08 | % | ||||
Capital Ratios:(4) | ||||||||
Common equity Tier 1 capital (to risk-weighted assets) | 40.99 | % | 40.07 | % | ||||
Tier 1 leverage (core) capital (to adjusted tangible assets) | 21.09 | % | 23.23 | % | ||||
Tier 1 risk-based capital (to risk-weighted assets) | 40.99 | % | 40.07 | % | ||||
Total risk-based capital (to risk-weighted assets) | 42.42 | % | 41.32 | % | ||||
Average equity to average assets | 22.09 | % | 22.62 | % | ||||
Other Data: | ||||||||
Banking offices | 5 | 4 | ||||||
Full-time equivalent employees | 52 | 48 |
(1) | With the exception of end of period ratios, all ratios are based on average daily balances during the indicated periods. |
(2) | Average interest rate spread represents the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities, and net interest margin represents net interest income as a percentage of average interest-earning assets. |
(3) | The efficiency ratio represents the ratio of non-interest expense divided by the sum of net interest income and non-interest income. |
(4) | Asset quality ratios and capital ratios are end of period ratios, except for net charge-offs to average loans receivable. |
(5) | Non-performing assets consist of non-performing loans and real estate owned. Non-performing loans consist of all loans 90 days or more past due. Real estate owned consists of real estate acquired through foreclosure, real estate acquired by acceptance of a deed-in-lieu of foreclosure. |
29
This prospectus contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. These forward-looking statements include, but are not limited to:
• | statements of our goals, intentions and expectations; |
• | statements regarding our business plans, prospects, growth and operating strategies; |
• | statements regarding the quality of our loan and investment portfolios; and |
• | estimates of our risks and future costs and benefits. |
These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
• | general economic conditions, either nationally or in our market areas, that are different than expected; |
• | conditions relating to the Covid-19 pandemic, or other infectious disease outbreaks, including the severity and duration of the associated economic slowdown, either nationally or in our market areas, that are worse than expected; |
• | changes in the level and direction of loan delinquencies and charge-offs and changes in estimates of the adequacy of the allowance for loan losses; |
• | our ability to access cost-effective funding; |
• | major catastrophes such as hurricanes, floods or other natural disasters, the related disruption to local, regional and global economic activity and financial markets, and the impact that any of the foregoing may have on us and our customers and other constituencies; |
• | technological changes that may be more difficult or expensive than expected; |
• | success or consummation of new business initiatives may be more difficult or expensive than expected; |
• | the inability of third party service providers to perform; |
• | fluctuations in real estate values and both residential and commercial real estate market conditions; |
• | demand for loans and deposits in our market area; |
• | our ability to continue to implement our business strategies; |
• | competition among depository and other financial institutions; |
• | inflation and changes in the interest rate environment that reduce our margins and yields, reduce the fair value of financial instruments or reduce the origination levels in our lending business, or increase the level of defaults, losses and prepayments on loans; |
• | adverse changes in the securities markets; |
30
• | changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements; |
• | our ability to manage market risk, credit risk and operational risk in the current economic conditions; |
• | our ability to enter new markets successfully and capitalize on growth opportunities; |
• | our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; |
• | changes in consumer spending, borrowing and savings habits; |
• | changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board; |
• | our ability to retain key employees; and |
• | our compensation expense associated with equity allocated or awarded to our employees. |
Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. See “Risk Factors” beginning on page 13.
31
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING
Although we cannot determine what the actual net offering proceeds will be until the offering is completed, we estimate that the net proceeds will be between $31.4 million and $42.8 million, or $49.4 million if the offering range is increased by 15.0%.
We intend to distribute the net proceeds as follows:
Based Upon the Sale at $10.00 Per Share of | ||||||||||||||||||||||||||||||||
3,272,500 Shares | 3,850,000 Shares | 4,427,500 Shares | 5,091,625 Shares (1) | |||||||||||||||||||||||||||||
Amount |
Percent of
Net Proceeds |
Amount |
Percent of
Net Proceeds |
Amount |
Percent of
Net Proceeds |
Amount |
Percent of
Net Proceeds |
|||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
Gross offering proceeds | $ | 32,725 | $ | 38,500 | $ | 44,275 | $ | 50,916 | ||||||||||||||||||||||||
Less: offering expenses | (1,347 | ) | (1,395 | ) | (1,443 | ) | (1,498 | ) | ||||||||||||||||||||||||
Net offering proceeds | $ | 31,378 | 100.0 | % | $ | 37,105 | 100.0 | % | $ | 42,832 | 100.0 | % | $ | 49,418 | 100.0 | % | ||||||||||||||||
Distribution of net proceeds: | ||||||||||||||||||||||||||||||||
Proceeds contributed to St. Landry Homestead Federal Savings Bank | $ | 15,689 | 50.0 | % | $ | 18,553 | 50.0 | % | $ | 21,416 | 50.0 | % | $ | 24,709 | 50.0 | % | ||||||||||||||||
Loan to employee stock ownership plan | 2,618 | 8.3 | 3,080 | 8.3 | 3,542 | 8.3 | 4,073 | 8.2 | ||||||||||||||||||||||||
Proceeds retained by Catalyst Bancorp | $ | 13,071 | 41.7 | % | $ | 15,473 | 41.7 | % | $ | 17,874 | 41.7 | % | $ | 20,636 | 41.8 | % |
(1) | As adjusted to give effect to an increase in the number of shares, which increase could occur due to a 15% increase in the offering range to reflect demand for the shares or changes in market conditions following the commencement of the offering. |
Payments for shares of common stock made through withdrawals from existing deposit accounts will not result in the receipt of new funds for investment but will reduce St. Landry Homestead Federal Savings Bank’s deposits. The net proceeds may vary because total expenses relating to the offering may be more or less than our estimates. For example, our expenses would increase if fewer shares were sold in the subscription and community offerings and more in the syndicated offering than we have assumed.
Catalyst Bancorp may use the proceeds it retains from the offering:
• | to invest in securities; |
• | for capital management strategies, including repurchases to fund stock-based benefit plans and additional stock repurchases, subject to regulatory limitations; |
• | to finance the potential acquisitions of financial institutions or financial services companies, although we do not currently have any agreements or understandings regarding any specific acquisition transaction; and |
• | for other general corporate purposes. |
See “Our Dividend Policy” for a discussion of our expected dividend policy following the completion of the offering. Under current federal regulations, we may not repurchase shares of our common stock during the first year following the completion of the conversion, except when extraordinary circumstances exist and with prior regulatory approval, or except to fund the granting of restricted stock awards or tax-qualified employee stock benefit plans.
32
St. Landry Homestead Federal Savings Bank may use the net proceeds it receives from the offering:
• | to fund new loans; |
• | to invest in securities; |
• | to expand its retail banking franchise by establishing or acquiring new branches or by acquiring other financial institutions or other financial services companies as opportunities arise, although we do not currently have any understandings or agreements to acquire a financial institution or other entity; and |
• | for other general corporate purposes. |
Initially, a substantial portion of the net proceeds will be invested in short-term investment securities of the type currently held by St. Landry Homestead Federal Savings Bank. We have not determined specific amounts of the net proceeds that would be used for the purposes described above. The use of the proceeds outlined above may change based on many factors, including, but not limited to, changes in interest rates, equity markets, laws and regulations affecting the financial services industry, the attractiveness and availability of potential acquisitions to expand our operations, and overall market conditions.
We expect our return on equity to be low until we are able to effectively deploy the additional capital raised in the offering. See “Risk Factors—Risks Related to the Offering—We have broad discretion in using the proceeds of the offering. Our failure to effectively deploy the net proceeds may have an adverse effect on our financial performance and the value of our common stock” and “—Risks Related to the Offering—The capital we raise in the offering may negatively impact our return on equity until we can fully implement our business plan. This could negatively affect the trading price of our shares of common stock.”
33
Following completion of the stock offering, our board of directors will have the authority to declare dividends on our shares of common stock. The board’s determination of whether to declare a dividend and the amount of any such dividend is subject to our financial condition and results of operations, tax considerations, capital requirements and available alternative uses for capital, statutory and regulatory limitations, and general economic conditions. No decision has been made with respect to the amount, if any, and timing of any dividend payments. We cannot assure you that we will pay dividends in the future, or, if dividends are paid, that any such dividends will not be reduced or eliminated in the future.
The source of dividends will depend on the net proceeds retained by Catalyst Bancorp and earnings thereon, and dividends from St. Landry Homestead Federal Savings Bank to Catalyst Bancorp. In addition, Catalyst Bancorp will be subject to state law limitations and federal bank regulatory policy on the payment of dividends. Louisiana law generally limits dividends if the corporation would not be able to pay its debts in the usual course of business after giving effect to the dividend or if the corporation’s total assets would be less than the corporation’s total liabilities (subject to the amount necessary to satisfy the payment due any shareholders with preferential rights).
After the completion of the conversion, St. Landry Homestead Federal Savings Bank will not be permitted to pay dividends to Catalyst Bancorp, its sole shareholder, if St. Landry Homestead Federal Savings Bank’s shareholder’s equity would be reduced below the amount of the liquidation account established in connection with the conversion. In addition, St. Landry Homestead Federal Savings Bank will not be permitted to make a capital distribution if, after making such distribution, it would be undercapitalized. St. Landry Homestead Federal Savings Bank must provide notice to the Federal Reserve Board and file an application with the Office of the Comptroller of the Currency for approval of a capital distribution if the total capital distributions for the applicable calendar year exceed the sum of its net income for that year to date plus its retained net income for the preceding two years, or it would not be at least adequately capitalized following the distribution.
Any payment of dividends by St. Landry Homestead Federal Savings Bank to Catalyst Bancorp that would be deemed to be drawn from St. Landry Homestead Federal Savings Bank’s bad debt reserves established before 1988, if any, would require a payment of taxes at the then-current tax rate by St. Landry Homestead Federal Savings Bank on the amount of earnings deemed to be removed from the pre-1988 bad debt reserves for such distribution. St. Landry Homestead Federal Savings Bank does not intend to make any distribution that would create such a federal tax liability.
We intend to file a consolidated federal tax return with St. Landry Homestead Federal Savings Bank. Accordingly, it is anticipated that any cash distributions made by Catalyst Bancorp to our shareholders would be treated as cash dividends and not as a non-taxable return of capital for federal tax purposes. Additionally, pursuant to regulations of the Federal Reserve Board, during the three-year period following the conversion and stock offering, Catalyst Bancorp will not take any action to declare an extraordinary dividend to shareholders that would be treated by recipients as a tax-free return of capital for federal income tax purposes.
34
We have never issued capital stock and there is no established market for our shares of common stock. We have applied to list our shares of common stock on the Nasdaq Capital Market under the symbol “CLST”, subject to completion of the conversion and compliance with certain listing conditions, including the presence of at least three registered and active market makers. Piper Sandler & Co. has advised us that it intends to make a market in shares of our common stock following the offering, but it is not obligated to do so or to continue to do so once it begins. While we will attempt before completion of the offering to obtain commitments from at least two other broker-dealers to make a market in shares of our common stock, there can be no assurance that we will be successful in obtaining such commitments.
The development and maintenance 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 our control or that of any market maker. The number of active buyers and sellers of shares of our common stock at any particular time may be limited, which may have an adverse effect on the price at which shares of our common stock can be sold. There can be no assurance that persons purchasing the shares of common stock will be able to sell their shares at or above the $10.00 offering purchase price per share.
35
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
At December 31, 2020, St. Landry Homestead Federal Savings Bank exceeded all of the applicable regulatory capital requirements and was considered “well capitalized.” The table below sets forth the historical equity capital and regulatory capital of St. Landry Homestead Federal Savings Bank at December 31, 2020, and the pro forma equity capital and regulatory capital of St. Landry Homestead Federal Savings Bank after giving effect to the sale of shares of common stock at $10.00 per share. The table also compares historical and pro forma capital levels to those required to be considered “well capitalized.” The table assumes that St. Landry Homestead Federal Savings Bank receives 50% of the net offering proceeds. See “How We Intend to Use the Proceeds from the Offering.”
St.
Landry Homestead
|
St. Landry Homestead Federal Savings Bank Pro Forma at December 31, 2020 Based Upon the Sale in the Offering of: |
|||||||||||||||||||||||||||||||||||||||
December
31, 2020
|
3,272,500
Shares
|
3,850,000
Shares
|
4,427,500
Shares
|
5,091,625 Shares (1) | ||||||||||||||||||||||||||||||||||||
Amount |
Percent
|
Amount |
Percent
of Assets
|
Amount |
Percent
of Assets
|
Amount
|
Percent
of Assets
|
Amount
|
Percent
of Assets
|
|||||||||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||
Equity | $ | 50,603 | 22.53 | % | $ | 62,365 | 25.95 | % | $ | 64,536 | 26.54 | % | $ | 66,706 | 27.11 | % | $ | 69,202 | 27.75 | % | ||||||||||||||||||||
Tier 1 leverage capital (2)(3) | $ | 50,496 | 21.09 | % | $ | 62,258 | 24.41 | % | $ | 64,429 | 24.98 | % | $ | 66,599 | 25.53 | % | $ | 69,095 | 26.16 | % | ||||||||||||||||||||
Tier 1 leverage requirement | 11,970 | 5.00 | 12,755 | 5.00 | 12,898 | 5.00 | 13,041 | 5.00 | 13,206 | 5.00 | ||||||||||||||||||||||||||||||
Excess | $ | 38,526 | 16.09 | % | $ | 49,503 | 19.41 | % | $ | 51,531 | 19.98 | % | $ | 53,558 | 20.53 | % | $ | 55,889 | 21.16 | % | ||||||||||||||||||||
Tier 1 risk-based capital (2)(3) | $ | 50,496 | 40.99 | % | $ | 62,258 | 49.28 | % | $ | 64,429 | 50.77 | % | $ | 66,599 | 52.24 | % | $ | 69,095 | 53.92 | % | ||||||||||||||||||||
Tier 1 risk-based requirement | 9,856 | 8.00 | 10,107 | 8.00 | 10,152 | 8.00 | 10,198 | 8.00 | 10,251 | 8.00 | ||||||||||||||||||||||||||||||
Excess | $ | 40,640 | 32.99 | % | $ | 52,151 | 41.28 | % | $ | 54,277 | 42.77 | % | $ | 56,401 | 44.24 | % | $ | 58,844 | 45.92 | % | ||||||||||||||||||||
Common equity tier 1 risk-based capital (2)(3) | $ | 50,496 | 40.99 | % | $ | 62,258 | 49.28 | % | $ | 64,429 | 50.77 | % | $ | 66,599 | 52.24 | % | $ | 69,095 | 53.92 | % | ||||||||||||||||||||
Common equity tier 1 risk-based requirement | 8,008 | 6.50 | 8,212 | 6.50 | 8,249 | 6.50 | 8,286 | 6.50 | 8,329 | 6.50 | ||||||||||||||||||||||||||||||
Excess | $ | 42,488 | 34.49 | % | $ | 54,046 | 42.78 | % | $ | 56,180 | 44.27 | % | $ | 58,313 | 45.74 | % | $ | 60,766 | 47.42 | % | ||||||||||||||||||||
Total risk-based capital (2)(3) | $ | 52,257 | 42.42 | % | $ | 64,019 | 50.67 | % | $ | 66,190 | 52.16 | % | $ | 68,360 | 53.62 | % | $ | 70,856 | 55.30 | % | ||||||||||||||||||||
Total risk-based requirement | 12,319 | 10.00 | 12,633 | 10.00 | 12,691 | 10.00 | 12,748 | 10.00 | 12,814 | 10.00 | ||||||||||||||||||||||||||||||
Excess | $ | 39,938 | 32.42 | % | $ | 51,386 | 40.67 | % | $ | 53,499 | 42.16 | % | $ | 55,612 | 43.62 | % | $ | 58,042 | 45.30 | % | ||||||||||||||||||||
Reconciliation of capital infused into St. Landry Homestead Federal Savings Bank: | ||||||||||||||||||||||||||||||||||||||||
Net proceeds | $ | 15,689 | $ | 18,553 | $ | 21,416 | $ | 24,709 | ||||||||||||||||||||||||||||||||
Less: Common stock acquired by employee stock ownership plan | (2,618 | ) | (3,080 | ) | (3,542 | ) | (4,073 | ) | ||||||||||||||||||||||||||||||||
Less: Common stock acquired by recognition and retention plan | (1,309 | ) | (1,540 | ) | (1,771 | ) | (2,037 | ) | ||||||||||||||||||||||||||||||||
Pro forma increase | $ | 11,762 | $ | 13,933 | $ | 16,103 | $ | 18,599 |
(1) | As adjusted to give effect to an increase in the number of shares, which could occur due to a 15% increase in the offering range to reflect demand for the shares or changes in market conditions following the commencement of the offering. |
(2) | Tier 1 leverage capital levels are shown as a percentage of total average assets. Risk-based capital levels are shown as a percentage of risk-weighted assets. |
(3) | Pro forma amounts and percentages assume net proceeds are invested in assets that carry a 20% risk weighting. |
36
The following table presents, at December 31, 2020, the historical capitalization of St. Landry Homestead Federal Savings Bank and the pro forma consolidated capitalization of Catalyst Bancorp after giving effect to the conversion and offering based upon the assumptions set forth under “Pro Forma Data.”
St. Landry
Homestead Federal Savings Bank Historical at |
Catalyst Bancorp Pro Forma at December 31, 2020 Based upon the
Sale in the Offering at $10.00 per Share of: |
|||||||||||||||||||
December 31,
2020 |
3,272,500
Shares |
3,850,000
Shares |
4,427,500
Shares |
5,091,625
Shares (1) |
||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Deposits (2) | $ | 164,598 | $ | 164,598 | $ | 164,598 | $ | 164,598 | $ | 164,598 | ||||||||||
Borrowings | 8,838 | 8,838 | 8,838 | 8,838 | 8,838 | |||||||||||||||
Total deposits and borrowed funds | $ | 173,436 | $ | 173,436 | $ | 173,436 | $ | 173,436 | $ | 173,436 | ||||||||||
Shareholders’ equity: | ||||||||||||||||||||
Preferred stock, $0.01 par value, 5,000,000 shares authorized | $ | -- | $ | -- | $ | -- | $ | -- | $ | -- | ||||||||||
Common stock, $0.01 par value, 30,000,000 shares authorized; shares to be issued as reflected (3) | -- | 33 | 39 | 44 | 51 | |||||||||||||||
Additional paid-in capital | -- | 31,345 | 37,067 | 42,788 | 49,367 | |||||||||||||||
Retained earnings (4) | 50,496 | 50,496 | 50,496 | 50,496 | 50,496 | |||||||||||||||
Accumulated other comprehensive income | 107 | 107 | 107 | 107 | 107 | |||||||||||||||
Less: | ||||||||||||||||||||
Common stock to be acquired by employee stock ownership plan (5) | -- | (2,618 | ) | (3,080 | ) | (3,542 | ) | (4,073 | ) | |||||||||||
Common stock to be acquired by stock-based benefit plans (6) | -- | (1,309 | ) | (1,540 | ) | (1,771 | ) | (2,037 | ) | |||||||||||
Total shareholders’ equity | $ | 50,603 | $ | 78,054 | $ | 83,089 | $ | 88,122 | $ | 93,911 | ||||||||||
Pro Forma Shares Outstanding | -- | 3,272,500 | 3,850,000 | 4,427,500 | 5,091,625 | |||||||||||||||
Total shareholders’ equity as a percentage of total assets | 22.53 | % | 30.96 | % | 32.31 | % | 33.61 | % | 35.05 | % |
(1) | As adjusted to give effect to an increase in the number of shares, which increase could occur due to a 15% increase in the offering range to reflect demand for the shares or changes in market conditions following the commencement of the offering. |
(2) | Does not reflect withdrawals from deposit accounts at St. Landry Homestead Federal Savings Bank for the purchase of shares of common stock. These withdrawals would reduce pro forma deposits and assets by the amount of the withdrawals. |
(3) | No effect has been given to the issuance of additional shares of common stock pursuant to the exercise of options under one or more stock-based benefit plans. The implementation of such plans will require shareholder approval. If the plans are implemented within the first year after the closing of the offering, an amount up to 10% of the shares of common stock sold in the offering will be reserved for issuance upon the exercise of options under the plans. See “Management.” |
(4) | The retained earnings of St. Landry Homestead Federal Savings Bank will be substantially restricted after the offering. See “Supervision and Regulation—Federal Banking Regulations – Capital Distributions.” |
(Footnotes continued on following page)
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(5) | Assumes that 8% of the shares sold in the offering will be acquired by the employee stock ownership plan financed by a loan from Catalyst Bancorp. The loan will be repaid principally from St. Landry’s Homestead Federal Savings Bank’s contributions to the employee stock ownership plan. Since Catalyst Bancorp will finance the employee stock ownership plan debt, this debt will be eliminated through consolidation and no liability will be reflected on Catalyst Bancorp’s consolidated balance sheet. Accordingly, the dollar amount of shares of common stock acquired by the employee stock ownership plan is shown in this table as a reduction of total shareholders’ equity. See “Management – New Stock Benefit Plans - Employee Stock Ownership Plan.” |
(6) | Assumes a number of shares of common stock equal to 4% of the shares of common stock to be sold in the offering will be purchased for grant by a stock-based recognition and retention plan. The funds to be used by such plan to purchase the shares will be provided by Catalyst Bancorp. The dollar amount of common stock to be purchased is based on the $10.00 per share offering price and represents unearned compensation. This amount does not reflect possible increases or decreases in the value of common stock relative to the offering price. Catalyst Bancorp will accrue compensation expense to reflect the vesting of shares pursuant to such recognition and retention plan and will credit capital in an amount equal to the charge to operations. Implementation of such plan will require shareholder approval. See “Management – New Stock Benefit Plans – Stock Option and Recognition and Retention Plans.” |
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The following table illustrates the pro forma impact of the conversion and offering on our net income and shareholders’ equity based on the sale of common stock at the minimum, the midpoint and the maximum of the offering range. The actual net proceeds from the sale of the common stock cannot be determined until the offering is completed. Net proceeds indicated in the following table is based upon the following assumptions, although actual expenses may vary from these estimates:
• | all of the shares of common stock will be sold in the subscription offering and no shares will be sold in the syndicated offering; |
• | our employee stock ownership plan will purchase a number of shares equal to 8% of the shares sold in the offering with a loan from Catalyst Bancorp that will be repaid in equal installments over 20 years; |
• | our directors, executive officers and their associates will purchase an aggregate of 155,000 shares of common stock in the offering; |
• | we will pay Piper Sandler & Co. a fee equal to 0.90% of the aggregate amount of common stock sold in the subscription offering, except that no fee will be paid with respect to shares purchased by our employee stock ownership plan and by our officers, directors and employees or members of their immediate families; and |
• | total expenses of the offering, excluding selling agent fees and commissions, will be approximately $1,090,000. |
We calculated pro forma consolidated net income for the year ended December 31, 2020, as if the estimated net investable proceeds had been invested at an assumed interest rate of 0.36% (0.28% on an after-tax basis using an assumed tax rate of 21.0%). This represents the yield on the five-year United States Treasury Note at December 31, 2020, which, in light of current market interest rates, we consider to more accurately reflect the pro forma reinvestment rate than the arithmetic average of the weighted average yield earned on our interest-earning assets and the weighted average rate paid on our deposits, which is the reinvestment rate generally required by federal banking regulators.
We calculated historical and pro forma per share amounts by dividing historical and pro forma consolidated net income and shareholders’ equity by the indicated number of shares of common stock. We computed per share amounts as if the shares of common stock were outstanding at the beginning of the period, but we did not adjust per share historical or pro forma shareholders’ equity to reflect the earnings on the estimated net proceeds.
The pro forma table gives effect to the implementation of a new stock-based Recognition and Retention Plan (“RRP”). We have assumed that the stock-based benefit plan will acquire for restricted stock awards a number of shares of common stock equal to 4% of the shares of common stock sold in the stock offering at the same $10.00 per share price for which they were sold in the stock offering. We have assumed that awards of common stock granted under such plan will vest over a five-year period.
We also have assumed that options will be granted under a new stock option plan to acquire shares of common stock equal to 10% of the shares of common stock sold in the stock offering. In preparing the table below, we assumed that shareholder approval was obtained, that the exercise price of the stock options and the market price of the stock at the date of grant were $10.00 per share and that the stock options had a term of ten years and vested over five years. We applied the Black-Scholes option pricing model to estimate a grant-date fair value of $3.15 for each option.
We may grant options and award shares of common stock under one or more stock-based benefit plans in excess of 10% and 4%, respectively, of the shares of common stock sold in the stock offering and that vest more rapidly than over a five-year period if the stock-based benefit plans are adopted more than one year following the completion of the conversion and offering.
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As discussed under “How We Intend to Use the Proceeds from the Offering,” we intend to contribute 50% of the net offering proceeds to St. Landry Homestead Federal Savings Bank, and Catalyst Bancorp will retain the remainder of the net proceeds from the stock offering. Catalyst Bancorp will use a portion of the proceeds we retain to fund a loan to the employee stock ownership plan and retain the rest of the proceeds for future use.
The pro forma table does not give effect to:
• | withdrawals from deposit accounts to purchase shares of common stock in the offering; |
• | Increased fees that we would pay Piper Sandler & Co. and other broker-dealers in the event that we have to conduct a syndicated offering; |
• | our results of operations after the offering; or |
• | changes in the market price of the shares of common stock after the offering. |
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The following pro forma information may not be representative of the financial effects of the offering at the dates on which the offering actually occurs, and should not be taken as indicative of future results of operations. Pro forma consolidated shareholders’ equity represents the difference between the stated amounts of our assets and liabilities. The pro forma shareholders’ equity is not intended to represent the fair market value of the shares of common stock and may be different than the amounts that would be available for distribution to shareholders if we liquidated. Moreover, pro forma shareholders’ equity per share does not give effect to the liquidation accounts to be established in the conversion or, in the unlikely event of a liquidation of St. Landry Homestead Federal Savings Bank, to the tax effect of the recapture of the bad debt reserve. See “The Conversion and Offering — Liquidation Rights.”
At or for the Year Ended December 31, 2020
Based upon the Sale at $10.00 Per Share of |
||||||||||||||||
3,272,500
Shares |
3,850,000
Shares |
4,427,500
Shares |
5,091,625
Shares |
|||||||||||||
(Dollars in thousands, except per share amounts) | ||||||||||||||||
Gross proceeds of offering: | $ | 32,725 | $ | 38,500 | $ | 44,275 | $ | 50,916 | ||||||||
Expenses | (1,347 | ) | (1,395 | ) | (1,443 | ) | (1,498 | ) | ||||||||
Estimated net proceeds | 31,378 | 37,105 | 42,832 | 49,418 | ||||||||||||
Common stock purchased by ESOP(1) | (2,618 | ) | (3,080 | ) | (3,542 | ) | (4,073 | ) | ||||||||
Common stock purchased by RRP(2) | (1,309 | ) | (1,540 | ) | (1,771 | ) | (2,037 | ) | ||||||||
Estimated net proceeds, as adjusted | $ | 27,451 | $ | 32,485 | $ | 37,519 | $ | 43,308 | ||||||||
For the Year Ended December 31, 2020 | ||||||||||||||||
Consolidated net income (loss): | ||||||||||||||||
Historical | $ | (684 | ) | $ | (684 | ) | $ | (684 | ) | $ | (684 | ) | ||||
Income on net proceeds | 78 | 92 | 107 | 123 | ||||||||||||
Less: state shares tax(3) | (252 | ) | (311 | ) | (338 | ) | (358 | ) | ||||||||
Employee stock ownership plan(1) | (103 | ) | (122 | ) | (140 | ) | (161 | ) | ||||||||
RRP awards(2) | (207 | ) | (243 | ) | (280 | ) | (322 | ) | ||||||||
Stock options(4) | (197 | ) | (231 | ) | (266 | ) | (306 | ) | ||||||||
Pro forma net income (loss) | $ | (1,365 | ) | $ | (1.499 | ) | $ | (1,601 | ) | $ | (1,708 | ) | ||||
Net income (loss) per share(5): | ||||||||||||||||
Historical | (0.24 | ) | (0.20 | ) | (0.17 | ) | (0.15 | ) | ||||||||
Income on net proceeds | 0.03 | 0.03 | 0.03 | 0.03 | ||||||||||||
Less: state shares tax(3) | (0.08 | ) | (0.09 | ) | (0.08 | ) | (0.08 | ) | ||||||||
Employee stock ownership plan(1) | (0.03 | ) | (0.03 | ) | (0.03 | ) | (0.03 | ) | ||||||||
RRP awards(2) | (0.07 | ) | (0.07 | ) | (0.07 | ) | (0.07 | ) | ||||||||
Stock options(4) | (0.06 | ) | (0.06 | ) | (0.07 | ) | (0.07 | ) | ||||||||
Pro forma net income (loss) per share(5) | $ | (0.46 | ) | $ | (0.42 | ) | $ | (0.39 | ) | $ | (0.37 | ) | ||||
Offering price to pro forma net earnings per share | NM | NM | NM | NM | ||||||||||||
Number of shares used in earnings per share calculations | 3,023,790 | 3,557,400 | 4,091,010 | 4,704,662 | ||||||||||||
At December 31, 2020 | ||||||||||||||||
Shareholders’ equity: | ||||||||||||||||
Historical | $ | 50,603 | $ | 50,603 | $ | 50,603 | $ | 50,603 | ||||||||
Estimated net proceeds | 31,378 | 37,105 | 42,832 | 49,418 | ||||||||||||
Common stock acquired by ESOP(1) | (2,618 | ) | (3,080 | ) | (3,542 | ) | (4,073 | ) | ||||||||
RRP awards(2) | (1,309 | ) | (1,540 | ) | (1,771 | ) | (2,037 | ) | ||||||||
Pro forma shareholders’ equity | $ | 78,054 | $ | 83,088 | $ | 88,122 | $ | 93,911 | ||||||||
Shareholders’ equity per share: | ||||||||||||||||
Historical | $ | 15.46 | $ | 13.14 | $ | 11.43 | $ | 9.94 | ||||||||
Estimated net proceeds | 9.59 | 9.64 | 9.67 | 9.70 | ||||||||||||
Common stock acquired by ESOP (1) | (0.80 | ) | (0.80 | ) | (0.80 | ) | (0.80 | ) | ||||||||
Common stock acquired by RRP(2) | (0.40 | ) | (0.40 | ) | (0.40 | ) | (0.40 | ) | ||||||||
Pro forma shareholders’ equity per share(6) | 23.85 | 21.58 | 19.90 | 18.44 | ||||||||||||
Less: Intangibles | -- | -- | -- | -- | ||||||||||||
Pro forma tangible shareholders’ equity per share(6) | $ | 23.85 | $ | 21.58 | $ | 19.90 | $ | 18.44 | ||||||||
Pro forma price to book value | 41.93 | % | 46.34 | % | 50.25 | % | 54.23 | % | ||||||||
Pro forma price to tangible book value | 41.93 | % | 46.34 | % | 50.25 | % | 54.23 | % | ||||||||
Number of shares outstanding for pro forma book value per share calculations | 3,272,500 | 3,850,000 | 4,427,500 | 5,091,625 |
(footnotes begin on next page)
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(1) | Assumes that 8% of the shares of common stock sold in the offering will be purchased by the employee stock ownership plan. For purposes of this table, the funds used to acquire these shares are assumed to have been borrowed by the employee stock ownership plan from Catalyst Bancorp. St. Landry Homestead Federal Savings Bank intends to make annual contributions to the employee stock ownership plan in an amount at least equal to the required principal and interest payments on the debt. St. Landry Homestead Federal Savings Bank’s total annual payments on the employee stock ownership plan debt are based upon 20 equal annual installments of principal and interest. Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 718-40, “Compensation-Stock Compensation-Employee Stock Ownership Plans” (“ASC 718-40”) requires that an employer record compensation expense in an amount equal to the fair value of the shares committed to be released to employees. The pro forma adjustments assume that the employee stock ownership plan shares are allocated in equal annual installments based on the number of loan repayment installments assumed to be paid by St. Landry Homestead Federal Savings Bank, the fair value of the common stock remains equal to the subscription price and the employee stock ownership plan expense reflects an effective combined federal and state tax rate of 21.0%. The unallocated employee stock ownership plan shares are reflected as a reduction of shareholders’ equity. No reinvestment is assumed on proceeds contributed to fund the employee stock ownership plan. The pro forma net income further assumes that shares were committed to be released over 20 equal annual installments during the year at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively, and in accordance with ASC 718-40, only the employee stock ownership plan shares committed to be released during the period were considered outstanding for net income per share calculations. |
(2) | Assumes that a new stock-based recognition and retention plan purchases an aggregate number of shares of common stock equal to 4% of the shares to be sold in the offering. Shareholder approval of the plan and purchases by the plan may not occur earlier than six months after the completion of the conversion. The shares may be acquired directly from Catalyst Bancorp or through open market purchases. Shares in the recognition and retention plan are assumed to vest over a period of five years. The funds to be used to purchase the shares will be provided by Catalyst Bancorp. The table assumes that (i) the recognition and retention plan acquires the shares through open market purchases at $10.00 per share, (ii) 20% of the amount contributed to the plan is amortized as an expense during the year ended December 31, 2020, and (iii) the plan expense reflects an effective tax rate of 21.0%. Assuming shareholder approval of the recognition and retention plan and that shares of common stock (equal to 4% of the shares sold in the offering) are awarded through the use of authorized but unissued shares of common stock, shareholders would have their ownership and voting interests diluted by approximately 3.85%. See “Management – New Stock Benefit Plans – Stock Option and Recognition and Retention Plans.” |
(3) | Following the offering, St. Landry Homestead Federal Savings Bank will be subject to the Louisiana shares tax. The shares tax is based upon the bank’s retained earnings and capital stock accounts minus certain real and personal property credits. The amount shown is an estimate. For additional information, see “Taxation – State Taxation.” |
(4) | Assumes that options are granted under a new stock option plan to acquire an aggregate number of shares of common stock equal to 10% of the shares to be sold in the offering. Shareholder approval of the plan may not occur earlier than six months after the completion of the conversion. In calculating the pro forma effect of the stock option plan, it is assumed that the exercise price of the stock options and the trading price of the common stock at the date of grant were $10.00 per share, the estimated grant-date fair value determined using the Black-Scholes option pricing model was $3.17 for each option, the aggregate grant-date fair value of the stock options was amortized to expense on a straight-line basis over a five-year vesting period of the options, and that 25.0% of the amortization expense (or the assumed portion relating to options granted to directors) resulted in a tax benefit using an assumed tax rate of 21.0%. The actual expense will be determined by the grant-date fair value of the options, which will depend on a number of factors, including the valuation assumptions used and the option pricing model ultimately adopted. Under the above assumptions, the adoption of the stock option plan will result in no additional shares under the treasury stock method for calculating earnings per share. There can be no assurance that the actual exercise price of the stock options will be equal to the $10.00 price per share. If a portion of the shares used to satisfy the exercise of options comes from authorized but unissued shares, our net income per share and shareholders’ equity per share would decrease. The issuance of authorized but unissued shares of common stock pursuant to the exercise of options under such plan would dilute shareholders’ ownership and voting interests by approximately 9.9%. See “Management – New Stock Benefit Plans – Stock Option and Recognition and Retention Plans.” |
(5) | Net income per share computations are determined by taking the number of shares assumed to be sold in the offering and, in accordance with ASC 718-40, subtracting the employee stock ownership plan shares that have not been committed for release during the year. See note (1) above. The number of shares of common stock actually sold may be more or less than the assumed amounts. |
(6) | Shareholders’ equity per share calculations are based upon the number of shares assumed to be sold in the offering at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively. The number of shares actually sold may be more or less than the assumed amounts. |
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MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis reflects our financial statements and other relevant statistical data, and is intended to enhance your understanding of the financial condition and results of operations of St. Landry Homestead Federal Savings Bank (which we also refer to as “St. Landry Homestead” or “the Bank”). The information in this section has been derived from the audited financial statements, which appear beginning on page F-1 of this prospectus. You should read the information in this section in conjunction with the business and financial information regarding Catalyst Bancorp provided in this prospectus.
Overview
The Bank is a community-oriented savings bank headquartered in Opelousas, Louisiana. We currently operate four full-service banking offices in St. Landry Parish, Louisiana and one full-service banking office in Lafayette Parish, Louisiana. We are evaluating sites for an additional banking office in Lafayette Parish and expect to open an additional office by year-end 2021. Our primary business consists of attracting deposits from the general public and using those funds together with funds we borrow from the Federal Home Loan Bank (“FHLB”) of Dallas and other sources to originate loans to our customers and invest in securities. At December 31, 2020, we had total assets of $224.7 million, including $148.8 million in net loans and $38.3 million of investment securities, total deposits of $164.6 million and total equity of $50.6 million. For the year ended December 31, 2020, we recorded a net loss of $684,000 compared to net income of $1.3 million for the year ended December 31, 2019. The primary reasons for our net loss in 2020 were $1.5 million of prepayment penalties recognized on the extinguishment of $15.0 million of FHLB advances and a $910,000 increase in the provision for loan losses in 2020 compared to the year ended December 31, 2019.
Historically, we operated as a traditional thrift relying on long-term, single-family residential mortgage loans secured by properties located primarily in St. Landry Parish and adjoining areas to generate interest income. As discussed below, we are re-focusing our business strategy to a relationship-based community bank model. The conversion and offering are important factors in our efforts to become a more dynamic, profitable and growing institution.
Our results of operations depend, to a large extent, on net interest income, which is the difference between the income earned on our loan and investment portfolios and interest expense on deposits and borrowings. Our net interest income is largely determined by our net interest spread, which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, and the relative amounts of interest-earning assets and interest-bearing liabilities. Results of operations are also affected by our provisions for loan losses, fee income and other non-interest income and non-interest expense. Non-interest expense principally consists of compensation, office occupancy and equipment expense, data processing, advertising and business promotion and other expense. After the conversion, we expect that our non-interest expenses will increase as we grow and expand our operations. In addition, our compensation expense will increase due to the new stock benefit plans we intend to implement. See “Pro Forma Data.” Our results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, the impact of the COVID-19 pandemic and the on-going economic slowdown, government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies may materially impact our financial condition and results of operations.
Business Strategy
Our business strategy is focused on transforming St. Landry Homestead Federal Savings Bank into a more dynamic institution by embracing a relationship-oriented community bank model targeting small- to mid-sized businesses and business professionals in our market areas while continuing to serve our traditional customer base. Highlights of our business strategy, which is designed to facilitate our ability to operate and grow as a profitable community-based banking institution, include the following:
• | Growing the loan portfolio with greater diversification. Our primary lending focus has been the origination of one- to four-family residential mortgage loans. At December 31, 2020, $99.9 million, or 65.8% of our loan portfolio, was secured by single-family residential mortgage loans. We believe that increased commercial lending offers an opportunity to enhance our profitability and our growth prospects. We intend to increase our commercial lending activities, particularly with respect to commercial real estate loans, commercial and industrial loans and multi-family residential real estate loans. We plan to emphasize building full-service banking relationships with small- to mid-sized businesses and business professionals in our market area. We anticipate that our commercial real estate lending originations will focus on loans ranging in size from $500,000 to $2.0 million and that the focus of our commercial and industrial lending originations will be on loans ranging in size from $100,000 to $500,000. |
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• | Grow our franchise organically through enhanced banking products and services. We expect to embark on a strategy of prudent growth following the conversion and offering. We believe we have an opportunity to grow organically by focusing on building relationships with small- to mid-sized businesses and business professionals in our market area and by enhancing the products and services we offer. We expect to increase our commercial loan originations while building strong relationships with an increased base of small- to mid-sized business and professional banking customers. To accomplish our goal, we are reviewing policies and procedures to facilitate our abilities to compete for new business customers. We will continue to enhance our staff capacity through training and hiring of new employees as needed to facilitate our growth. In addition, we continue to review our technology and infrastructure and will implement new and enhanced technology tools and on-line services preferred by many of our existing and prospective customers. |
• | Recruiting and retaining top talent and personnel. Mr. Zanco was hired as our new President and Chief Executive Officer in August 2020. Since then, we have also hired a new Chief Risk Officer and two commercial bankers. Recruiting and retaining talented individuals to guide us through the implementation of our business strategy will be critical to our success. While we believe we have assembled a strong management team, we will continue assessing our personnel needs and expect to add new bankers and management staff in order to complement the group that we have assembled. Critical to our efforts to attract and retain talent is our mutual-to-stock conversion and the adoption and implementation of employee stock benefit plans, consistent with federal banking regulations, after the conversion. |
• | Expand our franchise through de novo branching and possible acquisition of other financial institutions. We opened an additional office in Opelousas, Louisiana in July 2019, and expanded our branch network into Lafayette Parish with our Carencro office which was opened in October 2020. We are planning to add to our presence in Lafayette Parish and are currently reviewing sites to add an additional de novo branch office in the Lafayette area by the end of 2021. In addition, after the conversion and offering, we believe there will be opportunities for expansion through acquisitions of other financial institutions in our current market area and adjoining markets in south Louisiana. While we do not currently have any understandings or agreements regarding any specific transactions, the conversion and offering will enhance our ability to undertake future acquisitions. |
• | Rebranding our banking franchise. Once we have largely implemented our business strategy, we expect to rebrand St. Landry Homestead Federal Savings Bank. Such re-branding efforts may include a new name, a new marketing campaign, updated on-line and website materials and new signage and logos to capture and reflect the new focus of the bank. |
• | Manage credit risk to reduce our level of non-performing assets. We believe that strong asset quality is a key to long-term financial success. Our strategy for credit risk management focuses on an experienced team of credit professionals, well-defined credit policies and procedures, appropriate loan underwriting criteria and active credit monitoring. Our ratio of non-performing assets to total assets was 0.93% at December 31, 2020. |
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Critical Accounting Policies
In reviewing and understanding financial information for St. Landry Homestead, you are encouraged to read and understand the significant accounting policies used in preparing our financial statements. These policies are described in Note 1 of the notes to our financial statements beginning on page F-1 of this prospectus. Our accounting and financial reporting policies conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.
The following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.
Allowance for Loan Losses. We have identified the evaluation of the allowance for loan losses as a critical accounting policy where amounts are sensitive to material variation. The allowance for loan losses represents management’s estimate for probable losses that are inherent in our loan portfolio but which have not yet been realized as of the date of our balance sheet. It is established through a provision for loan losses charged to earnings. Loans are charged against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. Subsequent recoveries are added to the allowance. The allowance is an amount that management believes will cover known and inherent losses in the loan portfolio based on evaluations of the collectibility of loans. The evaluations take into consideration such factors as changes in the types and amount of loans in the loan portfolio, historical loss experience, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, estimated losses relating to specifically identified loans, and current economic conditions. This evaluation is inherently subjective as it requires material estimates including, among others, exposure at default, the amount and timing of expected future cash flows on impacted loans, value of collateral, estimated losses on our commercial and residential loan portfolios, and general amounts for historical loss experience. All of these estimates may be susceptible to significant changes as more information becomes available.
While management uses the best information available to make loan loss allowance evaluations, adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance. Historically, our estimates of the allowance for loan loss have not required significant adjustments from management’s initial estimates. In addition, the Office of the Comptroller of the Currency as an integral part of their examination processes periodically reviews our allowance for loan losses. The Office of the Comptroller of the Currency may require the recognition of adjustments to the allowance for loan losses based on their judgment of information available to them at the time of their examinations. To the extent that actual outcomes differ from management’s estimates, additional provisions to the allowance for loan losses may be required that would adversely impact earnings in future periods.
Income Taxes. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various assets and liabilities and gives current recognition to changes in tax rates and laws. Realizing our deferred tax assets principally depends upon our achieving projected future taxable income. We may change our judgments regarding future profitability due to future market conditions and other factors. We may adjust our deferred tax asset balances if our judgments change.
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COVID-19
In light of the recent events surrounding the COVID-19 epidemic, St. Landry Homestead is continually assessing the effects of the pandemic on its employees, customers and communities. In March 2020, the CARES Act was enacted. The CARES Act contains many provisions related to banking, lending, mortgage forbearance and taxation. The Bank has been working diligently to help support its customers through the PPP, loan modifications and loan deferrals. As of December 31, 2020, St. Landry Homestead has funded 86 SBA PPP loans totaling approximately $3.5 million with an average loan balance of $40,763 to existing customers and key prospects located primarily in our markets in south central Louisiana. In addition, during the year ended December 31, 2020, we granted loan modifications under the CARES Act generally in the form of three-month deferrals of principal payments and a three-month extension of the maturity date. The Bank handles loan modification requests on a case-by-case basis considering the effects of the COVID-19 pandemic, the related economic slowdown and stay-at-home orders on our customers and their current and projected cash flows through the terms of their respective loans. We believe the customer interaction during this time provides us with an opportunity to broaden and deepen our customer relationships while benefiting the local communities we serve. Through December 31, 2020, we modified 167 loans with principal balances totaling $23.9 million. As of December 31, 2020, our COVID-19 loan modifications consisted of five loans with an aggregate outstanding principal balance of $1.5 million at such date.
The Bank is working with customers affected by COVID-19 through modifications of their loans. In accordance with guidance from the Federal Deposit Insurance Corporation (the “FDIC”), borrowers who were current prior to becoming affected by COVID-19, that received loan modifications as a result of the pandemic, generally are not reported as past due. Effects of COVID-19 may negatively impact management assumptions and estimates, such as the allowance for loan losses. The Bank is evaluating all loan modifications to customers to identify and quantify any impact they may have on the Bank. However, it is difficult to assess or predict how and to what extent COVID-19 will affect St. Landry Homestead in the future.
Comparison of Financial Condition At December 31, 2020 and December 31, 2019
Total Assets. Total assets increased $6.2 million, or 2.8%, to $224.7 million at December 31, 2020 compared to $218.5 million at December 31, 2019. The increase resulted primarily from increases in investment securities, held to maturity and available for sale, which increased by an aggregate of $10.9 million, and $7.3 million in cash and cash equivalents, which were partially offset by a $12.8 million decrease in loans receivable, net.
Cash and Cash Equivalents. Cash and cash equivalents increased by $7.3 million, or 41.0%, to $25.2 million at December 31, 2020 compared to $17.9 million at December 31, 2019. The increase in cash and cash equivalents reflects increased cash flows from loan principal repayments, which increased by $7.7 million, or 30.3%, in 2020 compared to 2019, as well as deposit inflows associated with SBA PPP loans originated during the year. The increase in loan principal repayments during the year end December 31, 2020, reflects in part the highly competitive market for residential mortgage loans and increased repayments by our mortgage loan customers who have re-financed their mortgage loans with other institutions in the continuing low interest rate environment.
Net loans. Our loans receivable, net, decreased by $12.8 million, or 7.9%, to $148.8 million at December 31, 2020 compared to $161.6 million at December 31, 2019. During the year ended December 31, 2020, our total loan originations, which amounted to $17.1 million, and purchases, which amounted to $1.3 million, were more than offset by $33.2 million in loan principal repayments. During 2020, we moderated our loan origination efforts in light of the changes to our management team, the uncertainty in the economy due to COVID-19 and the economic slow-down. In addition, our new management team has invested considerable time and effort in assessing the risk profile of our current loan portfolio and updating and revising our loan policies and procedures to position us for loan growth and diversification consistent with our business strategy. During the year ended December 31, 2020, our total real estate loan portfolio decreased by $14.8 million, due primarily to a $12.7 million decrease in one- to four-family residential mortgage loans, which was partially offset by at $1.5 million increase in commercial real estate loans. Our total other loans (commercial and industrial loans and consumer loans) increased by $2.9 million to $11.2 million at December 31, 2020 compared to $8.3 million at December 31, 2019. The increase in total other loans was due primarily to a $3.9 million increase in commercial and industrial loans, primarily reflecting the origination of SBA PPP loans, which amounted to $3.5 million at December 31, 2020. At December 31, 2020, the allowance for loan losses was $3.0 million, an increase of $951,000 compared to December 31, 2019.
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Investment Securities. Our total investment securities amounted to $38.3 million at December 31, 2020, an increase of $10.9 million, or 39.9%, compared to $27.4 million in investment securities at December 31, 2019. At December 31, 2020, $20.7 million, or 54.2%, of our total investment securities were classified as available-for-sale. Our investment securities portfolio at such date consisted primarily of debt obligations issued by the U.S. government and government agencies and government sponsored mortgage-backed securities. During the year ended December 31, 2020, purchases of $34.1 million of investment securities exceeded $23.2 million of maturities, calls and principal repayments.
Foreclosed Real Estate. Our foreclosed real estate amounted to $415,000 at December 31, 2020, a $644,000, or 60.8%, decrease compared to $1.1 million of foreclosed real estate properties at December 31, 2019. During the year ended December 31, 2020, we sold an aggregate of 11 foreclosed real estate properties at a net loss of $120,000.
Bank Owned Life Insurance. Total bank owned life insurance (“BOLI”) increased by $1.1 million, or 49.9%, to $3.2 million at December 31,2020. The increase was due to our purchase of an additional $1.0 million of BOLI coverage during the year. BOLI provides us with a funding offset for our employee benefit plans and obligations. BOLI also provides a source of non-interest income that generally is non-taxable.
Deposits. Our total deposits amounted to $164.6 million at December 31, 2020, an increase of $23.0 million, or 16.2%, compared to December 31, 2019. Our core deposits, which we consider to be all deposits except certificate of deposit accounts, increased by $18.5 million during the year ended December 31, 2020, and constituted 57.9% of total deposits at such date. Our certificate of deposit accounts increased by $4.4 million in 2020 and constituted 42.1% of total deposits at December 31, 2020. The increase in total deposits at December 31, 2020 compared to December 31, 2019 reflects in part depository inflows related to SBA PPP loan proceeds as well as the tendency of many of our banking customers to increase their liquidity and reduce spending in the current environment.
Borrowings. Our borrowings, which consist of FHLB advances, amounted to $8.8 million at December 31, 2020 compared to $25.0 million at December 31, 2019. During the fourth quarter of 2020, we repaid $25.0 million of outstanding FHLB advances ($10.0 million of which was treated as a debt modification under GAAP), which had a weighted average cost of 3.18% and remaining terms to maturity ranging from three to five years, and obtained $10.0 million (contractual amount) in new FHLB advances with a weighted average contractual rate of 0.93%, an estimated weighted average effective rate of 2.73% for the year ending December 31, 2021 and maturities ranging from five to eight years. As a result, we recognized $1.5 million in prepayment penalties as non-interest expense in 2020. An additional $1.2 million in prepayment penalties is being deferred and amortized as an adjustment to interest expense with respect to the new $10.0 million of FHLB advances and is accounted for as a debt modification. The new FHLB advances had a carrying value of $8.8 million at December 31, 2020.
Total Equity. Total equity decreased $565,000, or 1.1%, to $50.6 million at December 31, 2020 compared to $51.2 million at December 31, 2019. The primary reason for the decrease in total equity was the net loss of $684,000 for the year. At December 31, 2020, our ratio of total equity to total assets was 22.5%.
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Average Balances, Net Interest Income, and Yields Earned and Rates Paid. The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. All average balances are based on daily balances. The table also reflects the yields on the Bank’s interest-earning assets and costs of interest-bearing liabilities at December 31, 2020.
Year Ended December 31, |
||||||||||||||||||||||||||||
2020 |
2019 |
|||||||||||||||||||||||||||
Yield/Rate
at
|
Average Balance |
Interest |
Average Yield/ Rate |
Average Balance |
Interest |
Average Yield/ Rate |
||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||||||
Loans receivable(1) | 4.65 | % | $ | 158,909 | $ | 7,827 | 4.93 | % | $ | 161,568 | $ | 7,943 | 4.92 | % | ||||||||||||||
Investment securities | 2.21 | 34,663 | 568 | 1.64 | 30,914 | 688 | 2.22 | |||||||||||||||||||||
Other interest-earning assets | 0.25 | 24,038 | 95 | 0.39 | 15,520 | 337 | 2.17 | |||||||||||||||||||||
Total interest-earning assets | 3.76 | 217,610 | 8,490 | 3.90 | 208,002 | 8,968 | 4.31 | |||||||||||||||||||||
Non-interest-earning assets | 15,056 | 13,576 | ||||||||||||||||||||||||||
Total assets | $ | 232,666 | $ | 221,578 | ||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||||||
Savings, NOW and money market accounts | 0.18 | 65,833 | 191 | 0.29 | 59,804 | 315 | 0.53 | |||||||||||||||||||||
Certificates of deposit | 0.81 | 66,525 | 729 | 1.10 | 69,195 | 797 | 1.15 | |||||||||||||||||||||
Total deposits | 0.49 | 132,358 | 920 | 0.69 | 128,999 | 1,112 | 0.86 | |||||||||||||||||||||
FHLB advances | 0.93 | (2) | 24,382 | 785 | 3.22 | 25,000 | 795 | 3.18 | ||||||||||||||||||||
Total interest-bearing liabilities | 0.52 | 156,740 | 1,705 | 1.09 | 153,999 | 1,907 | 1.24 | |||||||||||||||||||||
Non-interest-bearing liabilities | 24,533 | 17,461 | ||||||||||||||||||||||||||
Total liabilities | 181,273 | 171,460 | ||||||||||||||||||||||||||
Retained earnings | 51,393 | 50,118 | ||||||||||||||||||||||||||
Total liabilities and retained earnings | $ | 232,666 | $ | 221,578 | ||||||||||||||||||||||||
Net interest-earning assets | 3.24 | % | $ | 60,870 | $ | 54,003 | ||||||||||||||||||||||
Net interest income; average interest rate spread | $ | 6,785 | 2.81 | % | $ | 7,061 | 3.07 | % | ||||||||||||||||||||
Net interest margin(3) | 3.12 | % | 3.39 | % | ||||||||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities
|
138.83 | % | 135.07 | % |
(1) | Includes non-accrual loans during the respective periods. Calculated net of deferred fees and discounts, loans in process and allowance for loan losses. |
(2) | Contractual rate at December 31, 2020. |
(3) | Equals net interest income divided by average interest-earning assets. |
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Rate/Volume Analysis. The following table shows the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities affected our interest income and expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate, which is the change in rate multiplied by prior year volume, and (2) changes in volume, which is the change in volume multiplied by prior year rate. The combined effect of changes in both rate and volume has been allocated proportionately to the change due to rate and the change due to volume.
Year Ended December 31, 2020
compared to 2019 |
||||||||||||
Increase (Decrease) Due to | ||||||||||||
Rate | Volume |
Total
Increase (Decrease) |
||||||||||
(In thousands) | ||||||||||||
Interest income: | ||||||||||||
Loans receivable | $ | 15 | $ | (131 | ) | $ | (116 | ) | ||||
Investment securities | (196 | ) | 76 | (120 | ) | |||||||
Other interest-earning assets | (366 | ) | 124 | (242 | ) | |||||||
Total interest income | (547 | ) | 69 | (478 | ) | |||||||
Interest expense: | ||||||||||||
Savings, NOW and money market accounts | (153 | ) | 29 | (124 | ) | |||||||
Certificates of deposit | (38 | ) | (30 | ) | (68 | ) | ||||||
Total deposits | (191 | ) | (1 | ) | (192 | ) | ||||||
FHLB advances and other borrowings | 10 | (20 | ) | (10 | ) | |||||||
Total interest expense | (181 | ) | (21 | ) | (202 | ) | ||||||
Increase (decrease) in net interest income | $ | (366 | ) | $ | 90 | $ | (276 | ) |
Comparison of Operating Results for the Years Ended December 31, 2020 and 2019
General. For the year ended December 31, 2020, we had a net loss of $684,000 compared to net income of $1.3 million for the year ended December 31, 2019, a difference of $2.0 million. The primary reasons for the net loss in 2020 were $1.5 million in penalties recognized as non-interest expense upon the prepayment of $15.0 million of FHLB advances and a $910,000 increase in the provision for loan losses in 2020 compared to 2019.
Interest Income. Total interest income decreased $478,000, or 5.3%, to $8.5 million for the year ended December 31, 2020 compared to $9.0 million for the year ended December 31, 2019. Interest income on loans decreased by $116,000, or 1.5%, in 2020. The average balance of our loan portfolio decreased by $2.7 million, or 1.6%, which was partially offset by a one basis point (100 basis points being equal to 1.0%) increase in the average yield earned on loans in the year ended December 31, 2020 compared to the year ended December 31, 2019. Interest income earned on our investment securities portfolio decreased by $120,000 for the year ended December 31, 2020 compared to the year ended December 31, 2019. The decrease in 2020 was due primarily to a 58 basis point reduction in the average yield earned on our investment securities, which was partially offset by a $3.7 million increase in the average balance during the year. The average yield earned on our investment securities portfolio was 1.64% for the year ended December 31, 2020 compared to 2.22% for the year ended December 31, 2019, primarily reflecting the continuing historically low market rates of interest during the period. Interest income on other interest-earning assets, consisting primarily of cash and cash equivalent deposits at other financial institutions and other equity investments, decreased by $242,000 in the year ended December 31, 2020 compared to the year ended December 31, 2019. The average yield earned on our other interest-earning assets decreased by 178 basis points to 0.39% for the year ended December 31, 2020 compared 2.17% for the year ended December 31, 2019, which more than offset the effects of an $8.5 million increase in the average balance of other interest-earning assets.
Interest Expense. Total interest expense decreased $202,000, or 10.6%, to $1.7 million for the year ended December 31, 2020 compared to $1.9 million for the year ended December 31, 2019. The decrease in interest expense in 2020 was due primarily to a 17 basis point reduction in the average rate paid on total deposits in the year ended December 31, 2020 compared to the year ended December 31, 2019, which more than offset the effects of a $3.4 million increase in the average balance of total deposits during the period. Interest expense paid on total deposits was $920,000 and $1.1 million for the years ended December 31, 2020 and 2019, respectively. Interest expense on FHLB advances decreased by $10,000 to $785,000 for the year ended December 31, 2020 compared to $795,000 for the year ended December 31, 2019.
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Net Interest Income. Net interest income amounted to $6.8 million for the year ended December 31, 2020, a decrease of $276,000, or 3.9%, compared to $7.1 million for the year ended December 31, 2019. Our interest rate spread decreased to 2.81% for the year ended December 31, 2020 from 3.07% for the year ended December 31, 2019, and our net interest margin decreased to 3.12% for the year ended December 31, 2020 from 3.39% for the year ended December 31, 2019. The decreases in interest rate spread and net interest margin was primarily the result of the continuing low interest rate environment which reduced the average yields earned on our interest-earning assets in an amount which more than offset the reduction in the average cost of our interest-bearing liabilities.
Provision for Loan Losses. The allowance for loan losses is established through a provision for loan losses charged to earnings as losses are estimated to have occurred in our loan portfolio. Loan losses are charged against the allowance when management believes the collectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans 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 the underlying collateral, and prevailing economic conditions. The evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
A loan is considered impaired when, based on current information or events, it is probable that we will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. When a loan is impaired, the measurement of such impairment is based upon the fair value of the collateral of the loan. If the fair value of the collateral is less than the recorded investment in the loan, we will recognize the impairment by creating a valuation allowance with a corresponding charge against earnings.
An allowance is also established for uncollectible interest on loans classified as substandard. The allowance is established by a charge to interest income equal to all interest previously accrued, and income is subsequently recognized only to the extent that cash payments are received. When, in management’s judgment, the borrower’s ability to make interest and principal payments is back to normal, the loan is returned to accrual status.
We recorded a provision for loan losses of $985,000 for the year ended December 31, 2020, compared to a $75,000 provision for the year ended December 31, 2019. The increase in the provision for loan losses in 2020 compared to 2019 reflects our analysis of the known and inherent losses in the portfolio that were both probable and reasonable to estimate. During 2020, during our evaluation of the allowance for loan losses, particular consideration was given to the continuing economic impact of the COVID-19 pandemic as well as the increases of $1.3 million and $919,000, respectively, on the amounts of our impaired loans and substandard loans at December 31, 2020 compared to December 31, 2019.
The establishment of the allowance for loan losses is significantly affected by management judgment and uncertainties and there is a likelihood that different amounts would be reported under different conditions or assumptions. Various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses. Such agencies may require the Bank to make additional provisions for estimated loan losses based upon judgments different from those of management.
Non-interest Income. Non-interest income increased $12,000 to $966,000 for the year ended December 31, 2020 from $954,000 for the year ended December 31, 2019. The increase was primarily due to gains of $16,000 on sales of fixed assets.
Non-interest Expense. Non-interest expense increased by $1.6 million, or 26.3%, to $7.9 million for 2020 from $6.3 million for 2019. The increase was due primarily to the recognition of $1.5 million in FHLB prepayment penalties recognized in the year ended December 31, 2020. During the fourth quarter of 2020, we repaid $25.0 million of outstanding FHLB advances, which had a weighted average cost of 3.18% and remaining terms to maturity of three to five years. We obtained $10.0 million (contractual amount) in new advances from the FHLB with a weighted average contractual rate of 0.93%, an estimated weighted average effective rate of 2.73% for the year ending December 31, 2021 and maturities ranging from five to eight years. The repayment and modification of FHLB advances is expected to reduce our interest expenses in future periods. Salaries and employee benefit expense increased by $103,000, or 2.9%, to $3.6 million for the year ended December 31, 2020 compared to $3.5 million for the year ended December 31, 2019. Occupancy and equipment expense increased by $48,000, or 7.6%, in the year ended December 31, 2020 compared to the year ended December 31, 2019.
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Upon consummation of the conversion and stock offering, we expect non-interest expense to increase because of costs associated with operating as a public company, including the increased compensation expenses associated with the purchase of shares of common stock by our employee stock ownership plan and the possible implementation of stock-based benefit plans, if approved by our shareholders. In addition, we will incur increased non-interest expense related to the implementation of our business strategy related to planned additions to our employee base and potential new branch openings.
Provision for Income Tax Expense. Due to our net loss for the year, we recorded a $464,000 income tax credit for the year ended December 31, 2020, compared to income tax expense of $334,000 in the prior year.
Exposure to Changes in Interest Rates
Our ability to maintain net interest income depends upon our ability to earn a higher yield on interest-earning assets than the rates we pay on deposits and borrowings. Our interest-earning assets consist primarily of securities available-for-sale and long-term residential and commercial mortgage loans, which have fixed rates of interest. Consequently, our ability to maintain a positive spread between the interest earned on assets and the interest paid on deposits and borrowings can be adversely affected when market rates of interest rise.
Net Portfolio Value Analysis. Our interest rate sensitivity is monitored by management through the use of models which generate estimates of the change in its net portfolio value (“NPV”) over a range of interest rate scenarios. NPV represents the market value of portfolio equity, which is different from book value, and is equal to the market value of assets minus the market value of liabilities (that is, the difference between incoming and outgoing discounted cash flows of assets and liabilities) with adjustments made for off-balance sheet items. The NPV ratio, under any interest rate scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario. The Office of the Comptroller of the Currency provides a quarterly report on the potential impact of interest rate changes upon the market value of portfolio equity. Management reviews the quarterly reports from the Office of the Comptroller of the Currency, which show the impact of changing interest rates on net portfolio value. The following table sets forth our NPV as of December 31, 2020 and reflects the changes to NPV as a result of immediate and sustained changes in interest rates as indicated.
Change in Interest
Rates |
Net Portfolio Value | NPV as % of Portfolio Value of Assets | |||||||||||||||||||
In Basis Points
(Rate Shock) |
Amount | $ Change | % Change | NPV Ratio | Change | ||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||
300bp | $ | 52,540 | $ | (1,449 | ) | -2.7 | % | 24.8 | % | 0.8 | % | ||||||||||
200 | 52,646 | (1,343 | ) | -2.5 | 24.1 | 0.1 | |||||||||||||||
100 | 53,889 | (100 | ) | -0.2 | 24.4 | 0.4 | |||||||||||||||
Static | 53,989 | 24.0 | |||||||||||||||||||
(50) | 51,770 | (2,219 | ) | -4.1 | 22.7 | -1.3 | |||||||||||||||
(100) | 50,356 | (3,633 | ) | -6.7 | 21.9 | -2.1 | |||||||||||||||
(200) | 50,309 | (3,680 | ) | -6.8 | 21.8 | -2.2 |
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Net Interest Income Analysis. In addition to modeling changes in NPV, we also analyze potential changes to net interest income (“NII”) for a twelve-month period under rising and falling interest rate scenarios. The following table shows our NII model as of December 31, 2020.
Change in Interest Rates in Basis
Points (Rate Shock) |
Net Interest Income | $ Change | % Change | ||||||||||
(Dollars in thousands) | |||||||||||||
300bp | $ | 7,485 | $ | 144 | 2.50 | % | |||||||
200 | 7,548 | 207 | 3.60 | ||||||||||
100 | 7,425 | 84 | 1.50 | ||||||||||
Static | 7,185 | (156 | ) | -2.70 | |||||||||
(50) | 7,034 | (307 | ) | -5.40 | |||||||||
(100) | 6,911 | (430 | ) | -7.50 | |||||||||
(200) | 6,888 | (453 | ) | -7.90 |
The above table indicates that as of December 31, 2020, in the event of an immediate and sustained 300 basis point increase in interest rates, our net interest income for the 12 months ending December 31, 2021 would be expected to increase by $144,000 or 2.5% to $7.5 million.
Liquidity and Capital Resources
St. Landry Homestead maintains levels of liquid assets deemed adequate by management. We adjust our liquidity levels to fund deposit outflows, repay our borrowings, and to fund loan commitments. We also adjust liquidity, as appropriate, to meet asset and liability management objectives.
Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities. We also have the ability to borrow from the FHLB. At December 31, 2020, we had $8.8 million outstanding in advances from the FHLB, and had the capacity to borrow approximately an additional $54.7 million from the FHLB and an additional $17.8 million on a line of credit with First National Bankers Bank at such date.
While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.
Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $857,000 and $1.7 million for the years ended December 31, 2020 and 2019, respectively. Net cash used in investing activities, which consists primarily of net change in loans receivable and net change in investment securities, was ($313,000) and $4.2 million for the years ended December 31, 2020 and 2019, respectively. Net cash provided by financing activities, consisting primarily of the activity in deposit accounts and FHLB advances, was $6.8 million and $(4.8) million for the years ended December 31, 2020 and 2019, respectively, resulting from our ability to generate liquidity through our deposit base at lower interest rates to fund loan originations.
We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained. We also anticipate continued use of FHLB advances.
At December 31, 2020, we exceeded all of our regulatory capital requirements with a Tier 1 leverage capital level of $50.5 million, or 21.1% of adjusted total assets, which was above the well-capitalized required level of $12.0 million, or 5.0%, and total risk-based capital of $52.3 million, or 42.4% of risk-weighted assets, which was above the well-capitalized required level of $12.3 million, or 10.0%. At December 31, 2019, we also exceeded all of our regulatory capital requirements with a Tier 1 leverage capital level of $51.2 million, or 23.2% of adjusted total assets, which was above the well-capitalized required level of $11.0 million, or 5.0%, and total risk-based capital of $52.8 million, or 41.3% of risk-weighted assets, which was above the well-capitalized required level of $12.8 million, or 10.0%. Accordingly, St. Landry Homestead was categorized as well-capitalized at December 31, 2020 and 2019. Management is not aware of any conditions or events since the most recent notification that would change our category.
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Off-Balance Sheet Arrangements. At December 31, 2020, we had $1.0 million of remaining funds to be disbursed on construction loans in process and $82,000 of outstanding commitments to originate loans. Our total letters and lines of credit, unused overdraft privilege amounts and unused lines of credit totaled $3.5 million at December 31, 2020. Certificates of deposit that are scheduled to mature in less than one year from December 31, 2020, totaled $53.2 million at December 31, 2020. Management expects that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize FHLB advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.
Commitments. The following table summarizes our outstanding commitments to originate loans and to advance additional amounts pursuant to outstanding letters of credit, lines of credit and undisbursed construction loans at December 31, 2020.
Total
Amounts |
Amount of Commitment Expiration – Per Period | |||||||||||||||||||
Committed at
December 31, 2020 |
To
1 Year |
1-3
Years |
4-5
Years |
After 5
Years |
||||||||||||||||
(In thousands) | ||||||||||||||||||||
Letters of credit | $ | 500 | $ | 500 | $ | -- | $ | -- | $ | -- | ||||||||||
Unused overdraft privilege amounts | 1,004 | -- | -- | -- | 1,004 | |||||||||||||||
Lines of credit | 1,815 | 581 | -- | -- | 1,234 | |||||||||||||||
Unused lines of credit | 156 | 151 | -- | 5 | -- | |||||||||||||||
Undisbursed portion of loans in process | 1,007 | 1,007 | -- | -- | -- | |||||||||||||||
Commitments to originate loans | 82 | 82 | -- | -- | -- | |||||||||||||||
Total commitments | $ | 4,564 | $ | 2,321 | $ | -- | $ | 5 | $ | 2,238 |
Contractual Cash Obligations. The following table summarizes our contractual cash obligations at December 31, 2020.
Total at | Payments Due By Period | |||||||||||||||||||
December 31,
2020 |
To
1 Year |
1-3
Years |
4-5
Years |
After 5
Years |
||||||||||||||||
(In thousands) | ||||||||||||||||||||
Certificates of deposit | $ | 69,341 | $ | 53,232 | $ | 13,854 | $ | 2,255 | $ | -- | ||||||||||
FHLB advances | 8,838 | -- | -- | 2,653 | 6,185 | |||||||||||||||
Total long-term debt | 78,179 | 53,232 | 13,854 | 4,908 | 6,185 | |||||||||||||||
Operating lease obligations | -- | -- | -- | -- | -- | |||||||||||||||
Total contractual obligations | $ | 78,179 | $ | 53,232 | $ | 13,854 | $ | 4,908 | $ | 6,185 |
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Impact of Inflation and Changing Prices
The financial statements and related financial data presented herein regarding St. Landry Homestead have been prepared in accordance with accounting principles generally accepted in the United States of America, which generally require the measurement of financial position and operating results in terms of historical dollars, without considering changes in relative purchasing power over time due to inflation. Unlike most industrial companies, virtually all of our assets and liabilities are monetary in nature. As a result, interest rates generally have a more significant impact on St. Landry Homestead’s performance than does the effect of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services, since such prices are affected by inflation to a larger extent than interest rates.
Recent Accounting Pronouncements
For a discussion of the impact of recent accounting pronouncements, see Note 1 of the notes to our financial statements beginning on page F-1 of this prospectus.
Catalyst Bancorp was incorporated in the State of Louisiana on February 26, 2021, and has not engaged in any business to date. Upon completion of the conversion, Catalyst Bancorp will own all of the issued and outstanding stock of St. Landry Homestead Federal Savings Bank. We intend to contribute at least 50% of the net proceeds from the stock offering to St. Landry Homestead Federal Savings Bank. Catalyst Bancorp will retain the remainder of the net proceeds from the stock offering and use a portion of the retained net proceeds to make a loan to the employee stock ownership plan. At a later date, we may use the net proceeds to repurchase shares of common stock, subject to our planned growth, capital needs and regulatory limitations. We will invest our initial capital as discussed in “How We Intend to Use the Proceeds from the Offering.”
After the conversion and the offering are complete, Catalyst Bancorp, as the holding company of St. Landry Homestead Federal Savings Bank, will be authorized to pursue other business activities permitted by applicable laws and regulations. See “Supervision and Regulation–Holding Company Regulation” for a discussion of the activities that are permitted for savings and loan holding companies.
Following the offering, our cash flow will depend on earnings from the investment of the net proceeds from the offering that we retain, and any dividends we receive from St. Landry Homestead Federal Savings Bank. St. Landry Homestead Federal Savings Bank is subject to regulatory limitations on the amount of dividends that it may pay. See “Supervision and Regulation – Federal Banking Regulation – Capital Distributions.” Initially, Catalyst Bancorp will neither own nor lease any property, but will instead utilize the premises, equipment and furniture of St. Landry Homestead Federal Savings Bank. At the present time, we intend to employ only persons who are officers of St. Landry Homestead Federal Savings Bank to serve as officers of Catalyst Bancorp. We will, however, use the support staff of St. Landry Homestead Federal Savings Bank from time to time. Catalyst Bancorp may hire additional employees, as appropriate, to the extent it expands its business in the future.
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BUSINESS OF ST. LANDRY HOMESTEAD FEDERAL SAVINGS BANK
General. St. Landry Homestead Federal Savings Bank is a federally chartered community-oriented savings bank which was originally organized in 1922 and is headquartered in Opelousas, Louisiana. The Bank currently conducts its business from its main office as well as four additional full-service branch offices. Our branch offices are located in Eunice, Port Barre and Opelousas, in St. Landry Parish, and Carencro, in Lafayette Parish. Our branch offices in Opelousas and Carencro were opened in July 2019 and October 2020, respectively. We currently are evaluating sites in Lafayette Parish for an additional branch office and expect to add another branch office by year-end 2021.
We are primarily engaged in attracting deposits from the general public and using those funds to invest in loans and securities. Our principal sources of funds are customer deposits, repayments of loans, maturities of investments and funds borrowed from outside sources such as the FHLB of Dallas. These funds are primarily used for the origination of loans, including single-family residential first mortgage loans, commercial real estate mortgage loans, multi-family residential mortgage loans, commercial and industrial loans, construction and land loans and other loans. The Bank derives its income principally from interest earned on loans and investment securities and, to a lesser extent, from fees received in connection with the origination of loans, service charges on deposit accounts and for other services. The Bank’s primary expenses are interest expense on deposits and borrowings and general operating expenses.
We are an active originator of residential home mortgage loans in our market area. Historically, St. Landry Homestead Federal Savings Bank was a traditional thrift institution with an emphasis on long-term single-family residential first mortgage loans secured by residences located in our traditional market area centered in Opelousas, Louisiana. At December 31, 2020, $99.9 million, or 65.8% of our total loan portfolio, was comprised of single-family residential mortgage loans. As previously indicated, our business strategy is to enhance our products and services and embrace a full-service community bank model by re-focusing our efforts in order to attract a greater number of small-to mid-sized businesses and business professionals in our market area and to increase our holdings of commercial and multi-family residential real estate loans and commercial and industrial loans. Commercial real estate loans and commercial and industrial loans are deemed attractive due to their generally higher yields and shorter anticipated lives compared to single-family residential mortgage loans.
Our headquarters office is located at 235 N. Court Street, Opelousas, Louisiana, and our telephone number is (337) 948-3033. We maintain a website at www.stlandryhomestead.com, and we provide our customers with on-line banking services. Information on our website should not be considered a part of this prospectus.
Market Area and Competition
We are headquartered in Opelousas, Louisiana, which is the parish seat for St. Landry Parish. In addition to our main office, we have an additional branch office in Opelousas, as well as branch offices in Eunice and Port Barre, both in St. Landry Parish, and a branch office in Carencro, Louisiana, located in Lafayette Parish, which we opened in October 2020. We currently are evaluating sites in Lafayette Parish for an additional branch office which we plan to open by year-end 2021. St. Landry and Lafayette Parishes are in the Acadiana region of south central Louisiana.
Historically, our business focus has centered on areas within a short drive from our banking offices in St. Landry Parish and adjoining areas. The opening of our branch office in Carencro, Louisiana marked our first branch office in Lafayette Parish. In recent years, St. Landy Parish has seen little growth or expansion. Lafayette, on the other hand, has experienced more growth and expansion. In the future, we expect to focus on increasing our penetration in the Lafayette area. We expect to open a second branch office in Lafayette Parish by year-end 2021 and hope to increase our market share of banking relationships with small- to mid-sized businesses and professionals, particularly in Lafayette.
According to the U.S. Census Bureau, as of July 1, 2019, (i) St. Landry Parish had an estimated population of 82,124, representing a 1.5% decrease from the 2010 census population of 83,390, and (ii) Lafayette Parish had an estimated population of 244,390, a 10.2% increase from the 2010 census population. During the same period, the estimated population in the state of Louisiana grew by 2.5%. The U.S. Census Bureau also indicates that (i) St. Landry Parish had a median household income of $36,403 in 2019 dollars (for 2015-2019) and 22.6% of its population was below poverty level and (ii) Lafayette Parish had median household income of $56,999 and 16.6% of its population was below poverty level in 2019. For the state of Louisiana and the United States, the U.S. Census Bureau reports median household income, in 2019 dollars (for the period 2015-2019), of $49,469 and $62.843, respectively. The December 2020 unemployment rates for St. Landry and Lafayette Parishes were 7.5% and 5.6%, respectively, compared to 6.9% and 6.5%, respectively, for the state of Louisiana and the United States.
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Economic activity in the Acadiana region of south-central Louisiana is influenced by the oil and gas industry, in addition to business services such as energy services, healthcare, technology, manufacturing, finance, tourism and other service-related industries. The education/healthcare/social service sector represents the largest employment sector in St. Landry Parish, while the services sector is the largest employment sector in Lafayette Parish. In December 2020, Amazon announced the planned construction of a 1 million square foot fulfillment center in Carencro, which is expected to create 500 new full-time jobs.
We face significant competition in originating loans and attracting deposits. This competition stems primarily from commercial banks, other savings banks and savings associations, credit unions and mortgage-banking companies. Many of the financial service providers operating in our market area are significantly larger, and have greater financial resources, than us. We face additional competition for deposits from short-term money market funds and other corporate and government securities funds, mutual funds and from other non-depository financial institutions such as brokerage firms and insurance companies.
Lending Activities
General. At December 31, 2020, our net loan portfolio totaled $148.8 million or 66.2% of total assets. Historically, our principal lending activity has been the origination of loans collateralized by one- to four-family, also known as “single-family,” residential real estate loans located in our market area. We also originate commercial real estate and multi-family residential mortgage loans, commercial and industrial loans, construction and land loans, consumer loans, consisting primarily of loans secured by deposits at the Bank, automobile, recreational vehicle and boat loans, and other loans.
Loan Portfolio Composition. The following table shows the composition of our loan portfolio by type of loan at the dates indicated.
December 31, | ||||||||||||||||
2020 | 2019 | |||||||||||||||
Amount | % | Amount | % | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Real estate loans: | ||||||||||||||||
One- to four-family residential | $ | 99,869 | 65.8 | % | $ | 112,616 | 68.8 | % | ||||||||
Commercial real estate | 30,304 | 20.0 | 28,840 | 17.6 | ||||||||||||
Construction and land | 5,538 | 3.6 | 8,306 | 5.1 | ||||||||||||
Multi-family residential | 4,801 | 3.2 | 5,492 | 3.4 | ||||||||||||
Farmland | 53 | -- | 61 | -- | ||||||||||||
Total real estate loans | 140,565 | 92.6 | 155,315 | 94.9 | ||||||||||||
Other loans: | ||||||||||||||||
Consumer | 4,499 | 3.0 | 5,477 | 3.4 | ||||||||||||
Commercial and industrial | 6,736 | 4.4 | 2,861 | 1.7 | ||||||||||||
Total other loans | 11,235 | 7.4 | 8,338 | 5.1 | ||||||||||||
Total loans | 151,800 | 100.0 | % | 163,653 | 100.0 | % | ||||||||||
Less: Allowance for loan losses | (3,022 | ) | (2,071 | ) | ||||||||||||
Net loans | $ | 148,778 | $ | 161,582 |
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Contractual Terms to Final Maturities. The following table shows the scheduled contractual maturities of our loans as of December 31, 2020, before giving effect to net items and the allowance for loan losses. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less. The amounts shown below do not take into account loan prepayments.
One- to Four- Family Residential | Commercial Real Estate | Construction and Land | Multi-Family Residential | Farmland | Consumer | Commercial and Industrial | Total | |||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||
Amounts due after December 31, 2020 in: | ||||||||||||||||||||||||||||||||
One year or less | $ | 473 | $ | 1,343 | $ | 2,608 | $ | -- | $ | -- | $ | 355 | $ | 916 | $ | 5,695 | ||||||||||||||||
After one year through two years | 322 | 2,908 | 48 | 31 | -- | 407 | 3,534 | 7,250 | ||||||||||||||||||||||||
After two years through three years | 958 | 2,036 | 197 | -- | -- | 789 | 396 | 4,376 | ||||||||||||||||||||||||
After three years through five years | 1,882 | 1,961 | 404 | 557 | 26 | 1,422 | 1,312 | 7,564 | ||||||||||||||||||||||||
After five years through ten years | 12,565 | 6,347 | 1,386 | -- | -- | 1,068 | 275 | 21,641 | ||||||||||||||||||||||||
After ten years through 15 years | 23,359 | 5,578 | 497 | 2,393 | 27 | 256 | 39 | 32,149 | ||||||||||||||||||||||||
After 15 years | 60,310 | 10,131 | 398 | 1,820 | -- | 202 | 264 | 73,125 | ||||||||||||||||||||||||
Total | $ | 99,869 | $ | 30,304 | $ | 5,538 | $ | 4,801 | $ | 53 | $ | 4,499 | $ | 6,736 | $ | 151,800 |
The following table shows the dollar amount of our loans at December 31, 2020, due after December 31, 2021, as shown in the preceding table, which have fixed interest rates or which have floating or adjustable interest rates.
Fixed-Rate | Floating or Adjustable-Rate |
Total at
December 31, 2020 |
||||||||||
(In thousands) | ||||||||||||
One- to four-family residential | $ | 20,274 | $ | 79,122 | $ | 99,396 | ||||||
Commercial real estate | 6,659 | 22,302 | 28,961 | |||||||||
Construction and land | 1,704 | 1,226 | 2,930 | |||||||||
Multi-family residential | 401 | 4,400 | 4,801 | |||||||||
Farmland | 26 | 27 | 53 | |||||||||
Consumer | 2,136 | 2,008 | 4,144 | |||||||||
Commercial and industrial | 5,820 | -- | 5,820 | |||||||||
Total | $ | 37,020 | $ | 109,085 | $ | 146,105 |
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Loan Originations. Our lending activities are subject to underwriting standards and loan origination procedures established by our board of directors and management. Loan originations are obtained through a variety of sources, primarily existing customers as well as new customers obtained from referrals and local advertising and promotional efforts. Single-family residential mortgage loan applications and consumer loan applications are taken at any of the Bank’s branch offices or customers may submit an application on-line. Applications for other loans typically are taken personally by one of our loan officers, although they may be received by a branch office initially and then referred to a loan officer. All loan applications are processed and underwritten centrally at our main office.
Our single-family residential first mortgage loans are written on standardized documents used by the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”) and Federal National Mortgage Association (“FNMA” or “Fannie Mae”). However, our underwriting standards do not require that new single-family residential mortgage loans conform to secondary market standards and a significant portion of our single-family residential mortgage loans are considered “non-conforming” due to factors such as the borrower’s job status or income, the condition or age of the residence or other factors. For loans which are secured by real estate, property valuations are undertaken by an independent third-party appraiser approved by our board of directors.
In addition to originating loans, we occasionally purchase participation interests in larger balance loans, typically commercial real estate mortgage loans or construction and land development loans, from other financial institutions in our market area or other markets in Louisiana. At December 31, 2020, we had purchased participation interests in four loans with an aggregate outstanding balance of $3.3 million. Such participations are reviewed for compliance with our underwriting criteria before they are purchased. Generally, we have purchased such loans without any recourse to the seller. However, we actively monitor the performance of such loans through the receipt of regular reports from the lead lender regarding the loan’s performance, physically inspecting the loan security property on a periodic basis, discussing the loan with the lead lender on a regular basis and receiving copies of updated financial statements from the borrower. One of our purchased participation interests, with an outstanding balance of $998,000 at December 31, 2020, was a 12.8% participation interest in a $7.8 million commercial real estate loan secured by a hotel property located in Lake Charles, Louisiana. Such hotel was damaged by two hurricanes in 2020 but the loan was performing in accordance with its terms at December 31, 2020.
In addition, the Bank also occasionally sells participation interests in loans it originates. At December 31, 2020, sold loan participation interests totaled $4.0 million and consisted of a 48.2% participation interest sold in one loan. We generally have sold participation interests in loans when a loan would exceed our loans-to-one borrower limits. Our legal loans-to-one borrower limit, with certain exceptions, generally is 15% of our unimpaired capital and surplus or $8.0 million at December 31, 2020. At December 31, 2020, our five largest loans to one borrower and related entities amounted to $4.3 million, $3.3 million, $2.1 million, $1.4 million and $1.3 million, respectively, and all of such loans were performing in accordance with their terms.
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Loan Originations. The following table shows our total loans originated, purchased, sold and repaid during the periods indicated.
Year Ended December 31, | ||||||||
2020 | 2019 | |||||||
(In thousands) | ||||||||
Loan originations: | ||||||||
One- to four-family residential | $ | 3,793 | $ | 7,601 | ||||
Commercial real estate | 1,322 | 5,349 | ||||||
Construction and land | 2,349 | 1,576 | ||||||
Multi-family residential | -- | 1,675 | ||||||
Farmland | -- | -- | ||||||
Consumer | 2,302 | 3,133 | ||||||
Commercial and industrial | 7,331 | 1,910 | ||||||
Total loan originations | 17,097 | 21,244 | ||||||
Loans purchased | 1,250 | 3,100 | ||||||
Loans sold | -- | -- | ||||||
Loan principal repayments | (33,166 | ) | (25,446 | ) | ||||
Total loans sold and principal repayments | (33,166 | ) | (25,446 | ) | ||||
Increase or (decrease) due to other items, net(1) | 2,015 | 1,767 | ||||||
Net increase (decrease) in total loans | $ | (12,804 | ) | $ | 665 |
(1) | Other items consist of loans in process, deferred fees, the allowance for loan losses and the transfer of loans to real estate owned. |
One- to Four-Family Residential Mortgage Lending. One of our primary lending activities continues to be the origination of loans secured by first mortgages on one- to four-family residences in our market area. At December 31, 2020, $99.9 million, or 65.8% of our total loan portfolio, consisted of single-family residential mortgage loans. As of December 31, 2020, the average outstanding balance of our one- to four-family residential mortgage loans was $64,000.
Applications for one-to four-family residential mortgage loans are accepted at any of our banking offices or on-line and are then referred to our main office for processing, which consists primarily of obtaining all documents required to complete the underwriting, which includes making a determination whether the loan meets our underwriting standards. While our single-family residential first mortgage loans are written on standardized documents used by Freddie Mac and Fannie Mae, our underwriting standards do not require that new single-family residential mortgage loans conform to secondary market standards. A significant portion of our single-family residential mortgage loans are considered “non-conforming”, due to factors such as the borrower’s job status or income, the condition or age of the residence or other factors, and are not readily saleable into the secondary mortgage market. We currently originate fixed-rate, fully amortizing mortgage loans with maturities up to 30 years. We also offer adjustable rate mortgage (“ARM”) loans where the interest rate either adjusts on an annual basis or is fixed for the initial three or five years and then adjusts every three or five years thereafter. At December 31, 2020, approximately 79.6% of our single-family residential mortgage loans maturing after December 31, 2021 were ARM loans. Our ARM loans have a cap on any increase or decrease in the interest rate of up to 2.5% at any adjustment date and a 6% cap above or below the initial interest rate over the life of the loan. The interest rate on our ARM loans is based on the Semi-Annual Weighted Average Cost of Funds Index of the FHLB for the 11th District.
Although adjustable-rate one- to four-family residential real estate loans may reduce our vulnerability to changes in market interest rates because they periodically reprice, as interest rates increase, the required payments due from the borrower also increase (subject to rate caps), increasing the potential for default by the borrower. At the same time, the ability of the borrower to repay the loan and the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustments of the contractual interest rate are also limited by the maximum periodic and lifetime rate adjustments permitted by our loan documents. As a result, the effectiveness of adjustable-rate one- to four-family residential real estate loans in compensating for changes in market interest rates may be limited during periods of rapidly rising interest rates.
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We underwrite one- to four-family residential mortgage loans with loan-to-value ratios which generally do not exceed 89% in the case of ARM loans and 85% in the case of fixed-rate loans, provided that the borrower obtains private mortgage insurance on loans that exceed 89% of the appraised value of the secured property. We also require that title insurance, hazard insurance and, if appropriate, flood insurance be maintained on all properties securing real estate loans. We require that a licensed appraiser from our list of approved appraisers perform and submit to us an appraisal on all properties securing one- to four-family first mortgage loans. Our mortgage loans generally include due-on-sale clauses which provide us with the contractual right to deem the loan immediately due and payable in the event the borrower transfers ownership of the property. Due-on-sale clauses are an important means of adjusting the yields of fixed-rate mortgage loans in portfolio and we generally exercise our rights under these clauses.
Commercial Real Estate Loans and Multi-Family Residential Loans. At December 31, 2020, our commercial real estate and multi-family residential loans amounted to an aggregate of $35.1 million, or 23.2% of our total loan portfolio at such date. We plan to increase our emphasis on commercial real estate loans and multi-family residential real estate loans as they generally have shorter terms to maturity, improving the Bank’s interest rate risk profile, and provide higher yields than single-family residential mortgage loans.
Our commercial real estate loan portfolio amounted to $30.3 million, or 20.0% of the total loan portfolio, at December 31, 2020. Our commercial real estate loans consist primarily of loans secured by hotels, retail and industrial use buildings, strip shopping centers, restaurants and other properties used for commercial purposes located in our market area. At December 31, 2020, our commercial real estate loan portfolio included nine loans, with an aggregate outstanding balance of $11.7 million, secured by hotel properties. At such date, the average commercial real estate loan size was $250,000. The five largest commercial real estate loans outstanding were $4.3 million, $3.3 million, $1.4 million, $1.2 million and $1.0 million, and all of such loans were performing in accordance with all their terms.
At December 31, 2020, the Bank’s multi-family residential mortgage loans amounted to $4.8 million, or 3.2% of the total loan portfolio. The Bank’s multi-family residential mortgage loans, which are underwritten and approved in a manner consistent with the Bank’s commercial real estate loans, are secured by residential properties with more than four units located in the Bank’s market area. At December 31, 2020, the Bank’s largest multi-family residential mortgage loan was a $2.1 million loan secured by an 86 unit apartment complex located in Opelousas, Louisiana, which is performing in accordance with its terms. At December 31, 2020, we had a total of 12 multi-family residential mortgage loans and the average size of the Bank’s multi-family residential mortgage loans was $400,000.
Although terms for commercial real estate and multi-family residential loans vary, our underwriting standards generally allow for terms not exceeding 20 years and loan-to-value ratios of not more than 80%. Interest rates are typically adjustable, based upon designated market indices such as The Wall Street Journal prime rate, or fixed-rate, and fees are charged to the borrower at the origination of the loan. The actual lives of such loans generally are less than their contractual terms to maturity due to prepayments and re-financings. Generally, we obtain personal guarantees of the principals as additional collateral for commercial real estate, multi-family residential and land loans.
Commercial real estate and multi-family residential lending involve a greater degree of risk than single-family residential lending. These risks include larger loans to individual borrowers and loan payments that are dependent upon the successful operation of the project or the borrower’s business. These risks can be affected by supply and demand conditions of rental housing units, office and retail space and other commercial space in the project’s market area. We attempt to minimize these risks for loans we originate by soliciting loans from businesses with existing operating performance. We also use conservative debt coverage ratios in our underwriting, and periodically monitor the operation of the business or project and the physical condition of the property. At December 31, 2020, an aggregate of $192,000 of our commercial real estate and multi-family residential loans were delinquent for more than 30 days, although none of such loans were on non-accrual status. We have had an aggregate of $1,000 in charge-offs of commercial real estate and multi-family residential loans during the past two years.
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Various aspects of commercial real estate and multi-family residential transactions are evaluated in an effort to mitigate the additional risk in these types of loans. In our underwriting procedures, consideration is given to the stability of the property’s cash flow history, future operating projections, current and projected occupancy levels, location and physical condition. Generally, we impose a debt service ratio (the ratio of net cash flows from operations before the payment of debt service to debt service) of not less than 120% in the case of commercial real estate and multi-family residential loans. We also evaluate the credit and financial condition of the borrower, and if applicable, the guarantor. Appraisal reports prepared by independent appraisers are obtained on each loan to substantiate the property’s market value, and are reviewed by us prior to the closing of the loan.
Construction and Land Loans. The Bank also makes construction and land loans. At December 31, 2020, such loans amounted to $5.5 million, or 3.6% of our total loans outstanding. The largest component of our construction and land loans at December 31, 2020, was loans secured by raw land (unimproved and unplatted) and lot loans (land which has been subdivided and platted), which had an aggregate outstanding balance of $3.3 million at such date. We had 106 of such land and lot loans at December 31, 2020, with an average outstanding balance of approximately $31,000. Such loans are generally secured by properties in our market area and have maximum terms to maturity of five years in the case of raw land or eight years in the case of lot loans. Our policy generally is that such loans have maximum loan-to-value ratios of 65% in the case of raw land or 85% in the case of lot loans, although, on an exception basis, we have approved loan-to-value ratios up to 100% for land and lot loans not exceeding $100,000 and up to 90% for land and lot loans over $100,000.
Our construction and land loans at December 31, 2020, included a $1.3 million, 36.4% participation interest in a $5.5 million acquisition, development and construction loan secured by property in a 143 acre mixed-use, master-planned development located in Scott, Louisiana, a suburb of Lafayette. Such loan has a remaining term to maturity of four months and has performed in accordance with its terms.
Our construction and land loans also included 10 single-family residential construction loans with an aggregate outstanding balance of $935,000 at December 31, 2020. Of our 10 single-family residential construction loans at December 31, 2020, nine, with an outstanding loan balance of $850,000 at such date, consisted of construction loans to individuals for the construction and permanent financing (“construction/permanent loans”) of their homes. The Bank’s construction/permanent loans are structured to provide one closing for both the construction loan and the permanent financing. During the construction phase, employees of the Bank make periodic inspections of the construction site and loan proceeds are disbursed directly to the contractors as construction progresses. Typically, disbursements are made in five draws during the construction period. Construction/permanent loans require payment of interest only during the construction phase and are structured to be converted to fixed- or adjustable-rate permanent loans at the end of the construction phase. Prior to making a commitment to fund a construction loan, the Bank requires an appraisal. Our construction/permanent loans have a maximum loan-to-value ratio of 80% during the construction phase. The Bank’s staff also reviews and inspects each project prior to every disbursement of funds during the term of the construction loan. Loan proceeds are disbursed based on a percentage of completion. All of such loans had terms to maturity of 12 or 13 months and all were performing in accordance with their terms.
Construction financing is generally considered to involve a higher degree of credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the property’s value at completion of construction compared to the estimated cost, including interest, of construction and other assumptions. Additionally, if the estimate of value proves to be inaccurate, the Bank may be confronted with a project, when completed, having a value less than the loan amount. The Bank has attempted to minimize these risks by generally concentrating on residential construction loans in its market area to contractors with whom it has established relationships.
Commercial and Industrial Loans. Our commercial and industrial loans amounted to $6.7 million or 4.4% of the total loan portfolio at December 31, 2020, compared to $2.9 million, or 1.7% of our total loan portfolio at December 31, 2019. Our commercial and industrial loans typically are to small to mid-sized businesses in our market area and may be for working capital, equipment financing, inventory financing or accounts receivable financing. Commercial and industrial loans may have adjustable or fixed rates of interest and generally have terms of five years or less but may go up to seven years. Our commercial and industrial loans include unsecured loans and loans secured by equipment, machinery or other corporate assets. Our maximum loan to value ratio for commercial and industrial loans generally is 75% and we typically require a debt service coverage ratio of 150% on such loans. In addition, we generally obtain personal guarantees from the principals of the borrower with respect to all commercial industrial loans. At December 31, 2020, approximately $4.3 million of our commercial and industrial loans were unsecured. This amount included 86 SBA PPP loans with an aggregate outstanding balance of $3.5 million at such date. Our participation in the PPP was the primary reason for the $3.9 million increase in the outstanding balance of our commercial and industrial loans at December 31, 2020 compared to December 31, 2019.
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We are seeking to increase our commercial loan portfolio. In particular, we are targeting loans from small to mid-sized firms and business and industrial professionals located in our markets that generally are considered too small by the regional and super-regional banks operating in our market. Commercial and industrial loans generally are deemed to involve a greater degree of risk than single-family residential mortgage loans. Repayment of our commercial and industrial loans is often dependent on the cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may fluctuate in value. Credit support provided by the borrower for most of these loans and the probability of repayment is based on the liquidation of the pledged collateral and enforcement of a personal guarantee, if any exists. As a result, in the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. The collateral securing other loans, such as inventory or equipment, may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business.
Consumer Lending Activities. In our efforts to provide a full range of financial services to our customers, we offer various types of consumer loans. Our consumer loans amounted to $4.5 million, or 3.0%, of our total loan portfolio at December 31, 2020. Our consumer loans are comprised primarily of loans secured by deposits at the Bank, which amounted to $2.3 million at December 31, 2020. In addition, our consumer loans include automobile loans, boat loans, recreational vehicle loans and unsecured personal loans.
Consumer loans generally have higher interest rates and shorter terms than residential loans, however, they have additional credit risk due to the type of collateral securing the loan or in some cases the absence of collateral. In the years ended December 31, 2020 and 2019, we charged off $40,000 and $31,000, respectively, of consumer loans.
Loan Approval Procedures and Authority. Our Board of Directors establishes the Bank’s lending policies and procedures. Our Loan Policy Manual is reviewed on at least an annual basis by our management team in order to propose modifications as a result of market conditions, regulatory changes and other factors. All modifications must be approved by our Board of Directors.
Various officers or combinations of officers of the Bank have the authority within specifically identified limits to approve new loans. The maximum loan amount that may be approved by an individual officer is $100,000. Loans up to $300,000 may be approved by the President and an additional designated officer. Our Board level Loan Committee has authority to approve loans up to $500,000. All other loans must be approved by the Board of Directors of the Bank.
Asset Quality
General. One of our key objectives has been, and continues to be, maintaining a high level of asset quality. In addition to maintaining credit standards for new originations which we believe are sound, we are proactive in our loan monitoring, collection and workout processes in dealing with delinquent or problem loans.
When a borrower fails to make a scheduled payment, we attempt to cure the deficiency by making personal contact with the borrower. Initial contacts are generally made within 30 days after the date the payment is due. In most cases, deficiencies are promptly resolved. If the delinquency continues, late charges are assessed and additional efforts are made to collect the deficiency. All loans which are designated as “special mention,” classified or which are delinquent 90 days or more are reported to the Board of Directors of the Bank on a monthly basis.
We stop accruing interest on loans (“non-accrual” loans) when the loan is determined by management to be uncollectable due to the borrower’s failure to meet repayment terms, the borrower’s deteriorating or deteriorated financial condition, or the depreciation of underlying collateral. Interest income is not accrued on these loans until the borrower’s financial condition and payment record demonstrate an ability to service the debt.
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Property acquired by the Bank through foreclosure is initially recorded at the lower of cost, which is the carrying value of the loan, or fair value at the date of acquisition, which is fair value of the related assets at the date of foreclosure, less estimated costs to sell. Thereafter, if there is a further deterioration in value, we charge earnings for the diminution in value. The Bank’s policy is to obtain an appraisal on real estate subject to foreclosure proceedings prior to the time of foreclosure. We obtain re-appraisals on a periodic basis, generally on at least an annual basis, on foreclosed properties. We also conduct inspections on foreclosed properties.
We account for our impaired loans in accordance with generally accepted accounting principles. An impaired loan generally is one for which it is more likely than not, based on current information, that the lender will not collect all the amounts due under the contractual terms of the loan. Large groups of smaller balance, homogeneous loans are collectively evaluated for impairment. Loans collectively evaluated for impairment include smaller balance commercial real estate loans, residential real estate loans and consumer loans. These loans are evaluated as a group because they have similar characteristics and performance experience. Larger commercial real estate, construction and land development and commercial business loans are individually evaluated for impairment on at least a quarterly basis by management. At December 31, 2020 and 2019, loans identified and impaired and individually evaluated for expected losses, amounted to $4.5 million and $3.1 million, respectively.
Federal regulations and our policies require that we utilize an internal asset classification system as a means of reporting problem and potential problem assets. We have incorporated an internal asset classification system, consistent with Federal banking regulations, as a part of our credit monitoring system. We currently classify problem and potential problem assets as “special mention,” “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 insured 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 without the establishment of a specific loss reserve is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are required to be designated “special mention.”
When an insured institution classifies one or more assets, or portions thereof, as “substandard” or “doubtful,” it is required that a general valuation allowance for loan losses be established for loan losses in accordance with established methodology. General valuation allowances represent loss allowances which have been established to recognize the inherent losses associated with lending activities, but which, unlike specific allocations, have not been allocated to particular problem assets. When an insured institution classifies one or more assets, or portions thereof, as “loss,” it is required to charge off such amount.
Our allowance for loan losses includes a portion which is allocated by type of loan, based primarily upon our periodic reviews of the risk elements within the various categories of loans. The specific components relate to certain impaired loans. The general components cover non-classified loans and are based on historical loss experience adjusted for qualitative factors in response to changes in risk and market conditions. Our management believes that, based on information currently available, the allowance for loan losses is maintained at a level which covers all known and inherent losses that are both probable and reasonably estimable at each reporting date. However, actual losses are dependent upon future events and, as such, further additions to the level of the allowance for loan losses may become necessary.
We review and classify loans on no less frequently than a quarterly basis and the Board of Directors is provided with reports on our classified and criticized assets. We classify assets in accordance with the management guidelines described above. At December 31, 2020 and 2019, we had no loans classified as “doubtful” or “loss” and $6.5 million and $5.6 million, respectively, of loans classified as “substandard.” In addition, there were $4.3 million and $4.3 million of loans designated as “special mention” as of December 31, 2020 and 2019, respectively.
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A savings institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by Federal bank regulators which can order the establishment of additional general or specific loss allowances. The Federal banking agencies have adopted an interagency policy statement on the allowance for loan and lease losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that institutions have effective systems and controls to identify, monitor and address asset quality problems; that management analyze all significant factors that affect the collectibility of the portfolio in a reasonable manner; and that management establish acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. Our management believes that, based on information currently available, its allowance for loan losses is maintained at a level which covers all known and inherent losses that are both probable and reasonably estimable at each reporting date. However, actual losses are dependent upon future events and, as such, further additions to the level of allowances for loan losses may become necessary.
Troubled Debt Restructurings. We occasionally modify loans to extend the term or make other concessions to help a borrower stay current on his or her loan and to avoid foreclosure. We consider modifications only after analyzing the borrower’s current repayment capacity, evaluating the strength of any guarantors based on documented current financial information, and assessing the current value of any collateral pledged. We generally do not forgive principal or interest on loans, but may do so if it is in our best interest and increases the likelihood that we can collect the remaining principal balance. We may modify the terms of loans to lower interest rates (which may be at below market rates), to provide for fixed interest rates on loans where fixed rates are otherwise not available, to provide for longer amortization schedules, or to provide for interest-only terms. These modifications are made only when a workout plan has been agreed to by the borrower that we believe is reasonable and attainable and in our best interests. At December 31, 2020 and 2019, our loans which were classified as troubled debt restructurings (“TDRs”) and were on accrual status and not more than 90 days past due (“performing TDRs”) amounted to $3.6 million and $1.3 million, respectively. All of such TDRs were performing in accordance with their restructured terms at December 31, 2020. Certain COVID-19 related loans which have been modified are not deemed to be TDRs pursuant to provisions of the CARES Act. See “—CARES Act,” below.
Delinquent Loans. The following table shows the delinquencies in our loan portfolio as of the dates indicated.
December 31, 2020 | December 31, 2019 | |||||||||||||||||||||||||||||||
30-89
Days Overdue |
90 or More
Days Overdue |
30-89
Days Overdue |
90 or More
Days Overdue |
|||||||||||||||||||||||||||||
Number of Loans | Principal Balance | Number of Loans | Principal Balance | Number of Loans | Principal Balance | Number of Loans | Principal Balance | |||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
One- to four-family residential | 39 | $ | 1,949 | 9 | $ | 495 | 73 | $ | 3,658 | 16 | $ | 952 | ||||||||||||||||||||
Commercial real estate | 3 | 192 | -- | -- | 4 | 584 | 1 | 122 | ||||||||||||||||||||||||
Construction and land | 4 | 201 | -- | -- | -- | -- | 1 | 49 | ||||||||||||||||||||||||
Multi-family residential | -- | -- | -- | -- | -- | -- | -- | -- | ||||||||||||||||||||||||
Farmland | -- | -- | -- | -- | -- | -- | -- | -- | ||||||||||||||||||||||||
Consumer | 8 | 38 | 2 | 13 | 18 | 93 | 4 | 6 | ||||||||||||||||||||||||
Commercial and industrial | 1 | 95 | -- | -- | 1 | 3 | -- | -- | ||||||||||||||||||||||||
Total delinquent loans | 55 | $ | 2,475 | 11 | $ | 508 | 96 | $ | 4,338 | 22 | $ | 1,129 | ||||||||||||||||||||
Delinquent loans to total net loans | 1.66 | % | 0.34 | % | 2.68 | % | 0.70 | % | ||||||||||||||||||||||||
Delinquent loans to total loans | 1.63 | % | 0.33 | % | 2.65 | % | 0.69 | % |
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The following table sets forth the amounts of our classified loans at the dates indicated. The related specific valuation allowance in the allowance for loan losses on our classified loans was $888,000 and $458,000 at December 31, 2020 and 2019, respectively.
At December 31, | ||||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Substandard loans | $ | 6,505 | $ | 5,586 | ||||
Doubtful loans | -- | -- | ||||||
Loss loans | -- | -- | ||||||
Total classified loans | $ | 6,505 | $ | 5,586 |
In addition to classified loans, our other real estate owned, which amounted to $415,000 and $1.1 million, respectively, at December 31, 2020 and 2019, was classified substandard at such dates.
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Non-performing Assets. The following table shows the amounts of our non-performing assets, which include non-accruing loans, accruing loans 90 days or more past due and real estate owned at the dates indicated, and our performing TDRs.
December 31, | ||||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Non-accruing loans: | ||||||||
One- to four-family residential | $ | 1,241 | $ | 1,412 | ||||
Commercial real estate | -- | -- | ||||||
Construction and land | 47 | 49 | ||||||
Multi-family residential | -- | 122 | ||||||
Farmland | -- | -- | ||||||
Consumer | -- | -- | ||||||
Commercial and industrial | 4 | 6 | ||||||
Total non-accruing loans | 1,292 | 1,589 | ||||||
Accruing loans 90 days or more past due: | ||||||||
One- to four-family residential | 367 | 213 | ||||||
Commercial real estate | -- | -- | ||||||
Construction and land | -- | -- | ||||||
Multi-family residential | -- | -- | ||||||
Farmland | -- | -- | ||||||
Consumer | 13 | 6 | ||||||
Commercial and industrial | -- | -- | ||||||
Total accruing loans 90 days or more past due | 380 | 219 | ||||||
Total non-performing loans | 1,672 | 1,808 | ||||||
Real estate owned | 415 | 1,059 | ||||||
Total non-performing assets | 2,087 | 2,867 | ||||||
Performing troubled debt restructurings | 3,625 | 1,284 | ||||||
Total non-performing assets and performing TDRs | $ | 5,712 | $ | 4,151 | ||||
Total loans outstanding | $ | 151,800 | $ | 163,653 | ||||
Total assets outstanding | $ | 224,652 | $ | 218,473 | ||||
Total non-accruing loans as a percentage of total loans outstanding | 0.85 | % | 0.97 | % | ||||
Total non-performing loans as a percentage of total loans outstanding | 1.10 | % | 1.10 | % | ||||
Total non-performing loans as a percentage of total assets | 0.74 | % | 0.83 | % | ||||
Total non-performing assets as a percentage of total assets | 0.93 | % | 1.31 | % |
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Allowance for Loan Losses. The following table shows changes in our allowance for loan losses during the periods presented.
At or for the Year Ended
December 31, |
||||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Total loans outstanding at end of period | $ | 151,800 | $ | 163,653 | ||||
Total non-accrual loans at end of period | 1,292 | 1,589 | ||||||
Total non-performing loans at end of period | 1,672 | 1,808 | ||||||
Average loans outstanding: | ||||||||
One- to four-family residential | 107,585 | 115,084 | ||||||
Commercial real estate | 30,713 | 26,299 | ||||||
Construction and land | 6,922 | 8,635 | ||||||
Multi-family residential | 5,147 | 5,082 | ||||||
Farmland | 57 | 65 | ||||||
Consumer | 4,973 | 5,625 | ||||||
Commercial and industrial | 5,784 | 2,840 | ||||||
Total average loans outstanding | $ | 161,181 | $ | 163,630 | ||||
Allowance for loan losses, beginning of period | $ | 2,071 | $ | 2,125 | ||||
Provision for loan losses | 985 | 75 | ||||||
Charge-offs: | ||||||||
One- to four-family residential | 84 | 201 | ||||||
Commercial real estate | -- | -- | ||||||
Construction and land | -- | 3 | ||||||
Multi-family residential | 1 | -- | ||||||
Farmland | -- | -- | ||||||
Consumer | 40 | 31 | ||||||
Commercial and industrial | 15 | -- | ||||||
Total charge-offs | 140 | 235 | ||||||
Recoveries on loans previously charged-off: | ||||||||
One- to-four-family residential | 67 | 80 | ||||||
Commercial real estate | -- | -- | ||||||
Construction and land | -- | 9 | ||||||
Multi-family residential | 1 | -- | ||||||
Farmland | -- | -- | ||||||
Consumer | 23 | 14 | ||||||
Commercial and industrial | 15 | 3 | ||||||
Total recoveries | 106 | 106 | ||||||
Net charge-offs | 34 | 129 | ||||||
Allowance for loan losses, end of period | $ | 3,022 | $ | 2,071 | ||||
Allowance for loan losses as a percent of non-performing loans | 180.74 | % | 114.55 | % | ||||
Allowance for loan losses as a percent of total loans outstanding | 1.99 | % | 1.27 | % | ||||
Allowance for loan losses as a percent of total non-accrual loans | 233.9 | % | 130.3 | % | ||||
Ratio of net charge-offs during the period to average loans outstanding during the period | 0.02 | % | 0.08 | % |
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CARES Act. Under the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 modifications. Similarly, the Financial Accounting Standards Board has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief will not be considered troubled debt restructurings.
The Bank administers loan payment modification requests on a case-by-case basis. Through December 31, 2020, we modified 167 loans with principal balances totaling $23.9 million. At December 31, 2020, our COVID-19 modifications consisted of five loans with an aggregate outstanding balance of $1.5 million at such date. A majority of deferrals were three-month deferrals of principal payments and a three-month extension of the maturity date.
Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses. We maintain the allowance at a level believed, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio that are both probable and reasonable to estimate at each reporting date. Management reviews the allowance for loan losses on no less than a quarterly basis in order to identify those inherent losses and to assess the overall collection probability for the loan portfolio. Our evaluation process includes, among other things, an analysis of delinquency trends, non-performing loan trends, the level of charge-offs and recoveries, prior loss experience, total loans outstanding, the volume of loan originations, the type, size and geographic concentration of our loans, the value of collateral securing the loan, the borrower’s ability to repay and repayment performance, the number of loans requiring heightened management oversight, national and local economic conditions and industry experience. Such risk ratings are periodically reviewed by management and revised as deemed appropriate. During 2020, our provision for loan losses amounted to $985,000. In our evaluation of the allowance for loan losses in 2020, particular consideration was given to the continuing economic impact of the COVID-19 pandemic, as well as the increases of $1.3 million and $919,000, respectively, on the amounts of our impaired assets and substandard assets at December 31, 2020 compared to December 31, 2019. The establishment of the allowance for loan losses is significantly affected by management judgment and uncertainties and there is a likelihood that different amounts would be reported under different conditions or assumptions. Various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses. Such agencies may require the Bank to make additional provisions for estimated loan losses based upon judgments different from those of management.
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The following table shows how our allowance for loan losses is allocated by type of loan at each of the dates indicated.
December 31, | ||||||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||
Amount of
Allowance |
Percent of
Allowance to Total Allowance |
Percent of
Loans in Category to Total Loans |
Amount of
Allowance |
Percent of
Allowance to Total Allowance |
Percent of
Loans in Category to Total Loans |
|||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
One-to four-family residential | $ | 1,910 | 63.2 | % | 65.8 | % | $ | 1,162 | 56.1 | % | 68.8 | % | ||||||||||||
Commercial real estate | 744 | 24.6 | 20.0 | 637 | 30.8 | 17.6 | ||||||||||||||||||
Construction and land | 81 | 2.7 | 3.6 | 56 | 2.7 | 5.1 | ||||||||||||||||||
Multi-family residential | 68 | 2.3 | 3.2 | 76 | 3.7 | 3.4 | ||||||||||||||||||
Farmland | 1 | -- | -- | 1 | -- | -- | ||||||||||||||||||
Consumer | 78 | 2.6 | 3.0 | 80 | 3.9 | 3.4 | ||||||||||||||||||
Commercial and industrial | 101 | 3.3 | 4.4 | 12 | 0.6 | 1.7 | ||||||||||||||||||
Unallocated | 39 | 1.3 | N/A | 47 | 2.2 | N/A | ||||||||||||||||||
Total | $ | 3,022 | 100.0 | % | 100.0 | % | $ | 2,071 | 100.0 | % | 100.0 | % |
Investment Securities
We have authority to invest in various types of securities, including mortgage-backed securities, U.S. Treasury obligations, securities of various federal agencies and of state and municipal governments, certificates of deposit at federally insured banks and savings institutions, and federal funds. Our investment strategy is established by the board of directors.
December 31, | ||||||||||||||||
2020 | 2019 | |||||||||||||||
Amortized
Cost |
Market
Value |
Amortized
Cost |
Market
Value |
|||||||||||||
(In thousands) | ||||||||||||||||
Securities available-for-sale: | ||||||||||||||||
Mortgage-backed securities | $ | 15,968 | $ | 16,140 | $ | 9,236 | $ | 9,230 | ||||||||
U.S. Government and agency obligations | 2,000 | 1,961 | 5,000 | 4,991 | ||||||||||||
Municipal obligations | 2,628 | 2,629 | -- | -- | ||||||||||||
Total securities available-for-sale | 20,596 | 20,730 | 14,236 | 14,221 | ||||||||||||
Securities held to maturity: | ||||||||||||||||
Mortgage-backed securities | -- | -- | -- | -- | ||||||||||||
U.S. Government and agency obligations | 17,034 | 17,006 | 13,000 | 12,866 | ||||||||||||
Municipal obligations | 489 | 499 | 129 | 129 | ||||||||||||
Total securities held to maturity | 17,523 | 17,505 | 13,129 | 12,995 | ||||||||||||
Total investment securities | $ | 38,119 | $ | 38,235 | $ | 27,365 | $ | 27,216 |
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The investment policy is designed primarily to manage the interest rate sensitivity of the assets and liabilities, to generate a favorable return without incurring undue interest rate and credit risk, to complement the lending activities and to provide and maintain liquidity. The current investment policy generally permits investments in debt securities issued by the U.S. government and U.S. agencies, municipal bonds, and corporate debt obligations, as well as investments in preferred and common stock of government agencies and government sponsored enterprises such as Fannie Mae, Freddie Mac and the Federal Home Loan Bank of Dallas (federal agency securities). The policy also permits investments in mortgage-backed securities, including pass-through securities issued and guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae.
At December 31, 2020, our investment securities portfolio totaled $38.3 million, or 17.0% of total assets at such date. The largest component of our investment securities portfolio at December 31, 2020, was investment in U.S. government and federal agency obligations, which amounted to $19.0 million at such date, followed by pass-through mortgage-backed securities issued by Fannie Mae, Ginnie Mae and Freddie Mac, which amounted to $16.1 million. Our investment in tax-exempt municipal obligations at December 31, 2020, was $3.1 million.
Ginnie Mae is a government agency within the Department of Housing and Urban Development which is intended to help finance government-assisted housing programs. Ginnie Mae securities are backed by loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. The timely payment of principal and interest on Ginnie Mae securities is guaranteed by Ginnie Mae and backed by the full faith and credit of the U.S. Government. Freddie Mac is a private corporation chartered by the U.S. Government. Freddie Mac issues participation certificates backed principally by conventional mortgage loans. Freddie Mac guarantees the timely payment of interest and the ultimate return of principal on participation certificates. Fannie Mae is a private corporation chartered by the U.S. Congress with a mandate to establish a secondary market for mortgage loans. Fannie Mae guarantees the timely payment of principal and interest on Fannie Mae securities. Freddie Mac and Fannie Mae securities are not backed by the full faith and credit of the U.S. Government.
Investments in mortgage-backed securities involve the risk that actual prepayments will be greater than estimated prepayments over the life of the security, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments thereby changing the net yield on such securities. There is also reinvestment risk associated with the cash flows from such securities or in the event such securities are redeemed by the issuer. In addition, the market value of such securities may be adversely affected by changes in interest rates.
Investment securities are classified at the time of acquisition as available for sale, held to maturity or trading. Securities classified as held to maturity must be purchased with the intent and ability to hold that security until its final maturity, and can be sold prior to maturity only under rare circumstances. Held-to-maturity securities are accounted for based upon the amortized cost of the security. Available-for-sale securities can be sold at any time based upon needs or market conditions. Available-for-sale securities are accounted for at fair value, with unrealized gains and losses on these securities, net of income tax provisions, reflected as accumulated other comprehensive income. At December 31, 2020, we had $20.7 million of investment securities classified as available for sale, $17.5 million of investment securities classified as held to maturity and no securities classified as trading securities. At December 31, 2020, we had no investments in a single issuer other than securities issued by U.S. Government agencies or U.S. Government sponsored enterprises, which had an aggregate book value in excess of 10% of the Company’s stockholders’ equity.
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The following table sets forth the amount of investment securities which mature during each of the periods indicated and the weighted average yields for each range of maturities at December 31, 2020.
Amounts at December 31, 2020, Which Mature In | ||||||||||||||||||||
One
Year
or Less |
After One through Five Years | After Five through 10 Years | Over 10 Years | Total | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Total investment securities: | ||||||||||||||||||||
Mortgage-backed securities | $ | -- | $ | 1 | $ | 1,394 | $ | 14,745 | $ | 16,140 | ||||||||||
U.S. Government and agency obligations | -- | -- | 12,962 | 6,033 | 18,995 | |||||||||||||||
Municipal obligations | -- | -- | 489 | 2,629 | 3,118 | |||||||||||||||
Total | $ | -- | $ | 1 | $ | 14,845 | $ | 23,407 | $ | 38,253 | ||||||||||
Weighted average yield: | ||||||||||||||||||||
Mortgage-backed securities | -- | % | 2.85 | % | 2.45 | % | 2.81 | % | 2.78 | % | ||||||||||
U.S. Government and agency obligations | -- | -- | 1.33 | 2.23 | 1.62 | |||||||||||||||
Municipal obligations | -- | -- | 3.18 | 2.83 | 2.89 | |||||||||||||||
Total weighted average yield | -- | % | 2.85 | % | 1.49 | % | 2.66 | % | 2.19 | % |
The following table sets forth the composition of our investment securities portfolio at each of the dates indicated.
December 31, | ||||||||
2020 | 2019 | |||||||
(In thousands) | ||||||||
Fixed-rate: | ||||||||
Available for sale | $ | 20,649 | $ | 14,092 | ||||
Held to maturity | 17,523 | 13,129 | ||||||
Total fixed-rate | 38,172 | 27,221 | ||||||
Adjustable-rate: | ||||||||
Available for sale | 81 | 129 | ||||||
Held to maturity | -- | -- | ||||||
Total adjustable-rate | 81 | 129 | ||||||
Total investment securities | $ | 38,253 | $ | 27,350 |
Investment Activities
Investments in mortgage-backed securities involve a risk that actual prepayments will be greater than estimated prepayments over the life of the security, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments thereby changing the net yield on such securities. There is also reinvestment risk associated with the cash flows from such securities or in the event such securities are redeemed by the issuer. In addition, the market value of such securities may be adversely affected by changes in interest rates.
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Sources of Funds
General. Deposits, loan repayments and prepayments, proceeds from investment sales, calls, maturities and pay-downs, cash flows generated from operations and Federal Home Loan Bank advances are the primary sources of our funds for use in lending, investing and for other general purposes.
Deposits. We offer a variety of deposit accounts with a range of interest rates and terms. Our deposits consist of checking, both interest-bearing and non-interest-bearing, money market, savings and certificate of deposit accounts. At December 31, 2020, 57.9% of the funds deposited with the Bank were in core deposits, which are deposits other than certificates of deposit.
The flow of deposits is influenced significantly by general economic conditions, changes in money market rates, prevailing interest rates and competition. Our deposits are obtained predominantly from the areas where our branch offices are located. We have historically relied primarily on customer service and long-standing relationships with customers to attract and retain these deposits; however, market interest rates and rates offered by competing financial institutions significantly affect our ability to attract and retain deposits.
In addition, we solicit deposits from local government municipalities. At December 31, 2020, our municipal deposits totaled $17.8 million.
The Bank uses traditional means of advertising its deposit products, including broadcast and print media and we generally do not solicit deposits from outside our market area. In recent years, we have emphasized the origination of core deposits.
The following table shows the distribution of, and certain other information relating to, our deposits by type of deposit, as of the dates indicated.
December 31, | ||||||||||||||||
2020 | 2019 | |||||||||||||||
Amount | % | Amount | % | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Certificate accounts: | ||||||||||||||||
0.00% - 0.99% | $ | 46,672 | 28.36 | % | $ | 21,975 | 15.52 | % | ||||||||
1.00% - 1.99% | 21,502 | 13.06 | 25,488 | 18.00 | ||||||||||||
2.00% - 2.99% | 1,167 | 0.71 | 17,441 | 12.31 | ||||||||||||
3.00% or more | -- | -- | -- | -- | ||||||||||||
Total certificate accounts | 69,341 | 42.13 | 64,904 | 45.83 | ||||||||||||
Transaction accounts: | ||||||||||||||||
Savings | 22,209 | 13.49 | % | 19,180 | 13.54 | % | ||||||||||
Checking: | ||||||||||||||||
Interest-bearing | 30,890 | 18.77 | 26,421 | 18.66 | ||||||||||||
Non-interest-bearing | 26,169 | 15.90 | 17,438 | 12.31 | ||||||||||||
Money market | 15,989 | 9.71 | 13,686 | 9.66 | ||||||||||||
Total transaction accounts | 95,257 | 57.87 | 76,725 | 54.17 | ||||||||||||
Total deposits | $ | 164,598 | 100.00 | % | $ | 141,629 | 100.00 | % |
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The following table shows the average balance of each type of deposit and the average rate paid on each type of deposit for the periods indicated.
Year Ended December 31, | ||||||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||
Average Balance | Interest Expense | Average Rate Paid | Average Balance | Interest Expense | Average Rate Paid | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Savings accounts | $ | 20,544 | $ | 59 | 0.29 | % | $ | 18,937 | $ | 105 | 0.55 | % | ||||||||||||
Checking-interest bearing | 30,550 | 78 | 0.25 | 26,678 | 120 | 0.45 | ||||||||||||||||||
Money market | 14,739 | 54 | 0.37 | 14,189 | 90 | 0.63 | ||||||||||||||||||
Certificates of deposit | 66,525 | 729 | 1.10 | 69,195 | 797 | 1.15 | ||||||||||||||||||
Total interest-bearing deposits | $ | 132,358 | $ | 920 | 0.69 | $ | 128,999 | $ | 1,112 | 0.86 | ||||||||||||||
Total deposits | $ | 155,697 | $ | 920 | 0.59 | % | $ | 145,489 | $ | 1,112 | 0.76 | % |
The following table shows our deposit flows during the periods indicated.
Year Ended December 31, | ||||||||
2020 | 2019 | |||||||
(In thousands) | ||||||||
Total deposits | $ | 333,009 | $ | 260,122 | ||||
Total withdrawals | (310,969 | ) | (266,048 | ) | ||||
Interest credited | 929 | 1,120 | ||||||
Total increase (decrease) in deposits | $ | 22,969 | $ | (4,806 | ) |
The following table presents, by various interest rate categories and maturities, the amount of certificates of deposit at December 31, 2020.
Balance at December 31, 2020
Maturing in the 12 Months Ending December 31, |
||||||||||||||||||||
Certificates of Deposit | 2021 | 2022 | 2023 | Thereafter | Total | |||||||||||||||
(In thousands) | ||||||||||||||||||||
0.00% - 0.99% | $ | 37,722 | $ | 8,443 | $ | 309 | $ | 198 | $ | 46,672 | ||||||||||
1.00% - 1.99% | 15,348 | 3,196 | 901 | 2,057 | 21,502 | |||||||||||||||
2.00% - 2.99% | 162 | 1,005 | -- | -- | 1,167 | |||||||||||||||
3.00% - or more | -- | -- | -- | -- | -- | |||||||||||||||
Total certificate accounts | $ | 53,232 | $ | 12,644 | $ | 1,210 | $ | 2,255 | $ | 69,341 |
The following table shows the maturities of our certificates of deposit with balances of $100,000 or more at December 31, 2020 by time remaining to maturity.
Quarter Ending: | Amount |
Weighted
Average Rate |
||||||
(Dollars in thousands) | ||||||||
March 31, 2021 | $ | 10,762 | 0.9347 | % | ||||
June 30, 2021 | 8,569 | 0.6482 | ||||||
September 30, 2021 | 6,544 | 0.8441 | ||||||
December 31, 2021 | 11,348 | 0.7971 | ||||||
After December 31, 2021 | 10,258 | 0.9921 | ||||||
Total certificates of deposit with balances of $100,000 or more | $ | 47,481 | 0.8500 | % |
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The following table shows the maturities of our certificates of deposit in excess of the FDIC insurance limit (generally, $250,000) at December 31, 2020 by time remaining to maturity.
Quarter Ending: | Amount | Weighted Average Rate | ||||||
(Dollars in thousands) | ||||||||
March 31, 2021 | $ | 4,280 | 1.09 | % | ||||
June 30, 2021 | 3,280 | 0.53 | ||||||
September 30, 2021 | 2,164 | 0.66 | ||||||
December 31, 2021 | 1,581 | 0.80 | ||||||
After December 31, 2021 | 3,074 | 1.28 | ||||||
Total certificates of deposit with balances in excess of $250,000 | $ | 14,379 | 0.91 | % |
The amount of our total uninsured deposits (that is deposits in excess of the FDIC’s insurance limit) was $29.6 million and $21.8 million, respectively, at December 31, 2020 and December 31, 2019.
Borrowings. We utilize advances from the FHLB as an alternative to retail deposits to fund operations as part of our operating strategy. These FHLB advances are collateralized primarily by certain of our mortgage loans and mortgage-backed securities and secondarily by our investment in capital stock of the FHLB. FHLB advances are made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. The maximum amount that the FHLB will advance to member institutions, including the Bank, fluctuates from time to time in accordance with the policies of the FHLB.
The following table shows certain information regarding our borrowings at or for the dates indicated:
At or For the Year Ended December 31, | ||||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
FHLB advances and other borrowings: | ||||||||
Average balance outstanding | $ | 24,382 | $ | 25,000 | ||||
Maximum amount outstanding at any month-end during the period | 25,000 | 25,000 | ||||||
Balance outstanding at end of period | 8,838 | 25,000 | ||||||
Average interest rate during the period | 3.22 | % | 3.18 | % | ||||
Weighted average interest rate at end of period | 0.93 | %(1) | 3.18 | % |
(1) | Reflects the weighted average contractual rate of FHLB advances at December 31, 2020. |
At December 31, 2020, none of our borrowings were short-term (maturities of one year or less).
During the fourth quarter of 2020, we repaid $25.0 million of outstanding FHLB advances ($10.0 million of which was treated as a debt modification under GAAP), which had a weighted average cost of 3.18% and remaining terms to maturity of three to five years. We obtained $10.0 million (contractual amount) in new advances from the FHLB with a weighted average contractual rate of 0.93%, an estimated weighted average effective rate of 2.73% for the year ending December 31, 2021 and maturities ranging from five to eight years. We recognized $1.5 million in FHLB prepayment penalties as non-interest expense in the year ended December 31, 2020. The new advances are accounted for as a debt modification and had a carrying value of $8.8 million at December 31, 2020, with $1.2 million to be recognized as an adjustment to interest expense over the terms of the advances. The repayment and modification of FHLB advances is expected to reduce our interest expenses.
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Properties
We currently conduct business from our main office and four full-service banking offices. The following table sets forth the net book value of the land, building and leasehold improvements and certain other information with respect to our offices at December 31, 2020. We owned all of such offices at December 31, 2020; none were leased.
Description/Address | Net Book Value of Property | Amount of Deposits | ||||||
(In thousands) | ||||||||
Main Office: | ||||||||
235 N. Court Street
Opelousas, Louisiana 70570 |
$ | 1,413 | $ | 138,554 | ||||
Branch Offices: | ||||||||
840 E. Laurel Avenue
Eunice, Louisiana 70535 |
275 | 15,722 | ||||||
341 Saizan Avenue
Port Barre, Louisiana 70577 |
780 | 6,738 | ||||||
231 Harry Guilbeau Road Opelousas, Louisiana 70570(1) |
1,711 | 3,140 | ||||||
800 Veterans Drive Carencro, Louisiana 70520(2) |
1,310 | 444 | ||||||
Total | $ | 5,489 | $ | 164,598 |
(1) | Opened in July 2019. |
(2) | Opened in October 2020. |
Subsidiaries
St. Landry Homestead Federal Savings Bank has no subsidiaries.
Employees and Human Capital Resources
At December 31, 2020, we had 52 full-time equivalent employees. None of such employees are represented by a collective bargaining group, and we believe that our relationship with our employees is excellent.
We believe that our ability to attract and retain top quality employees will be a key to the Bank’s future success. During the year ended December 31, 2020, we hired a new President and Chief Executive Officer and Senior Vice President/Chief Risk Officer. We have added two new commercial bankers in 2021, and we expect to continue to assess our management and staffing needs and are likely to add personnel in the future in order to fully implement our business strategy.
Legal Proceedings
We are not presently involved in any legal proceedings of a material nature. From time to time, we are a party to legal proceedings incidental to our business to enforce our security interest in collateral pledged to secure loans made by the Bank.
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General
As a federal savings association, St. Landry Homestead Federal Savings Bank is subject to examination and regulation by the Office of the Comptroller of the Currency (the “OCC”), and is also subject to examination by the FDIC as deposit insurer. The federal system of regulation and supervision establishes a comprehensive framework of activities in which St. Landry Homestead Federal Savings Bank may engage and is intended primarily for the protection of depositors and the FDIC’s Deposit Insurance Fund, and not for the protection of shareholders. St. Landry Homestead Federal Savings Bank also is a member of and owns stock in the Federal Home Loan Bank of Dallas, which is one of the 11 regional banks in the Federal Home Loan Bank System.
Under this system of regulation, the regulatory authorities have extensive discretion in connection with their supervisory, enforcement, rulemaking and examination activities and policies, including rules or policies that: establish minimum capital levels; restrict the timing and amount of dividend payments; govern the classification of assets; provide oversight for the adequacy of loan loss reserves for regulatory purposes; and establish the timing and amounts of assessments and fees. Moreover, as part of their examination authority, the banking regulators assign numerical ratings to banks and savings institutions relating to capital, asset quality, management, liquidity, earnings and other factors. These ratings are inherently subjective and the receipt of a less than satisfactory rating in one or more categories may result in enforcement action by the banking regulators against a financial institution. A less than satisfactory rating may also prevent a financial institution, such as St. Landry Homestead Federal Savings Bank or its holding company, Catalyst Bancorp, from obtaining necessary regulatory approvals to access the capital markets, pay dividends, acquire other financial institutions or establish new branches.
In addition, we must comply with significant anti-money laundering and anti-terrorism laws and regulations, Community Reinvestment Act laws and regulations, and fair lending laws and regulations. Government agencies have the authority to impose monetary penalties and other sanctions on institutions that fail to comply with these laws and regulations, which could significantly affect our business activities, including our ability to acquire other financial institutions or expand our branch network.
As a savings and loan holding company following the conversion, Catalyst Bancorp will be required to comply with the rules and regulations of the Federal Reserve Board (the “FRB”). It will be required to file certain reports with the FRB and will be subject to examination by and the enforcement authority of the FRB. Catalyst Bancorp will also be subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws.
Any change in applicable laws or regulations, whether by the OCC, the FDIC, the FRB, the Securities and Exchange Commission or Congress, could have a material adverse impact on the operations and financial performance of Catalyst Bancorp and St. Landry Homestead Federal Savings Bank.
Set forth below is a brief description of material regulatory requirements that are or will be applicable to St. Landry Homestead Federal Savings Bank and Catalyst Bancorp. The description is limited to certain material aspects of the statutes and regulations addressed, and is not intended to be a complete description of such statutes and regulations and their effects on St. Landry Homestead Federal Savings Bank and Catalyst Bancorp.
Federal Banking Regulation
Business Activities. A federal savings association derives its lending and investment powers from the Home Owners’ Loan Act, as amended, and applicable federal regulations. Under these laws and regulations, a federal savings association may generally invest in mortgage loans secured by residential real estate without an aggregate limit, and commercial business, commercial real estate and consumer loans, certain types of debt securities and certain other assets, subject to overall percentage of assets or capital limits. Federal savings associations are also subject to a “Qualified Thrift Lender Test,” or “QTL Test,” which generally requires that a specified percentage of overall assets be residential mortgages and related investments. However, these limitations do not apply to St. Landry Homestead Federal Savings Bank, as described below.
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Effective July 1, 2019, the OCC issued a final rule, pursuant to a provision of the Economic Growth Regulatory Relief and Consumer Protection Act (“EGRRCPA”), that permits a federal savings association to elect to exercise national bank powers without converting to a national bank charter. The election is available to federal savings associations that had total consolidated assets of $20 billion or less as of December 31, 2017. St. Landry Homestead Federal Savings Bank exercised the covered savings association election effective October 16, 2019.
A federal savings association that has exercised the “covered savings association” election generally has the same rights and privileges as a national bank that has its main office in the same location as the home office of the covered savings association. The covered savings association is also subject to the same duties, restrictions, liabilities and limitations applicable to a national bank. A covered savings association retains its federal savings association charter and continues to be subject to the corporate governance laws and regulations applicable to such associations, including as to its bylaws, board of directors and shareholders, capital distributions and mergers.
A covered savings association may make loans to its customers without regard to the lending restrictions applicable to federal savings associations, such as the percentage of capital or assets limits on various types of loans and the QTL Test. However, federal savings associations that have made such an election are subject to the narrower authority of national banks in certain areas such as branching and subsidiary activities in certain respects. A covered savings association may generally not retain any assets, subsidiaries or activities not permitted for national banks.
Applicable regulations authorize a federal association that has exercised the covered savings association election to terminate the election and thereby again operate as a federal savings association that has not made a covered savings association election. St. Landry Homestead Federal Savings Bank has no current plans to terminate its election.
Capital Requirements. Federal regulations require federally insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio.
At December 31, 2020, St. Landry Homestead Federal Savings Bank’s capital exceeded all applicable requirements.
In determining the amount of risk-weighted assets for calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk-weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. Common equity Tier 1 capital is generally defined as common shareholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain non-cumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. In assessing an institution’s capital adequacy, the OCC takes into consideration not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary.
In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.
EGRRCPA required the federal banking agencies, including the OCC, to establish a “community bank leverage ratio” of between 8% and 10% for institutions with assets of less than $10 billion. Institutions with capital complying with the ratio and otherwise meeting the specified requirements and electing the alternative framework are considered to comply with the applicable regulatory capital requirements, including the risk-based requirements. A qualifying institution may opt in and out of the community bank leverage ratio framework on its quarterly call report. St. Landry Homestead Federal Savings Bank has not elected to utilize the community bank leverage ratio.
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CARES Act and CAA, 2021. In response to the COVID-19 pandemic, Congress, through the enactment of the CARES Act, and the federal banking agencies, though rulemaking, interpretive guidance and modifications to agency policies and procedures, have taken a series of actions to provide national emergency economic relief measures including, among others, the following:
• | The CARES Act allows banks to elect to suspend requirements under GAAP for loan modifications related to the COVID-19 pandemic (for loans that were not more than 30 days past due as of December 31, 2019) that would otherwise be categorized as a TDR, including impairment for accounting purposes, until the earlier of 60 days after the termination date of the national emergency or December 31, 2020. The suspension of GAAP is applicable for the entire term of the modification. The federal banking agencies also issued guidance to encourage banks to make loan modifications for borrowers affected by COVID-19 by providing that short-term modifications made in response to COVID-19, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant related to the loans in which the borrower is less than 30 days past due on its contractual payments at the time a modification is implemented is not a TDR. St. Landry Homestead Federal Savings Bank is applying this guidance to qualifying COVID-19 Modifications. |
• | The CARES Act amended the SBA’s loan program to create a guaranteed, unsecured loan program, the PPP, to fund payroll and operational costs of eligible businesses, organizations and self-employed persons during the COVID-19 pandemic. The loans are provided through participating financial institutions, such as St. Landry Homestead Federal Savings Bank, that process loan applications and service the loans and are eligible for SBA repayment and loan forgiveness if the borrower meets the PPP conditions. The application period for a SBA PPP loan closed on August 8, 2020. The SBA began approving PPP forgiveness applications and remitting forgiveness payments to PPP lenders on October 2, 2020. The Consolidated Appropriations Act (“CAA, 2021”), which was signed into law on December 27, 2020, renews and extends the PPP until March 31, 2021. As a result, as a participating lender, St. Landry Homestead Federal Savings Bank began originating PPP loans again in January 2021 and will continue to monitor legislative, regulatory, and supervisory developments related to the PPP. |
As the on-going COVID-19 pandemic evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19. In addition, it is possible that Congress will enact supplementary COVID-19 response legislation. We continue to assess the impact of the CARES Act and other statues, regulations and supervisory guidance related to the COVID-19 pandemic. For additional information regarding actions taken by regulatory agencies to provide relief to consumers who have been adversely impacted by the COVID-19 pandemic, see the discussion below under “Risk Factors—Risks Related to our Business-Risks Related to the COVID-19 Pandemic and the Associated Economic Slowdown.”
Loans-to-One Borrower. Generally, a federal savings association, including a covered savings association, 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. An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the excess is secured by readily marketable collateral, which generally does not include real estate. At December 31, 2020, St. Landry Homestead Federal Savings Bank was in compliance with the loans-to-one borrower limitations.
Capital Distributions. Federal regulations govern capital distributions by a federal savings association, which include cash dividends, stock repurchases and other transactions charged to the savings association’s capital account. A federal savings association must file an application with the OCC for approval of a capital distribution if:
• | the total capital distributions for the applicable calendar year exceed the sum of the savings association’s net income for that year to date plus the savings association’s retained net income for the preceding two years; |
• | the savings association would not be at least adequately capitalized following the distribution; |
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• | the distribution would violate any applicable statute, regulation, agreement or regulatory condition; or |
• | the savings association is not eligible for expedited treatment of its filings, generally due to an unsatisfactory CAMELS rating or being subject to a cease and desist order or formal written agreement that requires action to improve the institution’s financial condition. |
Even if an application is not otherwise required, every savings association that is a subsidiary of a savings and loan holding company, such as St. Landry Homestead Federal Savings Bank, must still file a notice with the FRB at least 30 days before the board of directors declares a dividend or approves a capital distribution.
A notice or application related to a capital distribution may be disapproved if:
• | the federal savings association would be undercapitalized following the distribution; |
• | the proposed capital distribution raises safety and soundness concerns; or |
• | the capital distribution would violate a prohibition contained in any statute, regulation or agreement. |
In addition, the Federal Deposit Insurance Act generally provides that an insured depository institution may not make any capital distribution if, after making such distribution, the institution would fail to meet any applicable regulatory capital requirement. A federal savings association also may not make a capital distribution that would reduce its regulatory capital below the amount required for the liquidation account established in connection with its conversion to stock form.
Community Reinvestment Act and Fair Lending Laws. All insured depository institutions have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and moderate-income borrowers. The OCC is required to assess the federal savings association’s record of compliance with the Community Reinvestment Act. A savings association’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the OCC, as well as other federal regulatory agencies and the Department of Justice.
In June 2020, the OCC issued a final rule clarifying and expanding the activities that qualify for Community Reinvestment Act credit and, according to the agency, seeking to create a more consistent and objective method for evaluating Community Reinvestment Act performance. The final rule became effective October 1, 2020, but compliance with the revised requirements is not mandatory until January 1, 2024 for institutions of St. Landry Homestead Federal Savings Bank’s asset size.
The Community Reinvestment Act requires all institutions insured by the FDIC to publicly disclose their rating. St. Landry Homestead Federal Savings Bank received an “outstanding” Community Reinvestment Act rating in its most recent federal examination.
Transactions with Related Parties. An insured depository institution’s authority to engage in transactions with its affiliates is limited by Sections 23A and 23B of the Federal Reserve Act and federal regulation. An affiliate is generally a company that controls, or is under common control with, an insured depository institution such as St. Landry Homestead Federal Savings Bank. Catalyst Bancorp will be an affiliate of St. Landry Homestead Federal Savings Bank because of its control of St. Landry Homestead Federal Savings Bank. In general, transactions between an insured depository institution and its affiliates are subject to certain quantitative limits and collateral requirements. In addition, federal regulations prohibit a savings association from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary. Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve the purchase of low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates.
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St. Landry Homestead Federal Savings Bank’s authority to extend credit to its directors, executive officers and 10% shareholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the FRB. Among other things, these provisions generally require that extensions of credit to insiders:
• | be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features; and |
• | not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of St. Landry Homestead Federal Savings Bank’s capital. |
In addition, extensions of credit in excess of certain limits must be approved by St. Landry Homestead Federal Savings Bank’s board of directors. Extensions of credit to executive officers are subject to additional limits based on the type of extension involved.
Enforcement. The OCC has primary enforcement responsibility over federal savings associations and has authority to bring enforcement action against all “institution-affiliated parties,” including directors, officers, shareholders, attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on a federal savings association. Formal enforcement action by the OCC may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of the institution and the appointment of a receiver or conservator. 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 FDIC also has the authority to terminate deposit insurance or recommend to the OCC that enforcement action be taken with respect to a particular federal savings association. If such action is not taken, the FDIC has authority to take the action under specified circumstances.
Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation and other operational and managerial standards as the agency deems appropriate. Interagency guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the 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 implement an acceptable compliance plan. Failure to implement such a plan can result in further enforcement action, including the issuance of a cease and desist order or the imposition of civil money penalties.
Branching. A federal savings association that has elected covered savings association status is subject to the laws and regulations governing the establishment of branches by national banks. Generally, intrastate and interstate branching is authorized to the extent that the law of the state involved authorizes branching for banks that it charters. Such authority is subject to OCC approval for new branches.
Prompt Corrective Action. Federal law requires, among other things, that federal bank regulators take “prompt corrective action” with respect to institutions that do not meet minimum capital requirements. For this purpose, the law establishes five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Under applicable regulations, an institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.
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At each successive lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on the payment of dividends, and restrictions on the acceptance of brokered deposits. Furthermore, if an insured depository institution is classified in one of the undercapitalized categories, it is required to submit a capital restoration plan to the appropriate federal banking agency, and the holding company must guarantee the performance of that plan. Based upon its capital levels, a bank that is classified as well-capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment. An undercapitalized bank’s compliance with a capital restoration plan is required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5.0% of the institution’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including a regulatory order to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, ceasing receipt of deposits from correspondent banks, dismissal of directors or officers, and restrictions on interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company. “Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it obtains such status.
The previously referenced final rule establishing an elective “community bank leverage ratio” regulatory capital framework provides that a qualifying institution whose capital exceeds the community bank leverage ratio and opts to use that framework will be considered “well-capitalized” for purposes of prompt corrective action.
At December 31, 2020, St. Landry Homestead Federal Savings Bank met the criteria for being considered “well capitalized.”
Insurance of Deposit Accounts. The Deposit Insurance Fund of the FDIC insures deposits at FDIC-insured financial institutions such as St. Landry Homestead Federal Savings Bank, generally up to a maximum of $250,000 per separately insured depositor. The FDIC charges insured depository institutions premiums to maintain the Deposit Insurance Fund.
Under the FDIC’s risk-based assessment system, institutions deemed less risky of failure pay lower assessments. Assessments for institutions of less than $10 billion of assets are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution’s failure within three years.
The FDIC has authority to increase insurance assessments. Any significant increases would have an adverse effect on the operating expenses and results of operations of St. Landry Homestead Federal Savings Bank. We cannot predict what assessment rates will be in the future.
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We do not know of any practice, condition or violation that may lead to termination of our deposit insurance.
Privacy Regulations. Federal regulations generally require that St. Landry Homestead Federal Savings Bank disclose its privacy policy, including identifying with whom it shares a customer’s “non-public personal information,” to customers at the time of establishing the customer relationship and annually thereafter. In addition, St. Landry Homestead Federal Savings Bank is required to provide its customers with the ability to “opt-out” of having their personal information shared with unaffiliated third parties and not to disclose account numbers or access codes to non-affiliated third parties for marketing purposes. St. Landry Homestead Federal Savings Bank currently has a privacy protection policy in place and believes that such policy is in compliance with the regulations.
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USA PATRIOT Act. St. Landry Homestead Federal Savings Bank is subject to the USA PATRIOT Act, which gives federal agencies additional powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing, and broadened anti-money laundering requirements. The USA PATRIOT Act contains provisions intended to encourage information sharing among bank regulatory agencies and law enforcement bodies and imposes affirmative obligations on financial institutions, such as enhanced recordkeeping and customer identification requirements.
Prohibitions Against Tying Arrangements. Federal savings associations are prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution or its affiliates or not obtain services of a competitor of the institution.
Other Regulations
Interest and other charges collected or contracted for by St. Landry Homestead Federal Savings Bank are subject to state usury laws and federal laws concerning interest rates. Loan operations are also subject to state and federal laws applicable to credit transactions, such as the:
• | Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; |
• | Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; |
• | Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; and |
• | Rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws. |
The deposit operations of St. Landry Homestead Federal Savings Bank also are subject to, among others, the:
• | Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; |
• | Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check; and |
• | Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services. |
Federal Home Loan Bank System
St. Landry Homestead Federal Savings Bank is a member of the Federal Home Loan Bank System, which consists of 11 regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central credit facility primarily for member institutions, and such member institutions are required to acquire and hold shares of capital stock in the Federal Home Loan Bank. St. Landry Homestead Federal Savings Bank is required to own stock in the Federal Home Loan Bank of Dallas in specified amounts. St. Landry Homestead Federal Savings Bank was in compliance with this requirement at December 31, 2020 based on its ownership of $1.4 million in capital stock of the Federal Home Loan Bank of Dallas. The stock has no quoted market value and is carried at cost. St. Landry Homestead Federal Savings Bank reviews for impairment, based on the ultimate recoverability, the cost basis of the Federal Home Loan Bank of Dallas stock. At December 31, 2020, no impairment had been recognized.
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Holding Company Regulation
Catalyst Bancorp will be a unitary savings and loan holding company subject to regulation and supervision by the FRB. The FRB will have enforcement authority over Catalyst Bancorp and its non-savings institution subsidiaries. Among other things, this authority permits the FRB to restrict or prohibit activities that are determined to be a risk to St. Landry Homestead Federal Savings Bank.
As a savings and loan holding company, Catalyst Bancorp’s activities will be limited to those activities permissible by law for financial holding companies (if Catalyst Bancorp makes an election to be treated as a financial holding company and meets the other requirements to be a financial holding company) or multiple savings and loan holding companies. Catalyst Bancorp has no present intention to make an election to be treated as a financial holding company. A financial holding company may engage in activities that are financial in nature, incidental to financial activities or complementary to a financial activity. Such activities include lending and other activities permitted for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, insurance and underwriting equity securities. Multiple savings and loan holding companies are authorized to engage in activities specified by federal regulation, including activities permitted for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act.
Federal law prohibits a savings and loan holding company, directly or indirectly, or through one or more subsidiaries, from acquiring more than 5% of another savings institution or savings and loan holding company without prior written approval of the FRB, and from acquiring or retaining control of any depository institution not insured by the FDIC. In evaluating applications by holding companies to acquire savings institutions, the FRB must consider such factors as the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on and the risk to the federal deposit insurance fund, the convenience and needs of the community and competitive factors. A savings and loan holding company may not acquire a savings institution in another state and hold the target institution as a separate subsidiary unless it is a supervisory acquisition or the law of the state in which the target is located authorizes such acquisitions by out-of-state companies.
Upon consummation of the conversion and offering, Catalyst Bancorp will be a savings and loan holding company with less than $3.0 billion in consolidated assets and, accordingly, will be exempt from consolidated regulatory capital requirements, unless the FRB determines otherwise.
The FRB has promulgated regulations implementing the “source of strength” doctrine that require holding companies, including savings and loan holding companies, to act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.
The FRB has issued supervisory policies regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies and savings and loan holding companies. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the company’s net income for the past four quarters, net of capital distributions previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. The policy statement also states that a holding company should inform the FRB supervisory staff before redeeming or repurchasing common stock or perpetual preferred stock if the holding company is experiencing financial weaknesses or if the repurchase or redemption would result in a net reduction, at the end of a quarter, in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. These regulatory policies may affect the ability of Catalyst Bancorp to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions.
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Change in Control Regulations
Under the Change in Bank Control Act, no person may acquire “control” of a savings and loan holding company, such as Catalyst Bancorp, unless the FRB has been given 60 days’ prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition. 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 institution’s directors, or a determination by the regulator that the acquirer has the power, directly or indirectly, to exercise a controlling influence over the management or policies of the institution. There is a presumption of control upon the acquisition of 10% or more of a class of voting stock if the holding company involved has its shares registered under the Securities Exchange Act of 1934, or, if the holding company involved does not have its shares registered under the Securities Exchange Act of 1934, if no other persons will own, control or hold the power to vote a greater percentage of that class of voting security after the acquisition.
The FRB has adopted a final rule, effective September 30, 2020, that revises its framework for determining whether a company, under the Bank Holding Company Act, has a “controlling influence” over a bank or savings and loan holding company.
Federal Securities Laws
Catalyst Bancorp common stock will be registered with the Securities and Exchange Commission after the conversion and stock offering. Catalyst Bancorp will 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 common stock issued in Catalyst Bancorp’s public offering does not cover the resale of those shares. Shares of common stock purchased by persons who are not affiliates of Catalyst Bancorp may be resold without registration. Shares purchased by an affiliate of Catalyst Bancorp will be subject to the resale restrictions of Rule 144 under the Securities Act of 1933. If Catalyst Bancorp meets the current public information requirements of Rule 144 under the Securities Act of 1933, each affiliate of Catalyst Bancorp that 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 Catalyst Bancorp, or the average weekly volume of trading in the shares during the preceding four calendar weeks.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 is intended to improve corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws.
Emerging Growth Company Status
Catalyst Bancorp will also be an emerging growth company. For as long as Catalyst Bancorp continues to be an emerging growth company, it may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As an emerging growth company, Catalyst Bancorp also will not be subject to Section 404(b) of the Sarbanes-Oxley Act of 2002, which would require that our independent auditors review and attest as to the effectiveness of our internal control over financial reporting. We plan to elect to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Such an election is irrevocable during the period a company is an emerging growth company. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.
Catalyst Bancorp will cease to be an emerging growth company upon the earliest of: (i) the end of the fiscal year following the fifth anniversary of the completion of the conversion and offering; (ii) the first fiscal year after our annual gross revenues are $1.07 billion (adjusted for inflation) or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million at the end of the second quarter of that fiscal year. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.
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Federal Taxation
General. Catalyst Bancorp and St. Landry Homestead Federal Savings Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal and state income taxation is only intended to summarize certain pertinent income tax matters and is not a comprehensive description of the applicable tax rules. St. Landry Homestead Federal Savings Bank’s tax returns have not been audited during the past five years.
Following completion of the conversion, Catalyst Bancorp will file a consolidated federal income tax return with St. Landry Homestead Federal Savings Bank. Accordingly, it is anticipated that any cash distributions made by Catalyst Bancorp to its shareholders would be treated as cash dividends and not as non-taxable returns of capital to shareholders for federal and state tax purposes.
Method of Accounting. For federal income tax purposes, we report income and expenses on the accrual method of accounting and use a December 31 tax year for filing our federal income tax return.
Bad Debt Reserves. The Small Business Job Protection Act of 1996 eliminated the use of the reserve method of accounting for bad debt reserves by savings institutions, effective for taxable years beginning after 1995. Prior to that time, St. Landry Homestead Federal Savings Bank was permitted to establish a reserve for bad debts.
Taxable Distributions and Recapture. If St. Landry Homestead Federal Savings Bank makes certain non-dividend distributions or ceases to maintain a bank charter, then its pre-1988 reserves remain subject to recapture into taxable income. At December 31, 2020, the total federal pre-1988 reserve was approximately $1.9 million. The reserve reflects the cumulative effects of federal tax deductions by St. Landry Homestead Federal Savings Bank for which no federal income tax provisions have been made.
Minimum Tax. The alternative minimum tax (“AMT”) for corporations was repealed for tax years beginning after December 31, 2017. Any unused minimum tax credit of a corporation may be used to offset regular tax liability for any tax year. In addition, a portion of any unused minimum tax credit is refundable in 2018 through 2021. The refundable portion is 50% (100% in 2021) of the excess of the minimum tax credit for the year over any credit allowable against regular tax for that year. At December 31, 2018, St. Landry Homestead Federal Savings Bank had no minimum tax credit carryforward.
Corporate Dividends-Received Deduction. Catalyst Bancorp will be able to exclude from its income for federal tax purposes 100% of dividends received from St. Landry Homestead Federal Savings Bank as a member of the same affiliated group of corporations.
State Taxation
Catalyst Bancorp will be subject to the Louisiana Corporation Income Tax based on its Louisiana taxable income. The Corporation Income Tax applies at graduated rates from 4% upon the first $25,000 of Louisiana taxable income to 8% on all Louisiana taxable income in excess of $200,000. For these purposes, “Louisiana taxable income” means net income which is earned within or derived from sources within the State of Louisiana, after adjustments permitted under Louisiana law, including a federal income tax deduction. Catalyst Bancorp will file its Louisiana corporation income tax return on a separate corporation basis. Because St. Landry Homestead Federal Savings Bank is subject to the Louisiana bank shares tax, its income is exempt from the Louisiana corporation income tax and any future dividends paid by St. Landry Homestead Federal Savings Bank to Catalyst Bancorp will not be included in the Louisiana taxable income of Catalyst Bancorp.
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The Louisiana bank shares tax is imposed on the assessed value of the Bank’s retained earnings and, following the Conversion, the Bank’s retained earnings and capital stock accounts. The formula for deriving the assessed value is to calculate 15% of the sum of:
(a) | 20% of the Bank’s capitalized earnings, plus |
(b) | 80% of the Bank’s taxable stockholders’ equity, minus |
(c) | 50% of the Bank’s real and personal property assessment. |
Various items may also be subtracted in calculating the Bank’s capitalized earnings. We believe that the Louisiana bank shares tax will significantly increase on an annual basis following the Conversion.
Management of Catalyst Bancorp and St. Landry Homestead Federal Savings Bank
Catalyst Bancorp’s board of directors is divided into three classes, each of which contains approximately one-third of the board. Our directors will be elected by shareholders for staggered three-year terms, or until their successors are elected and qualified. One class of directors, consisting of Messrs. Kidder and Kleiser, will have a term of office expiring at the first annual meeting of shareholders after the conversion, a second class, consisting of Messrs. Scruggins and Lafleur will have a term of office expiring at the second annual meeting of shareholders and a third class, consisting of Messrs. LeBouef, Bellard and Zanco will have a term of office expiring at the third annual meeting of shareholders. None of our directors are related to any of Catalyst Bancorp’s or St. Landry Homestead Federal Savings Bank’s other directors or executive officers by first cousin or closer. We have determined that directors Bellard, Kidder, Kleiser, Lafleur, LeBouef and Scruggins are independent directors as defined in the rules of the Nasdaq Stock Market.
The following table sets forth certain information regarding our directors, all of whom also serve as directors of St. Landry Homestead Federal Savings Bank. Ages are reflected as of December 31, 2020.
Catalyst Bancorp, Inc.
Name |
Age |
Principal Occupation During the Past Five Years/ Public Directorships |
Year Term Expires |
Todd A. Kidder | 56 | Chairman of the Board of St. Landry Homestead Federal Savings Bank since December 2016. Engineering Technician, Louisiana State Department of Transportation since July 1987. | 2022 |
Mr. Kidder brings management expertise to the board as a utility relocation specialist responsible for coordinating the relocation of utilities in connection with state highway projects in an eight Parish area in Louisiana. Mr. Kidder serves as a committee member of the Opelousas Chapter of Ducks Unlimited and has served on the Board of Directors of Indian Hills Country Club, Opelousas, Louisiana. Director of St. Landry Homestead since 2009. | |||
Ted D. Bellard | 52 | Director and Secretary. President and owner of Targil, Inc., a seasoning supply company located in Opelousas, Louisiana since July 1995 and President and owner of Juneau’s Cajun Meats, Mansura, Louisiana since July 2002. | 2024 |
Mr. Bellard brings business and management expertise to the board as the owner of local businesses in the communities served by St. Landry Homestead Federal Savings Bank. Director of St. Landry Homestead since 2014. |
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Name |
Age |
Principal Occupation During the Past Five Years/ Public Directorships |
Year Term Expires |
Kirk E. Kleiser | 65 | Director. Senior Managing Principal and founder, K&G On the Geaux LLC, a convenience store located in Lafayette, Louisiana and Kleiser Enterprises, Carencro, Louisiana. | 2022 |
Mr. Kleiser brings to the board experience in business planning and small business development as well as knowledge of the communities served by St. Landry Homestead. Mr. Kleiser serves on the Chevron National Dealer Council and is a member of both the Crowley and Carencro Chambers of Commerce. Director of St. Landry Homestead since January 2021. | |||
Frederick R. Lafleur, CPA | 62 | Director. President and Chief Executive Officer of Savoie’s Sausage & Food Products, Inc. (“Savoie’s”) since October 2019. Prior thereto, Executive Vice President and Chief Operations Officer of Savoie’s from January 2016 through September 2019. | 2023 |
Mr. Lafleur brings management and leadership experience to the board as the Chief Executive Officer of a food processing and distribution company located in Opelousas, Louisiana. Mr. Lafleur serves on the Board of Directors of Vision St. Landry. He is a member of the American Institute of CPAs (“AICPA”) and the Society of Louisiana CPAs (“LCPA”). Director of St. Landry Homestead since 2016. | |||
Craig C. LeBouef, MBA,CPA, CFP | 62 | Director. Partner of Going, Sebastien, Fisher & LeBouef, LLP and Owner of Craig C. LeBouef CPA, LLC Opelousas, Louisiana, since September 1994 and December 2008, respectively. | 2024 |
Mr. LeBouef brings to the board a broad knowledge in accounting and financial management and expertise in investment management and personal financial planning. Mr. LeBouef serves on the Board of Directors and was past President of the St. Landry-Evangeline United Way. Mr. LeBouef is a member of the Board of Directors of the Louisiana Citizens Property Insurance Corporation (Chair of Audit and Investment Committee). He is a member of the AICPA and LCPA. He is a current member and past President of the Rotary Club of Opelousas. Director of St. Landry Homestead since 2017. | |||
Matthew L. Scruggins | 52 | Director. Supervisor of Personnel, St. Landry Parish School System since 2009. | 2023 |
Mr. Scruggins brings oversight experience to the board as supervisor of employees and staffing and oversight of payroll and benefits for the local St. Landry Parish School System. Mr. Scruggins is a member of the Louisiana Association of School Executives and the Louisiana State Association of School Personnel Administrators. Director of St. Landry Homestead since 2014. | |||
Joseph B. Zanco, CPA, CIA | 50 | Director, President and Chief Executive Officer of St. Landry Homestead Federal Savings Bank since August 2020. Prior thereto, Executive Vice President and Chief Financial Officer of Home Bancorp, Inc. and Home Bank, National Association, Lafayette, Louisiana from April 2008 until August 2020. Mr. Zanco served as Controller and Principal Accounting Officer of IBERIABANK from February 2005 to April 2008. | 2024 |
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Name |
Age |
Principal Occupation During the Past Five Years/ Public Directorships |
Year Term Expires |
Mr. Zanco brings public company experience to the board as a former Chief Financial Officer of a publicly traded company headquartered in Lafayette, Louisiana. Mr. Zanco serves on the Board of Trustees of Ochsner Lafayette General, the Board of Directors of the Louisiana Association of Business and Industry and is the Past Chairman of the Board of Directors of One Acadiana (the Greater Lafayette Chamber of Commerce). Director of St. Landry Homestead since January 2021. |
Executive Officers Who Are Not Also Directors of Catalyst Bancorp
Our executive officers are elected annually and hold office until their successors have been elected and qualified or until death, resignation or removal by the board of directors. The following table sets forth certain information regarding our executive officers who are not also directors of Catalyst Bancorp. Ages are reflected as of December 31, 2020.
Name |
Age |
Principal Occupation During the Past Five Years |
Jutta A. Codori | 58 | Senior Vice President of Deposit Operations and Chief Financial Officer of St. Landry Homestead Federal Savings Bank since October 2006. Previously, Assistant Vice President of Teche Federal Savings Bank, a subsidiary of Teche Holding Co. Prior thereto, Assistant Vice President and Chief Financial Officer of First Federal Savings and Loan, a subsidiary of St. Landry Financial Co. from 1997 to 2004. |
Kevin J. Brown | 60 | Senior Vice President and Chief Lending Officer of St. Landry Homestead Federal Savings Bank since 2012. Prior thereto, Mr. Brown served as Branch Lender/Manager and in various other positions with St. Landry Homestead since 2001. Mr. Brown also serves as a member of the Advisory Board of St. Landry Homestead. |
Gina McCoy | 58 | Senior Vice President and Chief Risk Officer of St. Landry Homestead Federal Savings Bank since November 2020. Previously, Senior Vice President, Retail Services, Compliance and Technology at Pedestal Bank, Houma, Louisiana, a subsidiary of Pedestal Bancshares, Inc. from February 2018 through May 2020. Prior thereto, Executive Vice President and Chief Operations Officer of Tri Parish Bank, Eunice, Louisiana, from 2004 through February 2018 and served in various other positions with Tri Parish Bank since 1996. |
Meetings and Committees of the Board of Directors of Catalyst Bancorp
The board of directors of Catalyst Bancorp has met one time since the incorporation of Catalyst Bancorp to address certain organizational matters. The board of directors will establish the following standing committees: the audit committee, the nominating and corporate governance committee and the compensation committee. Each of these committees will operate under a written charter, which governs its composition, responsibilities and operations. Each member of each committee will satisfy the applicable independence requirements of Nasdaq and the Securities and Exchange Commission.
Corporate Governance Policies and Procedures
In addition to establishing committees of our board of directors, we expect to adopt several policies to govern the activities of both Catalyst Bancorp and St. Landry Homestead including corporate governance policies and a code of business conduct and ethics. The corporate governance policies are expected to involve such matters as the following:
• | the composition, responsibilities and operation of our board of directors; |
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• |
the establishment and operation of board committees, including audit, nominating/corporate governance and compensation committees; |
• | convening executive sessions of independent directors; and |
• | our board of directors’ interaction with management and third parties. |
The code of business conduct and ethics, which is expected to apply to all employees and directors, will address conflicts of interest, the treatment of confidential information, general employee conduct and compliance with applicable laws, rules and regulations. In addition, the code of business conduct and ethics will be designed to deter wrongdoing and to promote honest and ethical conduct, the avoidance of conflicts of interest, full and accurate disclosure and compliance with all applicable laws, rules and regulations.
Director Compensation
Each director of St. Landry Homestead Federal Savings Bank currently receives $2,000 monthly, regardless of meeting attendance, and $600 and $400 per month for loan and audit committee meetings, respectively. During fiscal 2020, directors received a discretionary annual bonus of $5,000. The Chairman and Secretary receive an additional $250 per month. Each of the current directors of Catalyst Bancorp also serves as a director of St. Landry Homestead Federal Savings Bank. No additional director fees are being paid to directors for their service on the Catalyst Bancorp Board of Directors. Upon completion of the conversion, we do not expect that additional director fees will be paid for Catalyst Bancorp director meetings, although no such determination has been made at this time.
The following table sets forth total compensation paid to directors of St. Landry Homestead Federal Savings Bank during the year ended December 31, 2020, other than Mr. Zanco whose compensation is set forth below under “—Executive Compensation.”
Name |
Board/Committee Fees Earned or Paid in Cash
|
All Other
Compensation (1)
|
Total | |||||||||
Todd A. Kidder | $ | 39,000 | $ | 7,275 | $ | 46,275 | ||||||
Ted D. Bellard | 39,000 | 5,690 | 44,690 | |||||||||
Frederick K. Lafleur | 31,200 | 5,788 | 36,988 | |||||||||
Craig C. LeBouef | 31,200 | 5,788 | 36,988 | |||||||||
Matthew L. Scruggins | 36,000 | 7,751 | 43,751 |
(1) Includes annual bonuses of $5,000 paid in December 2020.
Board Leadership Structure
Our Board of Directors is led by a Chairman selected by the Board from time to time. Presently, Mr. Kidder serves as Chairman of the Board. Other than Mr. Zanco, our President and Chief Executive Officer, all of our other directors are independent.
The Board of Directors has determined that the separation of the offices of Chairman of the Board and President enhances Board independence and oversight. Further, the separation of the Chairman of the Board permits the President and Chief Executive Officer to better focus on his responsibilities of managing the daily operations of St. Landry Homestead Federal Savings Bank, enhancing shareholder value and expanding and strengthening our franchise while allowing the Chairman of the Board to lead the Board of Directors in its fundamental role of providing independent oversight and advice to management. Mr. Kidder is an independent director under the rules of the Nasdaq Stock Market.
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Executive Compensation
The following table shows the compensation paid by St. Landry Homestead Federal Savings Bank to its President and Chief Executive Officer, former President and Chief Executive Officer, Chief Financial Officer and our only other executive officer whose compensation exceeded $100,000 for the year ended December 31, 2020.
Name and Principal Position | Year | Salary | Bonus(1) |
All Other
Compensation (2) |
Total | ||||||||||||||
Joseph B. Zanco
President and Chief Executive Officer (since August 17, 2020) |
2020 | $ | 90,000 | $ | 54,500 | $ | 44,661 | $ | 189,161 | ||||||||||
Anthony K. Bertrand
President and Chief Executive Officer (through May 15, 2020) |
2020 | 131,846 | -- | -- | 131,846 | ||||||||||||||
Jutta A. Codori
Chief Financial Officer |
2020 | 108,334 | 5,000 | 13,559 | 126,893 | ||||||||||||||
Kevin J. Brown
Chief Lending Officer |
2020 | 97,279 | 3,000 | 14,468 | 114,747 |
(1) | Includes for Mr. Zanco a $4,500 bonus paid in January 2021 pursuant to his employment agreement in lieu of a 401(k) match for 2020. |
(2) |
All other compensation does not include amounts attributable to other miscellaneous benefits. The costs to St. Landry Homestead Federal Savings Bank of providing such benefits during fiscal 2020 did not exceed $10,000 for any individual officer. Includes for Mr. Zanco, life insurance premiums of $25,600 and reimbursement of taxes of $18,931 under his Restricted Executive Benefit Agreement, for Ms. Codori and Mr. Brown life insurance premiums, matching contributions under St. Landry Homestead Federal Savings Bank’s 401(k) retirement plan and for Mr. Brown, an Advisory Board fee. |
The board of directors approved Mr. Zanco’s base salary of $260,000 in 2020, which will increase to $300,000 after completion of the conversion. The dollar amount of total salary was based on the board’s perception of the local market for chief executive officer compensation and was intended to ensure that St. Landry Homestead Federal Savings Bank remained competitive in attracting and retaining a qualified chief executive officer. St. Landry Homestead Federal Savings Bank does not maintain a written bonus plan, although we have historically paid bonuses to our employees. Mr. Zanco received a signing bonus of $50,000 upon commencement of his employment in 2020.
Employment Agreement
St. Landry Homestead Federal Savings Bank has entered into an employment agreement with Mr. Zanco. Pursuant to the agreement, Mr. Zanco serves as President and Chief Executive Officer for a term of three years ending August 17, 2023. Prior to the expiration of the term of the agreement, the board of directors will review the agreement to determine whether to extend the term of the employment agreement for three additional years or such other time period mutually agreed upon. The employment agreement provides for an initial base salary of $260,000, which will increase to $300,000 after completion of the conversion. Mr. Zanco’s base salary may be increased at the discretion of the Board of Directors of St. Landry Homestead Federal Savings Bank.
The employment agreement provides that Mr. Zanco will receive a $100,000 bonus upon completion of the conversion. St. Landry Homestead Federal Savings Bank will offer Mr. Zanco the maximum allocation allowed for stock options and restricted stock awards under any established stock-based benefit plan (currently 25% of the stock compensation pools). In addition to life insurance benefits applicable for all employees, Mr. Zanco receives additional life insurance of $500,000 payable to his spouse or other beneficiary upon his death. The employment agreement provides that Mr. Zanco will receive a supplemental benefit of $750,000 vesting over 15 years. Such supplemental benefit is provided in the form of a Restricted Executive Retirement Agreement which provides that St. Landry Homestead will pay the annual premium of $25,600 plus reimbursement of the related tax obligation on a $750,000 (face amount) life insurance policy owned by Mr. Zanco. Mr. Zanco will become vested in the cash value of the policy over 10 years commencing on December 31, 2024. Mr. Zanco is also provided with a monthly vehicle allowance of $1,500, a monthly mobile phone allowance of $150 and health insurance premium for Mr. Zanco and his eligible family members.
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The employment agreement is terminable with or without cause by St. Landry Homestead Federal Savings Bank. Mr. Zanco has no right to compensation or other benefits pursuant to the employment agreement for any period after termination for cause, as defined in the agreement. The employment agreement provides that in the event of an involuntary termination of employment (including a voluntary termination by Mr. Zanco as a result of a material breach of the agreement by St. Landry Homestead Federal Savings Bank or for “good reason”, including a change in the executive’s position, salary or duties without his consent), Mr. Zanco would be entitled to (1) a lump sum cash severance payment which is equal to twelve months of his base salary as of the date of termination, subject to Mr. Zanco executing a release of any claims against St. Landry Homestead or its affiliates and (2) continued health insurance coverage until the earlier of twelve months or the date he receives substantially similar benefits from another employer.
The employment agreement provides that if Mr. Zanco’s employment terminates without cause or with good reason on the effective date of a change in control, as defined in the agreement, or within 30 calendar days after a change in control, then Mr. Zanco would be entitled to (1) a lump sum cash severance payment equal to 36 months of the greater of his base salary at the time of the change in control or the date of his termination and (2) continued health insurance coverage until the earlier of 36 months or the date he receives substantially similar benefits from another employer. If the agreement terminates as a result of Mr. Zanco’s death, his estate or beneficiary will be paid his base salary for twelve weeks and continued health coverage for his family over the same period.
401(k) Plan
St. Landry Homestead Federal Savings Bank sponsors the St. Landry Homestead Federal Savings Bank 401(k) Plan, which is a qualified, tax-exempt defined contribution plan with a salary deferral feature under Section 401(k) of the Internal Revenue Code. An employee of St. Landry Homestead Federal Savings Bank is eligible to become a participant in the plan after reaching age 21 and completing one month of employment in which the employee completed at least 83.3 hours of service. Eligible employees are entitled to enter the 401(k) plan on a monthly basis.
Under the 401(k) plan, during 2020 participants were permitted to make salary deferral contributions (in whole percentages or specific dollar amounts) in any amount up to 100% of their plan salary up to the maximum percentage of compensation allowed by law ($19,500 for 2020). Participants who are age 50 or older are permitted to make “catch up” contributions to the plan up to $6,500 (for 2020, as indexed annually). St. Landry Homestead Federal Savings Bank currently contributes a matching contribution amount equal to 50% of the participant’s elective deferral. St. Landry Homestead Federal Savings Bank may also make a discretionary, fully-vested profit sharing contribution to the Plan.
Upon termination of employment, including following retirement or disability, a participant may withdraw his or her vested account balance or defer commencement of the receipt of benefits until April 1 of the calendar year following the later of (i) the calendar year in which the participant reaches age 72, or (ii) the calendar year in which he or she retires. Normal retirement age under the 401(k) plan is age 65. A participant may elect a single lump sum payment or annual installments over a period not in excess of the participant’s remaining life expectancy. If a participant dies prior to receipt of the entire value of his or her 401(k) plan account, the beneficiary can elect from among the benefit payment forms available under the 401(k) plan, including a lump sum distribution, installment payments and life expectancy distributions.
New Stock Benefit Plans
Employee Stock Ownership Plan. Catalyst Bancorp has established an employee stock ownership plan for our employees to become effective upon completion of the conversion. Employees who have been credited with at least 1,000 hours of service during a 12-month period and who have attained age 21 are eligible to participate in Catalyst Bancorp’s employee stock ownership plan.
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As part of the conversion, in order to fund the purchase of up to 8.0% of the common stock issued in the conversion, or 261,800 shares and 354,200 shares based on the minimum and maximum of the offering range, respectively, we anticipate that the employee stock ownership plan will borrow funds from Catalyst Bancorp. We anticipate that such loan will equal 100% of the aggregate purchase price of the common stock acquired by our employee stock ownership plan. We have agreed to loan the employee stock ownership plan the funds necessary to purchase shares. If the employee stock ownership plan’s order is not completely filled in the offering, we expect that the employee stock ownership plan will purchase shares in the open market after the conversion is completed at a price which may be more or less than $10.00 per share. The loan to the employee stock ownership plan, which will have a term of 20 years, will be repaid principally from St. Landry Homestead Federal Savings Bank contributions to the employee stock ownership plan, and the collateral for the loan will be the common stock purchased by the employee stock ownership plan. The interest rate for the employee stock ownership plan loan will be fixed and is expected to be at the prime rate on the date the employee stock ownership plan enters into the loan. We may, in any plan year, make additional discretionary contributions for the benefit of plan participants in either cash or shares of common stock, which may be acquired through the purchase of outstanding shares in the market or from individual shareholders, upon the original issuance of additional shares by Catalyst Bancorp or upon the sale of treasury shares by Catalyst Bancorp. Such purchases, if made, would be funded through additional borrowings by the employee stock ownership plan or additional contributions from St. Landry Homestead Federal Savings Bank. The timing, amount and manner of future contributions to the employee stock ownership plan will be affected by various factors, including prevailing regulatory policies, the requirements of applicable laws and regulations and market conditions.
Shares purchased by our employee stock ownership plan with the loan proceeds will be held in a suspense account and released for allocation to participants on a pro rata basis as debt service payments are made. Shares released from the employee stock ownership plan will be allocated to each eligible participant’s employee stock ownership plan account based on the ratio of each such participant’s compensation, consisting of salary and bonus, to the total of such compensation of all eligible employee stock ownership plan participants. Forfeitures may be used for several purposes such as the payment of expenses or be reallocated among remaining participating employees. Account balances of participants in the employee stock ownership plan will be 100% vested after five years of service. Credit is given for years of service with St. Landry Homestead Federal Savings Bank prior to adoption of the employee stock ownership plan. In the case of a “change in control,” as defined in the employee stock ownership plan, however, participants will become immediately fully vested in their account balances. Participants will also become fully vested in their account balances upon death, disability or retirement. Benefits may be payable upon retirement or separation from service.
Generally accepted accounting principles require that any third party borrowing by our employee stock ownership plan be reflected as a liability on our statement of financial condition. Since the employee stock ownership plan is borrowing from us, the loan will not be treated as a liability but instead will be excluded from shareholders’ equity. If the employee stock ownership plan purchases newly issued shares from St. Landry Homestead Federal Savings Bank, total shareholders’ equity would neither increase nor decrease, but per share shareholders’ equity and per share net earnings would decrease as the newly issued shares are allocated to the employee stock ownership plan participants.
Our employee stock ownership plan will be subject to the requirements of the Employee Retirement Income Security Act of 1974, as amended, and the applicable regulations of the IRS and the Department of Labor.
Stock Option and Recognition and Retention Plans. Following completion of the conversion, we intend to adopt stock-based benefit plans that will provide for grants of stock options and awards of shares of restricted common stock. In accordance with applicable regulations, we anticipate that the plans will authorize a number of stock options and a number of shares of restricted common stock, not to exceed 10.0% and 4.0%, respectively, of the shares issued in the offering. These limitations may not apply if the plans are implemented more than one year after the completion of the conversion, subject to any applicable regulatory approvals.
The stock-based benefit plans will not be established sooner than six months after the completion of the conversion and, if adopted within one year after the completion of the conversion, the plans must be approved by a majority of the votes eligible to be cast by our shareholders. If a stock-based benefit plan is established more than one year after completion of the conversion, it must be approved only by a majority of votes cast by our shareholders.
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Certain additional restrictions would apply to our stock-based benefit plans if adopted within one year after completion of the conversion, including:
• | non-employee directors in the aggregate may not receive more than 30% of the stock options and of the shares of restricted common stock authorized under the plan; |
• | any non-employee director may not receive more than 5% of the stock options and of the restricted stock awards authorized under the plan; |
• | any officer or employee may not receive more than 25% of the stock options and of the restricted stock awards authorized under the plan (our employment agreement with Mr. Zanco provides that he will be offered 25% of any stock options and restricted stock awards); |
• | the stock options and the shares of restricted common stock may not vest more rapidly than 20% per year, beginning on the first anniversary of the date of grant; and |
• | accelerated vesting is not permitted except for death, disability or upon a change in control of Catalyst Bancorp or St. Landry Homestead Federal Savings Bank. |
We have not yet determined whether we will present our stock-based benefit plans for shareholder approval within one year following the completion of the conversion or whether we will present them for shareholder approval more than one year after the completion of the conversion. In the event of changes in applicable regulations or policies regarding stock-based benefit plans, including any regulations or policies restricting the size of awards and vesting of benefits as described above, the restrictions described above may not be applicable.
We may obtain the shares needed for our stock-based benefit plans by issuing additional shares of common stock from authorized but unissued shares or through stock repurchases.
Transactions With Related Persons
St. Landry Homestead Federal Savings Bank offers extensions of credit to its directors, officers and employees as well as members of their immediate families for the financing of their primary residences and other purposes. These loans are made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to St. Landry Homestead Federal Savings Bank, and none of such loans involve more than the normal risk of collectability or present other unfavorable features.
Section 22(h) of the Federal Reserve Act generally provides that any credit extended by a savings institution, such as St. Landry Homestead Federal Savings Bank, to its executive officers, directors and, to the extent otherwise permitted, principal shareholder(s), or any related interest of the foregoing, must be on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions by the savings institution with non-affiliated parties; unless the loans are made pursuant to a benefit or compensation program that (i) is widely available to employees of the institution and (ii) does not give preference to any director, executive officer or principal shareholder, or certain affiliated interests of either, over other employees of the savings institution, and must not involve more than the normal risk of repayment or present other unfavorable features.
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The following table sets forth, for each of our directors and executive officers (and their associates) and for all of our directors and executive officers as a group, the proposed purchases of common stock, assuming the offering is closed at the minimum and the maximum of the offering range and assuming sufficient shares are available to satisfy their subscriptions. However, there can be no assurance that any such person or group will purchase any specific number of shares of our common stock. In the event the individual maximum purchase limitation is increased, persons subscribing for the maximum amount may increase their purchase order. Directors and officers will purchase shares of common stock at the same $10.00 purchase price per share and on the same terms as other purchasers in the offering. This table excludes shares of common stock to be purchased by the employee stock ownership plan, as well as any stock awards or stock option grants that may be made no earlier than six months after the completion of the offering. The directors and officers have indicated their intention to subscribe in the offering for an aggregate of 155,000 shares of common stock, equal to 4.7% and 3.5%, respectively, of the number of shares of common stock to be sold in the offering at the minimum and maximum of the offering range, assuming shares are available. Purchases by directors, officers and their associates will be included in determining whether the required minimum number of shares has been subscribed for in the offering. The shares being acquired by the directors, executive officers and their associates are being acquired for investment purposes, and not with a view towards resale. Our directors and executive officers will be subject to the same minimum purchase requirements and purchase limitations as other participants in the offering set forth under “The Conversion and Offering – Additional Limitations on Common Stock Purchases.”
Name |
Number
of Shares |
Amount($) | Percent at the Minimum of the Offering Range | Percent at the Maximum of the Offering Range | ||||||||||||
Directors and their associates (1): | ||||||||||||||||
Ted D. Bellard | 25,000 | $ | 250,000 | * | * | |||||||||||
Todd A. Kidder | 10,000 | 100,000 | * | * | ||||||||||||
Kirk E. Kleiser | 25,000 | 250,000 | * | * | ||||||||||||
Frederick R. Lafleur | 25,000 | 250,000 | * | * | ||||||||||||
Craig C. LeBouef | 25,000 | 250,000 | * | * | ||||||||||||
Matthew L. Scruggins | 10,000 | 100,000 | * | * | ||||||||||||
Joseph B. Zanco | 25,000 | 250,000 | * | * | ||||||||||||
Other executive officers and their associates (1): | ||||||||||||||||
Kevin Brown | 2,500 | 25,000 | * | * | ||||||||||||
Jutta Codori | 5,000 | 50,000 | * | * | ||||||||||||
Gina McCoy | 2,500 | 25,000 | * | * | ||||||||||||
All directors and executive officers as a group (10 persons) | 155,000 | $ | 1,550,000 | 4.7 | % | 3.5 | % |
(*) | Less than 1.0%. |
(1) | The amounts shown reflect proposed stock purchase amounts by individual directors or executive officers plus purchases by his associates, such as his spouse or other relative living in his home, an affiliated corporation or other organization or a trust or estate in which he has a substantial beneficial interest or serves as a fiduciary. |
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General
The board of directors of St. Landry Homestead Federal Savings Bank has approved the plan of conversion. The plan of conversion must also be approved by St. Landry Homestead Federal Savings Bank’s members (depositors). A special meeting of members has been called for this purpose. We have filed an application for conversion with respect to the conversion and stock offering with the OCC, and have filed a holding company application with the FRB. The final approvals of the FRB and the OCC are required before we can consummate the conversion and stock offering. Any approval by the FRB or the OCC does not constitute a recommendation or endorsement of the plan of conversion.
The board of directors of St. Landry Homestead Federal Savings Bank unanimously adopted the plan of conversion on January 27, 2021. Pursuant to the plan of conversion, St. Landry Homestead Federal Savings Bank will convert from the mutual form of organization to the stock form of organization. In connection with the conversion, St. Landry Homestead Federal Savings Bank has organized a new Louisiana stock holding company named Catalyst Bancorp, which will sell shares of common stock to the public in this offering. When the conversion and offering are completed, all of the outstanding capital stock of St. Landry Homestead Federal Savings Bank will be owned by Catalyst Bancorp, and all of the common stock of Catalyst Bancorp will be owned by shareholders.
Pursuant to the plan of conversion, we will offer shares of common stock for sale in the subscription offering to our eligible account holders, our tax-qualified employee stock ownership plan, supplemental eligible account holders and other members. To the extent shares remain available for sale, we may offer common stock for sale in a community offering to members of the general public, with a preference given to natural persons residing in St. Landry, Acadia, Lafayette, St. Martin, Pointe Coupée, Avoyelles and Evangeline Parishes in Louisiana.
We have the right to accept or reject, in whole or in part, any orders to purchase shares of the common stock received in the community offering. The community offering may begin concurrently with, during or promptly after the subscription offering and must be completed within 45 days after the completion of the subscription offering unless otherwise extended by the OCC. See “—Community Offering.”
We also may offer for sale shares of common stock not purchased in the subscription or community offerings through a syndicated offering in which Piper Sandler & Co. will be sole manager. See “—Syndicated Offering.”
We intend to retain between $13.1 million and $17.9 million of the net proceeds of the offering (or $20.6 million at the adjusted maximum of the offering range) and to invest between $15.7 million and $21.4 million of the net proceeds in St. Landry Homestead Federal Savings Bank (or $24.7 million at the adjusted maximum of the offering range). The offering will be consummated only upon the issuance of at least the minimum number of shares of our common stock offered pursuant to the plan of conversion.
We determined the number of shares of common stock to be offered in the offering based upon an independent valuation of the estimated pro forma market value of Catalyst Bancorp. All shares of common stock to be sold in the offering will be sold at $10.00 per share. Investors will not be charged a commission to purchase shares of common stock. The independent valuation will be updated and the final number of the shares of common stock to be issued in the offering will be determined at the completion of the offering. See “—Stock Pricing and Number of Shares to be Issued” for more information as to the determination of the estimated pro forma market value of the common stock.
The following is a brief summary of the plan of conversion and is qualified in its entirety by reference to the provisions of the plan of conversion. The plan of conversion should be consulted for further information about the conversion and offering. A copy of the plan of conversion is available for inspection at each office of St. Landry Homestead Federal Savings Bank. The plan of conversion is also filed as an exhibit to St. Landry Homestead Federal Savings Bank’s application for conversion, of which this prospectus is a part, copies of which may be obtained from the OCC. The plan of conversion is also filed as an exhibit to the registration statement we have filed with the Securities and Exchange Commission, of which this prospectus is a part, copies of which may be obtained from the Securities and Exchange Commission or online at the Securities and Exchange Commission’s website, www.sec.gov. See “Where You Can Find Additional Information.”
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Reasons for the Conversion
Our primary reasons for converting and raising additional capital through the offering are to:
• | Enhance our capital base to support growth on a prudent basis. We intend to grow our franchise, both organically and through strategic transactions as opportunities arise, on a prudent basis. While we currently exceed all regulatory capital requirements, the offering proceeds will strengthen our capital position and support our planned growth. In addition, the offering proceeds will enhance our lending capacity by increasing our legal lending limit. We believe this increased capacity will improve our competitive position relative to the many larger banks operating in our market area. |
• | Offer our employees and directors an equity ownership interest in St. Landry Homestead Federal Savings Bank. We believe that the conversion and offering will enable us to attract and retain directors, management and employees through various stock-based benefit plans, including an employee stock ownership plan and one or more equity incentive plans. |
• | Facilitate future mergers and acquisitions, if available, on a prudent basis. Although we do not currently have any understandings or agreements regarding any specific transactions, the additional capital raised in the offering may be used to finance mergers with, and acquisitions of, other financial institutions, asset portfolios and branch offices when and if attractive opportunities arise. |
• | Offer our depositors an equity ownership interest. The offering will allow us to offer our depositors the ability to acquire our common stock, and, thus, have an equity interest in our future. |
Approvals Required
The affirmative vote of a majority of the total outstanding votes eligible to be cast by the members (depositors) of St. Landry Homestead Federal Savings Bank, represented in person or by proxy, is required to approve the plan of conversion. A special meeting of members to consider and vote upon the plan of conversion has been called for ________ __ 31, 20__. We have filed an application for conversion with respect to the conversion and stock offering with the OCC. Such application, which includes the plan of conversion, must be approved by the OCC. The FRB’s approval of our holding company application also must be obtained. We cannot consummate the conversion and offering without receiving these approvals and non-objections and satisfying the conditions contained in them.
Effects of Conversion on Depositors and Borrowers
Continuity. While the conversion is being accomplished, our normal business of accepting deposits and making loans will continue without interruption. After the conversion, we will continue to offer existing services to depositors, borrowers and other customers. The directors serving St. Landry Homestead Federal Savings Bank at the time of the conversion will be the directors of St. Landry Homestead Federal Savings Bank and of Catalyst Bancorp after the conversion. The officers of St. Landry Homestead Federal Savings Bank at the time of the conversion will retain their positions after the conversion.
Effect on Deposit Accounts. Pursuant to the plan of conversion, each depositor of St. Landry Homestead Federal Savings Bank at the time of the conversion will automatically continue as a depositor after the conversion, and the deposit balance, interest rate and other terms of such deposit accounts will not change as a result of the conversion. Each such account will be insured by the FDIC, without interruption, to the same extent as before the conversion. Depositors will continue to hold their existing certificates, passbooks and other evidences of their accounts.
Effect on Loans. No loan outstanding from St. Landry Homestead Federal Savings Bank will be affected by the conversion, and the amount, interest rate, maturity and security for each loan will remain as it was contractually fixed before the conversion.
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Effect on Voting Rights of Members. All of our depositors are members of and have voting rights in St. Landry Homestead Federal Savings Bank as to all matters requiring membership action. Upon completion of the conversion, St. Landry Homestead Federal Savings Bank will cease to have members and former members will no longer have voting rights. Upon completion of the conversion, all voting rights in St. Landry Homestead Federal Savings Bank will be vested in Catalyst Bancorp as the sole shareholder of St. Landry Homestead Federal Savings Bank. The shareholders of Catalyst Bancorp will possess exclusive voting rights with respect to Catalyst Bancorp common stock.
Tax Effects. We have received opinions of counsel and our tax advisors with regard to the federal and state income tax consequences of the conversion to the effect that the conversion will not be taxable for federal or state income tax purposes to St. Landry Homestead Federal Savings Bank or its depositors. See “—Material Income Tax Consequences.”
Effect on Liquidation Rights. Each depositor of St. Landry Homestead Federal Savings Bank has both a deposit account in St. Landry Homestead Federal Savings Bank and a pro rata ownership interest in the net worth of St. Landry Homestead Federal Savings Bank based upon the deposit balance in his or her account. This ownership interest is tied to the depositor’s account and has no tangible market value separate from the deposit account. This interest may only be realized upon a complete liquidation of St. Landry Homestead Federal Savings Bank. Any depositor who opens a deposit account obtains a pro rata ownership interest in St. Landry Homestead Federal Savings Bank without any additional payment beyond the amount of the deposit. A depositor who reduces or closes his or her account receives a portion or all, respectively, of the balance in the deposit account but nothing for his or her ownership interest in the net worth of St. Landry Homestead Federal Savings Bank, which is lost to the extent that the balance in the account is reduced or closed. Consequently, depositors in a mutual savings bank normally have no way of realizing the value of their ownership interest, which has realizable value only in the unlikely event that the institution is completely liquidated. If this occurs, the depositors of record at that time, as owners, would share pro rata in any residual surplus and reserves of St. Landry Homestead Federal Savings Bank after other claims, including claims of depositors to the amounts of their deposits, are paid.
In the unlikely event that St. Landry Homestead Federal Savings Bank were to liquidate after the conversion, all claims of creditors, including those of depositors, also would be paid first, followed by distribution of a “liquidation account” to depositors at December 31, 2019 and ________ __, 2021, who continue to maintain their deposit accounts at the date of liquidation, with any assets remaining thereafter distributed to Catalyst Bancorp as the holder of St. Landry Homestead Federal Savings Bank’s capital stock. See “—Liquidation Rights.”
Stock Pricing and Number of Shares to be Issued
The plan of conversion and applicable regulations require that the aggregate purchase price of the common stock sold in the offering must be based on the appraised pro forma market value of the common stock, as determined by an independent valuation. We have retained RP Financial to prepare an independent valuation. For its services in preparing the initial valuation, RP Financial will receive a fee of $42,500, as well as payment for reimbursable expenses and an additional $7,500 for each updated valuation prepared. We have paid RP Financial no other fees during the previous three years. We have agreed to indemnify RP Financial and its employees and affiliates against specified losses, including any losses in connection with claims under the federal securities laws, arising out of its services as independent appraiser, except where such liability results from RP Financial’s bad faith or negligence.
The independent valuation was prepared by RP Financial in reliance upon the information contained in this prospectus, including the financial statements of St. Landry Homestead Federal Savings Bank. RP Financial also considered the following factors, among others:
• | the present results and financial condition of St. Landry Homestead Federal Savings Bank and the projected consolidated results and financial condition of Catalyst Bancorp; |
• | the economic and demographic conditions in St. Landry Homestead Federal Savings Bank’s existing market area; |
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• | certain historical, financial and other information relating to St. Landry Homestead Federal Savings Bank; |
• | a comparative evaluation of the operating and financial characteristics of St. Landry Homestead Federal Savings Bank with those of other publicly traded savings institutions; |
• | the effect of the offering on our shareholders’ equity and earnings potential; |
• | the proposed dividend policy of Catalyst Bancorp; and |
• | the trading market for securities of comparable institutions and general conditions in the market for such securities. |
The independent valuation is also based on an analysis of a peer group of publicly traded bank holding companies and savings and loan holding companies that RP Financial considered comparable to Catalyst Bancorp under regulatory guidelines applicable to the independent valuation. Under these guidelines, a minimum of ten peer group companies are selected from the universe of all publicly-traded financial institutions with relatively comparable resources, strategies and financial and other operating characteristics. Such companies must also be traded on an exchange (such as Nasdaq or the New York Stock Exchange). The peer group companies selected for Catalyst Bancorp also consisted of fully-converted stock institutions that were not subject to an actual or rumored acquisition and that had been in fully-converted form for at least one year. The independent valuation is also based on an analysis of a peer group of publicly traded bank holding companies and savings and loan holding companies that RP Financial considered comparable to Catalyst Bancorp under regulatory guidelines applicable to the independent valuation. Under these guidelines, a minimum of ten peer group companies are selected from the universe of all publicly-traded financial institutions with relatively comparable resources, strategies and financial and other operating characteristics. Such companies must also be traded on an exchange (such as Nasdaq or the New York Stock Exchange). The peer group companies selected for Catalyst Bancorp also consisted of fully-converted stock institutions that were not subject to an actual or rumored acquisition and that had been in fully-converted form for at least one year. In addition, RP Financial limited the peer group companies to the following two selection criteria: (i) institutions located in the Southeast and Southwest with assets less than $750 million, tangible equity-to-assets ratios of greater than 7.0%, and positive core earnings; (ii) institutions located in the Midwest, Mid-Atlantic and Northeast with assets less than $750 million, tangible equity-to-assets ratios of greater than 7.0%, and positive core earnings.
The independent valuation considered the pro forma effect of the offering. Consistent with regulatory appraisal guidelines, the appraisal applied three primary methodologies: (i) the pro forma price-to-book value approach applied to both reported book value and tangible book value; (ii) the pro forma price-to-earnings approach applied to reported and core earnings; and (iii) the pro forma price-to-assets approach. The market value ratios applied in the three methodologies were based on the current market valuations of the peer group companies. RP Financial placed the greatest emphasis on the price-to-earnings and price-to-book approaches in estimating pro forma market value. RP Financial did not consider a pro forma price-to-assets approach to be as meaningful in preparing the appraisal, as this approach is more meaningful when a company has low equity or earnings. The price-to-assets approach is less meaningful for a company like us, as we have equity in excess of regulatory capital requirements and positive reported and core earnings.
RP Financial made a moderate downward adjustment for: (i) profitability growth and viability of earnings; and (ii), a slight downward adjustment for primary market area and made no adjustments for: (i) dividends; (ii) liquidity of the shares; (iii) marketing of the issue; (iv) management; (v) effect of government regulations and regulatory reform; and (vi) financial condition. The slight downward adjustment applied for primary market area took into consideration St. Landry Parish’s relatively less favorable demographic measures with respect to population growth and income levels compared to the peer group’s primary market area counties. The moderate downward adjustment applied for profitability, growth and viability of earnings took into consideration Catalyst Bancorp’s less favorable efficiency ratio, higher implied credit risk exposure, and lower pro forma returns as a percent of assets and equity relative to the comparable peer group measures.
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Included in RP Financial’s independent valuation were certain assumptions as to the pro forma earnings of Catalyst Bancorp after the offering used in determining the appraised value. These assumptions included estimated expenses, an assumed after-tax rate of return of 0.28% at December 31, 2020 on the net offering proceeds and purchases in the open market of common stock by the stock-based benefit plan at the $10.00 per share purchase price. See “Pro Forma Data” for additional information concerning assumptions included in the independent valuation and used in preparing pro forma data. The use of different assumptions may yield different results.
The independent valuation states that at February 5, 2021, the estimated pro forma market value of Catalyst Bancorp was $38.5 million. Based on applicable regulations, this market value forms the midpoint of a range with a minimum of $32.7 million and a maximum of $44.3 million. The aggregate offering price of the shares will be equal to the valuation range multiplied by offering price of $10.00 per share. The number of shares offered will be equal to the aggregate offering price of the shares divided by the $10.00 price per share. Based on the valuation range and the $10.00 offering price per share, the minimum of the offering range is 3,272,500 shares, the midpoint of the offering range is 3,850,000 shares and the maximum of the offering range is 4,427,500 shares.
Following commencement of the subscription offering, the maximum of the valuation range may be increased by up to 15%, or up to $50.9 million, without resoliciting subscribers, which will result in a corresponding increase of up to 15% in the maximum of the offering range, to up to 5,091,625 shares, to reflect changes in the market and financial conditions or demand for the shares. We will not decrease the minimum of the valuation range and the minimum of the offering range without a resolicitation of subscribers. The offering price of $10.00 per share will remain fixed. See “—Additional Limitations on Common Stock Purchases” as to the method of distribution of additional shares to be issued upon an increase in the offering range to up to 5,091,625 shares.
The board of directors of St. Landry Homestead Federal Savings Bank reviewed the independent valuation and, in particular, considered the following:
• | St. Landry Homestead Federal Savings Bank’s financial condition and results of operations; |
• | a comparison of financial performance ratios of St. Landry Homestead Federal Savings Bank to those of other financial institutions of similar size; and |
• | market conditions generally and in particular for financial institutions. |
All of these factors are set forth in the independent valuation. The board of directors also reviewed the methodology and the assumptions used by RP Financial to prepare the independent valuation and believes that such assumptions were reasonable. The offering range may be amended with the approval of the OCC as a result of subsequent developments in the financial condition of St. Landry Homestead Federal Savings Bank or market conditions generally. If the independent valuation is updated to amend the pro forma market value of Catalyst Bancorp to less than $32.7 million or to more than $50.9 million, the appraisal will be filed with the Securities and Exchange Commission by a post-effective amendment to Catalyst Bancorp’s registration statement.
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The following table presents a summary of selected pricing ratios for Catalyst Bancorp (on a pro forma basis) at and for the 12-months ended December 31, 2020, and for the peer group companies based on earnings and other information at and for the 12-months ended September 30, 2020, with stock prices at February 5, 2021, as reflected in the appraisal report. Compared to the average pricing of the peer group, our pro forma pricing ratios at the midpoint of the offering range indicated a discount of 48.99% on a price-to-book value basis and a discount of 50.01% on a price-to-tangible book value basis. Our board of directors, in reviewing and approving the appraisal, considered the range of price-to-earnings multiples and the range of price-to-book value and price-to-tangible book value ratios at the different amounts of shares to be sold in the offering. The appraisal did not consider one valuation approach to be more important than the other. The estimated appraised value and the resulting premium/discount took into consideration the potential financial effect of the offering.
(1) | Price-to-earnings multiples calculated by RP Financial are based on an estimate of “core,” or recurring, earnings. These ratios are different than those presented in “Pro Forma Data.” |
The independent valuation is not intended, and must not be construed, as a recommendation of any kind as to the advisability of purchasing our shares of common stock. RP Financial did not independently verify our financial statements and other information that we provided to them, nor did RP Financial independently value our assets or liabilities. The independent valuation considers St. Landry Homestead Federal Savings Bank as a going concern and should not be considered as an indication of the liquidation value of St. Landry Homestead Federal Savings Bank. Moreover, because the valuation is necessarily based upon estimates and projections of a number of matters, all of which may change from time to time, no assurance can be given that persons purchasing our common stock in the offering will thereafter be able to sell their shares at prices at or above the $10.00 price per share.
If the update to the independent valuation at the conclusion of the offering results in an increase in the maximum of the valuation range to more than $50.9 million and a corresponding increase in the offering range to more than 5,091,625 shares, or a decrease in the minimum of the valuation range to less than $32.7 million and a corresponding decrease in the offering range to less than 3,272,500 shares, then we will promptly return with interest at 0.15% per annum all funds previously delivered to us to purchase shares of common stock in the subscription and community offerings and cancel deposit account withdrawal authorizations and, after consulting with the OCC, we may terminate the plan of conversion. Alternatively, we may establish a new offering range, extend the offering period and commence a resolicitation of purchasers or take other actions as permitted by the OCC in order to complete the offering. If we extend the offering and conduct a resolicitation due to a change in the independent valuation, we will notify subscribers of the extension of time and of the rights of subscribers to place a new stock order for a specified period of time. Any single offering extension will not exceed 90 days and aggregate extensions may not conclude beyond ___________ __, 20__, which is two years after the date on which the OCC approved the plan of conversion.
An increase in the number of shares to be issued in the offering would decrease both a subscriber’s ownership interest and Catalyst Bancorp’s pro forma earnings and shareholders’ equity on a per share basis while increasing shareholders’ equity on an aggregate basis. A decrease in the number of shares to be issued in the offering would increase both a subscriber’s ownership interest and Catalyst Bancorp’s pro forma earnings and shareholders’ equity on a per share basis, while decreasing shareholders’ equity on an aggregate basis.
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A copy of the independent valuation report of RP Financial, together with the detailed memorandum setting forth the method and assumptions used in the appraisal report, is filed as an exhibit to each of the documents specified under “Where You Can Find Additional Information.”
Subscription Offering and Subscription Rights
According to the plan of conversion, rights to subscribe for shares of common stock in the subscription offering have been granted in the following descending order of priority. The filling of all subscriptions that we receive will depend on the availability of common stock after satisfaction of all subscriptions of all persons having prior rights in the subscription offering and on the purchase and ownership limitations set forth in the plan of conversion and as described below under “—Additional Limitations on Common Stock Purchases.”
Priority 1: Eligible Account Holders. Each depositor of St. Landry Homestead Federal Savings Bank with aggregate deposit account balances of $50.00 or more (a “Qualifying Deposit”) at the close of business on December 31, 2019 (an “Eligible Account Holder”) will receive, without payment, nontransferable subscription rights to purchase, subject to the overall purchase limitations, up to the greater of $150,000 (15,000 shares) of our common stock, 0.10% of the total number of shares of common stock issued in the offering, or 15 times the product of the number of subscription shares offered multiplied by a fraction of which the numerator is the aggregate Qualifying Deposit account balances of the Eligible Account Holder and the denominator is the aggregate Qualifying Deposit account balances of all Eligible Account Holders, subject to the overall purchase limitations. See “—Additional Limitations on Common Stock Purchases.” If there are not sufficient shares available to satisfy all subscriptions, shares will first be allocated so as to permit each Eligible Account Holder to purchase a number of shares sufficient to make his or her total allocation equal to the lesser of 100 shares or the number of shares for which he or she subscribed. Thereafter, any remaining unallocated shares will be allocated to each remaining Eligible Account Holder whose subscription remains unfilled in same the proportion that the amount of his or her Qualifying Deposit bears to the total amount of Qualifying Deposits of all subscribing Eligible Account Holders whose subscriptions remain unfilled. If an amount so allocated exceeds the amount subscribed for by any one or more Eligible Account Holders, the excess shall be reallocated among those Eligible Account Holders whose subscriptions are not fully satisfied until all available shares have been allocated.
To ensure proper allocation of our shares of common stock, each Eligible Account Holder must list on his or her stock order form all deposit accounts in which he or she has an ownership interest on December 31, 2019. If there is an oversubscription, failure to list an account could result in fewer shares being allocated than if all accounts had been disclosed. If there is an oversubscription, the subscription rights of Eligible Account Holders who are also directors or officers of St. Landry Homestead Federal Savings Bank or who are associates of such persons will be subordinated to the subscription rights of other Eligible Account Holders to the extent attributable to their increased deposits in the 12 months preceding December 31, 2019.
Priority 2: Tax-Qualified Plans. Our tax-qualified employee stock ownership plan, will receive, without payment, nontransferable subscription rights to purchase in the aggregate up to 8.0% of the shares of common stock sold in the offering. If market conditions warrant, in the judgment of its trustees, the employee stock ownership plan may instead elect to purchase shares in the open market following the completion of the offering, subject to the approval of the OCC.
Priority 3: Supplemental Eligible Account Holders. To the extent that there are sufficient shares of common stock remaining after satisfaction of subscriptions by Eligible Account Holders and by our employee stock ownership plan, each depositor of St. Landry Homestead Federal Savings Bank (other than directors and officers of St. Landry Homestead Federal Savings Bank, and their associates) with a Qualifying Deposit at the close of business on ____________ __, 2021, who is not an Eligible Account Holder (a “Supplemental Eligible Account Holder”) will receive, without payment, nontransferable subscription rights to purchase, subject to the overall purchase limitations, up to the greater of $150,000 (15,000 shares) of our common stock, 0.10% of the total number of shares of common stock issued in the offering, or 15 times the product of the number of subscription shares offered multiplied by a fraction of which the numerator is the aggregate Qualifying Deposit account balances of the Supplemental Eligible Account Holder and the denominator is the aggregate Qualifying Deposit account balances of all Supplemental Eligible Account Holders, subject to the overall purchase limitations. See “—Additional Limitations on Common Stock Purchases.” If there are not sufficient shares available to satisfy all subscriptions, shares will first be allocated so as to permit each Supplemental Eligible Account Holder to purchase a number of shares sufficient to make his or her total allocation equal to the lesser of 100 shares or the number of shares for which he or she subscribed. Thereafter, any remaining unallocated shares will be allocated to each remaining Supplemental Eligible Account Holder whose subscription remains unfilled in same the proportion that the amount of his or her Qualifying Deposit bears to the total amount of Qualifying Deposits of all subscribing Supplemental Eligible Account Holders whose subscriptions remain unfilled. If an amount so allocated exceeds the amount subscribed for by any one or more Supplemental Eligible Account Holders, the excess shall be reallocated among those Supplemental Eligible Account Holders whose subscriptions are not fully satisfied until all available shares have been allocated.
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To ensure proper allocation of our shares of common stock, each Supplemental Eligible Account Holder must list on his or her stock order form all deposit accounts in which he or she has an ownership interest on __________ __, 2021. If there is an oversubscription, failure to list an account could result in fewer shares being allocated than if all accounts had been disclosed.
Priority 4: Other Members. To the extent that there are shares of common stock remaining after satisfaction of subscriptions by Eligible Account Holders, our tax-qualified employee benefit plan, and Supplemental Eligible Account Holders, each depositor on the voting record date of _______ __, 2021 who is not an Eligible Account Holder or Supplemental Eligible Account Holder (“Other Members”) will receive, without payment therefor, nontransferable subscription rights to purchase up to the greater of 15,000 shares ($150,000) of common stock or 0.10% of the total number of shares of common stock issued in the offering, subject to the overall purchase limitations. See ” – Additional Limitations on Common Stock Purchases.” If there are not sufficient shares available to satisfy all subscriptions, available shares will be allocated so as to permit each Other Member to purchase a number of shares sufficient to make his or her total allocation equal to the lesser of 100 shares of common stock or the number of shares for which he or she subscribed. Thereafter, unallocated shares will be allocated to each Other Member on an equal number of shares basis per order until all orders have been filled or the remaining shares have been allocated, provided that no fractional shares shall be issued.
To ensure proper allocation of common stock, each Other Member must list on the stock order form all deposit accounts in which he or she had an ownership interest at ________ __, 2021. In the event of oversubscription, failure to list an account, or including incomplete or incorrect information, could result in fewer shares being allocated than if all accounts had been disclosed.
Expiration Date. The subscription offering will expire at 5:00 p.m., Central Time, on _________ __, 2021, unless extended by us for up to 45 days or such additional periods with the approval of the OCC. Subscription rights will expire whether or not each eligible depositor can be located. We may decide to extend the expiration date of the subscription offering for any reason, whether or not subscriptions have been received for shares at the minimum, midpoint, maximum or adjusted maximum of the offering range. Subscription rights which have not been exercised before the expiration date will become void.
We will not execute orders until at least the minimum number of shares of common stock has been sold in the offering. If at least 3,272,500 shares have not been sold in the offering by ___________ __, 2021 and the OCC has not consented to an extension, all funds delivered to us to purchase shares of common stock in the offering will be returned promptly, with interest at 0.15% per annum for funds received in the subscription and community offerings, and all deposit account withdrawal authorizations will be canceled. If an extension beyond _________ __, 2021 is necessary and granted by the OCC, we will resolicit purchasers in the offering as described under “—Procedure for Purchasing Shares in Subscription and Community Offerings—Expiration Date.”
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Community Offering
To the extent that shares of common stock remain available for purchase after satisfaction of all subscriptions by Eligible Account Holders, our tax-qualified employee stock ownership plan, Supplemental Eligible Account Holders and Other Members, we will offer shares pursuant to the plan of conversion to members of the general public in a community offering. Shares will be offered in the community offering with the following preferences:
• | Natural persons and trusts or natural persons residing in St. Landry, Acadia, Lafayette, St. Martin, Pointe Coupée, Avoyelles and Evangeline Parishes in Louisiana; and |
• | Other members of the general public. |
Subscribers in the community offering may purchase up to $150,000 (15,000 shares) of common stock, subject to the overall purchase limitations. See “—Additional Limitations on Common Stock Purchases.” The opportunity to purchase shares of common stock in the community offering category is subject to our right, in our sole discretion and reasonably consistent with achieving a reasonably wide distribution of the common stock, to accept or reject any such orders in whole or in part either at the time of receipt of an order or as soon as practicable following the expiration date of the offering.
If we do not have sufficient shares of common stock available to fill the orders of natural persons (including trusts of natural persons) residing in St. Landry, Acadia, Lafayette, St. Martin, Pointe Coupée, Avoyelles and Evangeline Parishes in Louisiana (“Preferred Subscribers”), we will allocate the available shares among those persons in a manner that permits each of them, to the extent possible, to purchase the lesser of 100 shares or the number of shares subscribed for by such person. Thereafter, unallocated shares will be allocated among the Preferred Subscribers whose orders remain unsatisfied in the same proportion that the unfilled subscription of each bears to the total unfilled subscriptions of all Preferred Subscribers whose subscription remains unsatisfied. If there are any shares remaining, shares will be allocated to other members of the general public who subscribe in the community offering applying the same allocation described above for Preferred Subscribers.
The term “residing” or “resident” as used in this prospectus with respect to St. Landry, Acadia, Lafayette, St. Martin, Pointe Coupée, Avoyelles and Evangeline Parishes in Louisiana means any Person who occupies a dwelling within the local community, has a present intent to remain within the local community for a period of time, and manifests the genuineness of that intent by establishing an ongoing physical presence within the local community together with an indication that such presence within the local community is something other than merely transitory in nature. We may utilize deposit or loan records or other evidence provided to us to determine whether a person is a resident. In all cases, however, the determination shall be in our sole discretion.
Expiration Date. The community offering may begin concurrently with, during or promptly after the subscription offering, and is currently expected to terminate at the same time as the subscription offering, and must terminate no more than 45 days following the subscription offering, unless extended with the approval of the OCC. We may decide to extend the community offering for any reason and are not required to give purchasers notice of any such extension unless such period extends beyond __________ __, 2021, in which event we will resolicit purchasers.
Syndicated Offering
If feasible, our board of directors may decide to offer for sale shares of common stock not subscribed for or purchased in the subscription and community offerings in a syndicated offering, subject to such terms, conditions and procedures as we may determine, subject to any approvals required from the OCC in a manner that will achieve a wide distribution of our shares of common stock.
If a syndicated offering is held, Piper Sandler & Co. will serve as sole manager. If shares of common stock are sold in a syndicated offering, we will pay fees of 5.5% of the aggregate amount of common stock sold in the syndicated offering to Piper Sandler & Co. and any other broker-dealers included in the syndicated offering. The shares of common stock will be sold at the same price per share ($10.00 per share) that the shares are sold in the subscription offering and the community offering.
If there is a syndicated offering, it is currently expected that investors would follow the same general procedures applicable to purchasing shares in the subscription and community offerings (the use of order forms and the submission of funds directly to Catalyst Bancorp for the payment of the purchase price of the shares ordered) except that payment must be in immediately available funds (bank checks, money orders, deposit account withdrawals from accounts at St. Landry Homestead Federal Savings Bank or wire transfers). See “—Procedure for Purchasing Shares in Subscription and Community Offerings.” “Sweep” arrangements and delivery versus payment settlement will only be used in a syndicated offering to the extent consistent with Rules 10b-9 and 15c2-4 under the Securities Exchange Act of 1934 and then-existing guidance and interpretations thereof of the Securities and Exchange Commission regarding the conduct of “min/max” offerings.
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If for any reason we cannot undertake a syndicated offering of shares of common stock not purchased in the subscription and community offerings, or if there are an insignificant number of shares remaining unsold after such offerings, we will try to make other arrangements for the sale of unsubscribed shares. The OCC and the Financial Industry Regulatory Authority must approve any such arrangements.
Additional Limitations on Common Stock Purchases
The plan of conversion includes the following additional limitations on the number of shares of common stock that may be purchased in the offering:
• | No individual, or group of individuals exercising subscription rights through a single qualifying deposit account held jointly, may purchase more than $150,000 (15,000 shares) in the offering; |
• | Except for the employee stock ownership plan, no person or entity, together with associates or persons acting in concert with such person or entity, may purchase more than $250,000 (25,000 shares) of common stock in all categories of the offering combined; |
• | Tax qualified employee benefit plans, including our employee stock ownership plan, may purchase in the aggregate up to 10% of the shares of common stock sold in the offering, including shares issued upon an increase in the offering range of up to 15%; |
• | No person may purchase fewer than 25 shares of common stock, to the extent those shares are available for purchase; and |
• | The aggregate number of shares of common stock that may be purchased in all categories of the offering by officers and directors of Catalyst Bancorp and St. Landry Homestead Federal Savings Bank and their associates may not exceed 31% of the total shares sold in the offering. |
Depending upon market or financial conditions, our board of directors, with regulatory approval and without further approval of the depositors of St. Landry Homestead Federal Savings Bank, may decrease or increase the purchase limitations. If a purchase limitation is increased, subscribers in the subscription offering who ordered the maximum amount will be given the opportunity to increase their orders up to the then applicable limit. The effect of this type of resolicitation will be an increase in the number of shares of common stock owned by persons who choose to increase their orders.
If there is an increase in the offering range to up to 5,091,625 shares of common stock, shares will be allocated in the following order of priority according to the plan of conversion:
(i) | if there is an oversubscription at the Eligible Account Holder level, to fill unfilled subscriptions of these subscribers according to their respective priorities; |
(ii) | to fill the subscriptions of our tax-qualified employee benefit plans, specifically our employee stock ownership plan, for up to 8% of the total number of shares of common stock sold in the offering and contributed to the charitable foundation; |
(iii) | if there is an oversubscription at the Supplemental Eligible Account Holder level, to fill unfilled subscriptions of these subscribers according to their respective priorities; |
(iv) | if there is an oversubscription at the other members level, to fill unfilled subscriptions of these subscribers according to their respective priorities; and |
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(v) | to fill unfilled subscriptions in the community offering, with preference given first to natural persons and trusts of natural persons residing in St. Landry, Acadia, Lafayette, St. Martin, Pointe Coupée, Avoyelles and Evangeline Parishes in Louisiana, and then to members of the general public. |
The term “associate” of a person means:
• | any corporation or organization (other than St. Landry Homestead Federal Savings Bank, Catalyst Bancorp or a majority-owned subsidiary of any of those entities) of which the person is a senior officer, partner or, directly or indirectly, 10% beneficial shareholder; |
• | any trust or other estate in which the person has a substantial beneficial interest or serves as a trustee or in a similar fiduciary capacity; and |
• | any relative or spouse of such person, or any relative of such spouse, who either has the same home as the person or who is a director, trustee or officer of St. Landry Homestead Federal Savings Bank or Catalyst Bancorp. |
The term “acting in concert” means persons seeking to combine or pool their 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. When persons act together for such purpose, their group is deemed to have acquired their stock. The determination of whether a group is acting in concert shall be made solely by us and may be based on any evidence upon which we choose to rely, including, without limitation, joint account relationships or the fact that such persons have filed joint Schedules 13D with the Securities and Exchange Commission with respect to other companies. Persons with the same address, whether or not related, and persons exercising subscription rights through qualifying deposit accounts registered to the same address will be deemed to be acting in concert unless we determine otherwise. Directors of Catalyst Bancorp and St. Landry Homestead Federal Savings Bank are not treated as associates of each other solely because of their membership on the boards of directors.
Common stock purchased in the offering will be freely transferable except for shares purchased by directors and certain officers of Catalyst Bancorp or St. Landry Homestead Federal Savings Bank and except as described below. Any purchases made by any associate of Catalyst Bancorp or St. Landry Homestead Federal Savings Bank for the explicit purpose of meeting the minimum number of shares of common stock required to be sold in order to complete the offering shall be made for investment purposes only and not with a view toward redistribution. In addition, under Financial Industry Regulatory Authority guidelines, members of the Financial Industry Regulatory Authority and their associates are subject to certain restrictions on transfer of securities purchased according to subscription rights and to certain reporting requirements upon purchase of these securities. For a further discussion of limitations on purchases of our shares of common stock at the time of offering and thereafter, see “—Certain Restrictions on Purchase or Transfer of Our Shares After the Offering” and “Restrictions on Acquisition of Catalyst Bancorp.”
Plan of Distribution; Selling Agent and Underwriting Compensation
Subscription and Community Offerings. To assist in the marketing of our shares of common stock in the subscription and community offerings, we have retained Piper Sandler & Co., which is a broker-dealer registered with the Financial Industry Regulatory Authority. Piper Sandler & Co. will assist us on a best efforts basis in the subscription and community offerings by:
• | consulting as to the marketing implications of the plan of conversion; |
• | reviewing with the boards the financial impact of the offering on us, based upon the independent appraiser’s appraisal of the common stock; |
• | reviewing all offering documents, including the prospectus, stock order forms and related marketing materials; |
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• | assisting us in the design and implementation of a marketing strategy for the offering; |
• | assisting our management in scheduling and preparing for meetings with potential investors and/or other broker-dealers in connection with the offering; and |
• | providing such other general advice and assistance as may be requested to promote the successful completion of the offering. |
For these services, Piper Sandler & Co. will receive a fee of 0.90% of the aggregate dollar amount of all shares of common stock sold in the subscription offering and all shares sold in the State of Louisiana in a community offering. Piper Sandler & Co. will receive a fee of 3.0% of the aggregate purchase price of all shares of common sold in a community offering outside of the State of Louisiana. No fee will be payable to Piper Sandler & Co. with respect to shares purchased by directors, officers, employees or their immediate families and their personal trusts, shares purchased by our employee benefit plans or trusts established for the benefit of our directors, officers and employees.
Syndicated Offering. If shares of common stock are sold in a syndicated offering, we will pay fees of 5.5% of the aggregate dollar amount of common stock sold in the syndicated offering to Piper Sandler & Co. and any other broker-dealers included in the syndicated offering.
Expenses. Piper Sandler & Co. also will be reimbursed for reasonable out-of-pocket accountable expenses, including legal fees, in an amount not to exceed $100,000. We have separately agreed to pay Piper Sandler & Co. up to $70,000 in fees and expenses for serving as records agent, as described below.
Records Management
We have also engaged Piper Sandler & Co. as records agent in connection with the subscription and community offerings. In its role as records agent, Piper Sandler & Co., will assist us in the offering by:
• | consolidating deposit accounts and depositor vote calculation; |
• | coordinating vote solicitation and special meeting services; |
• | assisting in designing and preparing stock order forms and depositor proxy forms; |
• | organizing and supervising our Stock Information Center; |
• | coordinating proxy solicitation and vote tabulation; and |
• | providing subscription services. |
Piper Sandler & Co. will receive fees of $30,000 for these services, $10,000 of which has been paid. Piper Sandler & Co. also will be reimbursed for reasonable out-of-pocket accountable expenses in an amount not to exceed $30,000 (plus up to an additional $10,000 for additional expenses related to Covid-19). Piper Sandler & Co. will reimburse any amounts paid or advanced by us in excess of their actual reasonable out-of-pocket accountable expenses.
Indemnity
We will indemnify Piper Sandler & Co. against liabilities and expenses, including legal fees, incurred in connection with certain claims or litigation arising out of or based upon untrue statements or omissions contained in the offering materials for the common stock, including liabilities under the Securities Act of 1933, as well as certain other claims and litigation arising out of Piper Sandler & Co.’s engagement with respect to the offering.
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Solicitation of Offers by Officers and Directors
Some of our directors and executive officers may participate in the solicitation of offers to purchase common stock in the subscription and community offerings. These persons will be reimbursed for their reasonable out-of-pocket expenses incurred in connection with the solicitation, which out-of-pocket expenses, if any, are expected to be insignificant. Other regular employees of St. Landry Homestead Federal Savings Bank may assist in the offering, but only in ministerial capacities, and may provide clerical work in effecting a sales transaction. No offers or sales may be made by tellers or at the teller counters. Investment-related questions of prospective purchasers will be directed to executive officers or registered representatives of Piper Sandler & Co. Our other employees have been instructed not to solicit offers to purchase shares of common stock or provide advice regarding the purchase of common stock. We will rely on Rule 3a4-1 under the Securities Exchange Act of 1934, 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. None of our officers, directors or employees will be compensated in connection with their participation in the offering.
Procedure for Purchasing Shares in Subscription and Community Offerings
Expiration Date. The subscription and community offerings will expire at 5:00 p.m., Central Time, on ______ __, 2021, unless we extend one or both for up to 45 days, with the approval of the OCC. This extension may be approved by us, in our sole discretion, without notice to purchasers in the offering. Any extension of the subscription and/or community offering beyond __________ __, 2021 would require the OCC’s approval. If the offering is so extended, all subscribers will be notified and given an opportunity to confirm, change or cancel their orders. If you do not respond to this notice, we will promptly return your funds with interest at 0.15% per annum or cancel your deposit account withdrawal authorization. If the offering range is decreased below the minimum of the offering range or is increased above the adjusted maximum of the offering range, all subscribers’ stock orders will be cancelled, their deposit account withdrawal authorizations will be cancelled, and funds submitted to us will be returned promptly, with interest at 0.15% per annum for funds received in the subscription and community offerings. We will then resolicit the subscribers, giving them an opportunity to place a new stock order for a period of time.
We reserve the right in our sole discretion to terminate the offering at any time and for any reason (subject to any required regulatory approvals), in which case we will cancel any deposit account withdrawal authorizations and promptly return all funds submitted, with interest at 0.15% per annum from the date of receipt as described above.
Use of Order Forms in the Subscription and Community Offerings. In order to purchase shares of common stock in the subscription and community offerings, you must properly complete an original stock order form and remit full payment. We are not required to accept orders submitted on photocopied or facsimiled order forms. All order forms must be received (not postmarked) before 5:00 p.m., Central Time, on __________ __, 2021. We are not required to accept order forms that are not received by that time, are not signed or are otherwise executed defectively or are received without full payment or without appropriate deposit account withdrawal instructions. We are not required to notify subscribers of incomplete or improperly executed order forms, and we have the right to waive or permit the correction of incomplete or improperly executed order forms. We do not represent, however, that we will do so and we have no affirmative duty to notify any prospective subscriber of any such defects. You may submit your order form and payment by mail using the stock order return envelope provided, or by overnight delivery to our Stock Information Center, which will be located at _________________________, ___________, ________, Louisiana ________. You may also hand-deliver stock order forms to the Stock Information Center. Hand-delivered stock order forms will only be accepted at this location. We will not accept stock order forms at our other banking offices. Please do not mail stock order forms to St. Landry Homestead Federal Savings Bank’s other offices.
Once tendered, an order form cannot be modified or revoked without our consent. We reserve the absolute right, in our sole discretion and reasonably consistent with achieving a reasonably wide distribution of the common stock, to reject orders received in the community offering, in whole or in part, at the time of receipt or at any time before completion of the offering. If you are ordering shares in the subscription offering, you must represent that you are purchasing shares for your own account and that you have no agreement or understanding with any person for the sale or transfer of the shares. We have the right to reject any order submitted in the offering by a person who we believe is making false representations or who we otherwise believe, either alone or acting in concert with others, is violating, evading, circumventing, or intends to violate, evade or circumvent the terms and conditions of the plan of conversion. Our interpretation of the terms and conditions of the plan of conversion and of the acceptability of the order forms will be final.
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By signing the order form, you will be acknowledging that the common stock is not a deposit or savings account and is not federally insured or otherwise guaranteed by St. Landry Homestead Federal Savings Bank, the FDIC or any other government agency, and that you received a copy of this prospectus. However, signing the order form will not result in you waiving your rights under the Securities Act of 1933 or the Securities Exchange Act of 1934.
Payment for Shares. Payment for all shares of common stock must accompany all completed order forms for the purchase to be valid. Payment for shares in the subscription and community offerings may be made by:
(i) | personal check, bank check or money order, made payable to Catalyst Bancorp; or |
(ii) | authorization of withdrawal of available funds from the types of St. Landry Homestead Federal Savings Bank deposit accounts listed on the stock order form. |
Appropriate means for designating withdrawals from deposit accounts at St. Landry Homestead Federal Savings Bank are provided on the order form. The funds designated must be available in the account(s) at the time the order form is received. A hold will be placed on these funds, making them unavailable to the depositor. Funds authorized for withdrawal will continue to earn interest within the account at the contractual rate until the offering is completed, at which time the designated withdrawal will be made. Interest penalties for early withdrawal applicable to certificate accounts will not apply to withdrawals authorized for the purchase of shares of common stock; however, if a withdrawal results in a certificate account with a balance less than the applicable minimum balance requirement, the certificate will be canceled at the time of withdrawal without penalty and the remaining balance will earn interest at the current passbook rate after the withdrawal. In the case of payments made by personal check, these funds must be available in the account(s). Checks and money orders received in the subscription and community offerings will be immediately cashed and placed in a segregated account at St. Landry Homestead Federal Savings Bank and will earn interest at 0.15% per annum from the date payment is processed until the offering is completed or terminated.
You may not remit St. Landry Homestead Federal Savings Bank line of credit checks or any type of third-party checks (including those payable to you and endorsed over to Catalyst Bancorp). You may not designate on your stock order form direct withdrawal from a retirement account held at St. Landry Homestead Federal Savings Bank. See “—Using Individual Retirement Account Funds.” If permitted by the OCC, if we resolicit large purchasers, as described above in “—Additional Limitations on Common Stock Purchases,” such purchasers who wish to increase their purchases will not be able to use personal checks to pay for the additional shares, but instead must pay for the additional shares using immediately available funds. We may accept wire transfers at our sole discretion.
Once we receive your executed stock order form, it may not be modified, amended or rescinded without our consent, unless the offering is not completed by ____________ __, 2021. If the subscription and community offerings are extended past ____________ __, 2021, all subscribers will be notified and given an opportunity to confirm, change or cancel their orders. If you do not respond to this notice, we will promptly return your funds with interest at 0.15% per annum or cancel your deposit account withdrawal authorization. We may resolicit purchasers for a specified period of time.
OCC regulations prohibit St. Landry Homestead Federal Savings Bank from lending funds or extending credit to any persons to purchase shares of common stock in the offering.
We shall have the right, in our sole discretion, to permit institutional investors to submit irrevocable orders together with the legally binding commitment for payment and to thereafter pay for the shares of common stock for which they subscribe in the community offering at any time before 48 hours before the completion of the offering. This payment may be made by wire transfer.
If our employee stock ownership plan purchases shares in the offering, it will not be required to pay for such shares until completion of the offering, provided that there is a loan commitment from an unrelated financial institution or Catalyst Bancorp to lend to the employee stock ownership plan the necessary amount to fund the purchase.
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Using Individual Retirement Account Funds. If you are interested in using funds in your individual retirement account or other retirement account to purchase shares of common stock, you must do so through a self-directed retirement account. By regulation, St. Landry Homestead Federal Savings Bank’s retirement accounts are not self-directed, so they cannot be invested in our shares of common stock. Therefore, if you wish to use funds that are currently in a retirement account held at St. Landry Homestead Federal Savings Bank, you may not designate on the order form that you wish funds to be withdrawn from the account for the purchase of common stock. The funds you wish to use for the purchase of common stock will instead have to be transferred to an independent trustee or custodian, such as a brokerage firm, offering self-directed retirement accounts. The purchase must be made through that account. If you do not have such an account, you will need to establish one before placing a stock order. A one-time and/or annual administrative fee may be payable to the independent trustee or custodian. There will be no early withdrawal or Internal Revenue Service interest penalties for these transfers. Individuals interested in using funds in an individual retirement account or any other retirement account, whether held at St. Landry Homestead Federal Savings Bank or elsewhere, to purchase shares of common stock should contact our Stock Information Center for guidance as soon as possible, preferably at least two weeks before the _____________ __, 2021 offering deadline. Processing such transactions takes additional time, and whether such funds can be used may depend on limitations imposed by the institutions where such funds are currently held. We cannot guarantee that you will be able to use such funds.
Delivery of Shares of Common Stock. All shares of common stock sold will be issued in book entry form. Stock certificates will not be issued. A statement reflecting ownership of shares of common stock issued in the subscription and community offerings will be mailed by our transfer agent to the persons entitled thereto at the registration address noted by them on their stock order forms as soon as practicable following consummation of the offering. We expect trading in the stock to begin on the day of completion of the offering or the next business day. Until a statement reflecting ownership of shares of common stock is available and delivered to purchasers, purchasers might not be able to sell the shares of common stock that they ordered, even though the shares of common stock will have begun trading. Your ability to sell the shares of common stock before receiving your statement will depend on arrangements you may make with a brokerage firm.
Other Restrictions. Notwithstanding any other provision of the plan of conversion, no person is entitled to purchase any shares of common stock to the extent the purchase would be illegal under any federal or state law or regulation, including state “blue sky” regulations, or would violate regulations or policies of the Financial Industry Regulatory Authority, particularly those regarding free riding and withholding. We may ask for an acceptable legal opinion from any purchaser as to the legality of his or her purchase and we may refuse to honor any purchase order if an opinion is not timely furnished. In addition, we are not required to offer shares of common stock to any person who resides in a foreign country, or in a State of the United States with respect to which any of the following apply:
(i) | a small number of persons otherwise eligible to subscribe for shares under the plan of conversion reside in such state; |
(ii) | the offer or sale of shares of common stock to such persons would require us or our employees to register, under the securities laws of such state, as a broker or dealer or to register or otherwise qualify our securities for sale in such state; or |
(iii) | such registration or qualification would be impracticable for reasons of cost or otherwise. |
Restrictions on Transfer of Subscription Rights and Shares
Applicable banking regulations prohibit any person with subscription rights, including Eligible Account Holders, Supplemental Eligible Account Holders and Other Members, from transferring or entering into any agreement or understanding to transfer the legal or beneficial ownership of the subscription rights issued under the plan of conversion or the shares of common stock to be issued upon their exercise. These rights may be exercised only by the person to whom they are granted and only for his or her account. When registering your stock purchase on the order form, you cannot add the name(s) of others for joint stock registration unless they are also named on the qualifying deposit account, and you cannot delete names of others except for certain orders placed through an IRA, Keogh, 401(k) or similar plan and for the death of the named eligible depositor. Doing so may jeopardize your subscription 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 regarding the sale or transfer of such shares. The regulations also prohibit any person from offering or making an announcement of an offer or intent to make an offer to purchase subscription rights or shares of common stock to be issued upon their exercise before completion of the offering.
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We will pursue any and all legal and equitable remedies if we become aware of the transfer of subscription rights, and we will not honor orders that we believe involve the transfer of subscription rights.
Stock Information Center
Our banking office personnel may not, by law, assist with investment-related questions about the offering. If you have any questions regarding the offering, please call our Stock Information Center. The telephone number is (____) ___-____. The Stock Information Center is open [Monday through Friday between 10:00 a.m. and 4:00 p.m.,] Central Time. The Stock Information Center will be closed on weekends and bank holidays.
Liquidation Rights
In the unlikely event of a complete liquidation of St. Landry Homestead Federal Savings Bank before the conversion, all claims of creditors of St. Landry Homestead Federal Savings Bank, including those of its depositors (to the extent of their deposit balances), would be paid first, with any remaining assets distributed to St. Landry Homestead Federal Savings Bank’s depositors. In the unlikely event that St. Landry Homestead Federal Savings Bank were to liquidate after the conversion, all claims of creditors, including those of depositors, would be paid first, followed by distribution of the “liquidation account” to certain depositors, with any assets remaining thereafter distributed to Catalyst Bancorp as the sole holder of St. Landry Homestead Federal Savings Bank capital stock.
The plan of conversion provides for the establishment, upon the completion of the conversion, of a special “liquidation account” for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders in an amount equal to the total equity of St. Landry Homestead Federal Savings Bank at the date of its latest balance sheet contained in this prospectus. The purpose of the liquidation account is to provide Eligible Account Holders and Supplemental Eligible Account Holders who maintain their deposit accounts with St. Landry Homestead Federal Savings Bank after the conversion with a liquidation interest in the unlikely event of the complete liquidation of St. Landry Homestead Federal Savings Bank after the conversion. Each Eligible Account Holder and Supplemental Eligible Account Holder that continues to maintain his or her deposit account at St. Landry Homestead Federal Savings Bank would be entitled, on a complete liquidation of St. Landry Homestead Federal Savings Bank after the conversion, to an interest in the liquidation account. Each Eligible Account Holder would have an initial interest in the liquidation account for each deposit account, including savings accounts, transaction accounts such as negotiable order of withdrawal accounts, money market deposit accounts, and certificates of deposit, with a balance of $50 or more held in St. Landry Homestead Federal Savings Bank on December 31, 2019. Each Supplemental Eligible Account Holder would have an initial interest in the liquidation account for each deposit account, including savings accounts, transaction accounts such as negotiable order of withdrawal accounts, money market deposit accounts, and certificates of deposit, with a balance of $50 or more held in St. Landry Homestead Federal Savings Bank on _____________ __, 2021.
If, however, on any December 31, annual closing date commencing on or after the effective date of the conversion, the amount in any such deposit account is less than the amount in the deposit account on December 31, 2019 or ___________ __, 2021, respectively, or any other annual closing date, then the interest in the liquidation account relating to such deposit account would be reduced from time to time by the proportion of any such reduction, and such interest will cease to exist if such deposit account is closed. In addition, no interest in the liquidation account would ever be increased despite any subsequent increase in the related deposit account. Payment pursuant to liquidation rights of Eligible Account Holders and Supplemental Eligible Account Holders would be separate and apart from the payment of any insured deposit accounts to such depositor. Any assets remaining after the above liquidation rights of Eligible Account Holders and Supplemental Eligible Account Holders are satisfied would be distributed to Catalyst Bancorp, as the sole shareholder of St. Landry Homestead Federal Savings Bank.
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Material Income Tax Consequences
Consummation of the conversion is subject to the prior receipt of an opinion of counsel or tax advisor with respect to federal and state income taxation that the conversion will not be a taxable transaction to Catalyst Bancorp, St. Landry Homestead Federal Savings Bank, Eligible Account Holders, Supplemental Eligible Account Holders or Other Members, except in case to the extent, if any that subscription rights are deemed to have fair market value on the date such rights are issued. Unlike private letter rulings, opinions of counsel or tax advisors are not binding on the Internal Revenue Service or any state taxing authority, and such authorities may disagree with such opinions. In the event of such disagreement, there can be no assurance that Catalyst Bancorp or St. Landry Homestead Federal Savings Bank would prevail in a judicial proceeding. While the Internal Revenue Service has issued favorable rulings for transactions substantially similar to the proposed conversion and offering, such rulings may not be cited as precedent by any taxpayer other than the taxpayer to whom the ruling is addressed. We do not plan to apply for a letter ruling concerning the transactions described herein.
Catalyst Bancorp and St. Landry Homestead Federal Savings Bank have received an opinion of counsel, Silver, Freedman, Taff & Tiernan LLP, regarding the material federal income tax consequences of the conversion, which includes the following:
1. | The conversion of St. Landry Homestead Federal Savings Bank to a federally-chartered stock savings bank will qualify as a tax-free reorganization within the meaning of Section 368(a)(1)(F) of the Internal Revenue Code. |
2. | St. Landry Homestead Federal Savings Bank will not recognize any gain or loss upon the receipt of money from Catalyst Bancorp in exchange for shares of common stock of St. Landry Homestead Federal Savings Bank. |
3. | The basis and holding period of the assets received by St. Landry Homestead Federal Savings Bank, in stock form, from St. Landry Homestead Federal Savings Bank, in mutual form, will be the same as the basis and holding period of such assets immediately before the conversion. |
4. | No gain or loss will be recognized by account holders of St. Landry Homestead Federal Savings Bank, including Eligible Account Holders, Supplemental Eligible Account Holders and Other Members, upon the issuance to them of withdrawable deposit accounts in St. Landry Homestead Federal Savings Bank, in stock form, in the same dollar amount and under the same terms as their de[posit accounts in St. Landry Homestead Federal Savings Bank, in mutual form. In addition, Eligible Account Holders and Supplemental Eligible Account Holders will not recognize gain or loss upon receipt of an interest in a liquidation account in St. Landry Homestead Federal Savings Bank in exchange for their ownership interests in St. Landry Homestead Federal Savings Bank. |
5. | The basis of the account holders’ deposit accounts in St. Landry Homestead Federal Savings Bank, in stock form, will be the same as the basis of their deposit accounts in St. Landry Homestead Federal Savings Bank, in mutual form. The basis of the Eligible Account Holders’ and Supplemental Eligible Account Holders’ interests in the liquidation account will be zero, which is the cost of such interests to such persons. |
6. | It is more likely than not that the nontransferable subscription rights have no value. Accordingly, no gain or loss will be recognized by Eligible Account Holders, Supplemental Eligible Account Holders and Other Members upon distribution to them of nontransferable subscription rights to purchase shares of Catalyst Bancorp common stock or upon the exercise of such rights, provided that the amount to be paid for Catalyst Bancorp common stock is equal to the fair market value of Catalyst Bancorp common stock. |
7. | It is more likely than not that the basis of the shares of Catalyst Bancorp common stock purchased in the offering will be the purchase price for such shares. The holding period of the Catalyst Bancorp common stock purchased pursuant to the exercise of nontransferable subscription rights will commence on the date on which the right to acquire such stock was exercised. |
8. | No gain or loss will be recognized by Catalyst Bancorp on the receipt of money in exchange for shares of Catalyst Bancorp common stock sold in the offering. |
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The opinion in paragraph 6 above is predicated on the representation that no person shall receive any payment, whether in money or property, in lieu of the issuance of subscription rights. The opinions in paragraphs 6 and 7 above are based on the fact that the subscription rights will be granted at no cost to the recipients, will be legally non-transferable and of short duration, and will provide the recipient with the right only to purchase shares of common stock at the same price to be paid by members of the general public in any community offering. The firm also noted that RP Financial, LC. has issued a letter dated March 11, 2021 stating that the subscription rights will have no ascertainable market value for the reasons set forth in the preceding sentence and that the Internal Revenue Service has not in the past concluded that subscription rights have value. Based on the foregoing, Silver, Freedman, Taff & Tiernan LLP believes that it is more likely than not that the nontransferable subscription rights to purchase shares of common stock have no value. However, the issue of whether or not the nontransferable subscription rights have value is based on all the facts and circumstances. If the subscription rights granted to Eligible Account Holders, Supplemental Eligible Account Holders and Other Members are deemed to have an ascertainable value, receipt of these rights could result in taxable gain to Eligible Account Holders, Supplemental Eligible Account Holders and Other Members in an amount equal to the ascertainable value (in certain cases, whether or not the rights are exercised), and we may be taxed on the distribution of such rights. Eligible Account Holders, Supplemental Eligible Account Holders and Other Members are encouraged to consult with their own tax advisors as to the tax consequences in the event that subscription rights are deemed to have an ascertainable value.
The Internal Revenue Service will not issue private letter rulings with respect to the issue of whether nontransferable rights have value. Unlike private letter rulings, an opinion of counsel or the view of an independent appraiser is not binding on the Internal Revenue Service and the Internal Revenue Service could disagree with the conclusions reached therein. Depending on the conclusion or conclusions with which the Internal Revenue Service disagrees, the Internal Revenue Service may take the position that the transaction is taxable to any one or more of St. Landry Homestead Federal Savings Bank, the members of St. Landry Homestead Federal Savings Bank, Catalyst Bancorp, Eligible Account Holders, Supplemental Eligible Account Holders and Other Members. In the event of a disagreement, there can be no assurance that Catalyst Bancorp or St. Landry Homestead Federal Savings Bank would prevail in a judicial or administrative proceeding.
An opinion stating that the Louisiana income tax consequences are consistent with the federal income tax consequences has been issued by Castaing, Hussey & Lolan, LLC. Both the federal and Louisiana tax opinions have been filed with the Securities and Exchange Commission as exhibits to Catalyst Bancorp’s registration statement.
Certain Restrictions on Purchase or Transfer of Our Shares After the Offering
All shares of common stock purchased in the offering by a director, or certain officers of Catalyst Bancorp or St. Landry Homestead Federal Savings Bank, as well as their associates, generally may not be sold for a period of one year following the closing of the offering, except upon death or judicial declaration of incompetency of the individual. Each statement of ownership for restricted shares will bear a legend giving notice of this restriction on transfer, and instructions will be issued to Catalyst Bancorp’s transfer agent to the effect that any transfer within this time period of any record ownership of the shares other than as provided above is a violation of the restriction. Any shares of common stock issued at a later date as a stock dividend, stock split, or otherwise, with respect to the restricted stock will be similarly restricted. The directors and executive officers of Catalyst Bancorp also will be restricted by the insider trading rules under the Securities Exchange Act of 1934.
Purchases of shares of our common stock by any of our directors, certain officers and their associates, during the three-year period following the closing of the offering may be made only through a broker or dealer registered with the Securities and Exchange Commission, except with the prior written approval of the OCC. This restriction does not apply, however, to purchases of our common stock by our stock option plan or any of our tax-qualified employee stock benefit plans or non-tax-qualified employee stock benefit plans, including any restricted stock plans.
Federal conversion regulations prohibit Catalyst Bancorp from repurchasing its shares of common stock during the first year following the conversion unless compelling business reasons exist for such repurchases, or to fund management recognition plans that have been ratified by shareholders (with OCC approval) or tax-qualified employee stock benefit plans.
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RESTRICTIONS ON ACQUISITION OF CATALYST BANCORP
Restrictions in Our Articles of Incorporation and Bylaws
Certain provisions of the articles of incorporation and bylaws of Catalyst Bancorp which deal with matters of corporate governance and rights of shareholders might be deemed to have a potential anti-takeover effect. Provisions in our articles of incorporation and bylaws provide, among other things,
• | that our board of directors is divided into classes with only one-third of our directors standing for reelection each year; |
• | that no person shall directly or indirectly acquire or offer to acquire beneficial ownership of more than 10% of the issued and outstanding shares of any class of voting securities of the Company; |
• | that special meetings of shareholders may be called by shareholders who beneficially own at least 50% of the outstanding voting shares of the Company; |
• | that shareholders generally must provide us advance notice of shareholder proposals and director nominations and provide certain specified related information; and |
• | the authority to issue shares of authorized but unissued common stock and preferred stock and to establish the terms of any one or more series of preferred stock, including voting rights, without additional shareholder approval. |
The provisions noted above as well as others discussed below may have the effect of discouraging a future takeover attempt which is not approved by our board of directors but which individual shareholders may consider to be in their best interests or in which shareholders may receive a substantial premium for their shares over the then current market price. As a result, shareholders who might wish to participate in such a transaction may not have an opportunity to do so. The provisions may also render the removal of our board of directors or management more difficult. Furthermore, such provisions could render us being deemed less attractive to a potential acquiror and/or could result in our shareholders receiving a lesser amount of consideration for their shares of our common stock than otherwise could have been available either in the market generally and/or in a takeover.
A more detailed discussion of these and other provisions of our articles of incorporation and bylaws is set forth below.
Board of Directors. Our articles of incorporation and bylaws provide that our board of directors be divided into three classes of directors each and that the members of each class be elected for a term of three years and until their successors are elected and qualified, with one class being elected annually. Holders of our common stock will not have cumulative voting in the election of directors.
Under our articles of incorporation, subject to the rights of the holders of any class or series of stock having preference over our common stock, any vacancy occurring in our board of directors, including any vacancy created by reason of an increase in the number of directors, may be filled by a majority vote of the remaining directors, whether or not a quorum is present. Any director so chosen to fill a vacancy will hold office for the remainder of the term to which the director has been elected and until his or her successor is elected and qualified.
Our articles of incorporation also provide that, subject to the rights of the holder of any class or series of stock having preference over our common stock, any director may be removed by shareholders without cause by the affirmative vote of at least 75% of all outstanding shares entitled to vote in the election of directors, and may be removed with cause only upon the vote of at least a majority of the total votes eligible to be cast by shareholders. Cause for removal will be deemed to exist only if the director in question has been:
• | Declared of unsound mind by a court of competent jurisdiction; |
• | convicted of a felony or an offense punishable by imprisonment for a term of more than one year; or |
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• | deemed liable by a court of competent jurisdiction for gross negligence or misconduct in the performance of duties to Catalyst Bancorp. |
Limitation on Beneficial Ownership of Common Stock. Article 10.A of our articles of incorporation provides that no person shall directly or indirectly offer to acquire or acquire the beneficial ownership of (i) more than 10% of the issued and outstanding shares of any class of an equity security of the company, or (ii) any securities convertible into, or exercisable for, any equity securities of the company if, assuming conversion or exercise by such person of all securities of which such person is the beneficial owner which are convertible into, or exercisable for, such equity securities (but of no securities convertible into, or exercisable for, such equity securities of which such person is not the beneficial owner), such person would be the beneficial owner of more than 10% of any class of an equity security of the Company. The term “person” is broadly defined to prevent circumvention of this restriction.
The foregoing restrictions do not apply to (i) any offer with a view toward public resale made exclusively to the Company by underwriters or a selling group acting on its behalf, (ii) any tax-qualified employee benefit plan or arrangement established by us and any trustee of such a plan or arrangement, and (iii) any other offer or acquisition approved in advance by the affirmative vote of two-thirds of our entire board of directors. In the event that shares are acquired in violation of Article 10.A, all shares beneficially owned by any person in excess of 10% shall be considered “Excess Shares” and shall not be counted as shares entitled to vote and shall not be voted by any person or counted as voting shares in connection with any matters submitted to shareholders for a vote, and the board of directors may cause such Excess Shares to be transferred to an independent trustee for sale on the open market or otherwise, with the expenses of such trustee to be paid out of the proceeds of sale.
Authorized Shares. Article 4 of our articles of incorporation authorizes the issuance of 35,000,000 shares of stock, of which 5,000,000 shares shall be shares of serial preferred stock, and 30,000,000 shall be common stock. The shares of common stock and preferred stock were authorized in an amount greater than that to be issued in the conversion to provide our board of directors with as much flexibility as possible to effect, among other transactions, financings, acquisitions, stock dividends, stock splits and employee stock options. However, these additional authorized shares may also be used by the board of directors consistent with its fiduciary duty to deter future attempts to gain control of the Company. The board of directors also has sole authority to determine the terms of any one or more series of preferred stock, including voting rights, conversion rates, and liquidation preferences. As a result of the ability to fix voting rights for a series of preferred stock, the board has the power, to the extent consistent with its fiduciary duty, to issue a series of preferred stock to persons friendly to management in order to attempt to block a post-tender offer merger or other transaction by which a third party seeks control, and thereby assist management to retain its position. We currently have no plans for the issuance of additional shares, other than the issuance of additional shares pursuant to stock benefit plans.
Special Meetings of Shareholders and Shareholder Nominations and Proposals. Article 9.B of the articles of incorporation provides that special meetings of shareholders may only be called by (i) the Chief Executive Officer, (ii) a majority of the board of directors, and (iii) by persons who beneficially own an aggregate of at least 50% of the outstanding voting shares, except as may otherwise be provided by law. The articles of incorporation also provide that any action permitted to be taken at a meeting of shareholders may be taken without a meeting if a consent in writing, setting forth the action so taken, is given by the holders of all outstanding shares entitled to vote and filed with the secretary of the Company.
Article 9.D of our articles of incorporation provides that only such business as shall have been properly brought before an annual meeting of shareholders shall be conducted at the annual meeting.
To be properly brought before an annual meeting, business must be specified in the notice of the meeting, or any supplement thereto, given by or at the direction of the board of directors, or otherwise properly brought before the meeting by a shareholder. For business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Company’s secretary. To be timely, a shareholder’s notice must be delivered to or mailed and received at the Company’s principal executive offices not later than 120 days prior to the anniversary date of the mailing of proxy materials by the Company in connection with the immediately preceding annual meeting of shareholders, or, in the case of the first annual meeting of shareholders following the conversion, by December 15, 2021. The Company’s articles of incorporation also require that the notice must contain certain information in order to be considered. The board of directors may reject any shareholder proposal not made in accordance with the articles of incorporation. The presiding officer of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with our articles of incorporation, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.
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Article 6.F. of our articles of incorporation provide that, subject to the rights of the holders of any class or series of stock having a preference over the common stock as to dividends or upon liquidation, all nominations for election to the board of directors, other than those made by the board or a committee thereof, shall be made by a shareholder who has complied with the notice provisions in such Article 6.F. Written notice of a shareholder nomination must include certain specified information and must be communicated to the attention of the secretary and either delivered to, or mailed and received at, the Company’s principal executive offices not later than (a) with respect to an annual meeting of shareholders, 120 days prior to the anniversary date of the mailing of proxy materials by the Company in connection with the immediately preceding annual meeting of shareholders, or in the case of the first annual meeting following the conversion by December 15, 2021.
The procedures regarding shareholder proposals and nominations are intended to provide the Company’s board of directors with the information deemed necessary to evaluate a shareholder proposal or nomination and other relevant information, such as existing shareholder support, as well as the time necessary to consider and evaluate such information in advance of the applicable meeting. The proposed procedures, however, will give incumbent directors advance notice of a business proposal or nomination. This may make it easier for the incumbent directors to defeat a shareholder proposal or nomination, even when certain shareholders view such proposal or nomination as in the best interests of the Company or its shareholders.
Amendment of Articles of Incorporation and Bylaws. Article 12 of our articles of incorporation generally provides that any amendment of the articles of incorporation must be first approved by a majority of the board of directors and then by the holders of a majority of the shares of the Company entitled to vote in an election of directors, except that the approval of 75% of the shares entitled to vote in an election of directors is required for any amendment to Articles 6 (directors), 7 (preemptive rights), 8 (indemnification), 9 (meetings of shareholders and shareholder proposals), 10 (restrictions on acquisitions) and 12 (amendments).
Our bylaws may be amended by a majority of the board of directors or by the affirmative vote of a majority of the total shares entitled to vote in an election of directors, except that the affirmative vote of at least 75% of the total shares entitled to vote in an election of directors shall be required to amend, adopt, alter, change or repeal any provision inconsistent with certain specified provisions of the bylaws.
Directors’ Discharge of Duties. Article 6.G of our Articles of Incorporation provides that, in discharging their duties as directors, such individuals shall, in considering the best interests of Catalyst Bancorp, consider the effects of any action upon the employees of the company and its subsidiary, St. Landry Homestead Federal Savings Bank, the depositors and borrowers of St. Landry Homestead Federal Savings Bank, the communities which it serves and all other pertinent factors.
The foregoing provisions of the articles of incorporation and bylaws of the Catalyst Bancorp could have the effect of discouraging an acquisition of the company or stock purchases in furtherance of an acquisition, and could accordingly, under certain circumstances, discourage transactions which might otherwise have a favorable effect on the price of our common stock.
The board of directors believes that the provisions described above are prudent and will reduce vulnerability to takeover attempts and certain other transactions that are not negotiated with and approved by our board of directors. The board of directors believes that these provisions are in our best interests and shareholders. In the board of director’s judgment, the board of directors is in the best position to determine our true value and to negotiate more effectively for what may be in the best interests of shareholders. Accordingly, the board of directors believes that it is in our best interests and shareholders to encourage potential acquirors to negotiate directly with the board of directors and that these provisions will encourage such negotiations and discourage hostile takeover attempts. It is also the board of directors’ view that these provisions should not discourage persons from proposing a merger or other transaction at prices reflective of the true value of our stock and where the transaction is in the best interests of all shareholders.
Despite the board of directors’ belief as to the benefits to our shareholders of the foregoing provisions, these provisions also may have the effect of discouraging a future takeover attempt in which shareholders might receive a substantial premium for their shares over then current market prices and may tend to perpetuate existing management. As a result, shareholders who might desire to participate in such a transaction may not have an opportunity to do so. The board of directors, however, has concluded that the potential benefits of these provisions outweigh their possible disadvantages.
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Regulatory Restrictions
Under the Change in Bank Control Act, no person may acquire control of a savings and loan holding company unless the FRB has been given 60 days’ prior written notice and has not issued a notice disapproving the proposed acquisition.
Control, as defined under federal law, means ownership, control, or holding with power to vote, of 25% or more of any class of voting stock. Federal regulations establish a rebuttable presumption of control upon ownership, control, or holding with power to vote of 10% or more of a class of voting stock where (i) the company has registered securities under Section 12 of the Securities Exchange Act of 1934 or (ii) no other person will own control or hold the power to vote a greater percentage of that class of voting securities.
The FRB may deny an acquisition of control if it finds, among other things, that:
• | the acquisition would result in a monopoly or substantially lessen competition; |
• | the financial condition of the acquiring person might jeopardize the financial stability of the institution; |
• | the competence, experience or integrity of the acquiring person indicates that it would not be in the interest of the depositors or the public to permit the acquisition of control by such person; or |
• | the acquisition would have an adverse effect on the Deposit Insurance Fund. |
FRB regulations generally prohibit any person from acquiring or making an offer to acquire beneficial ownership 10% or more of a class of voting stock of Catalyst Bancorp or St. Landry Homestead Federal Savings Bank without the FRB’s prior approval.
During the conversion and for three years following the conversion, the conversion regulations prohibit any person from acquiring, either directly or indirectly, or making an offer to acquire more than 10% of the stock of any converted savings institution, such as St. Landry Homestead Federal Savings Bank, without the prior written approval of the Office of Comptroller of the Currency, except for:
• | any offer with a view toward public resale made exclusively to the institution or to underwriters or a selling group acting on its behalf; |
• | offers that if consummated would not result in the acquisition by such person during the preceding 12-month period of more than 1% of such stock; |
• | offers in the aggregate for up to 24.9% by the employee stock ownership plan or other tax-qualified plans; and |
• | an offer to acquire or acquisition of beneficial ownership of more than 10% of the common stock of the savings institution by a corporation whose ownership is or will be substantially the same as the ownership of the savings institution, provided that the offer or acquisition is made more than one year following the date of completion of the conversion. |
Such prohibition also is applicable to the acquisition of Catalyst Bancorp common stock. In the event that any person, directly or indirectly, violates this regulation, the securities beneficially owned by such person in excess of 10% shall not be counted as shares entitled to vote and shall not be voted by any person or counted as voting shares in connection with any matters submitted to a vote of shareholders. The definition of beneficial ownership for this regulation extends to persons holding revocable or irrevocable proxies for an institution’s stock under circumstances that give rise to a conclusive or rebuttable determination of control under Federal banking regulations.
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General
We are authorized to issue 35,000,000 shares of capital stock, of which 30,000,000 are shares of common stock, par value $.01 per share (the “Common Stock”) and 5,000,000 are shares of preferred stock, par value $.01 per share (the “Preferred Stock”). We currently expect to issue up to 5,091,625 shares of Common Stock and no shares of Preferred Stock in the conversion. Each share of our Common Stock issued in the conversion will have the same relative rights as, and will be identical in all respects with, each other share of Common Stock issued in the conversion. Upon payment of the purchase price of $10.00 per share for the Common Stock in accordance with the plan of conversion, all such stock will be duly authorized, fully paid and nonassessable based on the laws and regulations in effect as of the date of consummation of the conversion.
Our Common Stock will represent nonwithdrawable capital, will not be an account of an insurable type, and will not be insured by the FDIC.
Common Stock
Dividends. We can pay dividends if, as and when declared by our board of directors, subject to compliance with limitations which are imposed by law. See “Our Dividend Policy.” The holders of Catalyst Bancorp Common Stock will be entitled to receive and share equally in such dividends as may be declared by the Catalyst Bancorp board of directors out of funds legally available therefor. If we issue Preferred Stock, the holders thereof may have a priority over the holders of the Common Stock with respect to dividends.
Voting Rights. Upon completion of the conversion, the holders of Catalyst Bancorp Common Stock will possess exclusive voting rights in the company. They will elect our board of directors and act on such other matters as are required to be presented to them under Louisiana law or our articles of incorporation or as are otherwise presented to them by the board of directors. Except as discussed in “Restrictions on Acquisition of Catalyst Bancorp,” each holder of Common Stock will be entitled to one vote per share and will not have any right to cumulate votes in the election of directors. If we issue Preferred Stock, holders of the Preferred Stock may also possess voting rights.
Liquidation. In the event of any liquidation, dissolution or winding up of St. Landry Homestead Federal Savings Bank, Catalyst Bancorp, as the sole holder of the Bank’s capital stock, would be entitled to receive, after payment or provision for payment of all debts and liabilities of the bank (including all deposit accounts and accrued interest thereon) and after distribution of the balance in the special liquidation account to Eligible Account Holders and Supplemental Eligible Account Holders (see “The Conversion and Offering – Liquidation Rights”), all assets of St. Landry Homestead Federal Savings Bank available for distribution. In the event of any liquidation, dissolution or winding up of Catalyst Bancorp, the holders of Catalyst Bancorp Common Stock would be entitled to receive, after payment or provision for payment of all our debts and liabilities, all of the assets of the company available for distribution. If Preferred Stock is issued, the holders thereof may have a priority over the holders of Catalyst Bancorp Common Stock in the event of liquidation or dissolution.
Preemptive Rights. Holders of Catalyst Bancorp Common Stock will not be entitled to preemptive rights with respect to any shares which may be issued in the future. Catalyst Bancorp Common Stock is not subject to any required redemption.
Preferred Stock
None of the shares of Catalyst Bancorp authorized Preferred Stock will be issued in the conversion. Such stock may be issued with such preferences and designations as the board of directors may from time to time determine. Our board of directors can, without shareholder approval, issue preferred stock with voting, dividend, liquidation and conversion rights which could dilute the voting strength of the holders of the Common Stock and may assist management in impeding an unfriendly takeover or attempted change in control.
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The transfer agent and registrar for our common stock will be ______________________, ___________________, _________________.
Prior to the offering, the financial statements of St. Landry Homestead Federal Savings Bank at and for the year ended December 31, 2019 were audited by Darnall, Sikes & Frederick, in accordance with standards of the American Institute of Certified Public Accountants. At the time Darnall, Sikes & Frederick performed audit services for St. Landry Homestead Federal Savings Bank, the Bank was not a public company and was not subject to U.S. Securities and Exchange Commission regulations.
In connection with the conversion and offering, on November 6, 2019, St. Landry Homestead Federal Savings Bank dismissed Darnall, Sikes & Frederick with respect to the audit of the financial statements of the Bank as of and for the year ended December 31, 2020, and engaged Castaing, Hussey & Lolan, LLC, to re-audit, in accordance with the standards of the Public Company Accounting Oversight Board, St. Landry Homestead Federal Savings Bank’s financial statements as of and for the year ended December 31, 2019 and to audit its financial statements as of and for the year ended December 31, 2020. These financial statements, including Castaing, Hussey & Lolan LLC’s audit report thereon, are included in this prospectus. The engagement of Castaing, Hussey & Lolan, LLC was approved by the board of directors of St. Landry Homestead Federal Savings Bank.
During the years ended December 31, 2020 and 2019, neither St. Landry Homestead Federal Savings Bank nor anyone on its behalf consulted Castaing, Hussey & Lolan LLC regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on St. Landry Homestead Federal Savings Bank’s financial statements, and neither a written report nor oral advice was provided to St. Landry Homestead Federal Savings Bank that Castaing, Hussey & Lolan, LLC concluded was an important factor considered by St. Landry Homestead Federal Savings Bank in reaching a decision as to any accounting, auditing or financial reporting issue, or (ii) any matter that was either the subject of a disagreement or a reportable event, each as defined in Regulation S-K Item 304(a)(1)(v), respectively.
As noted above, the financial statements of St. Landry Homestead Savings Bank for the year ended December 31, 2019 were previously audited by Darnall, Sikes & Frederick. During the years ended December 31, 2020 and 2019, there were no disagreements with Darnall, Sikes & Frederick on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to their satisfaction, would have caused them to make reference in connection with their audit report to the subject matter of the disagreement, or reportable events as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
The audit report of Darnall, Sikes & Frederick on the financial statements of St. Landry Homestead Federal Savings Bank as of and for the year ended December 31, 2019 did not contain an adverse opinion or a disclaimer of opinion, and was not otherwise qualified or modified as to uncertainty, audit scope or accounting principles.
St. Landry Homestead Federal Savings Bank provided Darnall, Sikes & Frederick with a copy of this disclosure prior to its filing with the U.S. Securities and Exchange Commission and requested that Darnall, Sikes & Frederick furnish St. Landry Homestead Federal Savings Bank with a letter addressed to the U.S. Securities and Exchange Commission stating whether it agrees with the above statements and, if it does not agree, the respects in which it does not agree. Darnall, Sikes & Frederick has furnished a letter dated March 8, 2021 addressed to the U.S. Securities and Exchange Commission and filed as Exhibit 16 to the registration statement of Catalyst Bancorp, Inc. which this prospectus is a part stating its agreement with the above statements as they relate to Darnall, Sikes & Frederick.
118
The financial statements of St. Landry Homestead Federal Savings Bank at December 31, 2019 and 2020 and for the years then ended have been included in this prospectus and in the registration statement of which this prospectus is a part, in reliance on the report of Castaing, Hussey & Lolan, LLC, independent registered public accounting firm, which is included herein, upon the authority of said firm as experts in accounting and auditing.
RP Financial, LC. has consented to the publication herein of the summary of its report setting forth its opinion as to the estimated pro forma market value of the shares of common stock upon completion of the conversion and offering and its letter with respect to subscription rights.
Silver, Freedman, Taff & Tiernan LLP, Washington, D.C., counsel to Catalyst Bancorp and St. Landry Homestead Federal Savings Bank, has issued to Catalyst Bancorp its opinion regarding the legality of the common stock and the federal income tax consequences of the conversion and offering. Castaing, Hussey & Lolan, LLC has provided its opinion to us regarding the Louisiana income tax consequences of the conversion and offering. Certain legal matters will be passed upon for Piper Sandler & Co. by Luse Gorman, PC, Washington, D.C.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Catalyst Bancorp has filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 with respect to the shares of common stock offered hereby. As permitted by the rules and regulations of the Securities and Exchange Commission, this prospectus does not contain all the information set forth in the registration statement. Such information, including the appraisal report which is an exhibit to the registration statement, can be examined without charge at the public reference facilities of the Securities and Exchange Commission located at 100 F Street, N.E., Washington, D.C. 20549, and copies of such material can be obtained from the Securities and Exchange Commission at prescribed rates. The Securities and Exchange Commission’s telephone number is 1-800-SEC-0330. In addition, the Securities and Exchange Commission maintains a web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission, including Catalyst Bancorp. The statements contained in this prospectus as to the contents of any contract or other document filed as an exhibit to the registration statement are, of necessity, brief descriptions of the material terms of, and should be read in conjunction with, such contract or document.
St. Landry Homestead Federal Savings Bank has filed with the OCC an application with respect to the conversion. This prospectus omits certain information contained in such application. The conversion application may be inspected, without charge, at the offices of the OCC, 500 North Akard Street, Suite 1600, Dallas, Texas 75021. The plan of conversion is available, upon request, at each of St. Landry Homestead Federal Savings Bank’s offices.
In connection with the offering, Catalyst Bancorp will register its common stock under Section 12(b) of the Securities Exchange Act of 1934 and, upon such registration, Catalyst Bancorp and the holders of its common stock will become subject to the proxy solicitation rules, reporting requirements and restrictions on common stock purchases and sales by directors, officers and greater than 10% shareholders, the annual and periodic reporting and certain other requirements of the Securities Exchange Act of 1934. Under the plan of conversion, Catalyst Bancorp has undertaken that it will not terminate such registration for a period of at least three years following the conversion and offering.
119
INDEX
TO FINANCIAL STATEMENTS OF
ST.
LANDRY HOMESTEAD FEDERAL SAVINGS BANK
This prospectus does not include separate financial statements for Catalyst Bancorp because it has not engaged in any significant activities, has no significant assets, and has no contingent liabilities, revenues or expenses.
All financial statement schedules are omitted because the required information either is inapplicable or is included in the financial statements or related notes.
120 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
St. Landry Homestead Federal Savings Bank
Opelousas, LA
Opinion on the Financial Statements
We have audited the accompanying statements of financial condition of St. Landry Homestead Federal Savings Bank (the Bank) as of December 31, 2020 and 2019, and the related statements of income, comprehensive income, equity, and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Bank as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on the Bank’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Bank in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Bank is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Castaing, Hussey & Lolan, LLC
We have served as the Bank’s auditor since 2020.
New Iberia, LA
March 12, 2021
F-1
ST LANDRY HOMESTEAD FEDERAL SAVINGS BANK
STATEMENTS OF FINANCIAL CONDITION
December 31, 2020 and 2019
The accompanying Notes are an integral part of these financial statements.
F-2
ST LANDRY HOMESTEAD FEDERAL SAVING BANK
STATEMENTS OF INCOME
For the Years ended December 31, 2020 and 2019
(Dollars in thousands) | 2020 | 2019 | ||||||
INTEREST INCOME | ||||||||
Loans receivable, including fees | $ | 7,827 | $ | 7,943 | ||||
Investment securities | 568 | 688 | ||||||
Other | 95 | 337 | ||||||
Total interest income | 8,490 | 8,968 | ||||||
INTEREST EXPENSE | ||||||||
Deposits | 920 | 1,112 | ||||||
Advances from Federal Home Loan Bank | 785 | 795 | ||||||
Total interest expense | 1,705 | 1,907 | ||||||
Net interest income | 6,785 | 7,061 | ||||||
PROVISION FOR LOAN LOSSES | 985 | 75 | ||||||
Net interest income after provision for loan losses | 5,800 | 6,986 | ||||||
NON-INTEREST INCOME | ||||||||
Service charges on deposit accounts | 575 | 587 | ||||||
Gain on sale of fixed assets | 16 | - | ||||||
Bank owned life insurance income | 70 | 70 | ||||||
Federal Community Development Grant | 203 | 246 | ||||||
Other | 102 | 51 | ||||||
Total non-interest income | 966 | 954 | ||||||
NON-INTEREST EXPENSE | ||||||||
Salaries and employee benefits | 3,615 | 3,512 | ||||||
Occupancy and equipment | 678 | 630 | ||||||
Computer services expense | 541 | 499 | ||||||
Legal and accounting | 273 | 234 | ||||||
Foreclosed assets expense, net | 287 | 299 | ||||||
ATM and debit card expense | 151 | 138 | ||||||
Advertising and marketing | 86 | 144 | ||||||
Prepayment penalties on FHLB advances | 1,510 | - | ||||||
Directors' fees | 219 | 251 | ||||||
Other | 554 | 561 | ||||||
Total non-interest expense | 7,914 | 6,268 | ||||||
Income (loss) before income taxes | (1,148 | ) | 1,672 | |||||
INCOME TAX EXPENSE (BENEFIT) | (464 | ) | 334 | |||||
NET INCOME (LOSS) | $ | (684 | ) | $ | 1,338 |
The accompanying Notes are an integral part of these financial statements.
F-3
ST LANDRY HOMESTEAD FEDERAL SAVING BANK
STATEMENTS OF COMPREHENSIVE INCOME
For the Years ended December 31, 2020 and 2019
(Dollars in thousands) | 2020 | 2019 | ||||||
Net income (loss) | $ | (684 | ) | $ | 1,338 | |||
OTHER COMPREHENSIVE INCOME | ||||||||
Change in unrealized gain (loss) on marketable securities | 150 | 233 | ||||||
Less: deferred income tax effect | (31 | ) | (49 | ) | ||||
Total other comprehensive income | 119 | 184 | ||||||
Total comprehensive income (loss) | $ | (565 | ) | $ | 1,522 |
The accompanying Notes are an integral part of these financial statements.
F-4
ST. LANDRY HOMESTEAD FEDERAL SAVINGS BANK
STATEMENTS OF CHANGES IN EQUITY
For the Years ended December 31, 2020 and 2019
Accumulated | ||||||||||||
Other | ||||||||||||
Retained | Comprehensive | Total | ||||||||||
(Dollars in thousands) | Earnings | Income (Loss) | Equity | |||||||||
BALANCE, December 31, 2018 as previously reported | $ | 49,640 | $ | (196 | ) | $ | 49,444 | |||||
Adjustment of prior period Financial Statements | 202 | 202 | ||||||||||
BALANCE, December 31, 2018 as restated | 49,842 | (196 | ) | 49,646 | ||||||||
Net income | 1,338 | - | 1,338 | |||||||||
Other comprehensive income | 184 | 184 | ||||||||||
BALANCE, December 31, 2019 | 51,180 | (12 | ) | 51,168 | ||||||||
Net income (loss) | (684 | ) | - | (684 | ) | |||||||
Other comprehensive income | 119 | 119 | ||||||||||
BALANCE, December 31, 2020 | $ | 50,496 | $ | 107 | $ | 50,603 |
The accompanying Notes are an integral part of these financial statements.
F-5
ST. LANDRY HOMESTEAD FEDERAL SAVINGS BANK
STATEMENTS OF CASH FLOWS
For the Years ended December 31, 2020 and 2019
(Dollars in thousands) | 2020 | 2019 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income (loss) | $ | (684 | ) | $ | 1,338 | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Investment securities amortization (accretion) net | 208 | (161 | ) | |||||
Stock dividend on Federal Home Loan Bank stock | (22 | ) | (41 | ) | ||||
Provision for loan losses | 985 | 75 | ||||||
Writedowns and (gains) losses on sales of foreclosed real estate | 286 | 276 | ||||||
Net (gain) loss on sale of premises and equipment | (16 | ) | - | |||||
Depreciation of premises and equipment | 347 | 296 | ||||||
Decrease in other assets and liabilities, net | (247 | ) | (72 | ) | ||||
Net cash provided by operating activities | 857 | 1,711 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Net (increase) decrease in loans | 11,597 | (1,672 | ) | |||||
Activity in held-to-maturity securities: | ||||||||
Proceeds from maturities and calls | 13,000 | 10,000 | ||||||
Purchases | (17,420 | ) | (4,129 | ) | ||||
Activity in available-for-sale securities: | ||||||||
Proceeds from maturities, calls, and paydowns | 10,177 | 7,794 | ||||||
Purchases | (16,719 | ) | (6,450 | ) | ||||
Proceeds from sale of foreclosed real estate | 583 | 907 | ||||||
Purchases of premises and equipment | (547 | ) | (2,292 | ) | ||||
Proceeds from sale of premises and equipment | 16 | 5 | ||||||
Purchase of bank owned life insurance | (1,000 | ) | - | |||||
Net cash provided by (used in) investing activities | (313 | ) | 4,163 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Net increase (decrease) in deposits | 22,969 | (4,806 | ) | |||||
Repayments of Federal Home Loan Bank advances | (15,000 | ) | - | |||||
Prepayment penalties on debt restructuring | (1,177 | ) | - | |||||
Net cash provided by (used in) financing activities | 6,792 | (4,806 | ) | |||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 7,336 | 1,068 | ||||||
CASH AND CASH EQUIVALENTS, beginning of year | 17,909 | 16,841 | ||||||
CASH AND CASH EQUIVALENTS, end of year | $ | 25,245 | $ | 17,909 | ||||
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES | ||||||||
Loans originated to facilitate the sale of real estate owned | $ | 48 | $ | 146 | ||||
Loan principal reductions resulting from foreclosures on real estate | $ | 228 | $ | 958 | ||||
SUPPLEMENTAL SCHEDULE OF INTEREST AND TAXES PAID | ||||||||
Cash paid for interest | $ | 1,768 | $ | 1,897 | ||||
Cash paid for income taxes | $ | 75 | $ | 112 |
The accompanying Notes are an integral part of these financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
St Landry Homestead Federal Savings Bank (the Bank) provides a variety of banking services to individuals and corporate customers within its principal market area consisting of St. Landry Parish, Evangeline Parish, Acadia Parish and Lafayette Parish, Louisiana, and is subject to competition from other financial institutions. The Bank’s primary deposit products are savings accounts, demand and NOW accounts, money market accounts, and certificates of deposit. Its primary lending products are single family residential loans, commercial loans, and consumer loans. The Bank is also subject to the regulations of certain federal agencies and undergoes periodic examinations by those agencies.
COVID-19, a global pandemic, has adversely impacted the broad economy, including most industries and sectors. The length and depth of the pandemic will ultimately determine the overall financial impact to the Bank, but it could impair our customer’s ability to meet their financial obligations to us. Furthermore, while there has been no material impact to the Company’s employees to date, COVID-19 could potentially create business continuity issues for the Bank.
In accordance with Financial Accounting Standards Board (FASB) and interagency regulatory guidance issued in March 2020, loans that are modified under the terms of our COVID-19 Deferral Assistance Program will not be considered as troubled debt restructurings to the extent that they meet the terms of such guidance under Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The Bank also elected to participate in the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) to assist customers through the pandemic during the year ended December 31, 2020.
Summary of Significant Accounting Policies
The accounting and reporting policies of the Bank conform to generally accepted accounting principles and to predominant accounting practices within the banking industry. The more significant accounting and reporting policies are as follows:
Uses of Estimates
The preparation of financial statements in conformity with Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for losses or loans and the valuation for foreclosed real estate. In connection with the determination of the estimated losses on loans and foreclosed real estate, management obtains independent appraisals for significant properties.
A substantial portion of the Bank’s loans and real estate owned are secured by real estate in local markets which are largely rural and rely heavily upon agriculture and the oil and gas industry. Accordingly, the ultimate collectability of a substantial portion of the Bank’s loan portfolio and the recovery of the carrying amount of foreclosed real estate are susceptible to changes in local market conditions.
F-7
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Uses of Estimates (Continued)
While management uses available information to recognize losses on loans and foreclosed real estate, further reductions in the carrying amount of loans and foreclosed assets may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Bank’s estimated losses on loans and foreclosed real estate. Such agencies may require the Bank to recognize additional losses based on their judgments about information available at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans and foreclosed real estate may change materially in the near-term. However, the amount of the change that is reasonably possible cannot be estimated.
Comprehensive Income
Accounting principles generally require that recognized revenue, expense, gains, and losses be included in net income. Certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the statement of financial condition. Such items, along with net income, are components of comprehensive income.
Cash and Cash Equivalents
For the purpose of reporting cash flows, cash and cash equivalents include cash, interest-bearing deposits in other institutions, certificates of deposit purchased with original maturities of three months or less and highly liquid debt instruments with original maturities when purchased for three months or less.
Investment Securities
Investment securities that are acquired with the intention of being resold in the near term are classified as trading securities and are carried at fair value, with unrealized holding gains and losses recognized in current earnings. The Bank did not hold any securities for trading purposes at, or during the years ended, December 31, 2020 or 2019.
Government, federal agency, and corporate debt securities that management has the positive intent and ability to hold to maturity are classified as held-to-maturity and are reported at cost, adjusted for amortization of premiums and accretion of discounts that are recognized in interest income using methods approximating the interest method over the period to maturity. Available-for-sale securities consist of investment securities not classified as trading securities or held-to-maturity securities. Unrealized holding gains and losses, net of tax, on available-for-sale securities are included in other comprehensive income.
Premiums and discounts are amortized using methods approximating the interest method over the remaining period to contractual maturity, adjusted for anticipated prepayments. Interest income is recognized when earned.
Realized gains (losses) on sales of securities are included in earnings and, when applicable, are reported as a reclassification adjustment, net of tax, in other comprehensive income. Gains and losses on the sale of securities are determined using the specific-identification method. The amortization of premiums and the accretion of discounts are recognized in interest income using methods approximating the interest method over the period of maturity.
Declines in the estimated fair value of individual investment securities below their cost that are other-than-temporary are reflected as realized losses in the statement of income. Factors affecting the determination of whether an other-than-temporary impairment has occurred include, among other things, (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) that the Bank does not intend to sell these securities, and (4) it is more likely than not that the Bank will not be required to sell before a period of time sufficient to allow for any anticipated recovery in fair value.
F-8
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans Receivable
Loans receivable are carried at the amount of unpaid principal balances, less the allowance for loan losses, and net deferred loan-origination fees and discounts. Interest income on loans receivable is accrued based on the unpaid principal balance.
Loans are placed on nonaccrual status when the loan is determined by management to be uncollectable due to the borrower’s failure to meet repayment terms, the borrower’s deteriorating or deteriorated financial condition, or the depreciation of underlying collateral. The allowance for the 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 uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The Bank’s practice is to charge off any loan or portion of a loan when it is placed on nonaccrual providing fair market value of the underlying collateral has declined or the loan’s classification as a loss by regulatory examiners, or for other reasons.
A loan is considered impaired when, based on current information and events, it is possible that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a restructuring agreement.
Allowance for Loan Losses
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans 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.
F-9
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses (Continued)
The allowance consists of specific, general, and unallocated components. The specific component relates to loans that are classified as doubtful, substandard, or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects that margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
Foreclosed Real Estate
Foreclosed real estate includes only formally foreclosed property. At the time of foreclosure, foreclosed real estate is recorded at fair value, less cost to sell, which becomes the property’s new basis. Any write-downs based on the assets fair value at date of acquisition are charged to the allowance for loan losses. After foreclosure, valuations are periodically performed by management and property held for sale is carried at the lower of the new cost basis or fair value less cost to sell. Impairment losses on property to be held and used are measured as the amount by which the carrying amount of a property exceeds fair value. Costs incurred in maintaining foreclosed real estate and subsequent adjustments to the carrying amount of the property are included in foreclosed asset expense.
Income Taxes
Deferred taxes are provided for accumulated temporary differences due to basis differences for assets and liabilities for financial reporting and income tax purposes. The Bank’s temporary differences related primarily to differences between the basis of FHLB stock, available-for-sale securities, depreciation, allowance for loan and lease losses, unearned profit on REO for financial and income tax reporting, deferred fees and discount on restructuring of FHLB borrowings.
Accounting Standard Codification 740 (ASC 740) requires that a tax position be recognized or derecognized based on a “more likely than not” threshold. This applies to positions taken or expected to be taken in a tax return where there is uncertainty about whether a tax position will ultimately be sustained upon examination. The Bank has evaluated its tax position and determined that it does not have any uncertain tax positions that meet criteria under ASC 740. Accordingly, implementation of ASC 740 does not have any impact on the accompanying financial statements. The Bank’s management believes it is no longer subject to income tax examinations for fiscal years prior to December 31, 2017.
Premises and Equipment
Land is carried at cost. Buildings, furniture, fixtures, and equipment are carried at cost, less accumulated depreciation. Buildings, furniture, fixtures, and equipment are depreciated using the declining balance and straight-line methods over the estimated useful lives of the assets.
Bank Owned Life Insurance
The Bank purchased single-premium life insurance on certain employees of the Bank. Appreciation in value of the insurance policies is classified as non-interest income. The insurance policies can be surrendered without penalties or charges imposed by the insurance carriers, upon any surrender gain would be recognized as ordinary income.
F-10
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Off-Balance Sheet Financial Instruments
In the ordinary course of business, the Bank has entered in off-balance-sheet financial instruments consisting of commitments to extend credit, and standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded.
Fair Values of Financial Instruments
The Bank follows the guidance of FASB ASC 825, Financial Instruments, and FASB ASC 820, Fair Value Measurement. This guidance permits entities to measure many financial instruments and certain other items at fair value. No assets have been elected to be reported at fair value. The objective is to improve financial reporting by providing the Bank with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This guidance clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or to transfer a liability in an orderly transaction between market participants. Under this guidance, fair value measurements are not adjusted for transaction costs. This guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quotes priced in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
Accounting Standards Codification 825-10, Recognition and Measurement of Financial Assets and Financial Liabilities requires that the Bank disclose estimated fair values for its financial instruments, whether or not recognized in the statement of financial condition. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Certain financial instruments and all nonfinancial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Bank.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments of which it is practicable to estimate that value:
Cash and Cash Equivalents
The carrying amounts reported in the statements of financial condition for cash and cash equivalents approximate those assets’ fair values and are classified within Level 1 of the fair value hierarchy.
Investments and Mortgage-Backed Securities
The fair market values of investments and mortgage-backed securities presented have been taken from the Bank’s Securities Portfolio Summary, whose prices are based on a combination of observed market prices for identical or similar instruments and various matrix pricing programs. Investments and mortgage-backed securities are classified within Level 2 of the fair value hierarchy.
Loans Receivable, net
Loans are valued using the methodology developed for Economic Value of Equity pricing, with a build-up for loans based on the U.S. Treasury yield curve, a credit risk spread and an overhead coverage rate. Loans receivable are classified within Level 3 of the fair value hierarchy.
F-11
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impaired Loans
The fair value of impaired loans is measured by the fair value of the collateral if the loan is collateral dependent. Fair value of the collateral is determined by appraisals or by independent valuation. Impaired loans are classified within Level 3 of the fair value hierarchy.
Accrued Interest Receivable and Accrued Interest Payable
The carrying amounts of accrued interest receivable and accrued interest payable approximates their fair values and these are classified within Level 1 of the fair value hierarchy.
Foreclosed Real Estate
Fair values of foreclosed real estate are determined by sales agreement or appraisal and costs to sell are based on estimation per the terms and conditions of the sales agreement or amounts commonly used in real estate transactions. Updated appraisals are obtained on at least an annual basis. Foreclosed real estate are classified within Level 3 of the fair value hierarchy.
Non-maturity Deposit Liabilities
Under ASC 825-10, the fair value of deposits with no stated maturity, such as non-interest-bearing demand deposits, savings, NOW, money market and checking accounts, is equal to the amount payable on demand at the reporting date. These non-maturity deposit liabilities are classified within Level 2 of the fair value hierarchy.
Certificates of Deposit
All certificates are assumed to remain on the Bank’s books until maturity without any change in coupon. Fair value was estimated using market pricing data for new CDs of similar structure and remaining maturity. Certificates of deposit are classified within Level 2 of the fair value hierarchy.
Federal Home Loan Bank Borrowings
Data is taken from the Bank’s FHLB Customer Profile report. All borrowings were priced using current advance pricing data from the FHLB’s website for new borrowings of similar structure and remaining maturity. FHLB borrowings are classified within Level 2 of the fair value hierarchy.
Other Assets and Liabilities
All other assets and liabilities are reported at current book value unless noted otherwise.
Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Bank’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Bank’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
F-12
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Limitations (Continued)
Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.
Advertising Costs
The Bank expenses all advertising costs as incurred. There were no direct response advertising costs capitalized as of December 31, 2020 and 2019. Advertising expenses amounted to $61,000 and $85,000 for the years ended December 31, 2020 and 2019.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, to replace a wide range of industry-specific rules with a broad, principles-based framework for recognizing and measuring revenue from contracts with customers. The guidance is codified at FASB ASC 606. The core principle of the new guidance is that an entity should recognize revenue to reflect that transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The Bank’s revenue is composed of net interest income and non-interest income. The scope of the guidance explicitly excludes net interest income as well as many other revenues for financial assets and liabilities including loans, leases, securities, and derivatives. Accordingly, the majority of the Bank’s revenues were not affected. Adoption of ASU 2014-09, which was effective for the Bank on January 1, 2019, did not have a material impact on the Bank’s financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments introduce an impairment model that is based on current expected credit losses (“CECL”), rather than incurred losses, to estimate credit losses on certain types of financial instruments (ex. Loans and held to maturity securities), including certain off-balance sheet financial instruments (ex. commitments to extend credit and standby letters of credit that are not unconditionally cancellable). The CECL should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments, over the contractual term. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. Financial instruments with similar risk characteristics may be grouped together when estimating the CECL. The allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination that are measured at amortized cost basis is determined in a similar manner to other financial assets measured at amortized cost basis; however, the initial estimate of expected credit loss would be recognized through an allowance for credit losses with an offset (i.e increase) to the purchase price at acquisition. Only subsequent changes in the allowance for credit losses are recorded as a credit loss expense for these assets. The ASU also amends the current available for sale security impairment model for debt securities whereby credit losses relation to available for sale debt securities should be recorded through an allowance for credit losses. The amendments will be applied through a modified retrospective approach, resulting in a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. On October 18, 2019, FASB approved an effective date delay applicable to smaller reporting companies and non-public business entities until January 2023. The Bank has elected to delay implementation of the standard. The future adoption of this ASU may have a material effect on the Bank’s financial statements.
F-13
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements (Continued)
In December 2019, the FASB issued ASU. 2019-12, “Simplifying the Accounting for Income Taxes (Topic 740).” The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in the Topic 740. The amendments also improve the consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in the ASU are effective for fiscal years and interim periods beginning after December 15, 2020. The Bank is currently assessing the impact of adoption of this guidance.
Reclassifications
Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform with the presentation in the current year financial statements.
NOTE 2 INVESTMENT SECURITIES
Investment securities have been classified according to management’s intent. The amortized cost of securities and their approximate fair values are as follows:
December 31, 2020 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | ||||||||||||||
(Dollars in thousands) | Cost | Gains | Losses | Fair Value | ||||||||||||
Securities Held-to-Maturity | ||||||||||||||||
U.S. Government and agency obligations | $ | 17,034 | $ | 93 | $ | (121 | ) | $ | 17,006 | |||||||
Municipal obligations | 489 | 10 | - | 499 | ||||||||||||
$ | 17,523 | $ | 103 | $ | (121 | ) | $ | 17,505 | ||||||||
Securities Available-for-Sale | ||||||||||||||||
Mortgage-backed securities | $ | 15,968 | $ | 179 | $ | (7 | ) | $ | 16,140 | |||||||
U.S. Government and agency obligations | 2,000 | - | (39 | ) | 1,961 | |||||||||||
Municipal obligations | 2,628 | 12 | (11 | ) | 2,629 | |||||||||||
$ | 20,596 | $ | 191 | $ | (57 | ) | $ | 20,730 |
December 31, 2019 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | ||||||||||||||
(Dollars in thousands) | Cost | Gains | Losses | Fair Value | ||||||||||||
Securities Held-to-Maturity | ||||||||||||||||
U.S. Government and agency obligations | $ | 13,000 | $ | - | $ | (134 | ) | $ | 12,866 | |||||||
Municipal obligations | 129 | - | - | 129 | ||||||||||||
$ | 13,129 | $ | - | $ | (134 | ) | $ | 12,995 | ||||||||
Securities Available-for-Sale | ||||||||||||||||
Mortgage-backed securities | $ | 9,236 | $ | 32 | $ | (38 | ) | $ | 9,230 | |||||||
U.S. Government and agency obligations | 5,000 | - | (9 | ) | 4,991 | |||||||||||
$ | 14,236 | $ | 32 | $ | (47 | ) | $ | 14,221 |
F-14
NOTE 2 INVESTMENT SECURITIES (Continued)
Investment securities with a carrying amount of approximately $6.9 million and $13.3 million were pledged to secure deposits as required or permitted by law at December 31, 2020 and 2019 respectively.
Securities are classified according to their contractual maturities without consideration of principal amortization, potential prepayments, or call options. The expected maturities may differ from its contractual maturities because of the exercise of call options and potential paydowns. Accordingly, actual maturities may differ from contractual maturities.
The following is a summary of maturities of securities held-to-maturity and available-for-sale at December 31, 2020:
Held-to-Maturity | Available-for-Sale | |||||||||||||||
Amortized | Amortized | |||||||||||||||
(Dollars in thousands) | Cost | Fair Value | Cost | Fair Value | ||||||||||||
Amounts maturing in: | ||||||||||||||||
One year or less | $ | - | $ | - | $ | - | $ | - | ||||||||
After one through five years | - | - | 1 | 1 | ||||||||||||
After five through ten years | 11,490 | 11,452 | 3,361 | 3,355 | ||||||||||||
After ten years | 6,033 | 6,053 | 17,234 | 17,374 | ||||||||||||
$ | 17,523 | $ | 17,505 | $ | 20,596 | $ | 20,730 |
There were no securities transferred between classifications in 2020 and 2019.
Information pertaining to securities with gross unrealized losses at December 31, 2020 and 2019 aggregated by investment category and length of time that individual securities have been in a continuous loss position, follow:
December 31, 2020 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
(Dollars in thousands) | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
Securities Held-to-Maturity | ||||||||||||||||||||||||
U.S. Government and agency obligations | $ | 7,879 | $ | (121 | ) | $ | - | $ | - | $ | 7,879 | $ | (121 | ) | ||||||||||
$ | 7,879 | $ | (121 | ) | $ | - | $ | - | $ | 7,879 | $ | (121 | ) | |||||||||||
Securities Available-for-Sale | ||||||||||||||||||||||||
Mortgage-backed securities | $ | 4,010 | $ | (7 | ) | $ | - | $ | - | $ | 4,010 | $ | (7 | ) | ||||||||||
U.S. Government and agency obligations | 1,961 | (39 | ) | - | - | 1,961 | (39 | ) | ||||||||||||||||
Municipal obligations | 1,751 | (11 | ) | - | - | 1,751 | (11 | ) | ||||||||||||||||
$ | 7,722 | $ | (57 | ) | $ | - | $ | - | $ | 7,722 | $ | (57 | ) | |||||||||||
Total | $ | 15,601 | $ | (178 | ) | $ | - | $ | - | $ | 15,601 | $ | (178 | ) |
F-15
NOTE 2 INVESTMENT SECURITIES (Continued)
December 31, 2019 | ||||||||||||||||||||||||
Less than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
(Dollars in thousands) | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
Securities Held-to-Maturity | ||||||||||||||||||||||||
U.S. Government and agency obligations | $ | 3,966 | $ | (34 | ) | $ | 5,900 | $ | (100 | ) | $ | 9,866 | $ | (134 | ) | |||||||||
$ | 3,966 | $ | (34 | ) | $ | 5,900 | $ | (100 | ) | $ | 9,866 | $ | (134 | ) | ||||||||||
Securities Available-for-Sale | ||||||||||||||||||||||||
Mortgage-backed securities | $ | 5,450 | $ | (24 | ) | $ | 1,937 | $ | (14 | ) | $ | 7,387 | $ | (38 | ) | |||||||||
U.S. Government and agency obligations | - | - | 4,991 | (9 | ) | 4,991 | (9 | ) | ||||||||||||||||
$ | 5,450 | $ | (24 | ) | $ | 6,928 | $ | (23 | ) | $ | 12,378 | $ | (47 | ) | ||||||||||
Total | $ | 9,416 | $ | (58 | ) | $ | 12,828 | $ | (123 | ) | $ | 22,244 | $ | (181 | ) |
Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to the length of time and the extent to which that fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
At December 31, 2020, there were 8 securities with an unrealized loss. All of those securities are either guaranteed by state and local governments or secured by mortgage loans. These unrealized losses relate principally to current interest rates for similar types of securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government, its agencies, or other governments, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. As management has the ability to hold securities until maturity, or for the foreseeable future if classified as available-for-sale, no declines are deemed to be other-than-temporary.
NOTE 3 LOANS RECEIVABLE
Loans receivable at December 31 are summarized as follows:
(Dollars in thousands) | 2020 | 2019 | ||||||
Real Estate | ||||||||
One- to four-family residential | $ | 99,869 | $ | 112,616 | ||||
Commercial real estate | 30,304 | 28,840 | ||||||
Construction & land | 5,538 | 8,306 | ||||||
Multi-family residential | 4,801 | 5,492 | ||||||
Farmland | 53 | 61 | ||||||
Total Real Estate | 140,565 | 155,315 | ||||||
Consumer | 4,499 | 5,477 | ||||||
Commercial and industrial | 6,736 | 2,861 | ||||||
151,800 | 163,653 | |||||||
Less allowance for loan losses | (3,022 | ) | (2,071 | ) | ||||
$ | 148,778 | $ | 161,582 |
F-16
NOTE 3 LOANS RECEIVABLE (Continued)
The following tables outline the changes in the allowance for loan losses by collateral type, the allowances for loans individually and collectively evaluated for impairment, and the amount of loans individually and collectively evaluated for impairment at December 31, 2020 and 2019.
For the Year Ended December 31, 2020 | ||||||||||||||||||||
(Dollars in thousands) |
Beginning
Balance |
Provision
for loan losses |
Charge-offs | Recoveries |
Ending
Balance |
|||||||||||||||
Allowance for Loan Losses | ||||||||||||||||||||
One- to four-family residential | $ | 1,162 | $ | 765 | $ | (84 | ) | $ | 67 | $ | 1,910 | |||||||||
Commercial real estate | 637 | 107 | - | - | 744 | |||||||||||||||
Construction & land | 56 | 25 | - | - | 81 | |||||||||||||||
Multi-family residential | 76 | (8 | ) | (1 | ) | 1 | 68 | |||||||||||||
Farmland | 1 | - | - | - | 1 | |||||||||||||||
Consumer | 80 | 15 | (40 | ) | 23 | 78 | ||||||||||||||
Commercial and industrial | 12 | 89 | (15 | ) | 15 | 101 | ||||||||||||||
Unallocated | 47 | (8 | ) | - | - | 39 | ||||||||||||||
Total | $ | 2,071 | $ | 985 | $ | (140 | ) | $ | 106 | $ | 3,022 |
For the Year Ended December 31, 2019 | ||||||||||||||||||||
(Dollars in thousands) |
Beginning
Balance |
Provision
for loan losses |
Charge-offs | Recoveries |
Ending
Balance |
|||||||||||||||
Allowance for Loan Losses | ||||||||||||||||||||
One- to four-family residential | $ | 1,156 | $ | 127 | $ | (201 | ) | $ | 80 | $ | 1,162 | |||||||||
Commercial real estate | 636 | 1 | - | - | 637 | |||||||||||||||
Construction & land | 50 | - | (3 | ) | 9 | 56 | ||||||||||||||
Multi-family residential | 58 | 18 | - | - | 76 | |||||||||||||||
Farmland | 1 | - | - | - | 1 | |||||||||||||||
Consumer | 112 | (15 | ) | (31 | ) | 14 | 80 | |||||||||||||
Commercial and industrial | 9 | - | - | 3 | 12 | |||||||||||||||
Unallocated | 103 | (56 | ) | - | - | 47 | ||||||||||||||
Total | $ | 2,125 | $ | 75 | $ | (235 | ) | $ | 106 | $ | 2,071 |
F-17
NOTE 3 LOANS RECEIVABLE (Continued)
As of December 31, 2020 | As of December 31, 2019 | |||||||||||||||||||||||
(Dollars in thousands) |
Individually
Evaluated for Impairment |
Collectively
Evaluated for Impairment |
Total |
Individually
Evaluated for Impairment |
Collectively
Evaluated for Impairment |
Total | ||||||||||||||||||
Allowance for Loan Losses Ending Balance | ||||||||||||||||||||||||
One- to four-family residential | $ | 599 | $ | 1,311 | $ | 1,910 | $ | 98 | $ | 1,064 | $ | 1,162 | ||||||||||||
Commercial real estate | 744 | 744 | 637 | 637 | ||||||||||||||||||||
Construction & land | 81 | 81 | 56 | 56 | ||||||||||||||||||||
Multi-family residential | 68 | 68 | 76 | 76 | ||||||||||||||||||||
Farmland | 1 | 1 | 1 | 1 | ||||||||||||||||||||
Consumer | 78 | 78 | 80 | 80 | ||||||||||||||||||||
Commercial and industrial | 101 | 101 | 12 | 12 | ||||||||||||||||||||
Unallocated | 39 | 39 | 47 | 47 | ||||||||||||||||||||
Total | $ | 599 | $ | 2,423 | $ | 3,022 | $ | 98 | $ | 1,973 | $ | 2,071 | ||||||||||||
Loans Receivable Ending Balance | ||||||||||||||||||||||||
One- to four-family residential | $ | 3,209 | $ | 96,660 | $ | 99,869 | $ | 2,946 | $ | 109,670 | $ | 112,616 | ||||||||||||
Commercial real estate | - | 30,304 | 30,304 | - | 28,840 | 28,840 | ||||||||||||||||||
Construction & land | 46 | 5,492 | 5,538 | 49 | 8,257 | 8,306 | ||||||||||||||||||
Multi-family residential | 1,205 | 3,596 | 4,801 | 122 | 5,370 | 5,492 | ||||||||||||||||||
Farmland | - | 53 | 53 | - | 61 | 61 | ||||||||||||||||||
Consumer | - | 4,499 | 4,499 | 8 | 5,469 | 5,477 | ||||||||||||||||||
Commercial and industrial | 4 | 6,732 | 6,736 | 6 | 2,855 | 2,861 | ||||||||||||||||||
Total | $ | 4,464 | $ | 147,336 | $ | 151,800 | $ | 3,131 | $ | 160,522 | $ | 163,653 |
A summary of current, past due and nonaccrual loans as of December 31, 2020 and 2019 were as follows:
2020 | ||||||||||||||||||||||||||||
Past Due
30-89 |
Past Due
Over |
Past Due
Over |
||||||||||||||||||||||||||
Days | 90 Days and | 30 Days Non- | Total | Current and | Current and | Total | ||||||||||||||||||||||
(Dollars in thousands) | Accruing | Accruing | Accruing | Past Due | Accruing | Non-Accruing | Loans | |||||||||||||||||||||
One- to four-family residential | $ | 1,842 | $ | 367 | $ | 235 | $ | 2,444 | $ | 96,419 | $ | 1,006 | $ | 99,869 | ||||||||||||||
Commercial real estate | 192 | - | - | 192 | 30,112 | - | 30,304 | |||||||||||||||||||||
Construction and land | 154 | - | 47 | 201 | 5,337 | - | 5,538 | |||||||||||||||||||||
Multi-family residential | - | - | - | - | 4,801 | - | 4,801 | |||||||||||||||||||||
Farmland | - | - | - | - | 53 | - | 53 | |||||||||||||||||||||
Consumer | 38 | 13 | - | 51 | 4,448 | - | 4,499 | |||||||||||||||||||||
Commercial & industrial | 94 | - | - | 94 | 6,638 | 4 | 6,736 | |||||||||||||||||||||
Totals | $ | 2,320 | $ | 380 | $ | 282 | $ | 2,982 | $ | 147,808 | $ | 1,010 | $ | 151,800 |
F-18
NOTE 3 LOANS RECEIVABLE (Continued)
2019 | ||||||||||||||||||||||||||||
Past Due
30-89 |
Past Due
Over |
Past Due
Over |
||||||||||||||||||||||||||
Days | 90 Days and | 30 Days Non- | Total | Current and | Current and | Total | ||||||||||||||||||||||
(Dollars in thousands) | Accruing | Accruing | Accruing | Past Due | Accruing | Non-Accruing | Loans | |||||||||||||||||||||
One- to four-family residential | $ | 3,529 | $ | 213 | $ | 868 | $ | 4,610 | $ | 107,462 | $ | 544 | $ | 112,616 | ||||||||||||||
Commercial real estate | 584 | - | - | 584 | 28,256 | - | 28,840 | |||||||||||||||||||||
Construction and land | - | - | 49 | 49 | 8,257 | - | 8,306 | |||||||||||||||||||||
Multi-family residential | - | - | 122 | 122 | 5,370 | - | 5,492 | |||||||||||||||||||||
Farmland | - | - | - | - | 61 | - | 61 | |||||||||||||||||||||
Consumer | 93 | 6 | - | 99 | 5,378 | - | 5,477 | |||||||||||||||||||||
Commercial & industrial | 3 | - | - | 3 | 2,852 | 6 | 2,861 | |||||||||||||||||||||
Totals | $ | 4,209 | $ | 219 | $ | 1,039 | $ | 5,467 | $ | 157,636 | $ | 550 | $ | 163,653 |
The Bank is not committed to lend any additional funds on nonaccrual loans.
A Troubled Debt Restructuring (“TDR”) is considered such if the lender for economic or legal reasons related to the debtor’s financial difficulties grants a concession to the debtor that it would not otherwise consider. Information pertaining to loans modified during the years ended December 31, 2020 and 2019 were as follows:
Pre-modification | Post-modification | |||||||||
Outstanding | Outstanding | |||||||||
(Dollars in thousands) |
Number of
Contracts |
Recorded
Investment |
Recorded
Investment |
|||||||
December 31, 2020 | ||||||||||
One- to four-family residential | 18 | $ | 2,643 | $ | 2,703 | |||||
Totals | 18 | $ | 2,643 | $ | 2,703 |
Pre-modification | Post-modification | |||||||||
Outstanding | Outstanding | |||||||||
Number of
Contracts |
Recorded
Investment |
Recorded
Investment |
||||||||
December 31, 2019 | ||||||||||
One- to four-family residential | 2 | $ | 276 | $ | 281 | |||||
Totals | 2 | $ | 276 | $ | 281 |
Troubled debt restructured loans were modified to defer principal and extend maturity on average for 3 months. There were no payment defaults in 2020 for prior year modified loans. The Bank has no commitments to loan additional funds to the borrowers whose loans have been modified.
F-19
NOTE 3 LOANS RECEIVABLE (Continued)
Information on impaired loans as of December 31, 2020 and 2019 were as follows:
As of and for the Year Ended December 31, 2020 | ||||||||||||||||||||||||
Unpaid | Average | Interest | Interest | |||||||||||||||||||||
Recorded | Principal | Related | Recorded | Income | Income | |||||||||||||||||||
(Dollars in thousands) | Investment | Balance | Allowance | Investment | Recognized | Collected | ||||||||||||||||||
Real Estate | ||||||||||||||||||||||||
One- to four-family residential | $ | 3,209 | $ | 3,586 | $ | 599 | $ | 3,266 | $ | 86 | $ | 78 | ||||||||||||
Commercial real estate | - | - | - | - | - | - | ||||||||||||||||||
Construction & land | 46 | 46 | - | 48 | - | - | ||||||||||||||||||
Multi-family residential | 1,205 | 1,205 | - | 1,210 | 47 | 43 | ||||||||||||||||||
Farmland | - | - | - | - | - | - | ||||||||||||||||||
Total real estate loans | 4,460 | 4,837 | 599 | 4,524 | 133 | 121 | ||||||||||||||||||
Consumer | - | - | - | - | - | - | ||||||||||||||||||
Commercial & industrial | 4 | 7 | - | 5 | - | - | ||||||||||||||||||
$ | 4,464 | $ | 4,844 | $ | 599 | $ | 4,529 | $ | 133 | $ | 121 |
As of and for the Year Ended December 31, 2019 | ||||||||||||||||||||||||
Unpaid | Average | Interest | Interest | |||||||||||||||||||||
Recorded | Principal | Related | Recorded | Income | Income | |||||||||||||||||||
Investment | Balance | Allowance | Investment | Recognized | Collected | |||||||||||||||||||
Real Estate | ||||||||||||||||||||||||
One- to four-family residential | $ | 2,946 | $ | 3,387 | $ | 98 | $ | 3,013 | $ | 76 | $ | 64 | ||||||||||||
Commercial real estate | - | - | - | - | - | - | ||||||||||||||||||
Construction & land | 49 | 49 | - | 49 | - | - | ||||||||||||||||||
Multi-family residential | 122 | 122 | - | 247 | - | - | ||||||||||||||||||
Farmland | - | - | - | - | - | - | ||||||||||||||||||
Total real estate loans | 3,117 | 3,558 | 98 | 3,309 | 76 | 64 | ||||||||||||||||||
Consumer | 8 | 8 | - | 9 | 1 | 1 | ||||||||||||||||||
Commercial & industrial | 6 | 9 | - | 7 | - | - | ||||||||||||||||||
$ | 3,131 | $ | 3,575 | $ | 98 | $ | 3,325 | $ | 77 | $ | 65 |
Principal balances of loans receivable include approximately $109.6 million and $114.3 million of adjustable-rate loans and $42.2 million and $49.4 million of fixed rate loans at December 31, 2020 and 2019, respectively. Interest only loans amounted to approximately $2.0 million and $5.0 million at December 31, 2020 and 2019, respectively.
Loans are categorized by credit quality indicators based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Internally assigned grade:
F-20
NOTE 3 LOANS RECEIVABLE (Continued)
Pass – Loans in this category have strong asset quality and liquidity along with a multi-year track record of profitability.
Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful –Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
The information for each of the credit quality indicators is updated on a quarterly basis in conjunction with the determination of the adequacy of the allowance for loan losses.
As of and for the Year Ended December 31, 2020 | ||||||||||||||||||||
Special | ||||||||||||||||||||
(Dollars in thousands) | Pass | Mention | Substandard | Doubtful | Total | |||||||||||||||
One- to four-family residential | $ | 93,008 | $ | 1,915 | $ | 4,946 | $ | - | $ | 99,869 | ||||||||||
Commercial real estate | 28,217 | 2,022 | 65 | - | 30,304 | |||||||||||||||
Construction & land | 5,310 | 133 | 95 | - | 5,538 | |||||||||||||||
Multi-family residential | 3,457 | - | 1,344 | - | 4,801 | |||||||||||||||
Farmland | 53 | - | - | - | 53 | |||||||||||||||
Consumer | 4,434 | 33 | 32 | - | 4,499 | |||||||||||||||
Commercial & industrial | 6,542 | 171 | 23 | - | 6,736 | |||||||||||||||
Total | $ | 141,021 | $ | 4,274 | $ | 6,505 | $ | - | $ | 151,800 |
As of and for the Year Ended December 31, 2019 | ||||||||||||||||||||
Special | ||||||||||||||||||||
Pass | Mention | Substandard | Doubtful | Total | ||||||||||||||||
One- to four-family residential | $ | 104,078 | $ | 3,266 | $ | 5,272 | $ | - | $ | 112,616 | ||||||||||
Commercial real estate | 27,877 | 963 | - | - | 28,840 | |||||||||||||||
Construction & land | 8,200 | 6 | 100 | - | 8,306 | |||||||||||||||
Multi-family residential | 5,370 | - | 122 | - | 5,492 | |||||||||||||||
Farmland | 61 | - | - | - | 61 | |||||||||||||||
Consumer | 5,369 | 84 | 24 | - | 5,477 | |||||||||||||||
Commercial & industrial | 2,766 | 27 | 68 | - | 2,861 | |||||||||||||||
Total | $ | 153,721 | $ | 4,346 | $ | 5,586 | $ | - | $ | 163,653 |
F-21
NOTE 4 PREMISES AND EQUIPMENT
Premises and equipment at December 31 are summarized as follows:
(Dollars in thousands) | 2020 | 2019 | ||||||
Land | $ | 1,443 | $ | 898 | ||||
Buildings and improvements | 5,058 | 4,433 | ||||||
Furniture, fixtures and equipment | 1,514 | 1,340 | ||||||
Automobiles | 122 | 94 | ||||||
Renovation in process | 5 | 900 | ||||||
8,142 | 7,665 | |||||||
Accumlated depreciation | (2,653 | ) | (2,376 | ) | ||||
$ | 5,489 | $ | 5,289 |
Depreciation amounted to $347,000 and $296,000 for the years ended December 31, 2020 and 2019, respectively.
NOTE 5 DEPOSITS
Deposits at December 31 are summarized as follows:
2020 | 2019 | |||||||||||||||
(Dollars in thousands) | Amount | Percent | Amount | Percent | ||||||||||||
Non-interest-bearing deposits | $ | 26,169 | 15.90 | % | $ | 17,438 | 12.31 | % | ||||||||
Negotiable order of withdrawal ("NOW") | 30,890 | 18.77 | % | 26,421 | 18.66 | % | ||||||||||
Money market | 15,989 | 9.71 | % | 13,686 | 9.66 | % | ||||||||||
Savings | 22,209 | 13.49 | % | 19,180 | 13.54 | % | ||||||||||
Certificates of deposit | 69,341 | 42.13 | % | 64,904 | 45.83 | % | ||||||||||
$ | 164,598 | 100.00 | % | $ | 141,629 | 100.00 | % |
Certificates of deposit and other time deposits issued in denominations that exceed the FDIC insurance limit of $250,000 or more totaled $14.4 million and $10.3 million at December 31, 2020 and 2019, respectively, and are included in interest-bearing deposits in the statement of financial condition.
At December 31, 2020, scheduled maturities of certificates of deposit are as follows:
(Dollars in thousands) | ||||
2021 | $ | 53,232 | ||
2022 | 12,644 | |||
2023 | 1,210 | |||
2024 | 2,239 | |||
2025 | 16 | |||
Total | $ | 69,341 |
F-22
NOTE 6 BORROWED FUNDS
Borrowed funds at December 31, are summarized as follows:
(Dollars in thousands) | Rate | 2020 | Rate | 2019 | ||||||||||||
Advances from Federal Home Loan Bank | 0.649 | % | $ | 3,000 | 3.173 | % | $ | 5,000 | ||||||||
0.955 | % | 3,000 | 3.207 | % | 5,000 | |||||||||||
1.118 | % | 4,000 | 3.142 | % | 10,000 | |||||||||||
- | 3.243 | % | 5,000 | |||||||||||||
10,000 | 25,000 | |||||||||||||||
Debt Modification Discount | (1,162 | ) | - | |||||||||||||
$ | 8,838 | $ | 25,000 |
In December of 2020, the Bank undertook a restructuring of their FHLB long-term borrowings. A total of $15 million was paid off, with resulting prepayment penalties of $1.5 million being charged to earnings. The remaining $10 million of long-term debt was restructured to longer maturities at current interest rates. The prepayment penalty of $1.2 million is a restructuring payment treated as a discount on the debt. It will be amortized into expense using the interest method over the life of the restructured borrowings.
Pursuant to a blanket floating lien with the Federal Home Loan Bank, the advances at December 31, 2020 were secured by permanent mortgage loans, mortgage pool securities, and U.S. Government and Agency Securities. Interest payments are due monthly, and maturities are as follows:
(Dollars in thousands) | Amount | |||
Amounts maturing in: | ||||
1 year or less | $ | - | ||
Over 1 through 3 years | - | |||
Over 3 through 5 years | 3,000 | |||
Over 5 years | 7,000 | |||
$ | 10,000 |
At December 31, 2020, the Bank had the ability to borrow advances up to $54.7 million with Federal Home Loan Bank.
The Bank has an Unsecured Federal Funds Master Purchase Agreement with First National Bankers Bank for $17.8 million. At December 31, 2020, the entire balance was unused.
NOTE 7 INCOME TAXES
Income tax expense for the years ended December 31 is summarized as follows:
(Dollars in thousands) | 2020 | 2019 | ||||||
Federal: | ||||||||
Current | $ | (577 | ) | $ | 58 | |||
Deferred | 113 | 276 | ||||||
$ | (464 | ) | $ | 334 |
F-23
NOTE 7 INCOME TAXES (Continued)
Total income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 21 percent in 2020 and 2019 to income before income taxes as a result of the following:
(Dollars in thousands) | 2020 | 2019 | ||||||
Expected income tax expense at federal tax rate | $ | (241 | ) | $ | 351 | |||
Life insurance income | (15 | ) | (15 | ) | ||||
Tax free investments | (10 | ) | - | |||||
Benefit from NOL carryback | (192 | ) | - | |||||
Other | (6 | ) | (2 | ) | ||||
$ | (464 | ) | $ | 334 |
Deferred taxes are recorded based upon differences between the financial statement and tax basis of assets and liabilities. The net deferred tax assets and liabilities in the accompanying statements of financial condition include the following components:
(Dollars in thousands) | 2020 | 2019 | ||||||
Deferred tax asset: | ||||||||
Allowance for loan losses | $ | 235 | $ | 32 | ||||
Unrealized losses on securities | - | 3 | ||||||
OREO | 33 | 69 | ||||||
Other | 58 | 63 | ||||||
326 | 167 | |||||||
Deferred tax liability: | ||||||||
Unrealized gains on securities | (29 | ) | - | |||||
FHLB Stock | (118 | ) | (113 | ) | ||||
FHLB Debt Discount | (244 | ) | - | |||||
Premises and equipment | (357 | ) | (293 | ) | ||||
(748 | ) | (406 | ) | |||||
Net deferred tax asset (liability) | $ | (422 | ) | $ | (239 | ) |
Retained earnings at December 31, 2020 and 2019 include approximately $1.9 million accumulated prior to January 1, 1987, for which no deferred federal income tax liability has been recognized. This amount represents an allocation of income to bad-debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad-debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes only, which would be subject to the then-current corporate income tax rate.
F-24
NOTE 8 CAPITAL REQUIREMENTS AND OTHER REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by its primary federal regulator, the Office of the Comptroller of the Currency (OCC). Failure to meet minimum regulatory capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under the regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgements by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of: total risk-based capital, Tier 1 Capital to risk-weighted assets, and Tier 1 Capital to adjusted total assets. As discussed in greater detail below, as of December 2020 and 2019, the Bank does meet all of the capital adequacy requirements to which it is subject.
At December 31, 2020, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as adequately capitalized, the Bank would have to maintain minimum total risk-based, Tier 1 risk based, Tier 1 leverage ratios and Common Equity Tier 1 capital as disclosed in the table below. There are no conditions or events since the most recent notification that management believes have changed the Bank’s prompt corrective action category.
To be Well Capitalized | ||||||||||||||
under the Prompt Corrective | ||||||||||||||
Actual | Action Provisions | |||||||||||||
(Dollars in thousands) | Amount | Ratio | Amount | Ratio | ||||||||||
As of December 31, 2020 | ||||||||||||||
Common Equity | ||||||||||||||
Tier 1 Capital | $ | 50,496 | 40.99 | % | $ | 8,008 | >6.5% | |||||||
Tier 1 Capital | ||||||||||||||
(to Risk-Weighted Assets) | 50,496 | 40.99 | % | 9,856 | >8.0% | |||||||||
Total Risk-Based Capital | ||||||||||||||
(to Risk-Weighted Assets) | 52,257 | 42.42 | % | 12,319 | >10.0% | |||||||||
Leverage Capital | ||||||||||||||
(to Risk-Weighted Assets) | 50,496 | 21.09 | % | 11,970 | >5.0% | |||||||||
As of December 31, 2019 | ||||||||||||||
Common Equity | ||||||||||||||
Tier 1 Capital | $ | 51,205 | 40.07 | % | $ | 8,307 | >6.5% | |||||||
Tier 1 Capital | ||||||||||||||
(to Risk-Weighted Assets) | 51,205 | 40.07 | % | 10,224 | >8.0% | |||||||||
Total Risk-Based Capital | ||||||||||||||
(to Risk-Weighted Assets) | 52,809 | 41.32 | % | 12,780 | >10.0% | |||||||||
Leverage Capital | ||||||||||||||
(to Risk-Weighted Assets) | 51,205 | 23.23 | % | 11,023 | >5.0% |
F-25
NOTE 9 RELATED PARTY TRANSACTONS
In the ordinary course of business, the Bank has and expects to continue to have transactions, including borrowings, with its officers and directors. In the opinion of management, such transactions were on substantially the same terms, including collateral, as those prevailing at the time of comparable transactions with other persons and did not involve more than normal risk of collectability or present any other unfavorable features to the Bank. Loans to such borrowers at December 31 are summarized as follows:
(Dollars in thousands) | 2020 | 2019 | ||||||
Balance at beginning of year | $ | 1,967 | $ | 415 | ||||
Originations | 300 | 3,007 | ||||||
Repayments | (421 | ) | (1,455 | ) | ||||
$ | 1,846 | $ | 1,967 |
Deposits from officers and directors amounted to $2.1 million and $1.6 million at December 31, 2020 and 2019, respectively.
NOTE 10 COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Bank has various outstanding commitments and contingent liabilities that are not reflected in the accompanying financial statements. In the opinion of management, the ultimate disposition of these matters is not expected to have a material adverse effect on the financial statements.
In addition, the Bank is a defendant in various legal proceedings arising in connection with its business. It is the best judgment of management that neither the financial position nor results of operations of the Bank will be materially affected by the final outcome of these legal proceedings.
The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist of commitments to extend credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amounts recognized in the statement of financial position. The contract or notional amounts of these instruments reflect the extent of the Bank’s involvement in particular classes of instruments.
NOTE 11 FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
F-26
NOTE 11 FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (Continued)
Contract or Notional Amount | ||||||||
at December 31, | ||||||||
(Dollars in thousands) | 2020 | 2019 | ||||||
Financial instruments the contract amounts of which represent credit risk: | ||||||||
Commitments to extend credit | $ | 82 | $ | 803 | ||||
Letters of credit | 500 | - | ||||||
Unused lines of credit | 2,975 | 1,375 | ||||||
Unfunded construction loans in process | 1,007 | 4,606 | ||||||
$ | 4,564 | $ | 6,784 |
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses. Since some of the commitments may possibly expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral usually consists of a first mortgage on the underlying properties.
Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements and are secured by passbook accounts or certificates of deposit. All letters of credit are required to be renewed annually, if applicable. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
NOTE 12 DEFINED CONTRIBUTION RETIREMENT AND PROFIT-SHARING PLANS
The Bank formulated a profit-sharing plan for its employees effective January 1, 1983. Employers’ contributions are determined annually before year-end by the board of directors. In addition, the Bank formulated a 401(k) plan effectively January 1, 1995. Active participants may elect to contribute, in a tax deferred basis, a portion of their compensation not to exceed the dollar limit set by law. A matching employer contribution determined annually by the board of directors is also made. All full-time employees over the age of 21 who work more than 1,000 hours in a year and have been employed for one year are eligible to participate in these plans. The Bank’s contributions to the plans for the years ended December 31, were as follows:
(Dollars in thousands) | 2020 | 2019 | ||||||
Profit sharing plan | $ | - | $ | 96 | ||||
401(k) plan | 112 | 119 | ||||||
$ | 112 | $ | 215 |
F-27
NOTE 13 CONCENTRATION OF CREDIT
The Bank’s lending activity is concentrated primarily in St. Landry Parish, Evangeline Parish, Acadia Parish, and Lafayette Parish, Louisiana, which are largely rural areas that rely heavily on the agricultural and oil and gas industries. The Bank’s major emphasis in lending has been the origination of permanent single- family dwelling loans, and such loans comprise the majority of the Bank’s loan portfolio.
The Bank maintains deposit accounts at other financial institutions which periodically exceed the federally insured limits. Management believes that the risk is limited because of the nature and financial strength of the institutions involved.
NOTE 14 FAIR VALUE MEASUREMENTS
In accordance with fair value guidance, the Bank groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities that the Bank has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2 – Valuation is based on inputs other than quoted prices included with Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term for the asset or liability.
Level 3 – Valuation is based on unobservable income inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.
Fair values of assets and liabilities measured on a recurring basis at December 31, 2020 and 2019 are as follows:
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices in | Significant | |||||||||||||||
Active Markets | Other | Significant | ||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||
Assets/Liabilities | Inputs | Inputs | ||||||||||||||
(Dollars in thousands) | Fair Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
December 31, 2020 | ||||||||||||||||
Available-for-sale securities | $ | 20,730 | $ | - | $ | 20,730 | $ | - | ||||||||
December 31, 2019 | ||||||||||||||||
Available-for-sale securities | $ | 14,221 | $ | - | $ | 14,221 | $ | - |
F-28
NOTE 14 FAIR VALUE MEASUREMENTS (Continued)
Fair values of assets and liabilities measured on a nonrecurring basis at December 31, 2020 and 2019 are as follows:
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices in | Significant | |||||||||||||||
Active Markets | Other | Significant | ||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||
Assets/Liabilities | Inputs | Inputs | ||||||||||||||
(Dollars in thousands) | Fair Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
December 31, 2020 | ||||||||||||||||
Impaired loans | $ | 1,365 | $ | - | $ | - | $ | 1,365 | ||||||||
Foreclosed real estate | 415 | - | - | 415 | ||||||||||||
December 31, 2019 | ||||||||||||||||
Impaired loans | $ | 1,596 | $ | - | $ | - | $ | 1,596 | ||||||||
Foreclosed real estate | 1,059 | - | - | 1,059 |
Impaired loans with a carrying amount of $1.8 million were written down to their fair value of $1.3 million, resulting in an impairment charge of $539,000, which was included in the allowance for loan losses. Foreclosed real estate with a carrying amount of $581,000 was written down to its fair value of $415,000, resulting in an impairment charge of $166,000, which was included in earnings for the year.
The fair value of impaired loans and real estate owned is estimated using current appraised values less costs to sell.
NOTE 15 FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Bank’s financial instruments are as follows:
December 31, 2020 | ||||||||||||||||||||
Carrying | Fair | |||||||||||||||||||
(Dollars in thousands) | Amount | Value | Level 1 | Level 2 | Level 3 | |||||||||||||||
Financial Assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 25,245 | $ | 25,245 | $ | 25,245 | ||||||||||||||
Investment securities | ||||||||||||||||||||
Held-to-maturity | 17,523 | 17,505 | 17,505 | |||||||||||||||||
Available-for-sale | 20,730 | 20,730 | 20,730 | |||||||||||||||||
Loans receivable, net | 148,778 | 148,674 | 148,674 | |||||||||||||||||
Accrued interest receivable | 564 | 564 | 564 | |||||||||||||||||
Financial Liabilities: | ||||||||||||||||||||
Deposits | 164,598 | 164,951 | 164,951 | |||||||||||||||||
Borrowed funds | 8,838 | 9,052 | 9,052 | |||||||||||||||||
Accrued interest payable | 51 | 51 | 51 |
F-29
NOTE 15 FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
December 31, 2019 | ||||||||||||||||||||
Carrying | Fair | |||||||||||||||||||
(Dollars in thousands) | Amount | Value | Level 1 | Level 2 | Level 3 | |||||||||||||||
Financial Assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 17,909 | $ | 17,909 | $ | 17,909 | ||||||||||||||
Investment securities | ||||||||||||||||||||
Held-to-maturity | 13,129 | 12,995 | 12,995 | |||||||||||||||||
Available-for-sale | 14,221 | 14,221 | 14,221 | |||||||||||||||||
Loans receivable, net | 161,582 | 158,594 | 158,594 | |||||||||||||||||
Accrued interest receivable | 577 | 577 | 577 | |||||||||||||||||
Financial Liabilities: | ||||||||||||||||||||
Deposits | 141,629 | 140,043 | 140,043 | |||||||||||||||||
Borrowed funds | 25,000 | 26,630 | 26,630 | |||||||||||||||||
Accrued interest payable | 114 | 114 | 114 |
The carrying amounts in the preceding table are included in the statement of financial condition under the applicable captions. The contract or notional amounts of the Bank’s financial instruments with off-balance-sheet risk are disclosed in Note 11. It is not practical to estimate the fair value of Federal Home Loan Bank (FHLB) and First National Bankers Bank stock because is not marketable. The carrying amount of investments are reported in the statements of financial condition at historical cost.
NOTE 16 ADJUSTMENT OF PRIOR PERIOD FINANCIAL STATEMENTS
During 2020, the Bank identified an error related to the calculation of the deferred tax liability related to the Bank’s investment in FHLB Stock for the years ended prior to 2018. As a result, the restatement included a reduction of $202,000 in deferred tax liabilities and other liabilities, and a $202,000 increase in retained earnings. The correction of the error did not result in any changes to the income statement for the year ended December 31, 2019.
The table below depicts changes as currently reported (restated) compared to information previously reported.
Restated |
Previously
Reported |
Changes | ||||||||||
For the
Year Ended |
For the
Year Ended |
For the
Year Ended |
||||||||||
(Dollars in thousands) | 2019 | 2019 | 2019 | |||||||||
Other liabilities | $ | 676 | $ | 878 | $ | (202 | ) | |||||
Total liabilities | 167,305 | 167,507 | (202 | ) | ||||||||
Retained earnings | 51,180 | 50,978 | 202 | |||||||||
Total equity, beginning of the year | 49,646 | 49,444 | 202 | |||||||||
Total equity, end of the year | 51,168 | 50,966 | 202 |
F-30
NOTE 17 PLAN OF CONVERSION AND CHANGE IN CORPORATE FORM
On January 27, 2021, the Board of Directors of the Bank adopted a plan of conversion (“Plan of Conversion”). The Plan of Conversion is subject to the approval of the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System and must be approved by the affirmative vote of at least a majority of the total votes eligible to be cast by the voting members of the Bank at a special meeting. The Plan of Conversion provides that the Bank will convert to the stock-form savings bank structure and establish a holding company, Catalyst Bancorp, Inc., as parent of the Bank. The Bank will convert to the stock form of ownership, followed by the issuance of all of the Bank’s outstanding stock to Catalyst Bancorp, Inc. Pursuant to the Plan of Conversion, the total offering value and number of shares of common stock of Catalyst Bancorp, Inc. to be offered and sold will be determined based upon an independent appraiser’s valuation. The stock will be priced at $10.00 per share. In addition, the Bank’s Board of Directors will adopt an employee stock ownership plan (“ESOP”) which will subscribe for up to 8% of the common stock sold in the offering. Catalyst Bancorp, Inc. has been organized as a corporation under the laws of the State of Louisiana and will own all of the outstanding common stock of the Bank upon completion of the conversion.
The costs of issuing the common stock will be deferred and deducted from the sales proceeds of the offering. If the conversion is unsuccessful, all deferred costs will be charged to operations. Deferred conversion costs totaled approximately $21,431 at December 31, 2020 and $41,141 at February 26, 2021, respectively.
At the completion of the conversion to stock form, the Bank will establish a liquidation account in the amount of retained earnings contained in the final prospectus. The liquidation account will be maintained for the benefits of eligible account holders and supplemental eligible account holders who maintain deposit accounts in the Bank after conversion.
The conversion will be accounted for as a change in corporate form with the historic basis of the Bank’s assets, liabilities and equity unchanged as a result.
F-31
No person has been authorized to give any information or to make any representation other than as contained in this prospectus and, if given or made, such other information or representation must not be relied upon as having been authorized by Catalyst Bancorp, Inc. or St. Landry Homestead Federal Savings Bank. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby to any person in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. Neither the delivery of this prospectus nor any sale hereunder shall under any circumstances imply that there has been no change in the affairs of Catalyst Bancorp, Inc. or St. Landry Homestead Federal Savings Bank since any of the dates as of which information is furnished herein or since the date hereof.
Catalyst Bancorp, Inc.
(Proposed Holding Company for St. Landry Homestead Federal Savings Bank)
Up to 4,427,500 Shares
(Subject to increase to up to 5,091,625 Shares)
COMMON STOCK
PROSPECTUS
Piper Sandler & Co.
[Prospectus Date]
These securities are not deposits or accounts and are not insured or guaranteed.
Until _______________, 2021, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. | Other Expenses of Issuance and Distribution |
Estimated
Amount |
||||
Registrant’s Legal Fees and Expenses | $ | 450,000 | ||
Registrant’s Accounting Fees and Expenses | 147,500 | |||
Marketing Agent Fees (1) | 407,637 | |||
Marketing Agent Expenses (including legal fees and expenses) | 100,000 | |||
Records Management Fees and Expenses | 70,000 | |||
Appraisal Fees and Expenses | 55,000 | |||
Printing, Postage, Mailing and EDGAR Fees | 125,000 | |||
Filing Fees (NASDAQ, FINRA, SEC) | 70,000 | |||
Transfer Agent Fees and Expenses | 20,000 | |||
Business Plan Fees and Expenses | 40,000 | |||
Other | 12,500 | |||
Total | $ | 1,497,637 |
(1) | Catalyst Bancorp, Inc. has retained Piper Sandler & Co. to assist in the sale of common stock on a best efforts basis in the offerings. Estimated at the adjusted maximum of the offering range, assuming 100% of the shares are sold in the subscription offering (excluding shares sold to the Employee Stock Ownership Plan). |
Item 14. | Indemnification of Directors and Officers |
Article 8 of the Articles of Incorporation of Catalyst Bancorp, Inc. (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 and under which directors and officers of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages:
8. Indemnification, etc. of Officers, Directors, Employees and Agents.
A. Personal Liability of Directors and Officers. The personal liability of a director or officer of this Corporation to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director or officer, or otherwise, shall be limited or eliminated to the fullest extent permitted by Section 1-832 of the LBCA (R.S. 12:1-832) and any other provision of applicable law, as amended or supplemented from time to time.
B. Indemnification. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, including actions by or in the right of the Corporation, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding to the full extent permissible under Louisiana law including, but not limited to, Subpart E of Part 8 of the LBCA.
C. Advancement of Expenses. Reasonable expenses incurred by an officer, director, employee or agent of the Corporation in defending an action, suit or proceeding described in Section B of this Article 8 may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding if authorized by the board of directors (without regard to whether participating members thereof are parties to such action, suit or proceeding), upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that the person is not entitled to be indemnified by the Corporation.
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D. Other Rights. The indemnification and advancement of expenses provided by or pursuant to this Article 8 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, insurance or other agreement, vote of shareholders or directors (regardless of whether directors authorizing such indemnification are beneficiaries thereof) or otherwise, both as to actions in their official capacity and as to actions in another capacity while holding an office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person.
E. Insurance. The Corporation shall have the power to purchase and maintain insurance or other similar arrangement on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture or other enterprise, against any liability asserted against or incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article 8.
F. Security Fund; Indemnity Agreements. By action of the Board of Directors (notwithstanding their interest in the transaction), the Corporation may create and fund a trust fund or other fund or form of self-insurance arrangement of any nature, and may enter into agreements with its officers, directors, employees and agents for the purpose of securing or insuring in any manner its obligation to indemnify or advance expenses provided for in this Article 8.
G. Modification. The duties of the Corporation to indemnify and to advance expenses to any person as provided in this Article 8 shall be in the nature of a contract between the Corporation and each such person, and no amendment or repeal of any provision of this Article 8, and no amendment or termination of any trust or other fund or form of self-insurance arrangement created pursuant to Section F of this Article 8, shall alter to the detriment of such person the right of such person to the advance of expenses or indemnification related to a claim based on an act or failure to act which took place prior to such amendment, repeal or termination.
H. Proceedings Initiated by Indemnified Persons. Notwithstanding any other provision of this Article 8, the Corporation shall not indemnify a director, officer, employee or agent for any liability incurred in an action, suit or proceeding initiated (which shall not be deemed to include counter-claims or affirmative defenses) or participated in as an intervenor or amicus curiae by the person seeking indemnification unless such initiation of or participation in the action, suit or proceeding is either (i) authorized, either before or after its commencement, by the affirmative vote of a majority of the directors in office, or (ii) required by the LBCA.
Item 15. | Recent Sales of Unregistered Securities |
Not Applicable.
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Item 16. | Exhibits and Financial Statement Schedules |
The exhibits and financial statement schedules filed as part of this registration statement are:
(a) | List of Exhibits |
* To be filed by amendment.
(b) | Financial Statement Schedules |
No financial statement schedules are filed because the required information is inapplicable or is included in the consolidated financial statements and 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. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;
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(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 a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:
The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (§230.424 of this chapter);
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(5) That, for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(6) That, for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus 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.
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(7) The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
(8) 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 question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
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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 Opelousas, State of Louisiana on March 9, 2021.
CATALYST BANCORP, INC. a Louisiana corporation |
||
By: | /s/ Joseph B. Zanco | |
Joseph B. Zanco | ||
President and Chief Executive Officer | ||
(Duly Authorized Representative) |
POWER OF ATTORNEY
We, the undersigned directors and officers of Catalyst Bancorp, Inc., a Louisiana corporation (the “Corporation”) hereby severally constitute and appoint Joseph B. Zanco as our true and lawful attorney and agent, to do any and all things in our names in the capacities indicated below which said individual may deem necessary or advisable to enable the Corporation to comply with the Securities Act of 1933, as amended, 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 Corporation’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 individual 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 by the following persons in the capacities and on the dates indicated.
Signatures | Title | Date | ||
/s/ Joseph B. Zanco | Director, President and Chief Executive Officer | March 9, 2021 | ||
Joseph B. Zanco | (Principal Executive Officer) | |||
/s/ Todd A. Kidder | ||||
Todd A. Kidder | Chairman of the Board | March 9, 2021 | ||
/s/ Kirk E. Kleiser | ||||
Kirk E. Kleiser | Director | March 9, 2021 | ||
/s/ Ted D. Bellard | ||||
Ted D. Bellard | Director | March 9, 2021 | ||
/s/ Frederick L. Lafleur | ||||
Frederick L. Lafleur | Director | March 9, 2021 | ||
/s/ Craig C. Le Bouef | ||||
Craig C. Le Bouef | Director | March 9, 2021 | ||
/s/ Matthew L. Scruggins | ||||
Matthew L. Scruggins | Director | March 9, 2021 | ||
/s/ Jutta A. Codori | Chief Financial Officer | March 9, 2021 | ||
Jutta A. Codori | (Principal Financial and Accounting Officer) | |||
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Exhibit 1.1
|
1251 AVENUE OF THE AMERICANS, 6TH FLOOR NEW YORK, NY 10020 P 212 466-7800 | TF 800 635-6851 Piper Sandler & Co. Since 1895. Member SIPC and NYSE. |
December 24, 2020
Board of Directors
St. Landry Homestead Federal Savings Bank
235 North Court Street
Opelousas, LA 70570
Attention: | Mr. Joseph B. Zanco | |
President and Chief Executive Officer |
Ladies and Gentlemen:
Piper Sandler & Co. (“Piper Sandler”) understands that the Board of Directors of St. Landry Homestead Federal Savings Bank (the “Bank”) is considering the adoption of a Plan of Conversion (the “Plan”) pursuant to which the Bank will convert from the mutual to the stock form (the “Conversion”) and shares of the common stock (the “Shares”) of a newly organized stock holding company (the “Holding Company”) will be offered and sold in a public offering. The Holding Company and the Bank are sometimes collectively referred to herein as the “Company.” Piper Sandler is pleased to assist the Company with the Offering and this letter is to confirm the terms and conditions of our engagement.
Under the terms of the Plan and applicable regulations, the Shares will be offered first to eligible depositors of the Bank and the Company’s tax-qualified employee stock benefit plans (the “Subscription Offering”). Subject to the prior rights of subscribers in the subscription offering, the Shares may be offered in a community offering, with a preference given in the community offering to residents of the communities served by the Bank (the “Community Offering,” and together with the Subscription Offering, the “Subscription and Community Offering”). Shares not subscribed for in the Subscription and Community Offering, if any, may be offered to the general public by Piper Sandler on a best efforts basis (“Syndicated Offering” and together with the Subscription and Community Offering, the “Offering”).
SERVICES
Piper Sandler will work with the Company and its management, counsel, accountants and other advisors in preparing for and completing the Offering and anticipate that its services will include the following:
1. | Consulting as to the marketing implications of any aspect of the Plan; |
Board of Directors
St. Landry Homestead Federal Savings Bank
December 24, 2020
Page 2
2. | Reviewing with the Board the financial impact of the Offering on the Company, based upon the independent appraiser’s appraisal of the Holding Company’s common stock; |
3. | Reviewing all offering documents, including the Prospectus, stock order forms and related offering materials (it being understood that preparation and filing of such documents will be the responsibility of the Company and its counsel); |
4. | Assisting in the design and implementation of a marketing strategy for the Offering; |
5. | Assisting Company management in scheduling and preparing for meetings with potential investors and/or other broker-dealers in connection with the Offering; and |
6. | Providing such other general advice and assistance as may be reasonably necessary to promote the successful completion of the Offering. |
Piper Sandler will act as exclusive marketing agent for the Company in the Subscription and Community Offering and will serve as sole manager of any Syndicated Offering. Piper Sandler may also seek to form a syndicate of registered broker-dealers to assist in any Syndicated Offering (all such registered broker-dealers participating in the Syndicated Offering, including Piper Sandler, the “Syndicate Member Firms”). Piper Sandler will consult with the Company in selecting the Syndicate Member Firms and the extent of their participation in the Offering. Pursuant to the terms of the Plan, Piper Sandler will endeavor to distribute the Shares among dealers in a fashion that best meets the distribution objectives of the Company and the requirements of the Plan, which may result in limiting the allocation of stock to certain Syndicate Member Firms. It is understood that in no event shall any Syndicate Member Firm be obligated to take or purchase any Shares in the Offering.
FEES
If the Offering is consummated, the Company agrees to pay Piper Sandler for its marketing agent services a fee of (a) 0.90% of the aggregate Actual Purchase Price of all Shares sold in the Subscription Offering including those sold in the State of Louisiana in the Community Offering, plus (b) 3.0% of the aggregate Actual Purchase Price of all Shares sold in the Community Offering excluding those sold in the State of Louisiana above, and, in the case of both clause (a) and (b) above, excluding Shares purchased by or on behalf of (i) any employee benefit plan or trust of the Bank established for the benefit of its directors, officers and employees, and (ii) any director, officer or employee of the Bank or members of their immediate families (whether directly or through a personal trust).
With respect to any Shares sold in the Syndicated Offering, the Company agrees to pay an aggregate fee of 5.50% of the aggregate Actual Purchase Price of all Shares sold in the Syndicated Offering.
Board of Directors
St. Landry Homestead Federal Savings Bank
December 24, 2020
Page 3
For purposes of this letter, the term “Actual Purchase Price” shall mean the price at which the Shares are sold in the Offering. All fees payable hereunder shall be payable in immediately available funds by wire transfer at the time of the closing of the Offering. If the Offering is terminated by the Company, no marketing agent services fees shall be payable by the Company to Piper Sandler hereunder.
COSTS AND EXPENSES
In addition to any fees that may be payable to Piper Sandler hereunder and the expenses to be borne by the Company pursuant to the following paragraph, the Company agrees to reimburse Piper Sandler, upon request made from time to time, for its reasonable out-of-pocket expenses incurred in connection with its engagement hereunder, regardless of whether the Offering is consummated, including, without limitation, legal fees and expenses, travel and syndication expenses, up to a maximum of $100,000; provided, however, that Piper Sandler shall document such expenses to the reasonable satisfaction of the Company. The provisions of this paragraph are not intended to apply to or in any way impair the indemnification or contribution provisions of this letter.
As is customary, the Company will bear all other expenses incurred in connection with the Offering, including, without limitation, (i) the cost of obtaining all securities and bank regulatory approvals, including any required FINRA filing fees; (ii) the cost of printing and distributing the offering materials; (iii) the costs of blue sky qualification (including fees and expenses of blue sky counsel) of the Shares in the various states; (iv) listing fees; (v) all fees and disbursements of the Company’s counsel, accountants, transfer agent and other advisors; and (vi) the establishment and operational expenses for the Stock Information Center (e.g., postage, telephones, supplies, temporary employees, etc.). In the event Piper Sandler incurs any such fees and expenses on behalf of the Company, the Company will reimburse Piper Sandler for such fees and expenses whether or not the Offering is consummated.
DUE DILIGENCE REVIEW
Piper Sandler’s obligation to perform the services contemplated by this letter shall be subject to the satisfactory completion of such investigation and inquiries relating to the Company and its directors, officers, agents and employees as Piper Sandler and its counsel in their sole discretion may deem appropriate under the circumstances. In this regard, the Company agrees that, at its expense, it will make available to Piper Sandler all information that Piper Sandler reasonably requests, and will allow Piper Sandler the opportunity to discuss with the management of the Company the financial condition, business and operations of the Company. The Company acknowledges that Piper Sandler will rely upon the accuracy and completeness of all information received from the Company and its directors, officers, employees, agents, independent accountants and counsel.
Board of Directors
St. Landry Homestead Federal Savings Bank
December 24, 2020
Page 4
To help the United States government fight the funding of terrorism and money laundering activities, the federal law of the United States requires all financial institutions to obtain, verify and record information that identifies each person with whom they do business. This means Piper Sandler may ask the Company and its significant shareholders or equityholders for certain identifying information and documents, including a government-issued identification number (e.g., a U.S. taxpayer identification number) and copies of documents containing personal identifying information, and such other information or documents that Piper Sandler and its counsel consider appropriate to verify the bona fide existence of the Company (e.g., certified articles of incorporation, a government-issued business license, a partnership agreement or a trust instrument) and the identities of its significant shareholders or equityholders.
BLUE SKY MATTERS
Piper Sandler and the Company agree that the Company’s counsel shall serve as counsel with respect to blue sky matters in connection with the Offering. The Company will cause such counsel to prepare a Blue Sky Memorandum related to the Subscription and Community Offering and, if applicable, the Syndicated Offering, including Piper Sandler’s participation therein, and shall furnish Piper Sandler a copy thereof addressed to Piper Sandler or upon which such counsel shall state Piper Sandler may rely.
CONFIDENTIALITY
Except as contemplated in connection with the performance of its services under this agreement, as authorized by the Company or as required by law, regulation, legal process or order of any court or governmental or regulatory authority, Piper Sandler agrees that it will treat as confidential all material, non-public information relating to the Company obtained in connection with its engagement hereunder (the “Confidential Information”); provided, however, that Piper Sandler may disclose such information to its affiliates, partners, directors, employees, agents and advisors who are assisting or advising Piper Sandler in performing its services hereunder and who have been directed to comply with the terms and conditions of this paragraph. As used in this paragraph, the term “Confidential Information” shall not include information which (a) is or becomes generally available to the public other than as a result of a disclosure by Piper Sandler in breach of the confidentiality obligations contained herein, (b) was available to Piper Sandler on a non-confidential basis prior to its disclosure to Piper Sandler by the Company, (c) becomes available to Piper Sandler on a non-confidential basis from a person other than the Company who is not otherwise known to Piper Sandler to be bound not to disclose such information pursuant to a contractual, legal or fiduciary obligation owed to the Company, or (d) is independently developed by Piper Sandler without use of or reference to the Confidential Information disclosed hereunder.
Board of Directors
St. Landry Homestead Federal Savings Bank
December 24, 2020
Page 5
The Company hereby acknowledges and agrees that the financial models and presentations used by Piper Sandler in performing its services hereunder have been developed by and are proprietary to Piper Sandler and are protected under applicable copyright laws. The Company agrees that it will not reproduce or distribute all or any portion of such models or presentations without the prior written consent of Piper Sandler.
REPRESENTATIONS
The Bank represents and warrants that it has all requisite power and authority to enter into and carry out the terms and provisions of this agreement, the execution, delivery and performance of this agreement does not breach or conflict with any agreement, document or instrument to which it is a party or bound and this agreement has been duly authorized, executed and delivered by the Bank.
INDEMNIFICATION AND CONTRIBUTION
Annex A is hereby incorporated into this agreement by reference and made part of this agreement.
DEFINITIVE AGREEMENT
Piper Sandler and the Company agree that (a) except as set forth in clause (b) below, the foregoing represents the general intention of the Company and Piper Sandler with respect to the services to be provided by Piper Sandler in connection with the Offering, which will serve as a basis for Piper Sandler commencing activities, and (b) the only legal and binding obligations of the Company and Piper Sandler with respect to the Offering (such obligations to survive any termination of this agreement) shall be (1) the Company’s obligation to reimburse costs and expenses pursuant to the section captioned “Costs and Expenses,” (2) those set forth under the captions “Confidentiality”, “Representations” and “Indemnification and Contribution,” and (3) as set forth in a duly negotiated and executed definitive Agency Agreement to be entered into prior to the commencement of the Subscription and Community Offering. Such Agency Agreement shall be in form and content satisfactory to Piper Sandler and the Company and their respective counsel and shall contain standard indemnification and contribution provisions consistent herewith.
Board of Directors
St. Landry Homestead Federal Savings Bank
December 24, 2020
Page 6
Piper Sandler’s execution of such Agency Agreement shall also be subject to (i) Piper Sandler’s satisfaction with its investigation of the Company’s business, financial condition and results of operations, (ii) preparation of offering materials that are satisfactory to Piper Sandler and its counsel, (iii) compliance with all relevant legal and regulatory requirements to the reasonable satisfaction of Piper Sandler and its counsel, (iv) agreement that the price established by the independent appraiser is reasonable, and (v) market conditions at the time of the proposed Offering. Piper Sandler may terminate this agreement if such Agency Agreement is not entered into prior December 31, 2021.
MISCELLANEOUS
This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and can be altered only by written consent signed by the parties. This Agreement shall be construed and enforced in accordance with the laws of the State of New York, without regard to the conflicts of laws principles thereof.
Board of Directors
St. Landry Homestead Federal Savings Bank
December 24, 2020
Page 7
Please confirm that the foregoing correctly sets forth our agreement by signing and returning to Piper Sandler the duplicate copy of this letter enclosed herewith.
Very truly yours, | ||
PIPER SANDLER & CO. | ||
By: |
|
|
Derek Szot | ||
Managing Director |
Accepted and agreed to as of the date first above written: |
||
ST. LANDRY HOMESTEAD FEDERAL SAVINGS BANK |
||
By: | /s/ Joseph B. Zanco | |
Joseph B. Zanco | ||
President and Chief Executive Officer |
Board of Directors
St. Landry Homestead Federal Savings Bank
December 24, 2020
Page 8
ANNEX A
The Bank agrees to, and shall cause the Holding Company to, indemnify and hold Piper Sandler and its affiliates and their respective partners, directors, officers, employees, agents and controlling persons within the meaning of Section 15 of the Securities Act of 1933 or Section 20 of the Securities Exchange Act of 1934 (Piper Sandler and each such person being an “Indemnified Party”) harmless from and against any and all losses, claims, damages and liabilities, joint or several, to which such Indemnified Party may become subject under applicable federal or state law, or otherwise, (i) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the offering documents, including documents described or incorporated by reference therein, or in any other written or oral communication provided by or on behalf of the Holding Company or the Bank to any actual or prospective purchaser of the Shares or arising out of or based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, (ii) arising out of or based in whole or in part on any inaccuracy in the representations or warranties of the Holding Company or the Bank contained in any agency agreement, or any failure of the Holding Company or the Bank to perform its obligations thereunder or (iii) arising in any manner out of or in connection with Piper Sandler’s engagement under, or any matter referred to in, this agreement, and will reimburse any Indemnified Party for all expenses (including reasonable legal fees and expenses) as they are incurred, including expenses incurred in connection with the investigation of, preparation for or defense of any pending or threatened claim or any action or proceeding arising therefrom, whether or not such Indemnified Party is a party; provided, however, that the Company shall only be obligated to pay for one separate counsel (in addition to any required local counsel) in any one action or proceeding or group of related actions or proceedings for all Indemnified Parties collectively, and provided, further, that the Company will not be liable to Piper Sandler (a) to the extent that any such loss, claim, damage, liability or expense arises out of or is based upon any untrue statement of a material fact or the omission of a material fact required to be stated therein or necessary to make not misleading any statements contained in any final prospectus, or any amendment or supplement thereto, made in reliance on and in conformity with written information furnished to the Company by Piper Sandler expressly for use therein, or (b) under clause (iii) of this paragraph to the extent that it is finally judicially determined that any such loss, claim, damage, liability or expense is primarily attributable to the gross negligence, willful misconduct or bad faith of Piper Sandler. If the foregoing indemnification is unavailable for any reason other than for the reasons stated in subparagraph (a) or (b) above, the Company agrees to contribute to such losses, claims, damages, liabilities and expenses in the proportion that its financial interest in the Offering bears to that of Piper Sandler. The Bank further agrees, and shall cause the Holding Company to agree, that neither Piper Sandler nor any of its controlling persons, affiliates, partners, directors, officers, employees or consultants shall have any liability to the Holding Company or the Bank or any person asserting claims on behalf of or in right of the Holding Company or the Bank for any losses, claims, damages, liabilities or expenses arising out of or relating to this agreement or the services to be rendered by Piper Sandler hereunder, unless it is finally judicially determined that such losses, claims, damages, liabilities or expenses resulted directly from the gross negligence, willful misconduct or bad faith of Piper Sandler.
Board of Directors
St. Landry Homestead Federal Savings Bank
December 24, 2020
Page 9
The Bank agrees to, and shall cause the Holding Company to, notify Piper Sandler promptly of the assertion against it or any other person of any claim or the commencement of any action or proceeding relating to any transaction contemplated by this agreement. The Bank will not, and shall cause the Holding Company not to, without Piper Sandler’s prior written consent, settle, compromise, consent to the entry of any judgment in or otherwise seek to terminate any claim, action or proceeding in respect of which indemnity may be sought hereunder, whether or not any Indemnified Party is an actual or potential party thereto, unless such settlement, compromise, consent or termination (i) includes an explicit and unconditional release of each Indemnified Party from any liabilities arising out of such claim, action or proceeding and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any Indemnified Party. If the Holding Company or the Bank enters into any agreement or arrangement with respect to, or effects, any proposed sale, exchange, dividend or other distribution or liquidation of all or substantially all of its assets in one or a series of transactions, the Bank shall provide, and shall cause the Holding Company to provide, for the assumption of its obligations under this section by the purchaser or transferee of such assets or another party reasonably satisfactory to Piper Sandler.
Exhibit 2.1
Plan of Conversion
of
St. Landry Homestead Federal Savings Bank
As Adopted By The Board of Directors
on January 27, 2021
TABLE OF CONTENTS
Section Number |
Page |
|||
1. | Introduction | 1 | ||
2. | Definitions | 1 | ||
3. | General Procedure for Conversion | 5 | ||
4. | Total Number of Shares and Purchase Price of Conversion Stock | 6 | ||
5. | Subscription Rights of Eligible Account Holders (First Priority) | 7 | ||
6. | Subscription Rights of Tax-Qualified Employee Stock Benefit Plans (Second Priority) | 8 | ||
7. | Subscription Rights of Supplemental Eligible Account Holders (Third Priority) | 8 | ||
8. | Subscription Rights of Other Members (Fourth Priority) | 8 | ||
9. | Community Offering, Syndicated Community Offering, Public Offering and Other Offerings | 9 | ||
10. | Limitations on Subscriptions and Purchases of Conversion Stock | 11 | ||
11. | Timing of Subscription Offering, Manner of Exercising Subscription Rights and Order Forms | 12 | ||
12. | Payment for Conversion Stock | 13 | ||
13. | Account Holders in Nonqualified States or Foreign Countries | 14 | ||
14. | Voting Rights of Stockholders | 15 | ||
15. | Liquidation Account | 15 | ||
16. | Transfer of Deposit Accounts | 16 | ||
17. | Requirements Following Conversion for Registration, Market Making and Stock Exchange Listing | 16 | ||
18. | Directors and Officers of the Bank | 16 | ||
19. | Requirements for Stock Purchases by Directors and Officers Following Conversion | 17 | ||
20. | Restrictions on Transfer of Stock | 17 | ||
21. | Restrictions on Acquisition of Stock of the Holding Company | 17 | ||
22. | Adoption of Federal Stock Charter and Bylaws | 18 | ||
23. | Tax Rulings or Opinions | 18 | ||
24. | Stock Compensation Plans | 18 | ||
25. | Dividend and Repurchase Restrictions on Stock | 19 | ||
26. | Payment of Fees to Brokers | 19 | ||
27. | Effective Date | 19 | ||
28. | Amendment or Termination of the Plan | 19 | ||
29. | Interpretation of the Plan | 19 |
PLAN OF CONVERSION
OF
ST. LANDRY HOMESTEAD FEDERAL SAVINGS BANK
1. | INTRODUCTION. |
This Plan of Conversion (“Plan”) provides for the conversion of St. Landry Homestead Federal Savings Bank (“Bank”), from a federally chartered mutual savings bank to a federally chartered stock savings bank. This Plan also provides that the Bank shall operate as a wholly owned subsidiary of a stock holding company (“Holding Company”) and that non-transferable subscription rights to purchase the common stock of the Holding Company (“Conversion Stock”) shall be granted to certain deposit account holders of the Bank pursuant to this Plan and in accordance with the regulations of the Office of the Comptroller of the Currency (“OCC”). The Conversion will raise additional capital which will permit the Bank to continue to grow and diversify its lending and investment activities thereby permitting the Bank to further enhance its capabilities to serve the borrowing and other financial needs of the communities it serves. The larger capital base and the holding company structure also will facilitate the Bank’s ability to expand and diversify in accordance with its business plan, through both internal growth and through possible future acquisitions of other banking institutions or financial services companies.
This Plan, which has been approved by the required two-thirds vote of the Board of Directors of the Bank, is subject to further approval by the affirmative vote of a majority of the total outstanding votes held by voting members of the Bank at a special meeting to be called for that purpose. Prior to the submission of this Plan to the voting members for consideration, it must be approved by the OCC.
2. | DEFINITIONS. |
As used in this Plan, the terms set forth below have the following meaning:
2.1 Acting in Concert means (i) knowing participation in a joint activity or interdependent conscious parallel action towards a common goal whether or not pursuant to an express agreement or understanding; or (ii) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. A Person which acts in concert with another Person (“other party”) shall also be deemed to be acting in concert with any Person who is also acting in concert with that other party, except that any Tax-Qualified Employee Stock Benefit Plan will not be deemed to be acting in concert with its trustee or a person who serves in a similar capacity solely for the purpose of determining whether stock held by the trustee and stock held by the plan will be aggregated and participants or beneficiaries of any such Tax-Qualified Employee Stock Benefit Plan will not be deemed to be Acting in Concert solely as a result of their common interests as participants or beneficiaries. The determination of whether a group is acting in concert shall be made solely by the Board of Directors of the Holding Company or the Bank or Officers delegated by such Boards and may be based on any evidence upon which the Board or such delegate chooses to rely, including, without limitation, joint account relationships or the fact that such Persons share a common address (whether or not related by blood or marriage) or have filed joint Schedules 13D or Schedules 13G with the SEC with respect to other companies. Directors of the Holding Company, and the Bank shall not be deemed to be Acting in Concert solely as a result of their membership on any such Board or Boards.
2.2 Actual Purchase Price means the price per share at which the Conversion Stock is ultimately sold by the Holding Company in the Offerings in accordance with the terms hereof.
2.3 Affiliate means a Person who, directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with the Person specified.
2.4 Application for Conversion shall have the meaning set forth in Section 3(a) hereof.
2.5 Associate when used to indicate a relationship with any Person, means (i) a corporation or organization (other than the Bank, a majority-owned subsidiary of the Bank or the Holding Company) of which such Person is a senior officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities, (ii) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity, provided, however, that such terms shall not include any Tax-Qualified Employee Stock Benefit Plan or Non-Tax-Qualified Employee Stock Benefit Plan of the Holding Company or the Bank in which such Person has a substantial beneficial interest or serves as a trustee or in a similar fiduciary capacity, and (iii) any Person who is related by blood or marriage to such Person and who lives in the same home as such Person or who is a director or senior officer of the Bank or the Holding Company or any of the subsidiaries of the foregoing.
2.6 Bank means St. Landry Homestead Federal Savings Bank, in its mutual or stock form, as the sense of the reference requires.
2.7 Bank Benefit Plans includes, but is not limited to, Tax-Qualified Employee Stock Benefit Plans and Non-Tax-Qualified Employee Stock Benefit Plans.
2.8 Code means the Internal Revenue Code of 1986, as amended.
2.9 Community Offering means the offering for sale by the Holding Company of any shares of Conversion Stock not subscribed for in the Subscription Offering to such Persons within or outside the State of Louisiana as may be selected by the Holding Company and the Bank in their sole discretion and to whom a copy of the Prospectus is delivered by or on behalf of the Holding Company.
2.10 Control (including the terms “controlling,” “controlled by,” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.
2.11 Conversion means the series of transactions provided for in this Plan, including but not limited to (i) the adoption of a federal stock charter by the Bank to authorize the issuance of shares of capital stock and otherwise to conform to the requirements of a stock savings bank organized under the laws of the United States (ii) the issuance of Conversion Stock by the Holding Company as provided herein and (iii) the purchase by the Holding Company of all of the capital stock of the Bank to be issued by the Bank in connection with its conversion from mutual to stock form.
2.12 Conversion Stock means the Holding Company Common Stock to be issued and sold in the Offerings pursuant to this Plan.
2.13 Deposit Account means any withdrawable account including, without limitation, savings accounts, demand accounts, certificate accounts, passbook accounts, money market deposit accounts and negotiable order of withdrawal accounts, held by an account holder of the Bank.
2.14 Director, Officer and Employee means the terms as applied respectively to any person who is a director, officer or employee of the Bank or any subsidiary thereof.
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2.15 ESOP means a Tax-Qualified Employee Stock Benefit Plan adopted by the Company and the Bank in connection with the Conversion, the purpose of which shall be to acquire capital stock of the Company, including Conversion Stock.
2.16 Eligible Account Holder means any Person holding a Qualifying Deposit on the Eligibility Record Date for purposes of determining Subscription Rights and establishing subaccount balances in the Liquidation Account to be established pursuant to Section 15 hereof.
2.17 Eligibility Record Date means the date for determining Qualifying Deposits of Eligible Account Holders and is the close of business on December 31, 2019.
2.18 Estimated Price Range means the range of the estimated aggregate pro forma market value of the total number of shares of Conversion Stock to be issued in the Conversion, as determined by the Independent Appraiser in accordance with Section 4 hereof.
2.19 FDIC means the Federal Deposit Insurance Corporation or any successor thereto.
2.20 FRB means the Board of Governors of the Federal Reserve System or any successor thereto.
2.21 Holding Company means Catalyst Bancorp, Inc., a Louisiana corporation, to be organized at the direction of the Board of Directors of the Bank to hold all of the capital stock of the Bank.
2.22 Holding Company Application means the Savings and Loan Holding Company Application on such form as may be prescribed by the FRB in connection with the transactions contemplated by this Plan.
2.23 Holding Company Common Stock means the common stock of the Holding Company, which stock cannot and will not be insured by the FDIC or any other governmental authority.
2.24 Independent Appraiser means the independent investment banking or financial consulting firm retained by the Bank to prepare an appraisal of the estimated pro forma market value of the Conversion Stock.
2.25 Initial Purchase Price means the price per share to be paid initially by Participants for shares of Conversion Stock subscribed for in the Subscription Offering and by Persons for shares of Conversion Stock ordered in the Community Offering and/or Syndicated Community Offering.
2.26 Liquidation Account means the account established by the Bank representing the liquidation interests received by Eligible Account Holders and Supplemental Eligible Account Holders in exchange for their interests in the Bank immediately prior to the Conversion, as set forth in Section 15 hereof.
2.27 Member means any Person qualifying as a member of the Bank in accordance with its mutual charter and bylaws and the laws of the United States.
2.28 Offerings mean the Subscription Offering, the Community Offering and the Syndicated Community Offering or Public Offering.
2.29 Officer means chief executive officer, president, any vice president (but not an assistant vice president, second vice president, or other vice president having authority similar to an assistant or second vice president), secretary, treasurer or principal financial officer, comptroller or principal accounting officer and any other person performing similar functions with respect to any organization whether incorporated or unincorporated.
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2.30 Order Form means the form or forms provided by the Bank, containing all such terms and provisions as set forth in Section 11 hereof, to a Participant or other Person by which Conversion Stock may be ordered in the Offerings.
2.31 Other Member means a Voting Member who is not an Eligible Account Holder or Supplemental Eligible Account Holder.
2.32 OCC means the Office of the Comptroller of the Currency or any successor thereto.
2.33 Participant means any Eligible Account Holder, Tax-Qualified Employee Stock Benefit Plan, Supplemental Eligible Account Holder or Other Member.
2.34 Person means an individual, a corporation, a limited liability company, a partnership, a limited liability partnership, an association, a joint stock company, a trust, an unincorporated organization or a government or any political subdivision thereof.
2.35 Plan and Plan of Conversion mean this Plan of Conversion as adopted by the Board of Directors of the Bank and any amendment hereto approved as provided herein.
2.36 Prospectus means the one or more documents to be used in offering the Conversion Stock in the Offerings.
2.37 Proxy Statement means the document used to solicit approval of the Plan by the Voting Members of the Bank.
2.38 Public Offering means an underwritten firm commitment offering to the public through one or more underwriters.
2.39 Qualifying Deposit means the aggregate balance of all Deposit Accounts in the Bank of (i) an Eligible Account Holder at the close of business on the Eligibility Record Date, provided such aggregate balance is not less than $50 and (ii) a Supplemental Eligible Account Holder at the close of business on the Supplemental Eligibility Record Date, provided such aggregate balance is not less than $50.
2.40 SEC means the United States Securities and Exchange Commission.
2.41 Special Meeting means the special meeting of Members of the Bank called for the purpose of submitting this Plan to the Members for their approval, including adoption of a federal stock charter and new bylaws to authorize the issuance of capital stock and otherwise to read in a form consistent with a federally chartered stock form savings bank, and any adjournments of such meeting.
2.42 Subscription Offering means the offering of the Conversion Stock to Participants.
2.43 Subscription Rights means non-transferable rights to subscribe for Conversion Stock granted to Participants pursuant to the terms of this Plan.
2.44 Supplemental Eligible Account Holder, if applicable, means any Person, except Directors and Officers of the Bank and their Associates (unless the OCC grants a waiver permitting a Director or Officer or an Associate thereof to be included), holding a Qualifying Deposit at the close of business on the Supplemental Eligibility Record Date.
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2.45 Supplemental Eligibility Record Date, if applicable, means the date for determining Qualifying Deposits of Supplemental Eligible Account Holders and shall be required if the Eligibility Record Date is more than 15 months prior to the date of the latest amendment to the Application for Conversion filed prior to approval of such application by the OCC. If applicable, the Supplemental Eligibility Record Date shall be the last day of the calendar quarter preceding OCC approval of the Application for Conversion submitted by the Bank pursuant to this Plan of Conversion.
2.46 Syndicated Community Offering means the offering for sale by a syndicate of broker-dealers to the general public of shares of Conversion Stock not purchased in the Subscription Offering and the Community Offering.
2.47 Tax-Qualified Employee Stock Benefit Plan means any defined benefit plan or defined contribution plan, including the ESOP, a stock bonus plan, profit-sharing plan or other plan, which is established for the benefit of the employees of the Holding Company and/or the Bank and which, with its related trust, meets the requirements to be “qualified” under Section 401 of the Code as from time to time in effect. A “Non-Tax-Qualified Employee Stock Benefit Plan” is any defined benefit plan or defined contribution stock benefit plan which is not so qualified.
2.48 Voting Member means a Person who at the close of business on the Voting Record Date is entitled to vote as a member of the Bank in accordance with its federal mutual charter and bylaws.
2.49 Voting Record Date means the date for determining the eligibility of Members to vote at the Special Meeting.
3. | GENERAL PROCEDURE FOR CONVERSION. |
(a) The Bank will take the necessary steps to prepare and file an application for conversion, including the Plan, together with all requisite material, to the OCC for approval (the “Application for Conversion”). The Bank also will cause notice of the adoption of the Plan by the Board of Directors of the Bank to be given by publication in a newspaper having general circulation in each community in which an office of the Bank is located, and will cause copies of the Plan to be made available at each office of the Bank for inspection by Members. The Bank will post the notice of the filing of its Application for Conversion in each of its offices and will again cause to be published, in accordance with the requirements of applicable regulations of the OCC, a notice of the filing with the OCC of the Application for Conversion.
(b) Promptly following approval of the Bank’s Application for Conversion by the OCC, this Plan will be submitted to the Voting Members for their consideration and approval at the Special Meeting. The Bank may, at its option, mail to all Voting Members as of the Voting Record Date, at their last known address appearing on the records of the Bank, a Proxy Statement in either long or summary form describing the Plan which will be submitted to a vote of the Members at the Special Meeting. If the Bank provides a summary form Proxy Statement, the Bank shall also mail to all Eligible Account Holders and Supplemental Eligible Account Holders who are not Members of the Bank as of the Voting Record Date a letter informing them of their right to receive a Prospectus and Order Form for the purchase of Conversion Stock. Under such circumstances, Participants will be given the opportunity to request a Prospectus and Order Form and other materials relating to the Conversion by returning a postage prepaid card which will be distributed with the Proxy Statement or letter. If the Plan is approved by the affirmative vote of a majority of the total outstanding votes at the Special Meeting, the Bank shall take all other necessary organizational steps pursuant to applicable laws and regulations to amend its charter and bylaws to authorize the issuance of its capital stock to the Holding Company at the time the Conversion of the Bank to stock form is consummated.
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(c) The Holding Company shall submit or cause to be submitted to the FRB the Holding Company Application and such other materials as may be required for approval of the Holding Company’s acquisition of the Bank and a Registration Statement to the SEC to register the Conversion Stock under the Securities Act of 1933, as amended. The Holding Company shall also register or qualify the Conversion Stock as may be necessary under any applicable state securities laws, subject to Section 13 hereof. Upon registration and after the receipt of all required regulatory approvals, the Conversion Stock shall be first offered for sale in a Subscription Offering to Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible Account Holders, if applicable and Other Members as set forth in Sections 5, 6, 7 and 8 hereof. It is anticipated that any shares of Conversion Stock remaining unsold after the Subscription Offering will be sold through a Community Offering, a Syndicated Community Offering and/or a Public Offering as set forth in Section 9 hereof. The purchase price per share for the Conversion Stock shall be a uniform price determined in accordance with Section 4 hereof. The Holding Company shall purchase all of the capital stock of the Bank with an amount (not less than 50%) of the net proceeds received by the Holding Company from the sale of Conversion Stock as shall be determined by the Boards of Directors of the Holding Company and the Bank and as shall be approved by the OCC.
(d) The Holding Company and the Bank may retain and pay for the services of financial and other advisors and investment bankers to assist in connection with any or all aspects of the Conversion, including in connection with the Subscription Offering, Community Offering and/or any Syndicated Community Offering or Public Offering, the payment of fees to brokers and investment bankers for assisting Persons in completing and/or submitting Order Forms. All fees, expenses, retainers and similar items shall be reasonable.
(e) Upon completion of the Conversion, the legal existence of the Bank shall not terminate but the stock Bank shall be a continuation of the entity of the mutual Bank and all property of the mutual Bank, including its right, title and interest in and to all property of whatever kind and nature, whether real, personal, or mixed, and things, and choses in action, and every right, privilege, interest and asset of every conceivable value or benefit then existing or pertaining to it, or which would inure to it, immediately by operation of law and without the necessity of any conveyance or transfer and without any further act or deed shall vest in the stock Bank. The stock Bank shall have, hold, and enjoy the same in its own right as fully and to the same extent as the same was possessed, held and enjoyed by the mutual Bank. The stock Bank at the time and the taking effect of the Conversion shall continue to have and succeed to all the rights, obligations and relations of the mutual Bank. All pending actions and other judicial or administrative proceedings to which the Bank was a party shall not be discontinued by reason of the Conversion, but may be prosecuted to final judgment or order in the same manner as if the Conversion had not been made and the stock Bank resulting from the Conversion may continue the actions in its name notwithstanding the Conversion.
4. | TOTAL NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK. |
(a) The aggregate price at which all shares of Conversion Stock to be sold shall be based on a pro forma valuation of the aggregate market value of the Conversion Stock prepared by the Independent Appraiser. The valuation shall be based on financial information relating to the Holding Company and the Bank, economic and financial conditions, a comparison of the Holding Company and the Bank with selected publicly-held financial institutions and holding companies and with comparable financial institutions and holding companies and such other factors as the Independent Appraiser may deem to be important, including, but not limited to, the projected operating results and financial condition of the Holding Company and the Bank. The valuation shall be stated in terms of an Estimated Price Range, the maximum of which shall generally be no more than 15% above the average of the minimum and maximum of such price range and the minimum of which shall generally be no more than 15% below such average. The valuation shall be updated during the Conversion as market and financial conditions warrant and as may be required by the OCC.
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(b) Based upon the independent valuation, the Boards of Directors of the Holding Company and the Bank shall fix the Initial Purchase Price and the number of shares of Conversion Stock to be offered in the Subscription Offering, Community Offering and/or Syndicated Community Offering. The Actual Purchase Price and the total number of shares of Conversion Stock to be issued in the Offerings shall be determined by the Boards of Directors of the Holding Company and the Bank upon conclusion of such offerings in consultation with the Independent Appraiser and any financial advisor or investment banker retained by the Bank in connection with such offerings.
(c) Subject to the approval of the OCC, the Estimated Price Range may be increased or decreased to reflect market and economic conditions prior to completion of the Conversion or to fill the order of the Tax-Qualified Employee Stock Benefit Plans, and under such circumstances the Holding Company may increase or decrease the total number of shares of Conversion Stock to be issued in the Conversion to reflect any such change. Notwithstanding anything to the contrary contained in this Plan, no resolicitation of subscribers shall be required and subscribers shall not be permitted to modify or cancel their subscriptions unless the gross proceeds from the sale of the Conversion Stock issued in the Conversion are less than the minimum or more than 15% above the maximum of the Estimated Price Range set forth in the Prospectus. In the event of an increase in the total number of shares offered in the Conversion due to an increase in the Estimated Price Range, the priority of share allocation shall be as set forth in this Plan.
5. | SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY). |
(a) Each Eligible Account Holder shall receive, without payment, non-transferable Subscription Rights to purchase up to the greater of (i) $150,000 of Conversion Stock (or such maximum purchase limitation as may be established for the Community Offering and/or Syndicated Community Offering or Public Offering), (ii) one-tenth of one percent (0.1%) of the total offering of shares in the Subscription Offering, or (iii) 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of Conversion Stock offered in the Subscription Offering by a fraction, of which the numerator is the amount of the Qualifying Deposits of the Eligible Account Holder and the denominator is the total amount of all Qualifying Deposits of all Eligible Account Holders, in each case subject to Sections 10 and 13 hereof.
(b) In the event of an oversubscription for shares of Conversion Stock pursuant to Section 5(a), available shares shall be allocated among subscribing Eligible Account Holders so as to permit each such Eligible Account Holder, to the extent possible, to purchase a number of shares which will make his or her total allocation equal to the lesser of the number of shares subscribed for or 100 shares. Any available shares remaining after each subscribing Eligible Account Holder has been allocated the lesser of the number of shares subscribed for or 100 shares shall be allocated among the subscribing Eligible Account Holders in the proportion which the Qualifying Deposit of each such subscribing Eligible Account Holder bears to the total Qualifying Deposits of all such subscribing Eligible Account Holders, provided that no fractional shares shall be issued. Subscription Rights of Eligible Account Holders shall be subordinated to the priority rights of the ESOP to purchase shares in excess of the Maximum Shares, as defined in Section 6 below.
(c) Subscription Rights of Eligible Account Holders who are also Directors or Officers of the Bank and their Associates shall be subordinated to those of other Eligible Account Holders to the extent that they are attributable to increased deposits during the one year period preceding the Eligibility Record Date.
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6. | SUBSCRIPTION RIGHTS OF TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLANS; ESOP (SECOND PRIORITY). |
The ESOP, established by the Bank as a Tax-Qualified Employee Stock Benefit Plan, shall receive, without payment, non-transferable Subscription Rights to purchase in the aggregate up to 8% of the Conversion Stock. The subscription rights granted to the ESOP shall be subject to the availability of shares of Conversion Stock after taking into account the shares of Conversion Stock purchased by Eligible Account Holders, provided, however, that in the event that the total number of shares offered in the Conversion is increased to an amount greater than the number of shares representing the maximum of the Estimated Price Range as set forth in the Prospectus (“Maximum Shares”), the ESOP shall have a priority right to purchase any such shares exceeding the Maximum Shares up to an aggregate of 8% of the Conversion Stock. Consistent with applicable laws and regulations and policies and practices of the OCC, the ESOP may use funds contributed by the Holding Company or the Bank and/or borrowed from an independent financial institution to exercise such Subscription Rights, and the Holding Company and the Bank may make scheduled discretionary contributions thereto, provided that such contributions do not cause the Holding Company or the Bank to fail to meet any applicable capital maintenance requirements. Alternatively, if permitted by the OCC, the ESOP may purchase all or a portion of such shares in the open market after consummation of the Conversion.
7. | SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD PRIORITY). |
(a) In the event that the Eligibility Record Date is more than 15 months prior to the date of the latest amendment to the Application for Conversion filed prior to OCC approval, then, and only in that event, each Supplemental Eligible Account Holder shall receive, without payment, non-transferable Subscription Rights to purchase up to the greater of (i) $150,000 of Conversion Stock (or such maximum purchase limitation as may be established for the Community Offering and/or Syndicated Community Offering or Public Offering), (ii) one-tenth of one percent (0.1%) of the total offering of shares in the Subscription Offering, or (iii) 15 times the product (rounded down to the next whole number) obtained by multiplying the total number of shares of Conversion Stock offered in the Subscription Offering by a fraction, of which the numerator is the amount of the Qualifying Deposits of the Supplemental Eligible Account Holder and the denominator is the total amount of all Qualifying Deposits of all Supplemental Eligible Account Holders, subject to the availability of shares of Conversion Stock for purchase after taking into account the shares of Conversion Stock purchased by Eligible Account Holders and Tax-Qualified Employee Stock Benefit Plans through the exercise of Subscription Rights under Sections 5 and 6 hereof, and subject to Sections 10 and 13 hereof.
(b) In the event of an oversubscription for shares of Conversion Stock pursuant to Section 7(a), available shares shall be allocated among subscribing Supplemental Eligible Account Holders so as to permit each such Supplemental Eligible Account Holder, to the extent possible, to purchase a number of shares sufficient to make his or her total allocation (including the number of shares, if any, allocated in accordance with Section 5(a)) equal to the lesser of the number of shares subscribed for or 100 shares. Any remaining available shares shall be allocated among subscribing Supplemental Eligible Account Holders in the proportion that the amount of their respective Qualifying Deposits bears to the total amount of the Qualifying Deposits of all subscribing Supplemental Eligible Account Holders, provided that no fractional shares shall be issued.
8. | SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY). |
(a) Each Other Member shall receive, without payment, non-transferable Subscription Rights to purchase up to the greater of (i) $150,000 of Conversion Stock in the Subscription Offering (or such maximum purchase limitation as may be established for the Community Offering and/or Syndicated Community Offering or Public Offering), or (ii) one-tenth of one percent (0.1%) of the total offering of shares in the Subscription Offering, in each case if and only to the extent that shares of Conversion Stock are available for purchase after taking into account the shares of Conversion Stock purchased by Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans and Supplemental Eligible Account Holders through the exercise of Subscription Rights under Sections 5, 6 and 7 hereof, and subject to Sections 10 and 13 hereof.
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(b) If, pursuant to this Section 8, Other Members subscribe for a number of shares of Conversion Stock in excess of the total number of shares of Conversion Stock remaining, shares shall be allocated so as to permit each such Other Member, to the extent possible, to purchase a number of shares which will make his or her total allocation equal to the lesser of the number of shares subscribed for or 100 shares. Any shares remaining will be allocated among the subscribing Other Members whose subscriptions remain unsatisfied on an equal number of shares basis per order until all orders have been filled or the remaining shares have been allocated, provided that no fractional shares shall be issued.
9. | COMMUNITY OFFERING, SYNDICATED COMMUNITY OFFERING, PUBLIC OFFERING AND OTHER OFFERINGS. |
(a) If less than the total number of shares of the Conversion Stock are sold in the Subscription Offering, it is anticipated that all remaining shares of Conversion Stock shall, if practicable, be sold directly in a Community Offering and/or a Syndicated Community Offering. Subject to the requirements set forth herein, Conversion Stock sold in the Community Offering and/or the Syndicated Community Offering shall achieve the widest possible distribution of such stock.
(b) In the event of a Community Offering, all shares of Conversion Stock which are not subscribed for in the Subscription Offering shall be offered for sale by means of a direct community marketing program, which may provide for the use of brokers, dealers or investment banking firms experienced in the sale of financial institution securities. Any available shares in excess of those not subscribed for in the Subscription Offering will be available for purchase by members of the general public to whom a Prospectus is delivered by the Holding Company or on its behalf, with preference given to natural persons and trusts of natural persons residing in St. Landry Parish and the adjacent parishes in Louisiana, namely, Acadia Parish, Lafayette Parish, St. Martin Parish, Pointe Coupée Parish, Avoyelles Parish and Evangeline Parish (“Preferred Subscribers”).
(c) A Prospectus and Order Form shall be furnished to such Persons as the Holding Company and the Bank may select in connection with the Community Offering and each order for Conversion Stock in the Community Offering shall be subject to the absolute right of the Holding Company and the Bank to accept or reject any such order in whole or in part either at the time of receipt of an order or as soon as practicable following completion of the Community Offering. Available shares will be allocated first to each Preferred Subscriber whose order is accepted by the Holding Company, in an amount equal to the lesser of 100 shares or the number of shares subscribed for by each such Preferred Subscriber, if possible. Thereafter, any shares remaining will be allocated among the Preferred Subscribers whose subscriptions remain unsatisfied on an equal number of shares basis per order until all orders have been filled or the remaining shares have been allocated, subject to the provisions of Section 10 hereof, provided that no fractional shares shall be issued. If there are any shares remaining after all subscriptions by Preferred Subscribers have been satisfied, such remaining shares shall be allocated to other members of the general public who purchase in the Community Offering, applying the same allocation described above for Preferred Subscribers.
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(d) The amount of Conversion Stock that any Person may purchase in the Community Offering shall not exceed the greater of (i) $150,000, or (ii) one-tenth of one percent (0.1%) of the total offering of shares in the Subscription Offering, provided, however, that this amount may be increased to 5% of the total offering of shares in the Subscription Offering, subject to any required regulatory approval but without the further approval of Members; provided, further, that orders for Conversion Stock in the Community Offering shall first be filled to a maximum of 2% of the total number of shares of Conversion Stock sold in the Conversion and thereafter any remaining shares shall be allocated on an equal number of shares basis per order until all orders have been filled, provided that no fractional shares shall be issued. The Holding Company and the Bank may commence the Community Offering concurrently with, at any time during, or as soon as practicable after the end of, the Subscription Offering. The Community Offering must be completed within 45 days after the completion of the Subscription Offering, unless extended by the Holding Company and the Bank with any required regulatory approval.
(e) Subject to such terms, conditions and procedures as may be determined by the Holding Company and the Bank, all shares of Conversion Stock not subscribed for in the Subscription Offering or ordered in the Community Offering may be sold by a syndicate of broker-dealers to the general public in a Syndicated Community Offering. Each order for Conversion Stock in the Syndicated Community Offering shall be subject to the absolute right of the Holding Company and the Bank to accept or reject any such order in whole or in part either at the time of receipt of an order or as soon as practicable after completion of the Syndicated Community Offering. The amount of Conversion Stock that any Person may purchase in the Syndicated Community Offering shall not exceed $150,000 provided, however, that this amount may be increased to 5% of the total offering of shares in the Subscription Offering, subject to any required regulatory approval but without the further approval of Members; provided further that orders for Conversion Stock in the Syndicated Community Offering shall first be filled to a maximum of 2% of the total number of shares of Conversion Stock sold in the Offerings and thereafter any remaining shares shall be allocated on an equal number of shares basis per order until all orders have been filled, provided that no fractional shares shall be issued. The Holding Company and the Bank may commence the Syndicated Community Offering concurrently with, at any time during, or as soon as practicable after the end of the Subscription Offering and/or Community Offering. The Syndicated Community Offering must be completed within 45 days after the completion of the Subscription Offering, unless extended by the Holding Company and the Bank with any required regulatory approval.
(f) The Holding Company and the Bank may sell any shares of Conversion Stock remaining following the Subscription Offering, Community Offering and/or the Syndicated Community Offering in a Public Offering. The provisions of Section 10 hereof shall not be applicable to the sales to underwriters for purposes of the Public Offering but shall be applicable to sales by the underwriters to the public. The price to be paid by the underwriters in such an offering shall be equal to the Actual Purchase Price less an underwriting discount to be negotiated among such underwriters and the Bank and the Holding Company, subject to any required regulatory approval or consent.
(g) If for any reason a Syndicated Community Offering or Public Offering of shares of Conversion Stock not sold in the Subscription Offering and the Community Offering cannot be effected, or in the event that an insignificant residue of shares of Conversion Stock is not sold in the Subscription Offering, Community Offering or Syndicated Community Offering, the Holding Company and the Bank shall use their best efforts to obtain other purchasers for such shares in such manner and upon such conditions as may be satisfactory to the OCC.
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10. | LIMITATIONS ON SUBSCRIPTIONS AND PURCHASES OF CONVERSION STOCK. |
(a) The maximum number of shares of Conversion Stock which may be purchased in the Conversion by the ESOP shall not exceed 8% of the aggregate of the total number of shares of Conversion Stock sold in the Offerings and all Tax-Qualified Employee Stock Benefit Plans shall not exceed 10% of the aggregate shares of Conversion Stock sold in the Offerings, in each instance, including any shares which may be issued in the event of an increase in the maximum of the Estimated Price Range to reflect changes in market and economic conditions after commencement of the Subscription Offering and prior to the completion of the Conversion; provided; however, that purchases of Conversion Stock which are made by Plan Participants pursuant to the exercise of subscription rights granted to such Plan Participant in his individual capacity as an Eligible Account Holder or Supplemental Eligible Account Holder or purchases by a Plan Participant in the Community Offering using the funds thereof held in Tax-Qualified Employee Stock Benefit Plans shall not be deemed to be purchases by a Tax-Qualified Employee Stock Benefit Plan for purposes of this Section 10(a).
(b) Except in the case of Tax-Qualified Employee Stock Benefit Plans in the aggregate, as set forth in Section 10(a) hereof, and in addition to the other restrictions and limitations set forth herein, the maximum amount of Conversion Stock which any Person, together with any Associate or group of Persons Acting in Concert, may directly or indirectly subscribe for or purchase in the Offerings shall not exceed $250,000 of the Conversion Stock offered. In order to assist the Bank in ensuring compliance with this aggregate purchase limitation, the Bank may ask that members of the same immediate family (as defined in 12 C.F.R. § 174.2(j)) provide written documentation or information to assist the Bank in determining whether such Persons are or are not a group Acting in Concert.
(c) The number of shares of Conversion Stock which Directors and Officers and their Associates may purchase in the aggregate in the Conversion shall not exceed 31% of the total number of shares of Conversion Stock sold in the Offerings, including any shares which may be issued in the event of an increase in the maximum of the Estimated Price Range to reflect changes in market and economic conditions after commencement of the Subscription Offering and prior to completion of the Conversion.
(d) No Person may purchase fewer than 25 shares of Conversion Stock in the Offerings, to the extent such shares are available; provided, however, that if the Actual Purchase Price is greater than $20.00 per share, such minimum number of shares shall be adjusted so that the aggregate Actual Purchase Price for such minimum shares will not exceed $500.00.
(e) For purposes of the foregoing limitations and the determination of Subscription Rights, (i) Directors, Officers and Employees shall not be deemed to be Associates or a group Acting in Concert solely as a result of their capacities as such, (ii) shares purchased by Tax-Qualified Employee Stock Benefit Plans shall not be attributable to the individual trustees of any such plan and the Tax-Qualified Employee Stock Benefit Plans shall not be deemed to be Associates or Affiliates of or Persons Acting in Concert with any Director or Officer of the Holding Company or the Bank for purposes of determining compliance with the limitations set forth in Section 10(b) or 10(c) hereof, and (iii) shares purchased by Tax-Qualified Employee Stock Benefit Plans shall not be attributable to the individual trustees of any such plan for purposes of determining compliance with the limitation set forth in Section 10(c) hereof.
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(f) Subject to any required regulatory approval and the requirements of applicable laws and regulations, but without further approval of the Members of the Bank or resolicitation of subscribers, the Holding Company and the Bank may increase or decrease any of the individual or aggregate purchase limitations set forth herein, provided, however, that any increase in the purchase limitations shall, except as provided below, be limited to a percentage which does not exceed 5% of the total offering of Conversion Stock in the Offerings, whether prior to, during or after the Subscription Offering, Community Offering, Syndicated Community Offering and/or Public Offering. In the event that an individual purchase limitation is increased after commencement of the Subscription Offering or any of the other Offerings, the Holding Company and the Bank are only required to resolicit such Persons who subscribed for the maximum number of shares of Conversion Stock and who indicated a desire to be resolicited on the Order Form, and may, in the sole discretion of the Holding Company and the Bank, resolicit certain other large subscribers. In the event of such a resolicitation, the Holding Company shall have the right, in its sole discretion, to require such persons to supply immediately available funds for the purchase of additional shares of Conversion Stock. Such persons will be prohibited from paying with a personal check, but the Holding Company may allow payment by wire transfer. In the event that any of the individual or aggregate purchase limitations are decreased after commencement of the Subscription Offering or any of the other Offerings, the orders of any Person who subscribed for the maximum number of shares of Conversion Stock shall be decreased by the minimum amount necessary so that such Person shall be in compliance with the then maximum number of shares permitted to be subscribed for by such Person. In the event the maximum purchase limitation is increased to 5% of the shares sold in the Subscription Offering, Community Offering and/or Syndicated Community Offering, such limitation may be further increased to 9.99%, subject to regulatory approval, provided that orders for Conversion Stock exceeding 5% of the shares of Conversion Stock sold in the Offerings shall not exceed in the aggregate 10% of the total shares of Conversion Stock sold in the Offerings. Whether to fill any requests to purchase additional shares of Conversion Stock in the event that the individual or aggregate purchase limitations set forth herein are so increased will be determined in the sole discretion of the Boards of Directors of the Holding Company and the Bank.
(g) The Holding Company and the Bank shall have the right to take all such action as they may, in their sole discretion, deem necessary, appropriate or advisable in order to monitor and enforce the terms, conditions, limitations and restrictions contained in this Section 10 and elsewhere in this Plan and the terms, conditions and representations contained in the Order Form, including, but not limited to, the absolute right (subject only to any necessary regulatory approvals or concurrence) to reject, limit or revoke acceptance of any subscription or order and to delay, terminate or refuse to consummate any sale of Conversion Stock which they believe might violate, or is designed to, or is any part of a plan to, evade or circumvent such terms, conditions, limitations, restrictions and representations. Any such action shall be final, conclusive and binding on all persons and the Holding Company and the Bank and their respective Boards shall be free from any liability to any Person on account of any such action.
11. | TIMING OF SUBSCRIPTION OFFERING, MANNER OF EXERCISING SUBSCRIPTION RIGHTS AND ORDER FORMS. |
(a) The Subscription Offering may be commenced concurrently with or at any time after the mailing to Voting Members of the proxy statement to be used in connection with the Special Meeting. The Subscription Offering may be closed before the Special Meeting, provided that the offer and sale of the Conversion Stock shall be conditioned upon the approval of the Plan by Voting Members at the Special Meeting.
(b) The exact timing of the commencement of the Subscription Offering shall be determined by the Holding Company and the Bank in consultation with the Independent Appraiser and any financial or advisory or investment banking firm retained by them in connection with the Conversion. The Holding Company and the Bank may consider a number of factors, including, but not limited to, their current and projected future earnings, local and national economic conditions and the prevailing market for stocks in general and stocks of financial institutions in particular. The Holding Company and the Bank shall have the right to withdraw, terminate, suspend, delay, revoke or modify any such Subscription Offering, at any time and from time to time, as it in its sole discretion may determine, without liability to any Person, subject to compliance with applicable securities laws and any necessary regulatory approval or concurrence.
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(c) The Holding Company and the Bank shall, promptly after the SEC has declared the Prospectus effective and all required regulatory approvals have been obtained, distribute or make available the Prospectus, together with Order Forms for the purchase of Conversion Stock, to all Participants for the purpose of enabling them to exercise their respective Subscription Rights, subject to Section 13 hereof. The Holding Company and the Bank may elect to mail a Prospectus and Order Form only to those Participants who request such materials by returning a postage-paid card to the Holding Company and the Bank by a date specified in the letter informing them of their Subscription Rights. Under such circumstances, the Subscription Offering shall not be closed until the expiration of 30 days after the mailing by the Holding Company and the Bank of the postage-paid card to Participants.
(d) A single Order Form for all Deposit Accounts maintained with the Bank by an Eligible Account Holder and a Supplemental Eligible Account Holder may be furnished irrespective of the number of Deposit Accounts maintained with the Bank on the Eligibility Record Date and Supplemental Eligibility Record Date, respectively. No person holding a Subscription Right may exceed any otherwise applicable purchase limitation by submitting multiple orders for Conversion Stock.
(e) Participants shall have no less than 20 days and no more than 45 days from the date of mailing of the Order Form (with the exact termination date to be set forth on the Order Form) to properly complete and execute the Order Form and deliver it to the Bank. The Holding Company and the Bank may extend such period by such amount of time as they determine is appropriate. Failure of any Participant to deliver a properly executed Order Form to the Bank, along with payment (or authorization for payment by withdrawal) for the shares of Conversion Stock subscribed for, within the time limits prescribed, shall be deemed a waiver and release by such person of any rights to subscribe for shares of Conversion Stock. Each Participant shall be required to confirm to the Holding Company and the Bank by executing an Order Form that such Person has fully complied with all of the terms, conditions, limitations and restrictions in the Plan.
(f) The Holding Company and the Bank shall have the absolute right, in their sole discretion and without liability to any Participant or other Person, to reject any Order Form, including, but not limited to, any Order Form (i) that is improperly completed or executed; (ii) that is not timely received; (iii) that is submitted by facsimile or is photocopied; (iv) that is not accompanied by the proper payment (or authorization of withdrawal for payment) or, in the case of institutional investors in the Community Offering, not accompanied by an irrevocable order together with a legally binding commitment to pay the full amount of the purchase price prior to 48 hours before the completion of the Offerings; (v) submitted by a Person whose representations the Holding Company and the Bank believe to be false or who they otherwise believe, either alone, or Acting in Concert with others, is violating, evading or circumventing, or intends to violate, evade or circumvent, the terms and conditions of the Plan. Furthermore, in the event Order Forms (i) are not delivered and are returned to the Bank by the United States Postal Service or the Bank is unable to locate the addressee, or (ii) are not mailed pursuant to a “no mail” order placed in effect by the account holder, the Subscription Rights of the person to which such rights have been granted will lapse as though such person failed to return the contemplated Order Form within the time period specified thereon. The Holding Company and the Bank may, but will not be required to, waive any irregularity on any Order Form or may require the submission of corrected Order Forms or the remittance of full payment for shares of Conversion Stock by such date as they may specify. The interpretation of the Holding Company and the Bank of the terms and conditions of the Order Forms shall be final and conclusive.
12. | PAYMENT FOR CONVERSION STOCK. |
(a) Payment for shares of Conversion Stock subscribed for by Participants in the Subscription Offering and payment for shares of Conversion Stock ordered by Persons in the Community Offering shall be equal to the Initial Purchase Price per share multiplied by the number of shares which are being subscribed for or ordered, respectively. Such payment may be made in cash, if delivered in person, or by check or money order at the time the Order Form is delivered to the Bank. The Bank, in its sole and absolute discretion, may also elect to receive payment for shares of Conversion Stock by wire transfer. In addition, Participants and/or other Persons who have a Deposit Account with the Bank may pay for shares of Conversion Stock by authorizing the Bank to withdraw from such Deposit Account an amount equal to the aggregate Initial Purchase Price of such shares. Payment may also be made by a Participant using funds held for such Participant’s benefit by a Bank Benefit Plan to the extent that such plan allows participants or any related trust established for the benefit of such participants to direct that some or all of their individual accounts or sub-accounts be invested in Conversion Stock. If the Actual Purchase Price is less than the Initial Purchase Price, the Bank shall refund the difference to all Participants and other Persons, unless the Holding Company and the Bank choose to provide Participants and other Persons the opportunity on the Order Form to elect to have such difference applied to the purchase of additional whole shares of Conversion Stock. If the Actual Purchase Price is more than the Initial Purchase Price, the Bank shall reduce the number of shares of Conversion Stock ordered by Participants and other Persons and refund any remaining amount which is attributable to a fractional share interest, unless the Bank chooses to provide Participants and other Persons the opportunity to increase the Actual Purchase Price submitted to it.
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(b) Consistent with applicable laws and regulations and policies and practices of the OCC, payment for shares of Conversion Stock subscribed for by the ESOP may be made with funds contributed by the Holding Company or the Bank and/or funds obtained pursuant to a loan from the Holding Company or an unrelated financial institution pursuant to a loan commitment which is in force from the time that any such plan submits an Order Form until the closing of the transactions contemplated hereby.
(c) If a Participant or other Person authorizes the Bank to withdraw the amount of the Initial Purchase Price from his or her Deposit Account, the Bank shall have the right to make such withdrawal or to freeze funds equal to the aggregate Initial Purchase Price upon receipt of the Order Form. Notwithstanding any regulatory provisions regarding penalties for early withdrawals from certificate accounts, payment by means of withdrawal from certificate accounts may be made without the assessment of such penalties. In the case of an early withdrawal of only a portion of such account, the certificate evidencing such account shall be cancelled if any applicable minimum balance requirement ceases to be met. In such case, the remaining balance will earn interest at the regular passbook rate. However, where any applicable minimum balance is maintained in such certificate account, the rate of return on the balance of the certificate account shall remain the same as prior to such early withdrawal. This waiver of the early withdrawal penalty applies only to withdrawals made in connection with the purchase of Conversion Stock.
(d) The Bank shall pay interest, at not less than the rate it pays on passbook accounts, for all amounts paid in cash, by check or money order to purchase shares of Conversion Stock in the Subscription Offering and the Community Offering from the date payment is received until the date the Conversion is completed or terminated. All funds received for the purchase of Conversion Stock in the Offerings shall be held in a segregated account at the Bank.
(e) The Bank shall not knowingly loan funds or otherwise extend credit to any Participant or other Person to purchase Conversion Stock.
(f) Each share of Conversion Stock shall be non-assessable upon payment in full of the Actual Purchase Price.
13. | ACCOUNT HOLDERS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES. |
The Holding Company and the Bank shall make reasonable efforts to comply with the securities laws of all jurisdictions in the United States in which Participants reside. However, no Participant will be offered or receive any Conversion Stock under the Plan if such Participant resides in a foreign country or in a jurisdiction of the United States with respect to which: (a) there are few Participants otherwise eligible to subscribe for shares under this Plan who reside in such jurisdiction; (b) the granting of Subscription Rights or the offer or sale of shares of Conversion Stock to such Participants would require the Holding Company or the Bank or their respective Directors and Officers, under the laws of such jurisdiction, to register as a broker or dealer, salesman or selling agent or to register or otherwise qualify the Conversion Stock for sale in such jurisdiction, or the Holding Company or the Bank would be required to qualify as a foreign corporation or file a consent to service of process in such jurisdiction; or (c) such registration or qualification in the judgment of the Holding Company and the Bank would be impracticable or unduly burdensome for reasons of cost or otherwise.
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14. | VOTING RIGHTS OF STOCKHOLDERS. |
Following consummation of the Conversion, voting rights with respect to the Bank shall be held and exercised exclusively by the Holding Company as holder of all of the Bank’s voting capital stock and voting rights with respect to the Holding Company shall be held and exercised exclusively by the holders of the Holding Company’s voting capital stock.
15. | LIQUIDATION ACCOUNT. |
(a) At the time of Conversion, the Bank shall establish a Liquidation Account in an amount equal to the Bank’s net worth as reflected in its latest statement of financial condition contained in the final Prospectus utilized in the Conversion. The function of the Liquidation Account will be to preserve the rights of certain holders of Deposit Accounts in the Bank who maintain such accounts in the Bank following Conversion to a priority to distributions in the unlikely event of a liquidation of the Bank subsequent to Conversion.
(b) The liquidation account shall be maintained for the benefit of Eligible Account Holders and Supplemental Eligible Account Holders, if any, who maintain their Deposit Accounts in the Bank after Conversion. Each such account holder will, with respect to each Deposit Account held, have a related inchoate interest in a portion of the liquidation account balance, which interest will be referred to in this Section 15 as the “subaccount balance.” All Deposit Accounts having the same social security number will be aggregated for purposes of determining the initial subaccount balance with respect to such Deposit Accounts, except as provided in Section 15(d) hereof.
(c) In the event of a complete liquidation of the Bank subsequent to Conversion (and only in such event), each Eligible Account Holder and Supplemental Eligible Account Holder, if any, shall be entitled to receive a liquidation distribution from the liquidation account in the amount of the then current subaccount balances for Deposit Accounts then held (adjusted as described below) before any liquidation distribution may be made with respect to the capital stock of the Bank. No merger, consolidation, sale of bulk assets or similar combination transaction with another FDIC-insured institution in which the Bank is not the surviving entity shall be considered a complete liquidation for this purpose. In any such transaction, the liquidation account shall be assumed by the surviving entity.
(d) The initial subaccount balance for a Deposit Account held by an Eligible Account Holder and Supplemental Eligible Account Holder, if any, shall be determined by multiplying the opening balance in the Liquidation Account by a fraction, of which the numerator is the amount of the Qualifying Deposits of such account holder and the denominator is the total amount of Qualifying Deposits of all Eligible Account Holders and, if applicable, Supplemental Eligible Account Holders. For Deposit Accounts in existence at both the Eligibility Record Date and the Supplemental Eligibility Record Date, if applicable, separate initial subaccount balances shall be determined on the basis of the Qualifying Deposits in such Deposit Accounts on each such record date. Initial subaccount balances shall not be increased, and shall be subject to downward adjustment as provided below.
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(e) If the aggregate deposit balance in any Deposit Account(s) of any Eligible Account Holder or Supplemental Eligible Account Holder at the close of business on any December 31, annual closing date, commencing December 31, 2021, is less than the lesser of (a) the deposit balance in such Deposit Account(s) at the close of business on any other annual closing date subsequent to such record dates or (b) the deposit balance in such Deposit Account(s) as of the Eligibility Record Date or the Supplemental Eligibility Record Date, if any, the subaccount balance for such Deposit Account(s) shall be adjusted by reducing such subaccount balance in an amount proportionate to the reduction in such deposit balance. In the event of such a downward adjustment, the subaccount balance shall not be subsequently increased, notwithstanding any increase in the deposit balance of the related Deposit Account(s). The subaccount balance of an Eligible Account Holder or Supplemental Eligible Account Holder, if any, shall be reduced to zero if such holder ceases to maintain a Deposit Account at the Bank that has the same social security number as appeared on his or her Deposit Account(s) at the Eligibility Record Date or, if applicable, the Supplemental Eligibility Record Date.
(f) Subsequent to Conversion, the Bank may not pay cash dividends generally on capital stock of the Bank, or repurchase any of the capital stock of the Bank, if such dividend or repurchase would reduce the Bank’s net worth below the aggregate amount of the then current subaccount balances for Deposit Accounts then held; otherwise, the existence of the Liquidation Account shall not operate to restrict the use or application of any of the net worth accounts of the Bank.
(g) For purposes of this Section 15, a Deposit Account includes a predecessor or successor account which is held only by an account holder with the same social security number.
16. | TRANSFER OF DEPOSIT ACCOUNTS. |
Each Deposit Account in the Bank at the time of the consummation of the Conversion shall become, without further action by the holder, a Deposit Account in the Bank equivalent in withdrawable amount to the withdrawal value (as adjusted to give effect to any withdrawal made for the purchase of Conversion Stock), and subject to the same terms and conditions (except as to voting and liquidation rights) as such Deposit Account in the Bank immediately preceding consummation of the Conversion. Holders of Deposit Accounts in the Bank shall not, as such holders, have any voting rights.
17. | REQUIREMENTS FOLLOWING CONVERSION FOR REGISTRATION, MARKET MAKING AND STOCK EXCHANGE LISTING. |
In connection with the Conversion, the Holding Company shall register its common stock pursuant to the Securities Exchange Act of 1934, as amended, and shall undertake not to deregister such stock for a period of three years thereafter. The Holding Company also shall use its best efforts to (i) encourage and assist a market maker to establish and maintain a market for its common stock; and (ii) list its common stock on a national or regional securities exchange.
18. | DIRECTORS AND OFFICERS OF THE BANK. |
Each person serving as a Director or Officer of the Bank at the time of the Conversion shall continue to serve as a Director or Officer of the Bank for the balance of the term for which the person was elected prior to the Conversion, and until a successor is elected and qualified.
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19. | REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS FOLLOWING CONVERSION. |
For a period of three years following the Conversion, the Directors and Officers of the Holding Company and the Bank and their Associates may not purchase, without the prior written approval of the OCC, the Holding Company Common Stock except from a broker or dealer registered with the SEC. This prohibition shall not apply, however, to (i) a negotiated transaction arrived at by direct negotiation between buyer and seller and involving more than 1% of the outstanding common stock of the Holding Company, (ii) purchases of stock made by and held by any Tax-Qualified Employee Stock Benefit Plan (and purchases of stock made by and held by any Non-Tax-Qualified Employee Stock Benefit Plan following receipt of stockholder approval of such plan) that may be attributable to individual Officers or Directors and (iii) the exercise of any options pursuant to any stock benefit plan of the Holding Company.
The foregoing restriction on purchases of Holding Company Common Stock shall be in addition to any restrictions that may be imposed by federal and state securities laws.
20. | RESTRICTIONS ON TRANSFER OF STOCK. |
All shares of the Conversion Stock which are purchased by Persons other than Directors and Officers shall be transferable without restriction, except in connection with a transaction proscribed by Section 21 of this Plan or otherwise provided below. Shares of Conversion Stock purchased by Directors and Officers of the Holding Company and the Bank on original issue from the Holding Company (by subscription or otherwise) shall be subject to the restriction that such shares shall not be sold or otherwise disposed of for value for a period of one year following the date of purchase, except for any disposition of such shares following the death of the original purchaser. The shares of Conversion Stock issued by the Holding Company to Directors and Officers shall bear the following legend giving appropriate notice of such one-year restriction:
“The shares of stock evidenced by this Certificate are restricted as to transfer for a period of one year from the date of this Certificate pursuant to 12 C.F.R. §192.505. These shares may not be transferred during such one-year period without a legal opinion of counsel for the Company that said transfer is permissible under the provisions of applicable law and regulation. This restrictive legend shall be deemed null and void after one year from the date of this Certificate.”
In addition, the Holding Company shall give appropriate instructions to the transfer agent for the Holding Company Common Stock with respect to the applicable restrictions relating to the transfer of restricted stock. Any shares issued at a later date as a stock dividend, stock split or otherwise with respect to any such restricted stock shall be subject to the same holding period restrictions as may then be applicable to such restricted stock.
The foregoing restriction on transfer shall be in addition to any restrictions on transfer that may be imposed by federal and state securities laws.
21. | RESTRICTIONS ON ACQUISITION OF STOCK OF THE HOLDING COMPANY. |
Upon consummation of the Conversion, the articles of incorporation of the Holding Company shall prohibit any Person together with Associates or group of Persons Acting in Concert from offering to acquire or acquiring, directly or indirectly, beneficial ownership of more than 10% of any class of equity securities of the Holding Company, or of securities convertible into more than 10% of any such class following completion of the Conversion. The articles of incorporation also shall provide that following the completion of the Conversion all equity securities beneficially owned by any Person in excess of 10% of any class of equity securities shall be considered “excess shares,” and that excess shares shall not be counted as shares entitled to vote and shall not be voted by any Person or counted as voting shares in connection with any matters submitted to the stockholders for a vote. The foregoing restrictions shall not apply to (i) any offer with a view toward public resale made exclusively to the Holding Company by underwriters or a selling group acting on its behalf, (ii) the purchase of shares by a Tax-Qualified Employee Stock Benefit Plan established for the benefit of the employees of the Holding Company and its subsidiaries, and (iii) any offer or acquisition approved in advance by the affirmative vote of two-thirds of the entire Board of Directors of the Holding Company. Directors, Officers or Employees of the Holding Company or the Bank or any subsidiary thereof shall not be deemed to be Associates or a group Acting in Concert with respect to their individual acquisitions of any class of equity securities of the Holding Company solely as a result of their capacities as such.
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22. | ADOPTION OF FEDERAL STOCK CHARTER AND BYLAWS. |
As part of the Conversion, the Bank shall take all appropriate steps to adopt a federal stock charter and bylaws to authorize the issuance of capital stock and otherwise to read in a form consistent with a federally chartered stock form savings bank.
23. | TAX RULINGS OR OPINIONS. |
Consummation of the Conversion is expressly conditioned upon prior receipt by the Bank of either a ruling or an opinion of counsel with respect to federal tax laws, and either a ruling or an opinion of counsel with respect to Louisiana tax laws, to the effect that consummation of the transactions contemplated hereby will not result in a taxable reorganization under the provisions of the applicable codes or otherwise result in any adverse tax consequences to the Holding Company, the Bank and its account holders receiving Subscription Rights before or after the Conversion, except in each case to the extent, if any, that Subscription Rights are deemed to have fair market value on the date such rights are issued.
24. | STOCK COMPENSATION PLANS. |
(a) The Holding Company and the Bank are authorized to adopt Tax-Qualified Employee Stock Benefit Plans in connection with the Conversion, including, without limitation, the ESOP.
(b) Subsequent to the Conversion, the Holding Company and the Bank are authorized to adopt Non-Tax Qualified Employee Stock Benefit Plans, including without limitation, stock option plans and restricted stock plans, provided however that, with respect to any such plan implemented during the one-year period subsequent to the date of consummation of the Conversion, any such plan: (i) shall be disclosed in the proxy solicitation materials for the Special Meeting of Members and in the Prospectus; (ii) in the case of stock option plans, shall have a total number of shares of common stock for which options may be granted of not more than 10% of the amount of shares issued in the Conversion; (iii) in the case of management or employee recognition or grant plans, shall have a total number of shares of common stock of not more than 4% of the amount of shares issued in the Conversion; (iv) in the case of stock option plans and employee recognition or grant plans, shall be submitted for approval by the holders of the Holding Company Common Stock no earlier than six months following consummation of the Conversion; and (v) shall comply with all other applicable requirements of the OCC.
(c) Existing as well as any newly created Tax-Qualified Employee Stock Benefit Plans may purchase shares of Conversion Stock in the Offerings, to the extent permitted by the terms of such benefit plans and this Plan.
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(d) The Holding Company and the Bank are authorized to enter into employment or severance agreements with their executive officers.
25. | DIVIDEND AND REPURCHASE RESTRICTIONS ON STOCK. |
(a) Following consummation of the Conversion, any repurchases of shares of capital stock by the Holding Company will be made in accordance with then applicable laws and regulations.
(b) The Bank may not declare or pay a cash dividend on, or repurchase any of, its capital stock if the effect thereof would cause the regulatory capital of the Bank to be reduced below (i) the amount required for the Liquidation Account, or (ii) applicable federal regulatory capital requirements.
26. | PAYMENT OF FEES TO BROKERS. |
The Bank may elect to offer to pay fees on a per share basis to securities brokers who assist Persons in determining to purchase shares in the Offerings.
27. | EFFECTIVE DATE. |
The effective date of the Conversion shall be the date of the closing of the sale of all shares of Conversion Stock. The closing of the sale of all shares of Conversion Stock sold in the Offerings shall occur simultaneously and shall be conditioned upon the prior receipt of all requisite regulatory and other approvals.
28. | AMENDMENT OR TERMINATION OF THE PLAN. |
If deemed necessary or desirable by the Board of Directors of the Bank, this Plan may be substantively amended, as a result of comments from regulatory authorities or otherwise, at any time prior to the solicitation of proxies from Members to vote on the Plan and at any time thereafter with the concurrence of the OCC. Any amendment to this Plan made after approval by the Members with the concurrence of the OCC shall not necessitate further approval by the Members unless otherwise required by the OCC. This Plan shall terminate if the sale of all shares of Conversion Stock is not completed within 24 months from the date of the Special Meeting (subject to extension by the OCC). Prior to the Special Meeting, this Plan may be terminated by the Board of Directors of the Bank without approval of the OCC; after the Special Meeting, the Board of Directors may terminate this Plan only with the approval of the OCC.
29. | INTERPRETATION OF THE PLAN. |
All interpretations of this Plan and application of its provisions to particular circumstances by a majority of the Board of Directors of the Holding Company and the Bank shall be final, subject to the authority of the OCC.
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Exhibit 3.1
ARTICLES OF INCORPORATION
OF
CATALYST BANCORP, INC.
Article 1. Name. The name of the corporation is Catalyst Bancorp, Inc. (hereinafter referred to as the “Corporation”).
Article 2. Nature of Business. The purpose of the Corporation is to engage in any lawful business or activity in which a corporation may engage under the laws of the State of Louisiana. The Corporation is incorporated under the provisions of the Louisiana Business Corporation Act, as amended (the “LBCA”).
Article 3. Duration. The term of the existence of the Corporation shall be perpetual.
Article 4. Capital Stock.
A. Authorized Amount. The total number of shares of capital stock which the Corporation has authority to issue is 35,000,000, of which 5,000,000 shall be serial preferred stock, par value $.01 per share (hereinafter the “Preferred Stock”), and 30,000,000 shall be common stock, par value $.01 per share (hereinafter the “Common Stock”). Except to the extent required by governing law, rule or regulation, the shares of capital stock may be issued from time to time by the Board of Directors without further approval of shareholders. The Corporation shall have the authority to purchase its capital stock out of funds lawfully available therefor.
B. Common Stock. Except as provided in this Article 4 (or in any resolution or resolutions adopted by the Board of Directors pursuant hereto), the exclusive voting power shall be vested in the Common Stock, with each holder thereof being entitled to one vote for each share of such Common Stock standing in the holder’s name on the books of the Corporation, except as provided in Article 10. Subject to any rights and preferences of any class of stock having preference over the Common Stock, holders of Common Stock shall be entitled to such dividends as may be declared by the Board of Directors out of funds lawfully available therefor. Upon any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, holders of Common Stock shall be entitled to receive pro rata the remaining assets of the Corporation after the holders of any class of stock having preference over the Common Stock have been paid in full any sums to which they may be entitled.
C. Authority of Board to Fix Terms of Preferred Stock. The Board of Directors shall have the full authority permitted by law to divide the authorized and unissued shares of Preferred Stock into series and to fix by resolution full, limited, multiple or fractional, or no voting rights, and such designations, preferences, qualifications, privileges, limitations, restrictions, options, conversion rights, and other special or relative rights of the Preferred Stock or any series thereof that may be desired.
Article 5. Incorporator. The name and mailing address of the sole incorporator is as follows:
Name |
Address |
St. Landry Homestead Federal Savings Bank | 235 N. Court Street, Opelousas, Louisiana 70590 |
Article 6. Directors. The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors.
A. Number. Except as otherwise increased from time to time by the exercise of the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors, the number of directors of the Corporation shall be no less than five and no more than 15, as specified in the Corporation’s Bylaws, as may be amended from time to time.
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B. Classification and Term. The Board of Directors, other than those who may be elected by the holders of any class or series of stock having preference over the Common Stock as to dividends or upon liquidation, shall be divided into three classes as nearly equal in number as possible, with one class to be elected annually. At each annual meeting of shareholders, the directors elected to succeed those in the class whose terms are expiring shall be elected for a term of office to expire at the third succeeding annual meeting of shareholders and when their respective successors are elected and qualified. Notwithstanding the foregoing, and except as otherwise required by law, whenever the holders of any one or more series of Preferred Stock shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the terms of the director or directors elected by such holders shall expire at the next succeeding annual meeting of shareholders and vacancies created with respect to any directorship of the directors so elected may be filled in the manner specified by the terms of such Preferred Stock.
C. No Cumulative Voting. Shareholders of the Corporation shall not be permitted to cumulate their votes for the election of directors.
D. Vacancies. Except as otherwise fixed pursuant to the provisions of Article 4 hereof relating to the rights of the holders of any class or series of stock having preference over the Common Stock as to dividends or upon liquidation to elect directors, any vacancy occurring in the Board of Directors, including any vacancy created by reason of an increase in the number of directors, shall be filled by a majority vote of the directors then in office, whether or not a quorum is present, or by a sole remaining director, and any director so chosen shall serve until the term of the class to which he was appointed shall expire and until his successor is elected and qualified. When the number of directors is changed, the Board of Directors shall determine the class or classes to which the increased or decreased number of directors shall be apportioned, provided that no decrease in the number of directors shall shorten the term of any incumbent director.
E. Removal. Subject to the rights of any class or series of stock having preference over the Common Stock as to dividends or upon liquidation to elect directors, any director (including persons elected by directors to fill vacancies in the Board of Directors) may be removed from office without cause by an affirmative vote of not less than 75% of the total votes eligible to be cast by shareholders at a duly constituted meeting of shareholders called expressly for such purpose and may be removed from office with cause by an affirmative vote of not less than a majority of the total votes eligible to be cast by shareholders. Cause for removal shall exist only if the director whose removal is proposed has been either declared of unsound mind by an order of a court of competent jurisdiction, convicted of a felony or of an offense punishable by imprisonment for a term of more than one year by a court of competent jurisdiction, or deemed liable by a court of competent jurisdiction for gross negligence or misconduct in the performance of such director’s duties to the Corporation. At least 30 days prior to such meeting of shareholders, written notice shall be sent to the director whose removal will be considered at the meeting.
F. Nominations of Directors. Nominations of candidates for election as directors at any annual meeting of shareholders may be made (a) by, or at the direction of, a majority of the Board of Directors or (b) by any shareholder entitled to vote at such annual meeting. Only persons nominated in accordance with the procedures set forth in this Article 6.F shall be eligible for election as directors at an annual meeting. Ballots bearing the names of all the persons who have been nominated for election as directors at an annual meeting in accordance with the procedures set forth in this Article 6.F shall be provided for use at the annual meeting.
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Nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation as set forth in this Article 6.F. To be timely, a shareholder’s notice shall be delivered to, or mailed and received at, the principal executive offices of the Corporation not later than (x) 120 days prior to the anniversary date of the initial mailing of proxy materials or a notice of the meeting by the Corporation in connection with the immediately preceding annual meeting of shareholders of the Corporation or (y), with respect to the first annual meeting of shareholders of the Corporation, which is expected to be held in May 2022, notice must be provided by December 15, 2021. Such shareholder’s notice shall set forth (1) the name, age, business address and residence address of the shareholder who intends to make the nomination and of the person or persons to be nominated; (2) the principal occupation or employment of the shareholder submitting the notice and of each person being nominated; (3) the class and number of shares of the Corporation’s stock which are Beneficially Owned (as defined in Article 9.A. hereof) by the shareholder submitting the notice, by any Person who is Acting in Concert with or who is an Affiliate or Associate of such shareholder (as such capitalized terms are defined in Article 9.A. hereof), by any Person who is a member of any group with such shareholder with respect to the Corporation stock or who is known by such shareholder to be supporting such nominee(s) on the date the notice is given to the Corporation, by each person being nominated, and by each Person who is in control of, is controlled by or is under common control with any of the foregoing Persons (if any of the foregoing Persons is a partnership, corporation, limited liability company, association or trust, information shall be provided regarding the name and address of, and the class and number of shares of Corporation stock which are Beneficially Owned by, each partner in such partnership, each director, executive officer and shareholder in such corporation, each member in such limited liability company or association, and each trustee and beneficiary of such trust, and in each case each Person controlling such entity and each partner, director, executive officer, shareholder, member or trustee of any entity which is ultimately in control of such partnership, corporation, limited liability company, association or trust); (4) a representation that the shareholder is and will continue to be a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (5) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; (6) such other information regarding the shareholder submitting the notice, each nominee proposed by such shareholder and any other Person covered by clause (3) of this paragraph as would be required to be included in a proxy statement filed pursuant to the proxy rules of the U.S. Securities and Exchange Commission, whether or not the Corporation’s common stock is registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and (7) the consent of each nominee to serve as a director of the Corporation if so elected. At the request of the Board of Directors, any person nominated by, or at the direction of, the Board for election as a director at an annual meeting shall furnish to the Secretary of the Corporation that information required to be set forth in a shareholder’s notice of nomination which pertains to the nominee.
The Board of Directors may reject any nomination by a shareholder not timely made in accordance with the requirements of this Article 6.F. If the Board of Directors, or a designated committee thereof or other authorized individual, determines that the information provided in a shareholder’s notice does not satisfy the informational requirements of this Article 6.F. in any material respect, the Secretary of the Corporation or a duly authorized representative of the Corporation shall promptly notify such shareholder of the deficiency in the notice. The shareholder shall have an opportunity to cure the deficiency by providing additional information to the Secretary within such period of time, not to exceed five days from the date such deficiency notice is given to the shareholder, as the Board of Directors or such committee or other authorized individual shall reasonably determine. If the deficiency is not cured within such period, or if the Board of Directors or such committee or other authorized individual reasonably determines that the additional information provided by the shareholder, together with information previously provided, does not satisfy the requirements of this Article 6.F. in any material respect, then the Board of Directors may reject such shareholder’s nomination. The Secretary of the Corporation or a duly authorized representative of the Corporation shall notify a shareholder in writing whether his nomination has been made in accordance with the time and informational requirements of this Article 6.F. Notwithstanding the procedures set forth in this paragraph, if neither the Board of Directors nor such committee or other authorized individual makes a determination as to the validity of any nominations by a shareholder, the presiding officer of the annual meeting shall determine and declare at the annual meeting whether the nomination was made in accordance with the terms of this Article 6.F. If the presiding officer determines that a nomination was made in accordance with the terms of this Article 6.F., he shall so declare at the annual meeting and ballots shall be provided for use at the meeting with respect to such nominee. If the presiding officer determines that a nomination was not made in accordance with the terms of this Article 6.F., he shall so declare at the annual meeting and the defective nomination shall be disregarded.
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Notwithstanding the foregoing, and except as otherwise required by law, whenever the holders of any one or more series of Preferred Stock shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the provisions of this Article 6.F shall not apply with respect to the director or directors elected by such holders of Preferred Stock.
G. Discharge of Duties. In discharging the duties of their respective positions, the Board of Directors, committees of the Board of Directors and individual directors shall, in considering the best interests of the Corporation, consider the effects of any action upon the employees of the Corporation and its subsidiaries, the depositors and borrowers of any insured institution subsidiary, the communities in which offices or other establishments of the Corporation or any subsidiary are located and all other pertinent factors.
Article 7. No Preemptive Rights. No holder of the capital stock of the Corporation shall be entitled as such, as a matter of right, to subscribe for or purchase any part of any new or additional issue of stock of any class whatsoever of the Corporation, or of securities convertible into stock of any class whatsoever, whether now or hereafter authorized, or whether issued for cash or other consideration or by way of a dividend.
Article 8. Indemnification, etc. of Officers, Directors, Employees and Agents.
A. Personal Liability of Directors and Officers. The personal liability of a director or officer of this Corporation to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director or officer, or otherwise, shall be limited or eliminated to the fullest extent permitted by Section 1-832 of the LBCA (R.S. 12:1-832) and any other provision of applicable law, as amended or supplemented from time to time.
B. Indemnification. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, including actions by or in the right of the Corporation, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding to the full extent permissible under Louisiana law including, but not limited to, Subpart E of Part 8 of the LBCA.
C. Advancement of Expenses. Reasonable expenses incurred by an officer, director, employee or agent of the Corporation in defending an action, suit or proceeding described in Section B of this Article 8 may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding if authorized by the board of directors (without regard to whether participating members thereof are parties to such action, suit or proceeding), upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that the person is not entitled to be indemnified by the Corporation.
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D. Other Rights. The indemnification and advancement of expenses provided by or pursuant to this Article 8 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, insurance or other agreement, vote of shareholders or directors (regardless of whether directors authorizing such indemnification are beneficiaries thereof) or otherwise, both as to actions in their official capacity and as to actions in another capacity while holding an office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person.
E. Insurance. The Corporation shall have the power to purchase and maintain insurance or other similar arrangement on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture or other enterprise, against any liability asserted against or incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article 8.
F. Security Fund; Indemnity Agreements. By action of the Board of Directors (notwithstanding their interest in the transaction), the Corporation may create and fund a trust fund or other fund or form of self-insurance arrangement of any nature, and may enter into agreements with its officers, directors, employees and agents for the purpose of securing or insuring in any manner its obligation to indemnify or advance expenses provided for in this Article 8.
G. Modification. The duties of the Corporation to indemnify and to advance expenses to any person as provided in this Article 8 shall be in the nature of a contract between the Corporation and each such person, and no amendment or repeal of any provision of this Article 8, and no amendment or termination of any trust or other fund or form of self-insurance arrangement created pursuant to Section F of this Article 8, shall alter to the detriment of such person the right of such person to the advance of expenses or indemnification related to a claim based on an act or failure to act which took place prior to such amendment, repeal or termination.
H. Proceedings Initiated by Indemnified Persons. Notwithstanding any other provision of this Article 8, the Corporation shall not indemnify a director, officer, employee or agent for any liability incurred in an action, suit or proceeding initiated (which shall not be deemed to include counter-claims or affirmative defenses) or participated in as an intervenor or amicus curiae by the person seeking indemnification unless such initiation of or participation in the action, suit or proceeding is either (i) authorized, either before or after its commencement, by the affirmative vote of a majority of the directors in office, or (ii) required by the LBCA.
Article 9. Meetings of Shareholders and Shareholder Proposals
A. Definitions.
(a) Acquire. The term “Acquire” includes every type of acquisition, whether effected by purchase, exchange, operation of law or otherwise.
(b) Acting in Concert. The term “Acting in Concert” means (a) knowing participation in a joint activity or conscious parallel action towards a common goal whether or not pursuant to an express agreement, or (b) a combination or pooling of voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding, relationship, agreement or other arrangement, whether written or otherwise. A Person will be presumed to be Acting in Concert with members of the Person’s Immediate Family.
(c) Affiliate. An “Affiliate” of, or a Person “affiliated with,” a specified Person, means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified.
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(d) Associate. The term “Associate” used to indicate a relationship with any Person means:
(i) Any corporation or organization (other than the Corporation or a Subsidiary of the Corporation), or any subsidiary or parent thereof, of which such Person is a director, officer or partner or is, directly or indirectly, the Beneficial Owner of 10% or more of any class of equity securities;
(ii) Any trust or other estate in which such Person has a 10% or greater beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity, provided, however, such term shall not include any employee stock benefit plan of the Corporation or a Subsidiary of the Corporation in which such Person has a 10% or greater beneficial interest or serves as a trustee or in a similar fiduciary capacity;
(iii) Any relative or spouse of such Person (or any relative of such spouse) who has the same home as such Person or who is a director or officer of the Corporation or a Subsidiary of the Corporation (or any subsidiary or parent thereof); or
(iv) Any investment company registered under the Investment Company Act of 1940 for which such Person or any Affiliate or Associate of such Person serves as investment advisor.
(e) Beneficial Owner (including Beneficially Owned). A Person shall be considered the “Beneficial Owner” of any shares of stock (whether or not owned of record):
(i) With respect to which such Person or any Affiliate or Associate of such Person directly or indirectly has or shares (A) voting power, including the power to vote or to direct the voting of such shares of stock, and/or (B) investment power, including the power to dispose of or to direct the disposition of such shares of stock;
(ii) Which such Person or any Affiliate or Associate of such Person has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, and/or (B) the right to vote pursuant to any agreement, arrangement or understanding (whether such right is exercisable immediately or only after the passage of time); or
(iii) Which are Beneficially Owned within the meaning of clause (i) or (ii) of this Article 9.A(e) by any other Person with which such first-mentioned Person or any of its Affiliates or Associates either (A) has any agreement, arrangement or understanding, written or oral, with respect to acquiring, holding, voting or disposing of any shares of stock of the Corporation or any Subsidiary of the Corporation or acquiring, holding or disposing of all or substantially all, or any Substantial Part, of the assets or business of the Corporation or a Subsidiary of the Corporation, or (B) is Acting in Concert. For the purpose only of determining whether a Person is the Beneficial Owner of a percentage specified in this Article 9 of the outstanding Voting Shares, such shares shall be deemed to include any Voting Shares which may be issuable pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants, options or otherwise and which are deemed to be Beneficially Owned by such Person pursuant to the foregoing provisions of this Article 9.A(e), but shall not include any other Voting Shares which may be issuable in such manner.
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(f) Immediate Family. The term “Immediate Family” shall mean a Person’s spouse, father, mother, children, brothers, sisters and grandchildren; the father, mother, brothers and sisters of the Person’s spouse; and the spouse of the Person’s child, brother or sister.
(g) Offer. The term “Offer” shall mean every offer to buy or acquire, solicitation of an offer to sell, tender offer or request or invitation for tender of, a security or interest in a security for value; provided that the term “Offer” shall not include (i) inquiries directed solely to the management of the Corporation and not intended to be communicated to shareholders which are designed to elicit an indication of management’s receptivity to the basic structure of a potential acquisition with respect to the amount of cash and or securities, manner of acquisition and formula for determining price, or (ii) non-binding expressions of understanding or letters of intent with the management of the Corporation regarding the basic structure of a potential acquisition with respect to the amount of cash and or securities, manner of acquisition and formula for determining price.
(h) Person. The term “Person” shall mean any individual, partnership, corporation, association, trust, group or other entity. When two or more Persons act as a partnership, limited partnership, syndicate, association or other group for the purpose of acquiring, holding or disposing of shares of stock, such partnership, syndicate, associate or group shall be deemed a “Person.”
(i) Substantial Part. The term “Substantial Part” as used with reference to the assets of the Corporation or of any Subsidiary means assets having a value of more than 10% of the total consolidated assets of the Corporation and its Subsidiaries as of the end of the Corporation’s most recent fiscal year ending prior to the time the determination is being made.
(j) Subsidiary. “Subsidiary” means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Person in question.
(k) Voting Shares. “Voting Shares” shall mean shares of the Corporation entitled to vote generally in an election of directors.
(l) Certain Determinations With Respect to Article 9. A majority of the directors shall have the power to determine for the purposes of this Article 9, on the basis of information known to them and acting in good faith: (A) the number of Voting Shares of which any Person is the Beneficial Owner, (B) whether a Person is an Affiliate or Associate of another, (C) whether a Person has an agreement, arrangement or understanding with another as to the matters referred to in the definition of “Beneficial Owner” as hereinabove defined, and (D) such other matters with respect to which a determination is required under this Article 9.
(m) Directors, Officers or Employees. Directors, officers or employees of the Corporation or any Subsidiary thereof shall not be deemed to be a group with respect to their individual acquisitions of any class of equity securities of the Corporation solely as a result of their capacities as such.
B. Special Meetings of Shareholders. Except as otherwise required by law and subject to the rights of the holders of any class or series of Preferred Stock, special meetings of the shareholders of the Corporation may be called only by (i) the Board of Directors pursuant to a resolution approved by the affirmative vote of a majority of the directors then in office, (ii) the Chief Executive Officer, or (iii) by Persons who Beneficially Own an aggregate of at least 50% of the outstanding Voting Shares.
C. Action Without a Meeting. Any action permitted to be taken by the shareholders at a meeting may be taken without a meeting if consent in writing setting forth the action so taken shall be signed by all of the shareholders who would be entitled to vote at a meeting for such purpose and filed with the Secretary of the Corporation as part of the corporate records.
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D. Shareholder Proposals. At an annual meeting of shareholders, only such new business shall be conducted, and only such proposals shall be acted upon, as shall have been brought before the annual meeting by, or at the direction of, (a) the Board of Directors or (b) any shareholder of the Corporation who complies with all the requirements set forth in this Article 9.D.
Proposals, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation as set forth in this Article 9.D. For shareholder proposals to be included in the Corporation’s proxy materials, the shareholder must comply with all the timing and informational requirements of Rule 14a-8 of the Exchange Act (or any successor regulation), whether or not the Corporation’s common stock is registered under the Exchange Act. With respect to shareholder proposals to be considered at the annual meeting of shareholders but not included in the Corporation’s proxy materials, the shareholder notice shall be delivered to, or mailed and received at, the principal executive offices of the Corporation not later than (x) 120 days prior to the anniversary date of the initial mailing of proxy materials or of a notice of the meeting by the Corporation in connection with the immediately preceding annual meeting of shareholders of the Corporation or (y), with respect to the first annual meeting of shareholders of the Corporation, which is expected to be held in May 2022, notice must be provided by December 15, 2021. Such shareholder’s notice shall set forth as to each matter the shareholder proposes to bring before the annual meeting (1) a description of the proposal desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (2) the name and address, as they appear on the Corporation’s books, of the shareholder proposing such business and, to the extent known, any other shareholders known by such shareholder to be supporting such proposal, (3) the class and number of shares of the Corporation’s stock which are Beneficially Owned (as defined in Article 9.A. hereof) by the shareholder submitting the notice, by any Person who is Acting in Concert with or who is an Affiliate or Associate of such shareholder (as such capitalized terms are defined in Article 9.A. hereof), by any Person who is a member of any group with such shareholder with respect to the Corporation stock or who is known by such shareholder to be supporting such proposal on the date the notice is given to the Corporation, and by each Person who is in control of, is controlled by or is under common control with any of the foregoing Persons (if any of the foregoing Persons is a partnership, corporation, limited liability company, association or trust, information shall be provided regarding the name and address of, and the class and number of shares of Corporation stock which are Beneficially Owned (as defined in Article 9.A. hereof) by, each partner in such partnership, each director, executive officer and shareholder in such corporation, each member in such limited liability company or association, and each trustee and beneficiary of such trust, and in each case each Person controlling such entity and each partner, director, executive officer, shareholder, member or trustee of any entity which is ultimately in control of such partnership, corporation, limited liability company, association or trust), (4) the identification of any person retained or to be compensated by the shareholder submitting the proposal, or any person acting on his or her behalf, to make solicitations or recommendations to shareholders for the purpose of assisting in the passage of such proposal and a brief description of the terms of such employment, retainer or arrangement for compensation, and (5) any material interest of the shareholder in such business.
The Board of Directors may reject any shareholder proposal not timely made in accordance with the terms of this Article 9.D. If the Board of Directors, or a designated committee thereof or other authorized individual, determines that the information provided in a shareholder’s notice does not satisfy the information requirements of Article 9.D. in any material respect, the Secretary of the Corporation or a duly authorized representative of the Corporation shall promptly notify such shareholder of the deficiency in the notice. The shareholder shall have an opportunity to cure the deficiency by providing additional information to the Secretary within such period of time not to exceed five days from the date such deficiency notice is given to the shareholder as the Board of Directors or such committee or other authorized individual shall reasonably determine. If the deficiency is not cured within such period, or if the Board of Directors or such committee or other authorized individual determines that the additional information provided by the shareholder, together with information previously provided, does not satisfy the requirements of this Article 9.D. in any material respect, then the Board of Directors may reject such shareholder’s proposal. The Secretary of the Corporation or a duly authorized representative of the Corporation shall notify a shareholder in writing whether his proposal has been made in accordance with the time and informational requirements of this Article 9.D. Notwithstanding the procedures set forth in this paragraph, if neither the Board of Directors nor such committee or other authorized individual makes a determination as to the validity of any shareholder proposal, the presiding officer of the meeting of shareholders shall determine and declare at the meeting of shareholders whether the shareholder proposal was made in accordance with the terms of this Article 9.D. If the presiding officer determines that a shareholder proposal was made in accordance with the terms of this Article 9.D., he shall so declare at the meeting of shareholders and ballots shall be provided for use at the meeting with respect to any such proposal. If the presiding officer determines that a shareholder proposal was not made in accordance with the terms of this Article 9.D., he shall so declare at the meeting of shareholders and any such proposal shall not be acted upon at the meeting of shareholders.
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This provision shall not prevent the consideration and approval or disapproval at the annual meeting of reports of officers, directors and committees of the Board of Directors, but in connection with such reports, no new business shall be acted upon at such annual meeting unless stated, filed and received as herein provided.
Article 10. Restrictions on Offers and Acquisitions of the Corporation’s Equity Securities.
A. Restrictions. The definitions and other provisions set forth in Article 9.A are also applicable to this Article 10. No Person shall directly or indirectly Offer to Acquire or Acquire the Beneficial Ownership of (i) more than 10% of the issued and outstanding shares of any class of an equity security of the Corporation, or (ii) any securities convertible into, or exercisable for, any equity securities of the Corporation if, assuming conversion or exercise by such Person of all securities of which such Person is the Beneficial Owner which are convertible into, or exercisable for, such equity securities (but of no securities convertible into, or exercisable for, such equity securities of which such Person is not the Beneficial Owner), such Person would be the Beneficial Owner of more than 10% of any class of an equity security of the Corporation.
B. Exclusions. The foregoing restrictions shall not apply to (i) any Offer with a view toward public resale made exclusively to the Corporation by underwriters or a selling group acting on its behalf, (ii) any employee benefit plan or arrangement established by the Corporation or its Subsidiaries and any trustee of such a plan or arrangement, and (iii) any other Offer or acquisition approved in advance by the affirmative vote of two-thirds of the Corporation’s Board of Directors.
C. Remedies. In the event that shares are acquired in violation of this Article 10, all shares Beneficially Owned by any Person in excess of 10% shall be considered “Excess Shares” and shall not be counted as shares entitled to vote and shall not be voted by any Person or counted as Voting Shares in connection with any matters submitted to shareholders for a vote, and the Board of Directors may cause such Excess Shares to be transferred to an independent trustee for sale on the open market or otherwise, with the expenses of such trustee to be paid out of the proceeds of the sale.
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Article 11. Address and Registered Agent.
The street address of the initial principal office of the Corporation is 235 N. Court Street, Opelousas, Louisiana 70590.
The Corporation’s initial registered agent is CT Corporation System and its initial registered agent’s office is 3867 Plaza Tower Dr., Baton Rouge, Louisiana 70816-4378.
Article 12. Amendment of Articles and Bylaws.
A. Articles. The Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation, in the manner now or hereafter prescribed by law, and all rights conferred upon shareholders herein are granted subject to this reservation. No amendment, addition, alteration, change or repeal of these Articles of Incorporation shall be made unless it is first approved by the Board of Directors of the Corporation pursuant to a resolution adopted by the affirmative vote of a majority of the directors then in office, and thereafter is approved by the holders of a majority (except as provided below) of the shares of the Corporation entitled to vote generally in an election of directors, voting together as a single class, as well as such additional vote of the Preferred Stock as may be required by the provisions of any series thereof. Notwithstanding anything contained in these Articles of Incorporation to the contrary, the affirmative vote of the holders of at least 75% of the shares of the Corporation entitled to vote generally in an election of directors, voting together as a single class, as well as such additional vote of the Preferred Stock as may be required by the provisions of any series thereof, shall be required to amend, adopt, alter, change or repeal any provision inconsistent with Articles 6, 7, 8, 9, 10 and 12.
B. Bylaws. The Board of Directors, to the extent permitted by law, or shareholders may adopt, alter, amend or repeal the Bylaws of the Corporation. Such action by the Board of Directors shall require the affirmative vote of a majority of the directors then in office at any regular or special meeting of the Board of Directors. Such action by the shareholders shall require the affirmative vote of the holders of a majority of the shares of the Corporation entitled to vote generally in an election of directors, voting together as a single class, as well as such additional vote of the Preferred Stock as may be required by the provisions of any series thereof, provided that the affirmative vote of the holders of at least 75% of the shares of the Corporation entitled to vote generally in an election of directors, voting together as a single class, as well as such additional vote of the Preferred Stock as may be required by the provisions of any series thereof, shall be required to amend, adopt, alter, change or repeal any provision Articles II, IV, VIII and XII of the Bylaws.
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THE UNDERSIGNED, being the sole incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the Louisiana Business Corporation Act, as amended, through these Articles of Incorporation, has caused these Articles of Incorporation to be signed by its President and Chief Executive Officer, who hereby declares and certifies that the facts herein stated are true and who has hereunto set his hand this 26th day of February, 2021.
ATTEST | ST. LANDRY HOMESTEAD FEDERAL SAVINGS BANK | ||
/s/Ted D. Bellard | By: | /s/Joseph B. Zanco | |
Ted D. Bellard | Joseph B. Zanco | ||
Secretary | President and Chief Executive Officer |
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Exhibit 3.2
BYLAWS
OF
CATALYST BANCORP, INC.
ARTICLE I. OFFICES
1.1 Registered Office and Registered Agent. The registered office of Catalyst Bancorp, Inc. (the “Corporation”) shall be located in the State of Louisiana at such place as may be fixed from time to time by the Board of Directors upon filing of such notices as may be required by law.
1.2 Other Offices. The Corporation may have other offices within or outside the State of Louisiana at such place or places as the Board of Directors may from time to time determine.
ARTICLE II. SHAREHOLDERS’ MEETINGS
2.1 Meeting Place. All meetings of the shareholders shall be held at the principal place of business of the Corporation, or at such other place within or without the State of Louisiana as shall be determined from time to time by the Board of Directors, and the place at which any such meeting shall be held shall be stated in the notice of the meeting.
2.2 Annual Meeting Time. The annual meeting of the shareholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held at such date and time as may be determined by resolution of the Board of Directors and stated in the notice of such meeting.
2.3 Organization and Conduct. Each meeting of the shareholders shall be presided over by the President, or if the President is not present, by the Chairman of the Board or any Executive or Senior Vice President or such other person as the Board of Directors may determine. The Secretary, or in his absence a temporary Secretary, shall act as secretary of each meeting of the shareholders. In the absence of the Secretary and any temporary Secretary, the chairman of the meeting may appoint any person present to act as secretary of the meeting. The chairman of any meeting of the shareholders, unless prescribed by law or regulation or unless the Board of Directors has otherwise determined, shall determine the order of the business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussions as shall be deemed appropriate by him in his sole discretion.
2.4 Notice.
(a) Notice of the time and place of the annual meeting of shareholders shall be given by delivering personally or by mailing a written or printed notice of the same, at least 10 days and not more than 60 days prior to the meeting, to each shareholder of record entitled to vote at such meeting. When any shareholders’ meeting, either annual or special, is adjourned for 30 days or more, or if a new record date is fixed for an adjourned meeting of shareholders, notice of the adjourned meeting shall be given as in the case of an original meeting. It shall not be necessary to give any notice of the time and place of any meeting adjourned for less than 30 days or of the business to be transacted thereat (unless a new record date is fixed therefor), other than an announcement at the meeting at which such adjournment is taken.
(b) At least 10 days and not more than 60 days prior to the meeting, a written or printed notice of each special meeting of shareholders, stating the place, day and hour of such meeting, and the purpose or purposes for which the meeting is called, shall be either delivered personally or mailed to each shareholder of record entitled to vote at such meeting.
2.5 Quorum. Except as otherwise required by law or the Corporation’s Articles of Incorporation or these Bylaws, a quorum at any annual or special meeting of shareholders shall consist of shareholders representing, either in person or by proxy, a majority of the votes entitled to be cast at such meeting.
2.6 Voting of Shares.
(a) Except as otherwise provided in these Bylaws or to the extent that voting rights of the shares of any class or classes are limited or denied by the Articles of Incorporation, each shareholder, on each matter submitted to a vote at a meeting of shareholders, shall have one vote for each share of stock registered in his name on the books of the Corporation.
(b) Directors are to be elected by a plurality of votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present. Shareholders shall not be permitted to cumulate their votes for the election of directors. If, at any meeting of the shareholders, due to a vacancy or vacancies or otherwise, directors of more than one class of the Board of Directors are to be elected, each class of directors to be elected at the meeting shall be elected in a separate election by a plurality vote.
(c) Except for the election of directors and except as otherwise provided by law, the Corporation’s Articles of Incorporation or these Bylaws, a majority of votes cast shall decide any matter properly brought before the shareholders at a meeting at which a quorum is present. For purposes of this paragraph, (i) a majority of the votes cast shall mean that the number of shares that voted “for” the proposal exceeds the number of shares voted “against” the proposal, and (ii) abstentions and broker non-votes shall not be counted as votes cast either “for” or “against” the proposal.
2.7 Fixing of Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or any adjournment thereof, or entitled to receive payment of any dividend, the Board of Directors shall fix in advance a record date for such determination of shareholders, such date to be not more than 70 days and, in case of a meeting of shareholders, not less than 10 days prior to the date on which the particular action requiring such determination of shareholders is to be taken.
2.8 Voting Record. After fixing a record date for a meeting of shareholders, a complete record of the shareholders entitled to vote at such meeting, or any adjournment thereof, shall be made, arranged in alphabetical order, with the number and class of shares held by each shareholder, which record shall be kept on file at the registered office of the Corporation and shall be subject to inspection by any shareholder at any time during usual business hours. The record shall be kept open at the time and place of such meeting for the inspection by any shareholder.
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2.9 Proxies. A shareholder may vote either in person or by proxy executed in writing by the shareholder, or his duly authorized attorney-in-fact. No proxy shall be valid after 11 months from the date of its execution, unless otherwise provided in the proxy.
2.10 Voting of Shares in the Name of Two or More Persons. Where shares are held jointly or as tenants in common by two or more persons as fiduciaries or otherwise, if only one or more of such persons is present in person or by proxy, all of the shares standing in the names of such persons shall be deemed to be represented for the purpose of determining a quorum and the Corporation shall accept as the vote of all such shares the votes cast by him or a majority of them and if in any case such persons are equally divided upon the manner of voting the shares held by them, the vote of such shares shall be divided equally among such persons, without prejudice to the rights of such joint owners or the beneficial owners thereof among themselves, unless either (a) the Corporation receives written notice to the contrary from a nonsigning registered holder before the proxy is voted, or (b) there shall have been filed with the Secretary of the Corporation a copy, certified by an attorney-at-law to be correct, of the relevant portions of the agreements under which such shares are held or the instrument by which the trust or estate was created or the decree of court appointing them, or of a decree of court directing the voting of such shares, and the persons specified as having such voting power in the latest such document so filed, and only such persons, shall be entitled to vote such shares but only in accordance therewith.
2.11 Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by an officer, agent or proxy as the bylaws of such corporation may prescribe, or, in the absence of such provision, in accordance with the Louisiana Business Corporation Act, as amended (“LBCA”). Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority to do so is contained in an appropriate order of the court or other public authority by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee or nominee, and thereafter the pledgee or nominee shall be entitled to vote the shares so transferred.
2.12 Inspectors. For each meeting of shareholders, the Board of Directors may appoint one or more inspectors of election. Each inspector shall take and sign an oath to faithfully execute the duties of inspector with strict impartiality and to the best of his/her ability. If for any meeting the inspector(s) appointed by the Board of Directors shall be unable to act or the Board of Directors shall fail to appoint any inspector, one or more inspectors may be appointed at the meeting by the chairman thereof. Such inspectors shall conduct the voting in each election of directors and, as directed by the Board of Directors or the chairman of the meeting, the voting on each matter voted on at such meeting, and after the voting shall make a written report of the vote taken. Inspectors need not be shareholders. Inspectors may be officers or employees of the Corporation.
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ARTICLE III. CAPITAL STOCK
3.1 Certificates. Shares of the Corporation’s capital stock may be represented by certificates or, to the extent permitted by the LBCA, may be uncertificated. To the extent they are issued, certificates of stock shall be issued in numerical order, and each shareholder shall be entitled to a certificate signed by the President or a Vice President, and the Secretary or the Treasurer, and may be sealed with the seal of the Corporation or a facsimile thereof. The signatures of such officers may be facsimiles if the certificate is manually signed on behalf of a transfer agent, or registered by a registrar, other than the Corporation itself or an employee of the Corporation. If an officer who has signed or whose facsimile signature has been placed upon such certificate ceases to be an officer before the certificate is issued, it may be issued by the Corporation with the same effect as if the person were an officer on the date of issue. Each certificate of stock shall state:
(a) that the Corporation is incorporated under the laws of the State of Louisiana;
(b) the name of the person to whom issued;
(c) the number and class of shares and the designation of the series, if any, which such certificate represents;
(d) the par value of each share represented by such certificate, or a statement that such shares are without par value; and
(e) such other information as may be required by the LBCA.
3.2 Transfers. Transfers of stock shall be made only upon the stock transfer books of the Corporation, kept at the registered office of the Corporation or at its principal place of business, or at the office of its transfer agent or registrar. The Board of Directors may, by resolution, open a share register in any state of the United States, and may employ an agent or agents to keep such register, and to record transfers of shares therein.
3.3 Registered Owner. Registered shareholders shall be treated by the Corporation as the holders in fact of the stock standing in their respective names and the Corporation shall not be bound to recognize any equitable or other claim to or interest in any share on the part of any other person, whether or not it shall have express or other notice thereof, except as expressly provided below or by the laws of the State of Louisiana. The Board of Directors may adopt by resolution a procedure whereby a shareholder of the Corporation may certify in writing to the Corporation that all or a portion of the shares registered in the name of such shareholder are held for the account of a specified person or persons. The resolution shall set forth:
(a) The classification of shareholder who may certify;
(b) The purpose or purposes for which the certification may be made;
(c) The form of certification and information to be contained therein;
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(d) If the certification is with respect to a record date or closing of the stock transfer books, the date within which the certification must be received by the Corporation; and
(e) Such other provisions with respect to the procedure as are deemed necessary or desirable.
Upon receipt by the Corporation of a certification complying with the above requirements, the persons specified in the certification shall be deemed, for the purpose or purposes set forth in the certification, to be the holders of record of the number of shares specified in place of the shareholder making the certification.
3.4 Mutilated, Lost or Destroyed Certificates. In case of any mutilation, loss or destruction of any certificate of stock, another may be issued in its place upon receipt of proof of such mutilation, loss or destruction. The Board of Directors may impose conditions on such issuance and may require the giving of a satisfactory bond or indemnity to the Corporation in such sum as they might determine, or establish such other procedures as they deem necessary.
3.5 Fractional Shares or Scrip. The Corporation may (a) issue fractions of a share which shall entitle the holder to exercise voting rights, to receive dividends thereon, and to participate in any of the assets of the Corporation in the event of liquidation; (b) arrange for the disposition of fractional interests by those entitled thereto; (c) pay in cash the fair value of fractions of a share as of the time when those entitled to receive such shares are determined; or (d) issue scrip in registered or bearer form which shall entitle the holder to receive a certificate for a full share upon the surrender of such scrip aggregating a full share.
3.6 Shares of Another Corporation. Shares owned by the Corporation in another corporation, domestic or foreign, may be voted by such officer, agent or proxy as the Board of Directors may determine or, in the absence of such determination, by the President of the Corporation.
ARTICLE IV. BOARD OF DIRECTORS
4.1 Number and Powers; Age Limitation. The management of all the affairs, property and interest of the Corporation shall be vested in a Board of Directors. The Board of Directors shall be divided into three classes as nearly equal in number as possible. The initial Board of Directors shall consist of seven persons. The classification and term of the directors shall be as set forth in the Corporation’s Articles of Incorporation, which provisions are incorporated herein with the same effect as if they were set forth herein. Directors need not be residents of the State of Louisiana. Directors will be expected to acquire and maintain an investment in the Company’s common stock in accordance with such policies of the Board of Directors as may be established from time-to-time. No person seventy-five (75) years of age shall be eligible for election, reelection, appointment, or reappointment to the Board of Directors of the Corporation. No director shall serve as such beyond the annual meeting of Corporation immediately following the director becoming seventy-five (75). In addition to the powers and authorities expressly conferred upon it by these Bylaws and the Articles of Incorporation, the Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these Bylaws directed or required to be exercised or done by the shareholders.
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4.2 Change of Number. The number of directors may at any time be increased or decreased by a vote of a majority of the Board of Directors, provided that no decrease shall have the effect of shortening the term of any incumbent director except as provided in Sections 4.3 and 4.4 hereunder. Notwithstanding anything to the contrary contained within these Bylaws, the number of directors may not be less than 5 nor more than 15.
4.3 Vacancies. All vacancies in the Board of Directors shall be filled in the manner provided in the Corporation’s Articles of Incorporation, which provisions are incorporated herein with the same effect as if they were set forth herein.
4.4 Removal of Directors. Directors may be removed in the manner provided in the Corporation’s Articles of Incorporation, which provisions are incorporated herein with the same effect as if they were set forth herein.
4.5 Regular Meeting. Regular meetings of the Board of Directors or any committee may be held without notice at the principal place of business of the Corporation or at such other place or places, either within or without the State of Louisiana, as the Board of Directors or such committee, as the case may be, may from time to time designate. The annual meeting of the Board of Directors shall be held without notice immediately after the adjournment of the annual meeting of shareholders.
4.6 Special Meetings.
(a) Special meetings of the Board of Directors may be called at any time by the Chairman of the Board, the President or by a majority of the authorized number of directors, to be held at the principal place of business of the Corporation or at such other place or places as the Board of Directors or the person or persons calling such meeting may from time to time designate. Notice of all special meetings of the Board of Directors shall be given to each director at least 48 hours in advance. Such notice need not specify the business to be transacted at, nor the purpose of, the meeting.
(b) Special meetings of any committee may be called at any time by such person or persons and with such notice as shall be specified for such committee by the Board of Directors, or in the absence of such specification, in the manner and with the notice required for special meetings of the Board of Directors.
4.7 Quorum. A majority of the Board of Directors shall be necessary at all meetings to constitute a quorum for the transaction of business.
4.8 Waiver of Notice. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. A waiver of notice signed by the director or directors, whether before or after the time stated for the meeting, shall be equivalent to the giving of notice.
4.9 Registering Dissent. A director who is present at a meeting of the Board of Directors at which action on a corporate matter is taken shall be presumed to have assented to such action unless his dissent is entered in the minutes of the meeting, or unless he files his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof, or unless he delivers his dissent in writing to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action.
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4.10 Executive, Audit and Other Committees. Standing or special committees may be appointed from its own number by the Board of Directors from time to time, and the Board of Directors may from time to time invest such committees with such powers as it may see fit, subject to such conditions as may be prescribed by the Board. An Executive Committee may be appointed by resolution passed by a majority of the full Board of Directors. It shall have and exercise all of the authority of the Board of Directors, except in reference to amending the Articles of Incorporation, adopting a plan of merger or consolidation, recommending the sale, lease or exchange or other dispositions of all or substantially all the property and assets of the Corporation otherwise than in the usual and regular course of business, recommending a voluntary dissolution or a revocation thereof, or amending these Bylaws. An Audit Committee shall be appointed by resolution passed by a majority of the full Board of Directors. Members of the Audit Committee shall be directors who meet all applicable standards under the regulations of the Securities and Exchange Commission and the standards of the Nasdaq Stock Market. The Audit Committee shall appoint or recommend independent auditors to the Board of Directors annually and shall review the Corporation’s budget, the scope and results of the audit performed by the Corporation’s independent auditors and the Corporation’s system of internal control and audit with management and such independent auditors, and such other duties as may be assigned to it by the Board of Directors. All committees appointed by the Board of Directors shall keep regular minutes of the transactions of their meetings and shall cause them to be recorded in books kept for that purpose in the office of the Corporation. The designation of any such committee, and the delegation of authority thereto, shall not relieve the Board of Directors, or any member thereof, of any responsibility imposed by law.
4.11 Action by Directors Without a Meeting. Any action which may be taken at a meeting of the directors, or of a committee thereof, may be taken without a meeting if a consent in writing, setting forth the action so taken or to be taken, shall be signed by all of the directors, or all of the members of the committee, as the case may be. Such consent shall have the same effect as a unanimous vote.
4.12 Action of Directors by Communications Equipment. Any action which may be taken at a meeting of directors, or of a committee thereof, may be taken by any means of communication by which all persons participating in the meeting can hear each other at the same time.
4.13 Chairman of the Board of Directors. The Board of Directors may elect from among its members a Chairman of the Board and a Vice Chairman of the Board of Directors. The Chairman of the Board of Directors (or, in his absence, the Vice Chairman of the Board, if one has been elected) shall preside at all meetings of the Board of Directors. The Chairman of the Board (and the Vice Chairman of the Board, if one has been elected) shall perform such other duties as may be assigned from time to time by the Board of Directors.
4.14 Director Emeritus. The Board of Directors shall have the authority to elect or appoint one or more individuals who has retired from the Board of Directors as a director emeritus. Directors emeritus shall be elected or appointed, in the sole discretion of the Board of Directors, for one-year terms and may be re-appointed for additional one-year terms; provided, however, that no director emeritus shall serve in such position beyond age seventy-eight. Each director emeritus shall serve in an advisory capacity to the Board of Directors and shall not otherwise have the power or authority of a director of the Corporation and shall not have the power or authority to vote on any matters submitted to a vote of the Board of Directors, nor shall the presence of any such director emeritus at a meeting of the Board of Directors be counted for quorum or other attendance purposes.
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ARTICLE V. OFFICERS
5.1 Designations. The officers of the Corporation shall be a President and Chief Executive Officer, a Secretary and a Chief Financial Officer, as well as such Vice Presidents (including Executive and Senior Vice Presidents) and Assistant Secretaries as the Board may designate, who shall be elected for one year by the directors at their first meeting after the annual meeting of shareholders, and who shall hold office until their successors are elected and qualify. Any two or more offices may be held by the same person, except that the offices of President and Secretary may not be held by the same person.
5.2 Powers and Duties. The officers of the Corporation shall have such authority and perform such duties as the Board of Directors may from time to time authorize or determine. In the absence of action by the Board of Directors, the officers shall have such powers and duties as generally pertain to their respective offices.
5.3 Delegation. In the case of absence or inability to act of any officer of the Corporation and of any person herein authorized to act in his place, the Board of Directors may from time to time delegate the powers or duties of such officer to any other officer or any director or other person whom it may select.
5.4 Vacancies. Vacancies in any office arising from any cause may be filled by the Board of Directors at any regular or special meeting of the Board.
5.5 Other Officers. Directors may appoint such other officers and agents as it shall deem necessary or expedient, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors.
5.6 Term - Removal. The officers of the Corporation shall hold office until their successors are chosen and qualify. Any officer or agent elected or appointed by the Board of Directors may be removed at any time, with or without cause, by the affirmative vote of a majority of the whole Board of Directors, but such removal shall be without prejudice to the contract rights, if any, of the person so removed.
5.7 Bonds. The Board of Directors may, by resolution, require any and all of the officers to give bonds to the Corporation, with sufficient surety or sureties, conditioned for the faithful performance of the duties of their respective offices, and to comply with such other conditions as may from time to time be required by the Board of Directors.
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ARTICLE VI. FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Corporation shall end on the 31st day of December of each year. The Corporation shall be subject to an annual audit as of the end of its fiscal year by independent public accountants appointed by and responsible to the Board of Directors.
ARTICLE VII. DIVIDENDS AND FINANCE
7.1 Dividends. Dividends may be declared by the Board of Directors and paid by the Corporation, subject to the conditions and limitations imposed by the laws of the State of Louisiana. The Board of Directors may declare dividends payable to the holders of record at the close of business on any business day not more than 60 days prior to the date on which the dividend is paid.
7.2 Depositories. The monies of the Corporation shall be deposited in the name of the Corporation in such bank or banks or trust company or trust companies as the Board of Directors shall designate, and shall be drawn out only by check or other order for payment of money signed by such persons and in such manner as may be determined by resolution of the Board of Directors.
ARTICLE VIII. PERSONAL LIABILITY OF DIRECTORS AND OFFICERS
Directors and officers of the Corporation shall not be personally liable for monetary damages for any action taken, or any failure to take any action, as a director or officer to the extent set forth in the Corporation’s Articles of Incorporation, which provisions are incorporated herein with the same effect as if they were set forth herein.
ARTICLE IX. NOTICES
Except as may otherwise be required by law, any notice to any shareholder or director may be delivered personally, by mail or in such other manner as may be permitted by the LBCA. If mailed, the notice shall be deemed to have been delivered when deposited in the United States mail, addressed to the addressee at his last known address in the records of the Corporation, with postage thereon prepaid.
ARTICLE X. SEAL
The corporate seal of the Corporation shall be in such form and bear such inscription as may be adopted by resolution of the Board of Directors, or by usage of the officers on behalf of the Corporation.
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ARTICLE XI. BOOKS AND RECORDS
The Corporation shall keep correct and complete books and records of account and shall keep minutes and proceedings of meetings of its shareholders and Board of Directors; and it shall keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of the shares held by each. Any books, records and minutes may be in written form or any other form capable of being converted into written form within a reasonable time.
ARTICLE XII. AMENDMENTS
These Bylaws may be altered, amended or repealed only as set forth in the Corporation’s Articles of Incorporation, which provisions are incorporated herein with the same effect as if they were set forth herein.
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Exhibit 4.1
(FORM OF STOCK CERTIFICATE - FRONT SIDE)
NUMBER | SHARES |
COMMON STOCK | CUSIP |
(Par Value $.01 Per Share) |
See reverse for
certain definitions |
CATALYST BANCORP, INC.
A Louisiana Corporation
This certifies that ___________________________________ is the registered holder of _________________ fully paid and non-assessable shares of the Common Stock, par value $.01 per share, of Catalyst Bancorp, Inc., Opelousas, Louisiana (the “Corporation”).
The shares evidenced by this Certificate are transferable in person or by a duly authorized attorney or legal representative, upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby are subject to all the provisions of the Articles of Incorporation and Bylaws of the Corporation and any and all amendments thereto. This Certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar. This security is not a deposit or savings account and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other Federal or state governmental agency.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be executed by the facsimile signatures of its duly authorized officers and has caused its facsimile seal to be affixed hereto.
Dated:
(SEAL) | ||
Ted D. Bellard | Joseph B. Zanco | |
Corporate Secretary | President and Chief Executive Officer |
(FORM OF STOCK CERTIFICATE - BACK SIDE)
The Corporation is authorized to issue more than one class of stock, including a class of preferred stock which may be issued in one or more series. The Corporation will furnish to any stockholder, upon written request and without charge, a full statement of the designations, preferences, limitations and relative rights of the shares of each class authorized to be issued and, with respect to the issuance of any preferred stock to be issued in series, the relative rights and preferences between the shares of each series so far as the rights and preferences have been fixed and determined and the authority of the Board of Directors to fix and determine the relative rights and preferences of subsequent series.
The Articles of Incorporation of the Corporation includes a provision which generally prohibits any person (including an individual, company or group acting in concert) from directly or indirectly offering to acquire or acquiring the beneficial ownership of more than 10% of any class of equity securities of the Corporation. In the event that stock is acquired in violation of this 10% limitation, the excess shares will no longer be counted in determining the total number of outstanding shares for purposes of any matter involving stockholder action and the Board of Directors of the Corporation may cause such excess shares to be transferred to an independent trustee for sale in the open market or otherwise, with the expenses of such sale to be paid out of the proceeds of the sale.
The following abbreviations, when used in the inscription on the face of this Certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM | - | as tenants in common |
TEN ENT | - | as tenants by the entireties |
JT TEN | - |
as joint tenants with right of survivorship and not
as tenants in common |
UNIF GIFT MIN ACT - ______________ Custodian
______________ under (Cust)
(Minor)
Uniform Gifts to Minors Act | ||
(State) |
Additional abbreviations may also be used though not in the above list.
For value received, _________________________________ hereby sell, assign and transfer
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAXPAYER IDENTIFYING NUMBER OF ASSIGNEE
unto ______________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF ASSIGNEE
__________________________ shares of Common Stock represented by this Certificate, and do hereby irrevocably constitute and appoint __________________________ as Attorney, to transfer the said shares on the books of the within named Corporation, with full power of substitution.
Dated _____________ __, ____
Signature |
Signature |
Notice: The signature(s) to this assignment must correspond with the name(s) written upon the face of this Certificate in every particular, without alteration or any change whatsoever.
Exhibit 5.1
March 11, 2021
VIA EDGAR
Board of Directors
Catalyst Bancorp, Inc.
235 N. Court Street
Opelousas, Louisiana 70570
Members of the Board:
We have acted as special counsel to Catalyst Bancorp, Inc., a Louisiana corporation (the “Company”), in connection with the registration under the Securities Act of 1933, as amended (the “Securities Act”), of shares of the Company’s common stock, par value $0.01 per share (the “Shares”), as described in the Company’s Registration Statement on Form S-1 (the “Registration Statement”). In this regard, we have examined the Company’s Articles of Incorporation and Bylaws, the Registration Statement, resolutions of the Board of Directors of the Company, and such other documents and matters of law as we deemed appropriate for the purpose of this opinion.
Based upon the foregoing, we are of the opinion that the Shares, upon the declaration of the effectiveness of the Registration Statement and when issued in accordance with the terms of the Plan of Conversion of St. Landry Homestead Federal Savings Bank, a federally-chartered mutual savings bank, and upon receipt by the Company of the consideration required thereby, will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the references to Silver, Freedman, Taff & Tiernan LLP under the heading “Legal Matters” in the Prospectus contained in the Registration Statement. In giving this consent, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours, | |
/s/ SILVER, FREEDMAN, TAFF & TIERNAN LLP | |
SILVER, FREEDMAN, TAFF & TIERNAN LLP |
Exhibit 8.1
Law Offices
Silver, Freedman, Taff & Tiernan LLP
A Limited Liability Partnership Including Professional Corporations
3299 K STREET, N.W., SUITE 100
WASHINGTON, D.C. 20007
(202) 295-4500
WWW.SFTTLAW.COM
March 11, 2021
Boards of Directors
Catalyst Bancorp, Inc.
St. Landry Homestead Federal Savings Bank
235 N. Court Street
Opelousas, Louisiana 70570
Re: | Federal Income Tax Opinion Relating to the Proposed Conversion of St. Landry Homestead Federal Savings Bank |
Boards of Directors:
In accordance with your request, set forth below is the opinion of this firm relating to the material federal income tax consequences of the proposed conversion (the “Conversion”) of St. Landry Homestead Federal Savings Bank (the “Bank”) from a federal mutual savings bank to a federal stock savings bank (the “Stock Bank”), pursuant to a plan of conversion adopted by the Board of Directors of the Bank on January 27, 2021 (the “Plan”). In the Conversion, all of the Bank’s to-be-issued stock will be acquired by Catalyst Bancorp, Inc., a newly organized Louisiana corporation (the “Holding Company”). All capitalized terms used but not defined herein shall have the same meaning as set forth in the Plan.
For purposes of this opinion, we have examined such documents and questions of law as we have considered necessary or appropriate, including but not limited to the Holding Company’s Registration Statement on Form S-1 relating to the proposed issuance of up to 5,091,625 shares of common stock (at the adjusted maximum of the offering range), par value $.01 per share (the “Common Stock”), the Plan, the Federal Mutual Charter of the Bank, the proposed Federal Stock Charter of the Stock Bank, and the Articles of Incorporation and Bylaws of the Holding Company. We have also relied upon, without independent verification, the representations of the Bank and the Holding Company contained in their letters to us dated as of the date hereof. We have assumed and have not independently verified the authenticity of all original documents, the accuracy of all copies, and the genuineness of all signatures. We have further assumed the absence of adverse facts not apparent from the face of the instruments and documents we examined.
In issuing our opinion, we have assumed that both the Bank and the Holding Company will comply with the terms, covenants and conditions contained in the Plan, and that the various representations that are provided to us are accurate, complete, true and correct. Accordingly, we express no opinion concerning the effect of any variations from the foregoing. We specifically express no opinion concerning tax matters relating to the Plan under state and local tax laws and under federal income tax laws except on the basis of the documents and assumptions described above.
In issuing the opinions set forth below, we have relied solely on existing provisions of the Internal Revenue Code of 1986, as amended (the “Code”), existing and proposed Treasury regulations (the “Regulations”) thereunder, current administrative rulings, notices and procedures, and court decisions. Such laws, regulations, administrative rulings, notices and procedures and court decisions are subject to change at any time. Any change could affect the continuing validity of the opinions set forth below. This opinion is as of the date hereof, and we disclaim any obligation to advise you of any change in any matter considered herein after the date hereof.
In rendering our opinion, we have assumed that the persons and entities identified in the Plan will at all times comply with applicable state and federal laws and the factual representations of the Bank and the Holding Company. In addition, we have assumed that the activities of the persons and entities identified in the Plan will be conducted strictly in accordance with the Plan. Any variations may affect the opinions we are rendering.
We emphasize that the outcome of litigation cannot be predicted with certainty and, although we have attempted in good faith to opine as to the probable outcome of the merits of each tax issue with respect to which an opinion was requested, there can be no assurance that our conclusions are correct or that they would be adopted by the Internal Revenue Service or a court.
BACKGROUND
The Bank is a federal mutual savings bank that is in the process of converting to a federal stock savings bank. As a federal mutual savings bank, the Bank has no authorized capital stock. Instead, the Bank in mutual form has a unique equity structure. A depositor in the Bank is entitled to payment of interest on his account balance as declared and paid by the Bank. A depositor has no right to a distribution of any earnings of the Bank except for interest paid on his deposit, but rather, the earnings become retained earnings of the Bank. However, a depositor has a right to share, pro rata with respect to the withdrawal value of his account, in any liquidation proceeds distributed in the event the Bank is liquidated. All of the interests held by a depositor cease when the depositor closes his account with the Bank. In connection with and at the time of the Conversion, Eligible Account Holders and Supplemental Eligible Account Holders will exchange their liquidation rights in the Bank for an interest in a liquidation account (the “Liquidation Account”) established at the Stock Bank.
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PROPOSED TRANSACTION
The Holding Company has been formed under the laws of the State of Louisiana for the purpose of the proposed transactions described herein, to engage in business as a savings and loan holding company and to hold all of the stock of the Stock Bank. The Holding Company will issue shares of its Common Stock upon completion of the Conversion, to persons purchasing the shares as described in greater detail below.
Following regulatory approval, the Plan provides for the offer and sale of Common Stock in a Subscription Offering pursuant to nontransferable subscription rights on the basis of the following preference categories: (i) Eligible Account Holders of the Bank, (ii) the Bank’s tax-qualified employee stock benefit plans, including the newly formed employee stock ownership plan, (iii) Supplemental Eligible Account Holders of the Bank, and (iv) Other Members of the Bank, all as described in the Plan. No subscriber will be allowed to purchase fewer than 25 shares of Common Stock. If shares remain after all orders are filled in the categories described above, the Plan calls for a community offering with a preference given to natural persons and trusts of natural persons residing in St. Landry Parish and the adjacent parishes in Louisiana, namely, Acadia Parish, Lafayette Parish, St. Martin Parish, Pointe Coupée Parish, Avoyelles Parish and Evangeline Parish (“Community Offering”), and a syndicated community offering (“Syndicated Community Offering”) for the shares not sold in the Community Offering.
Pursuant to the Plan, all such shares will be issued and sold at a uniform price per share. The aggregate purchase price at which all Common Stock will be offered and sold pursuant to the Plan will be equal to the estimated pro forma market value of the Bank, as converted. The estimated pro forma market value will be determined by RP Financial, LC., an independent appraiser. The conversion of the Bank from mutual-to-stock form and the sale of newly issued shares of the stock of the Stock Bank to the Holding Company will be deemed effective concurrently with the closing of the sale of the Common Stock.
OPINION OF COUNSEL
Based solely upon the foregoing information, we render the following opinions:
1. The Conversion of the Bank from a federal mutual savings bank to a federal stock savings bank will constitute a reorganization within the meaning of Code Section 368(a)(1)(F), and no gain or loss will be recognized by either the Bank or the Stock Bank as a result of such Conversion. See Rev. Rul. 80-105, 1980-1 C.B. 78. The Bank and the Stock Bank will each be a party to a reorganization within the meaning of Code Section 368(b). Rev. Rul. 72-206, 1972-1 C.B. 104.
2. No gain or loss will be recognized by the Stock Bank upon the receipt of money from the Holding Company in exchange for its shares or by the Holding Company upon the receipt of money from the sale of the Common Stock. Code Section 1032(a).
3. The assets of the Bank will have the same basis in the hands of the Stock Bank as they had in the hands of the Bank immediately prior to the Conversion. Code Section 362(b).
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4. The holding period of the Bank’s assets to be received by the Stock Bank will include the period during which the assets were held by the Bank prior to the Conversion. Code Section 1223(2).
5. No gain or loss will be recognized by the account holders of the Bank upon the issuance to them of withdrawable deposit accounts in the Stock Bank in the same dollar amount and under the same terms as their deposit accounts in the Bank, and no gain or loss will be recognized by Eligible Account Holders or Supplemental Eligible Account Holders upon receipt by them of an interest in the Liquidation Account of the Stock Bank in exchange for their ownership interests in the Bank. Code Section 354(a).
6. The basis of the account holders’ deposit accounts in the Stock Bank will be the same as the basis of their deposit accounts in the Bank surrendered in exchange therefor. Code Section 358(a). The basis of each Eligible Account Holder’s and Supplemental Eligible Account Holder’s interests in the Liquidation Account of the Stock Bank will be zero, which is the cost of such interests to such persons.
7. It is more likely than not that the fair market value of the nontransferable subscription rights to purchase the Common Stock will be zero. Accordingly, no gain or loss will be recognized by Eligible Account Holders, Supplemental Eligible Account Holders or Other Members upon the distribution to them of the nontransferable subscription rights to purchase the Common Stock. No taxable income will be realized by Eligible Account Holders, Supplemental Eligible Account Holders or Other Members as a result of the exercise of the nontransferable subscription rights. Rev. Rul. 56-572, 1956-2 C.B. 182.
8. It is more likely than not that the basis of the Common Stock to the Holding Company’s shareholders will be the purchase price thereof. Section 1012 of the Code. The stockholder’s holding period will commence upon the exercise of the subscription rights. Section 1223(5) of the Code.
9. For purposes of Section 381 of the Code, the Stock Bank will be treated as if there had been no reorganization. Accordingly, the taxable year of the Bank will not end on the effective date of the Conversion merely because of the transfer of assets of the Bank to the Stock Bank, and the tax attributes of the Bank will be taken into account by the Stock Bank as if there had been no reorganization. Treas. Reg. Section 1.381(b)-(1)(a)(2).
10. The part of the taxable year of the Bank before the reorganization and the part of the taxable year of the Stock Bank after the reorganization will constitute a single taxable year of the Stock Bank. See Rev. Rul. 57-276, 1957-1 C.B. 126. Consequently, the Bank will not be required to file a federal income tax return for any portion of the taxable year solely by reason of the Conversion. Treas. Reg. Section 1.381(b)-1(a)(2).
11. The tax attributes of the Bank enumerated in Code Section 381(c) will be taken into account by the Stock Bank. Treas. Reg. Section 1.381(b)-1(a)(2).
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Notwithstanding any reference to Code Section 381 above, no opinion is expressed or intended to be expressed herein as to the effect, if any, of this transaction on the continued existence of, the carryover or carryback of, or the limitation on, any net operating losses of the Bank or its successor, the Stock Bank, under the Code.
Our opinion under paragraph 7 above is predicated on the representation that no person shall receive any payment, whether in money or property, in lieu of the issuance of subscription rights. Our opinions under paragraphs 7 and 8 are based on the fact that the subscription rights will be granted at no cost to the recipients, will be legally non-transferable and of short duration, and will provide the recipient with the right only to purchase Common Stock at the same price to be paid by members of the general public in any Community Offering. We also note that RP Financial, LC. has issued a letter dated March 11, 2021 stating that the subscription rights will have no ascertainable market value. We further note that the Internal Revenue Service has not in the past reached a different conclusion with respect to the value of nontransferable subscription rights. If the subscription rights are subsequently found to have value, income may be recognized by various recipients of the subscription rights (in certain cases, whether or not the rights are exercised), and the Holding Company and/or the Stock Bank may be taxed on the distribution of the subscription rights.
CONSENT
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement on Form S-1 (“Registration Statement”) of the Holding Company filed with the Securities and Exchange Commission, as an exhibit to the Form AC, Application for Approval of Conversion as filed with the Office of the Comptroller of the Currency, and as an exhibit to the Application H-(e)1 as filed with the Board of Governors of the Federal Reserve System (the “Filings”). We also hereby consent to the references to this firm in the prospectus which is a part of the Registration Statement and the Filings. In giving such consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended. We further consent to the use of and reliance on this opinion by Castaing, Hussey & Lolan, LLC in issuing its state tax opinion to the Bank and the Holding Company.
Sincerely, | |
/s/ Silver, Freedman, Taff & Tiernan LLP | |
SILVER, FREEDMAN, TAFF & TIERNAN LLP |
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Exhibit 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement (the “Agreement”) is made effective as of August 17, 2020 (the “Effective Date”), by and between St. Landry Homestead Federal Savings Bank (the “Bank”) and Joseph Zanco (“Executive”).
WHEREAS, the Bank wishes to assure itself of the services of Executive for the period provided in this Agreement; and
WHEREAS, in order to induce Executive to accept employment with the Bank and to provide incentive for Executive to achieve the financial and performance objectives of the Bank, the parties desire to enter into this Agreement; and
WHEREAS, the Bank desires to set forth the rights and responsibilities of Executive and the compensation payable to Executive, as modified from time to time.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:
I. | POSITION AND RESPONSIBILITIES. |
During the term of this Agreement, Executive agrees to serve as President and Chief Executive Officer of the Bank (the “Executive Position”), and will perform the duties and will have all powers associated with those positions as set forth in any job description provided to Executive by the Bank, and as may be set forth in the bylaws of the Bank and as directed by the Board of Directors of the Bank (the “Board of Directors”). Executive will devote substantially all of his working time, attention and energies (other than absences due to illness or vacation) to the performance of his duties for the Bank. Executive may engage in other business activities to the extent such activities do not create a conflict of interest or materially interfere with the Executive’s ability to perform his duties. Executive will disclose such other business activities to the Board of Directors on an annual basis, or such time that there is a change in those activities. During the term of this Agreement, Executive also agrees to serve, if elected, as an officer of any subsidiary or affiliate of the Bank and in that capacity will carry out the duties and responsibilities reasonably appropriate to that office.
2. | TERM AND DUTIES. |
(a) Term and Annual Renewal. The initial term of this Agreement and the period of Executive’s employment hereunder shall begin as of the Effective Date and shall continue for three (3) years thereafter, ending on August 17, 2023. The Board of Directors (other than Executive, if applicable) will review the Agreement prior to the expiration of the term for the purpose of determining whether to extend the term of the Agreement for another three years or such other time period as mutually agreed upon by the parties.
(b) Change in Control. Notwithstanding the foregoing, in the event the Bank enters into an agreement to effect a transaction that would be considered a Change in Control as defined under Section 5 of this Agreement, the term of this Agreement shall be extended automatically for two (2) years following the effective date of the Change in Control.
(c) Membership on Other Boards of Directors or Organizations. During the period of his employment hereunder, except for periods of absence occasioned by illness, reasonable vacation periods, and reasonable leaves of absence, Executive will devote all of his business time, attention, skill and efforts to the faithful performance of his duties under this Agreement, including activities and duties related to the Executive Position. Notwithstanding the preceding sentence, subject to the approval of the Board of Directors, Executive may serve as a member of the board of directors of business, community and charitable organizations, provided that in each case the service shall not materially interfere with the performance of his duties under this Agreement, adversely affect the reputation of the Bank or any affiliates of the Bank (as dete1mined by the Board of Directors), or present any conflict of interest.
(d) Continued Employment Following Expiration of Term. Nothing in this Agreement shall mandate or prohibit a continuation of Executive’s employment following the expiration of the term of this Agreement.
3. | COMPENSATION, BENEFITS AND REIMBURSEMENT. |
(a) Base Salary. In consideration of Executive’s performance of the responsibilities and duties set fo1ih in this Agreement, the Bank will provide Executive the compensation specified in this Agreement. The Bank will pay Executive a year one salary of at least $260,000 (“Base Salary”). Upon the completion of the Bank’s Standard Conversion, the Executive’s Base Salary will be increased to $300,000 annually. Base Salary will be payable in accordance with the customary payroll practices of the Bank, beginning on the first regularly scheduled pay day after the Effective Date. After the initial salary plan described above and during the term of this Agreement, Executive’s Base Salary shall be reviewed at least annually by December 31st of each year. The review shall be conducted by the Board of Directors or by a committee designated by the Board of Directors. The designated committee or the Board of Directors may increase Executive’s Base Salary at any time. Any change in Base Salary will become the new “Base Salary” for purposes of this Agreement, beginning on the first regularly scheduled pay day after the date of the change, or such date as set by the Board.
(b) Bonus/Incentive Pay. Executive shall be eligible to participate in any bonus plan or incentive pay arrangement or other similar arrangement of the Bank in which senior management is eligible to participate. Executive shall also be eligible for discretionary bonuses, as determined by the Board of Directors in its discretion. Nothing paid to Executive under any such plan or arrangement will be deemed to be in lieu of the other compensation to which Executive is entitled under this Agreement.
Upon commencement of the Executive’s employment with the Bank, the Bank will pay the Executive a $50,000 signing bonus. The payment will be made during the first payroll processing cycle of the Executive’s employment. If the Executive does not complete one full year of service with the Bank, the Executive shall repay a portion of the signing bonus in proportion to the number of months in year one not served.
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Upon the completion of the Bank’s Standard Conversion, the Bank will pay the Executive a $100,000 conversion bonus. The payment will be made during the first payroll processing cycle after the Standard Conversion is completed.
Upon the establishment of a share-based compensation program, the Bank will offer the Executive the maximum allocation allowed for Standard Conversions (currently 25% of the stock compensation pools).
In addition to life insurance benefits provided to other employees, the Bank will provide the Executive with additional life insurance of $500,000 payable to his spouse or other beneficiary upon the Executive’s death.
The Bank will provide the Executive with a SERP 162 benefit of $750,000 vesting over 15 years in accordance with the vesting schedule provided to the Executive.
The Bank will provide the Executive with an additional year one bonus to supplement the 401(k) match and profit sharing distribution forfeited due to the respective plans’ waiting periods.
The Bank will provide the Executive with a monthly vehicle allowance of $1,500.
The Bank will provide the Executive with a monthly mobile phone allowance of $150.
Upon commencement of employment, the Executive will become a member of the Bank’s Board of Directors.
(c) Benefit Plans. Executive will be entitled to participate in all employee benefit plans, arrangements and perquisites offered to employees and officers of the Bank. Without limiting the generality of the foregoing provisions of this Section 3(c), Executive also will be entitled to participate in any employee benefit plans, including but not limited to retirement plans, profit-sharing plans, health-and-accident plans, or any other employee benefit plan or arrangement made available by the Bank in the future to employees. The Bank shall cover the cost of health insurance premiums for the Executive and his eligible family members.
(d) Vacation. Executive will be entitled to paid vacation time each year during the term of this Agreement measured on a calendar year basis, as well as holidays and other paid absences in accordance with the Bank’s policies and procedures for officers. As it relates to Vacation and Paid Time Off, the Executive will be entitled to the following:
Vacation:
31 days - Prorated for 2020 calendar year based on Hire Date
Paid Time Off: 5 days
Any unused paid time off during an annual period will be treated in accordance with the Bank’s personnel policies, which govern all other employees.
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(e) Expense Reimbursements. The Bank will reimburse Executive for all reasonable travel, entertainment and other reasonable expenses incurred by Executive during the course of performing his obligations under this Agreement, including, without limitation, reimbursement for memberships in such organizations as Executive and the Board of Directors mutually agree are necessary and appropriate in connection with the performance of his duties under this Agreement, upon substantiation of the expenses in accordance with applicable policies and procedures of the Bank. All reimbursements pursuant to this Section 3(e) shall be paid promptly by the Bank and in any event no later than 30 business days following the date on which the expense was incurred.
The Bank will provide the Executive with a gas card to cover fuel expenses for his daily travel and other Bank-related travel.
4. | TERMINATION AND TERMINATION PAY. |
Subject to Section 5 of this Agreement, which governs the occurrence of a Change in Control, Executive’s employment under this Agreement may be terminated in the following circumstances:
(a) Death. Executive’s employment under this Agreement and this Agreement will terminate upon his death during the term of this Agreement, in which event Executive’s estate or beneficiary shall be paid Executive’s Base Salary at the rate in effect at the time of Executive’s death for a period of 12 workweeks beginning the first week after Executive’s death (payable in accordance with the regular payroll practices of the Bank). In addition, for that same period of time following Executive’s death, the Bank will continue to provide medical coverage substantially comparable to the coverage maintained by the Bank for Executive and his family immediately prior to Executive’s death. The continued benefits will be fully paid for by the Bank.
(b) Disability. This Agreement and Executive’s employment under this Agreement shall terminate in the event of Executive’s “Disability,” at the election of the Board of Directors, in its sole discretion. “Disability” shall mean Executive’s permanent and totally physical or mental impairment that restricts Executive from performing all the essential functions of normal employment with or without reasonable accommodation. Executive waives any right to receive any compensation or benefits under this Agreement on account of his Disability or his termination of employment on account of a Disability, except for benefits that have vested and been earned prior to the date of termination, including insurance benefits.
(c) Termination for Cause. The Board of Directors may immediately terminate Executive’s employment and this Agreement at any time for “Cause.” Executive shall have no right to receive any compensation or benefits under this Agreement upon his termination for Cause, except for benefits that have vested and been earned prior to the date of termination. Termination for “Cause” shall mean termination because of, in the good faith dete1mination of the Board of Directors, Executive’s:
(i) material act of dishonesty or fraud in performing Executive’s duties on behalf of the Bank;
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(ii) willful misconduct that causes economic damage to the Bank or injury to the business reputation of the Bank;
(iii) incompetence (in determining incompetence, the acts or omissions shall be measured against standards generally prevailing in the banking industry);
(iv) breach of fiduciary duty involving personal profit;
(v) intentional failure to perfo1m stated duties under this Agreement after written notice thereof from the Board of Directors;
(vi) willful violation of any law, rule or regulation (other than traffic violations or similar offenses which results only in a fine or other non-custodial penalty) that reflect adversely on the reputation of the Bank, any felony conviction, any violation of law involving moral turpitude, or any violation of a final cease-and-desist order; or any violation of the policies and procedures of the Bank as outlined in the Bank’s employee handbook, which would result in termination of the Bank employees, as from time to time amended and incorporated herein by reference;
(vii) material breach by Executive of any provision of this Agreement not cured by Executive within thirty (30) days of the date the Executive received the Notice of Breach, and, in the event Executive does not cure any such condition, the Bank terminates his employment within thirty (30) days after the period for curing the condition has expired. If the Executive remedies the condition within such thirty (30) day cure period, then no Cause shall be deemed to exist with respect to such condition; provided, that the Executive shall not have the opportunity to cure if the breach is not susceptible to being cured or such an opportunity would otherwise conflict with applicable federal or state regulatory requirements; or
(viii) behavior or conduct of activities that causes any legal proceeding, including a lawsuit or a demand for arbitration, to be filed against the Executive or the Bank based on an alleged violation by the Executive of an agreement with a former employer.
(d) Voluntary Termination by Executive. Executive may voluntarily terminate employment and this Agreement during the term of this Agreement upon at least 60 calendar days prior written notice to the Board of Directors, which period may be waived by the Board of Directors, in its sole discretion. Upon Executive’s voluntary termination (other than a termination for “Good Reason,” as provided for in Section 4(e) of this Agreement), Executive waives any right to receive any compensation or benefits under this Agreement, except for benefits that have vested and been earned prior to the date of termination.
(e) Termination Without Cause or With Good Reason.
(i) | The Board of Directors may immediately terminate Executive’s employment and this Agreement at any time for a reason other than Cause (a termination “Without Cause”), and Executive may, by written notice to the Board of Directors, terminate his employment and this Agreement at any time within 60 calendar days following an event constituting “Good Reason,” as defined below (a termination “With Good Reason”); provided, however, that the Bank shall have 30 calendar days to cure the “Good Reason” condition, but the Board of Directors may waive its right to cure. |
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Any termination of Executive’s employment and this Agreement Without Cause or With Good Reason, shall have no effect on or prejudice the earned and accrued rights of Executive under the Bank’s qualified or non-qualified retirement, savings, thrift, profit-sharing or bonus plans, group life, health (including hospitalization, medical and major medical), accident and long term disability insurance plans or other employee benefit plans or programs, or compensation plans or programs in which Executive was a participant.
(ii) | In the event of termination as described under Section 4(e)(i) and subject to the requirements of Section 4(e)(v), the Bank shall pay Executive, or in the event of Executive’s subsequent death, Executive’s beneficiary or estate, as the case may be, as severance pay, a cash lump sum payment equal to the amount of Base Salary that would have been earned by Executive had he remained employed with the Bank for 12 months. The payment shall be made to Executive within 60 calendar days following Executive’s date of termination and will be subject to applicable withholding taxes. |
(iii) | In addition, if the Executive chooses to continue health insurance coverage pursuant to COBRA, the Bank will pay one hundred percent (100%) of the premiums for his group health insurance for a period expiring on the earlier of (i) 12 months from the date of termination or (ii) the date on which he receives substantially comparable coverage and benefits under the health insurance plan of a subsequent employer. If Executive elects continuing coverage pursuant to COBRA beyond 12 months from the date of termination, the Executive will be responsible for paying the premiums and any other costs associated with this coverage. The period of continued health coverage required by Section 4980B(f) of the Internal Revenue Code of 1986, as amended (the “Code”), shall run concurrently with the coverage period provided herein. |
(iv) | “Good Reason” exists if, without Executive’s express written consent, any of the following occur: |
(A) | a material reduction in Executive’s Base Salary (a material reduction being one of 10% or more) provided in this Agreement (other than a reduction as part of a good faith, overall reduction generally applicable to all senior officers of the Bank); |
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(B) | a material reduction in Executive’s authority, duties or responsibilities from the position and attributes associated with the Executive Position; or |
(C) | a material breach of this Agreement by the Bank. |
(v) | Notwithstanding the foregoing, Executive shall not be entitled to any payments or benefits under this Section 4(e) unless and until Executive executes a release of his claims against the Bank and any affiliate of the Bank, and their officers, directors, successors and assigns, releasing them from any and all claims, rights, demands, causes of action, suits, arbitrations or grievances relating to the employment relationship, including claims under the Age Discrimination in Employment Act (“ADEA”), but not including claims for benefits under tax-qualified plans or other benefit plans in which Executive has earned said benefits, claims for benefits required by applicable law or claims with respect to obligations set forth in this Agreement that survive the termination of this Agreement. In order to comply with the requirements of Code Section 409A and the ADEA, the release shall be provided to Executive no later than seven (7) calendar days from his Separation from Service (as defined in Section 13(c) of this Agreement) and Executive shall have no fewer than 21 calendar days to consider the release, and following Executive’s execution of the release, Executive shall have seven (7) calendar days to revoke said release. |
(f) Effect on Status as a Director. In the event of Executive’s termination of employment under this Agreement and this Agreement for any reason, the termination shall also constitute Executive’s resignation from the Board of Directors, as well as the board of directors of any affiliates of the Bank, to the extent the Executive is then serving in such capacity.
5. | CHANGE IN CONTROL. |
(a) Change in Control Defined. For purposes of this Agreement, the term “Change in Control” shall mean the occurrence of any of the following events:
(i) | Merger: The Bank or any holding company of the Bank merges into or consolidates with another entity whereby the Barile or the holding company is not the surviving entity, or the Bank or the holding company merges another bank or corporation into the Bank or the holding company, and as a result, less than a majority of the combined voting power of the resulting corporation immediately after the merger or consolidation is held by persons who were stockholders of the holding company or the Bank immediately before the merger or consolidation; |
(ii) | Acquisition of Significant Share Ownership: There is filed, or is required to be filed, a report on Schedule 13D or another form or schedule (other than Schedule 13G) required under Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended, if the schedule discloses that the filing person or persons acting in concert has or have become the beneficial owner of 25% or more of a class of the holding company’s or the Bank’s voting securities; provided, however, this clause (ii) shall not apply to beneficial ownership of the holding company’s or the Bank’s voting shares held in a fiduciary capacity by an entity of which the holding company directly or indirectly beneficially owns 50% or more of its outstanding voting securities; |
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(iii) | Sale of Assets: The holding company or the Bank sells to a third party all or substantially all of its assets. |
Notwithstanding anything herein to the contrary, a Change in Control shall not be deemed to have occurred following a reorganization of the Bank as the wholly-owned subsidiary of a holding company in a standard conversion or a mutual holding company reorganization or a subsequent reorganization of the Bank, its stock holding company or a mutual holding company solely within their corporate structure or upon a second-step conversion.
(b) Change in Control Benefits. Upon the occurrence of the termination of Executive’s employment and this Agreement Without Cause or With Good Reason on the Effective Date of the Change in Control, or within 30 calendar days after a Change in Control, the Bank (or any successor) shall pay Executive, or in the event of Executive’s subsequent death, Executive’s beneficiary or estate, as severance pay an amount equal to 36 months the greater of the Base Salary at the time of the Change in Control or the date of termination. The payment will be made in a lump sum within 60 calendar days following Executive’s date of termination and will be subject to applicable withholding taxes. In addition, if the Executive chooses to continue health insurance coverage pursuant to COBRA, the Bank will pay one hundred percent (100%) of the premiums for his group health insurance for a period expiring on the earlier of (i) 36 months from the date of termination or (ii) the date on which he receives substantially comparable coverage and benefits under the health insurance plan of a subsequent employer. If Executive elects continuing coverage pursuant to COBRA beyond 36 months from the date of termination, the Executive will be responsible for paying the premiums and any other costs associated with this coverage. The period of continued health coverage required by Section 4980B(f) of the Code shall not run concurrently with the coverage period provided herein. Notwithstanding the foregoing, the payments and benefits provided in this Section 5(b) shall be payable to Executive in lieu of any payments or benefits that are payable under Section 4(e) of this Agreement.
6. | COVENANTS OF EXECUTIVE. |
(a) Non-Solicitation/Non-Compete. Executive hereby covenants and agrees that, during the Executive’s employment with the Bank, and for a period of one (I) year following his termination of employment with the Bank (other than a termination of employment following a Change in Control), Executive shall not, without the written consent of the Bank, either directly or indirectly:
(i) | solicit, offer employment to, or take any other action intended (or that a reasonable person acting in like circumstances would expect) to have the effect of causing any officer or employee of the Bank, or any of its respective subsidiaries or affiliates, to terminate his or her employment and accept employment or become affiliated with, or provide services for compensation in any capacity whatsoever to, any business whatsoever that competes with the business of the Bank, or any of their direct or indirect subsidiaries or affiliates, that has headquarters or offices within St. Landry Parish, Lafayette Parish, Evangeline Parish, Acadia Parish, Avoyelles Parish, and Pointe Coupee Parish (the “Restricted Territory”); |
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(ii) | become an officer, employee, consultant, director, independent contractor, agent, joint venturer, partner or trustee of any savings bank, savings and loan association, savings and loan holding company, credit union, bank or bank holding company, insurance company or agency, any mortgage or loan broker_ or any other entity that competes with the business of the Bank or any of their direct or indirect subsidiaries or affiliates, that: (A) has a headquarters within the Restricted Territory, or (B) has one or more offices, but is not headquartered, within the Restricted Territory, but in the latter case, only if Executive would be employed, conduct business or have other responsibilities or duties within the Restricted Territory; or |
(iii) | solicit, provide any information, advice or recommendation or take at1y other action intended (or that a reasonable person acting in like cirGt1mstances would expect) to have the effect of causing any customer of the Bartle to terminate an existing business or commercial relationship with the Bank. |
(b) Confidentiality. Executive recognizes and acknowledges that knowledge of Confidential Information of the Bartle, as it may exist from time to time, are valuable, special and unique assets of the business of the Bank, and that during the course of Executive’s employment, Executive will have access to such confidential information. Executive will not, during or after the term of Executive’s employment, (i) use the Confidential Information for any purpose whatsoever other than the performance of services on behalf of the Bank or (ii) disclose the Confidential Information to any third party, including, but expressly not limited to, any future employers. Executive agrees to take all reasonable precautions to prevent any unauthorized disclosure of such Confidential Information. Executive also agrees that all Confidential Information, including at1y Confidential Information created by Executive during his employment with the Bank, will remain the sole property of the Bank. Executive agrees that customer and prospective customer lists, databases and contact information, as well as customer account or financial information and data as to their needs and preferences, which Executive creates or to which Executive has access during his employment with the Bank, are Confidential Information and the property of the Bank. Executive further agrees that if his employment with the Bank ends, he will have no right to retain or use such property after the end of his employment, and he further agrees that he will either delete or destroy or return to the Bank all such information and data in his possession or which is contained on computers or other electronic media in his possession or to which he has access. Notwithstanding the foregoing, Executive may disclose any knowledge of banking, financial and/or economic principles, concepts or ideas which are not solely and exclusively derived from the business plans and activities of the Bank. Further, Executive may disclose information regarding the business activities of the Bank to any bank regulator having regulatory jurisdiction over the activities of the Bartle pursuant to a formal regulatory request. In the event of a breach or threatened breach by Executive of the provisions of this Section, the Bank will be entitled to an injunction restraining Executive from disclosing, in whole or in part, the knowledge of the past, present, planned or considered business activities of the Bank or any other similar proprietary information, or from rendering any services to any person, firm, corporation, or other entity to whom such knowledge, in whole or in part, has been disclosed or is threatened to be disclosed. Nothing herein will be construed as prohibiting the Bank from pursuing any other remedies available to the Bank for such breach or threatened breach, including the recovery of damages from Executive. “Confidential Information” means any non-public information that relates to the actual or anticipated business or affairs of the Bank, including but not limited to business plans, business acquisitions, processes, product or service research and development methods or techniques, training methods and other operational methods or techniques, quality assurance procedures or standards, operating procedures, files, plans, manuals, specifications, proposals, drawings, charts, graphs, support data, trade secrets, supplier lists, supplier information, purchasing methods or practices, distribution and selling activities, consultants’ reports, marketing and engineering or other technical studies, maintenance records, marketing data, strategies or techniques, financial reports, budgets, projections, cost analyses, price lists, formulae and analyses, customer records, customer lists, customer source lists, rate sheets, applications for policies, proprietary computer software, or any information related to the Bank and/or its affiliates’ business, and internal notes and memoranda relating to any of the foregoing.
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Confidential Information does not include information that (i) was known to Executive at the time of disclosure to him by the Barile as evidenced by his written records, (ii) has become publicly known and made generally available through no wrongful act by him, (iii) has been rightfully received by him from a third party who is authorized to make such disclosure.
(c) Information/Cooperation. Executive shall, upon reasonable notice, furnish such information and assistance to the Bank as may be reasonably required by the Barile, in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party; provided, however, that Executive shall not be required to provide information or assistance with respect to any litigation between Executive and the Bank or any other subsidiaries or affiliates.
(d) Reliance. Except as otherwise provided and to the extent applicable, all payments and benefits to be provided to Executive under this Agreement shall be subject to Executive’s compliance with this Section 6. The parties hereto, recognizing that irreparable injury will result to the Bank, its business and property in the event of Executive’s breach of this Section 6, agree that, in the event of any such breach by Executive, the Bank will be entitled, in addition to any other remedies and damages available, to an injunction to restrain the violation hereof by Executive and all persons acting for or with Executive without the necessity of the Bank providing irreparable injury, as provided by La. R. S. 23:921 (H). Executive represents and admits that Executive’s experience and capabilities are such that Executive can obtain employment in a business engaged in other lines of business than the Bank, and that the enforcement of a remedy by way of injunction will not prevent Executive from earning a livelihood. Nothing herein will be construed as prohibiting the Bank from pursuing any other remedies available to them for such breach or threatened breach, including the recovery of damages from Executive.
7. | COVENANTS OF THE BOARD OF DIRECTORS |
The Board of Directors hereby covenants and agrees:
(i) | It will immediately pursue and support the Executive’s efforts to complete a Standard Conversion. |
(ii) | If unable or unwilling to complete a Standard Conversion, it will establish a mechanism agreeable to the Executive to bring the Executive’s W-2 compensation to at least $400,000 annually in year two and beyond. |
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(iii) | Upon the establishment of a holding company, it will appoint the Executive to the holding company Board or Directors and the Executive will also serve as the President and Chief Executive Officer of the holding company. |
8. | HOLD HARMLESS. |
Executive asserts that by becoming employed by the Bank and by performing his duties for the Bank in the Executive Position, Executive will not be in violation of his agreement with. his former employer. Executive agrees that should he be accused of or found to be in violation of his agreement with his former employer, Executive agrees to hold the Bank harmless for said violations, and any litigation that arises as a result of Executive’s agreement with his former employer. Executive further agrees that the Bank will not provide for the costs of any defense or other costs owed by Executive caused by Executive’s agreement with his former employer.
9. | NON-DISPARAGEMENT. |
Executive further agrees that after he leaves the employ of the Bank that he will not make, or cause or assist any other person to make any statement or other communication to any third party which impugns or attacks, or is otherwise critical of, the reputation, business or character of the Bank or any of its affiliates, or at1y of its respective directors, officers, representatives, agents or employees. The Bank agrees, in turn, that its executives and supervisory personnel will not make any authorized corporate communication to third parties which impugns or attacks Executive’s reputation.
10. | SOURCE OF PAYMENTS. |
All payments provided in this Agreement shall be timely paid by check or direct deposit from the general funds of the Bank (or any successor of the Bank).
11. | EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS AND REPRESENTATIONS. |
(a) This Agreement contains the entire understanding between the parties hereto and supersedes any prior employment or similar agreement between the Bat1k or any predecessor of the Bank and Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to Executive of a kind expressly provided elsewhere.
(b) By executing this Agreement, Executive represents and warrants to the Bank that to the best of his knowledge he has complied and will continue to comply with any and all covenants, agreements or contracts entered into with any past employer.
12. | NO ATTACHMENT; BINDING ON SUCCESSORS. |
(a) Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void, and of no effect.
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(b) The Bank shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Bank, expressly and unconditionally to assume and agree to perform the Bank’s obligations under this Agreement, in the same maimer and to the same extent that the Bank would be required to perform if no such succession or assignment had taken place.
13. | MODIFICATION AND WAIVER. |
(a) This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future as to any act other than that specifically waived.
14. | REQUIRED PROVISIONS. |
Notwithstanding anything herein contained to the contrary, the following provisions shall apply:
(a) The Board of Directors may terminate Executive’s employment and this Agreement at any time, but any termination by the Board of Directors, other than a termination for Cause, shall not prejudice Executive’s right to compensation or other benefits under this Agreement. Executive shall have no right to receive compensation or other benefits under this Agreement for any period after Executive’s termination of employment for Cause.
(b) Notwithstanding anything herein contained to the contra1y, any payments to Executive by the Bank or the Company, whether pursuant to this Agreement or otherwise, are subject to and conditioned upon their compliance with Section 1S(k) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1828(k), and the regulations promulgated thereunder in 12 C.F.R. Part 359.
(c) Notwithstanding anything else in this Agreement to the contrary (with the exception of Section 4(c)(i)), Executive’s employment shall not be deemed to have been terminated unless and until Executive has a Separation from Service within the meaning of Code Section 409A. For purposes of this Agreement, a “Separation from Service” shall have occurred if the Bank and Executive reasonably anticipate that either no fti11her services will be performed by Executive after the date of termination (whether as an employee or as an independent contractor) or the level of farther services performed is less than 50 percent of the average level of bona fide services in the 36 months immediately preceding the termination. For all purposes hereunder, the definition of Separation from Service shall be interpreted consistent with Treasury Regulation Section l .409A- 1(h)(ii). Notwithstanding the foregoing, this Section 13(c) shall not apply in the event of the Executive-’s termination for Cause.
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(d) Notwithstanding the foregoing, if Executive is a “specified employee” (i.e., a “key employee” of a publicly-traded company within the meaning of Section 409A of the Code and the final regulations issued thereunder) and any payment under this Agreement is triggered due to Executive’s Separation from Service, then solely to the extent necessary to avoid penalties under Section 409A of the Code, no payment shall be made during the first six (6) months following Executive’s Separation from Service. Rather, any payment which would otherwise be paid to Executive during that period will be accumulated and paid to Executive in a lump sum on the first day of the seventh month following the Separation from Service. All subsequent payments will be paid in the manner specified in this Agreement.
(e) If the Bank cannot provide Executive or Executive’s dependents any continued health insurance or other welfare benefits as required by this Agreement because Executive is no longer an employee, applicable rules and regulations prohibit such benefits or the payment of such benefits in the manner contemplated, or it would subject the Bank to penalties, then the Bank shall pay Executive or Executive’s beneficiary or estate in the event of death a cash lump sum payment reasonably estimated to be equal to the value of such benefits or the value of the remaining benefits at the time of such determination. The cash payment will be made in a lump sum within 60 calendar days after the later of Executive’s date of termination or the effective date of the rules or regulations prohibiting the provision of such benefits or subjecting the Bank to penalties.
(f) To the extent not specifically provided in this Agreement, any compensation or reimbursements payable to Executive shall be paid or provided no later than two and one-half (2.5) months after the calendar year in which such compensation is no longer subject to a substantial risk of forfeiture within the meaning of Treasury Regulation Section 1.409A-l(d).
15. | SEVERABILITY. |
If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity shall not affect any other provision of this Agreement or any part of such provision not held so invalid, and each other provision and part thereof shall to the full extent consistent with law continue in full force and effect.
16. | GOVERNING LAW. |
This Agreement shall be governed by the laws of the State of Louisiana but only to the extent not superseded by federal law.
17. | ARBITRATION. |
Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by binding arbitration, as an alternative to civil litigation and without any trial by jury to resolve such claims, conducted by a single arbitrator mutually acceptable to the Bank and Executive, sitting in a location selected by the Bank within 25 miles from the main office of the Bank, in accordance with the rules of the American Arbitration Association’s National Rules for the Resolution of Employment Disputes then in effect. Judgment may be entered on the arbitrator’s award in any court having jurisdiction.
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18. | PAYMENT OF LEGAL FEES. |
To the extent that such payment(s) may be made without triggering penalty under Code Section 409A, all reasonable legal fees paid or incurred by Executive pursuant to any dispute relating to this Agreement shall be paid or reimbursed by the Bank provided that the dispute is resolved in Executive’s favor, and the reimbursement shall occur no later than 60 calendar days after the end of the year in which the dispute is settled or resolved in Executive’s favor.
19. | INDEMNIFICATION. |
The Bank shall provide Executive (including Executive’s heirs, executors and administrators) with coverage under a standard directors’ and officers’ liability insurance policy at its expense, and shall indemnify Executive (and Executive’s heirs, executors and administrators) for the term of the Agreement and for a period of six (6) years thereafter to the fullest extent permitted under applicable law against all expenses and liabilities reasonably incurred by Executive in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of Executive having been a director or officer of the Bank or any subsidiary or affiliate of the Bank (whether or not he continues to be a director or officer at the time of incurring such expenses or liabilities), such expenses and liabilities to include, but not be limited to, judgments, court costs and attorneys’ fees and the cost of reasonable settlements (such settlements must be approved by the Board of Directors, as appropriate); provided, however, the Bank shall not be required to indemnify or reimburse Executive for legal expenses or liabilities incurred in connection with an action, suit or proceeding arising from any illegal or fraudulent act committed by Executive or for any legal proceeding described in Section 4(c)(viii) and Section 8 of this Agreement.
20. | NOTICE. |
For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below:
To the Bank | St. Landry Homestead Federal Savings Bank |
235 N Court Street
Opelousas, LA 70570
Attention: Chairman of the Board of Directors
To Executive: | Most recent address on file with the Bank. |
[Signature page follows]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
ST. LANDRY HOMESTEAD FEDERAL SAVINGS BANK | ||
By: | /s/ Todd Kidder | |
Name: | Todd Kidder | |
Title: | Board Chairman | |
EXECUTIVE | ||
/s/Joseph Zanco | ||
Joseph Zanco | ||
WITNESSES: | ||
/s/Ted Bellard | ||
Ted Bellard | ||
Printed Name | ||
/s/Matthew L. Scruggins | ||
Matthew L. Scruggins | ||
Printed Name |
15
Exhibit 10.2
Restricted Executive Benefit Agreement
This Restricted Executive Benefit Agreement (the “Agreement”) is entered into this 22nd day of October, 2020, by and between ST. LANDRY HOMESTEAD FEDERAL SAVINGS BANK, (hereinafter “Employer”) and JOSEPH ZANCO (hereinafter “Employee”).
WHEREAS, Employer wishes to reward Employee for past service and provide additional incentives to encourage Employee to continue employment with Employer; and
WHEREAS, Employer wishes to reward Employee with additional compensation in the form of premium payments on a life insurance contract owned by the Employee.
Now, therefore, in consideration of the mutual promises and covenants made herein, Employer and Employee agree to the following:
1. | Premium Payment. In addition to Employee’s regular salary, bonus, and fringe benefits, Employer agrees to pay an annual amount equal to $25,600.00 (the “Bonus”) in the form of a premium payment on a life insurance policy (“the Policy”) insuring the life of Employee. Such annual Bonus shall be paid as long as this Agreement has not otherwise been terminated. Employee acknowledges he or she must recognize the Bonus as ordinary income in the year paid. Employer agrees to pay an additional cash bonus (the “Gross-up”) to the Employee equal to withholding calculated through payroll processing that results in a net check of $0. Employee acknowledges that the Gross-up may not be sufficient to cover all of the income taxes due as a result of this Agreement. |
a. | Certain Post-Termination Payments. If the Employee’s employment with Employer is terminated due to Disability or involuntarily by the Employer, the Employer shall continue to pay Bonuses and Gross-ups until the earlier of the Employee’s death or attainment of age 65. |
i. | “Disability” for this Agreement means the Executive has been deemed disabled either by the Social Security Administration or the provider of an Employer-sponsored disability program. |
2. | Life Insurance Policy. The Policy shall be purchased and owned by Employee. The Policy shall be solely for the benefit of Employee or his or her designated beneficiaries. Employee shall have the right to name the beneficiary of the Policy and to change the named beneficiary of the Policy at any time. |
3. | Restriction on Cash Surrender Value. Employee shall cause to be filed with the Policy’s issuer a restrictive endorsement (the “Endorsement”). The Endorsement shall limit the Employee’s access to cash value (whether by policy loan or withdrawal or surrender), as follows: |
Vesting Date | Cash Value Available to/ Vested in Executive |
Prior to 12/31/2024 | 0% |
12/31/2024 | 25.0% |
12/31/2025 | 32.5% |
12/31/2026 | 40.0% |
12/31/2027 | 47.5% |
12/31/2028 | 55.0% |
12/31/2029 | 62.5% |
12/31/2030 | 70.0% |
12/31/2031 | 77.5% |
12/31/2032 | 85.0% |
12/31/2033 | 92.5% |
3/9/2034 and later | 100.0% |
Exhibit 10.2
Notwithstanding anything in the schedule above to the contrary, the Endorsement shall automatically terminate and the Employee shall be fully vested at the earlier of (i) the Employee’s death or Disability, (ii) the Employee’s voluntary termination for Good Reason, (iii) the Employee’s attainment of age 65, (iv) the Employer’s bankruptcy or dissolution; or (v) the Employee’s involuntary termination of employment by the Employer. Employer shall cooperate with an insurer to cause the release of any restrictions, restrictive rights or other instructions it may have on the Policy within thirty (30) days after such automatic termination of the Endorsement.
4. | Unvested Cash Surrender Value. If the Employee voluntarily terminates employment without Good Reason, the Employee shall owe to the Employer the unvested portion of the cash surrender value of the Policy. Such amount shall be repaid to the Employer within 30 days of termination of employment. Upon repayment the Endorsement shall terminate and Employer shall cooperate with an insurer to cause the release of any restrictions, restrictive rights or other instructions it may have on the Policy within thirty (30) days after such termination of the Endorsement. |
a. | “Good Reason” for purposes of this Agreement means voluntary termination of employment during the one-year period following the initial existence of one of the following conditions arising without the consent of the Employee: (i) A material diminution in the Employee’s base cash salary, (ii) a material diminution in the Employee’s authority, duties, or responsibilities, or (iii) a material change in the geographic location at which the Employee must perform the services. |
5. | Termination of Agreement. This Agreement will terminate, and the Employer will have no further obligations to pay Bonuses or Gross-ups, upon the earliest of any of the following events occurs: |
A. | The bankruptcy or dissolution of the Employer; |
B. | Death of the Employee; |
C. | The Employee’s voluntary termination of employment before age 65; or |
D. | The Employee’s termination by the Employer for Cause. Cause means any of the following that results in a material adverse effect on the Employer: (i) the violation of any law, rule or regulation (other than a minor traffic violation or similar violation); (ii) the violation of any Employer rule or policy; (iii) gross negligence in the performance of duties; (iv) intentional failure to perform duties; (v) a breach of fiduciary duty, or (vi) the written order for removal of the Employee by an appropriate regulatory authority. |
6. | Termination of the Agreement under paragraph 4 does not terminate the Endorsement on the Policy. The Endorsement terminates only in accordance with paragraph 3. |
7. | Miscellaneous. This Agreement is not employment agreement. It shall be subject to the laws of the State of Louisiana. It is not intended to be nonqualified deferred compensation under Internal Revenue Code Sections 409A or 457. This Agreement shall bind the successors and assigns of the parties. |
***
Exhibit 10.2
In witness hereof, the parties hereby enter in this Agreement.
ST. LANDRY HOMESTEAD FEDERAL SAVINGS BANK | JOSEPH ZANCO | ||||
By: | /s/Jutta Codori | /s/ Joseph Zanco |
Title: | SVP/CFO |
Date: | 10/22/2020 | Date: | 10/22/2020 |
Exhibit 10.3
St. Landry Homestead Federal Savings Bank
Supplemental Life Insurance Agreement
St. Landry Homestead Federal Savings Bank
Supplemental Life Insurance Agreement
This Supplemental Life Insurance Agreement (this “Agreement”) is adopted this November 18, 2020, by and between ST. LANDRY HOMESTEAD FEDERAL SAVING BANK, located in Opelousas, Louisiana (the “Company”), and JOSEPH ZANCO (the “Executive”).
The purpose of this Agreement is to retain and reward the Executive, by dividing the death proceeds of certain life insurance policies which are owned by the Company on the life of the Executive with the designated beneficiary of the Executive. The Company will pay the life insurance premiums from its general assets.
ARTICLE 1
DEFINITIONS
Whenever used in this Agreement, the following terms shall have the meanings specified:
1.1 | “Beneficiary” means each designated person, or the estate of the deceased Executive, entitled to benefits, if any, upon the death of the Executive. |
1.2 | “Beneficiary Designation Form” means the form established from time to time by the Plan Administrator that the Executive completes, signs and returns to the Plan Administrator to designate one or more Beneficiaries. |
1.3 | “Board” means the Board of Directors of the Company as from time to time constituted. |
1.4 | “Company’s Interest” means the benefit set forth in Section 3.2. |
1.5 | “Executive’s Interest” means the benefit set forth in Section 3.1. |
1.6 | “Effective Date” means November 18, 2020. |
1.7 | “Insured” means the Executive. |
1.8 | “Insurer” means the insurance company issuing the life insurance policy on the life of the Insured. |
1.9 | “Net Death Proceeds” means the total death proceeds of the Policy minus the cash surrender value. |
1.10 | “Policy” means the individual insurance policy or policies adopted by the Company for purposes of insuring the Executive’s life under this Agreement. |
1.11 | “Termination of Employment” means the termination of Executive’s service for any reason, voluntarily or involuntarily. |
St. Landry Homestead Federal Savings Bank
Supplemental Life Insurance Agreement
ARTICLE 2
PARTICIPATION
2.1 | Termination of Participation. The Executive’s rights under the Agreement shall automatically cease and his or her participation in this Agreement shall automatically terminate upon (i) his Termination of Employment prior to age sixty-five (65) or (ii) the Executive’s age seventy-five (75) provided that the Executive remains in the continuous employ of the Company until age sixty-five (65). If the Company decides to maintain the Policy after the Executive’s termination of participation in the Agreement, the Company shall be the direct beneficiary of the entire death proceeds of the Policy. |
ARTICLE 3
POLICY OWNERSHIP/INTERESTS
3.1 | Executive’s Interest. The Executive, or the Executive’s assignee, shall have the right to designate the Beneficiary of an amount of death proceeds equal to FIVE HUNDRED THOUSAND DOLLARS ($500,000), not to exceed the Net Death Proceeds and subject to: |
(a) | Forfeiture of Executive’s rights upon termination of Participation as set forth in Section 2.1; and |
(b) | Termination of the Agreement and the corresponding forfeiture of rights in accordance with Article 9 hereof. |
3.2 | Company’s Interest. The Company shall own the Policy and shall have the right to exercise all incidents of ownership. The Company shall be the beneficiary of the remaining death proceeds of the Policy after the Executive’s Interest is determined according to Section 3.1. |
ARTICLE 4
PREMIUMS
4.1 | Premium Payment. The Company shall pay all premiums due on all Policies. |
4.2 | Economic Benefit. The Company shall determine the economic benefit attributable to the Executive based on the life insurance premium factor for the Executive’s age multiplied by the aggregate death benefit payable to the Executive’s beneficiary. The “life insurance premium factor” is the minimum factor applicable under guidance published pursuant to IRS Reg. § 1.61-22(d)(3)(ii) or any subsequent authority. |
4.3 | Imputed Income. The Company shall impute the economic benefit to the Executive on an annual basis, by adding the economic benefit to the Executive’s W-2, or if applicable, Form 1099. |
ARTICLE 5
BENEFICIARIES
5.1 | Beneficiary. The Executive shall have the right, at any time, to designate a Beneficiary(ies) to receive any benefits payable under the Agreement to a beneficiary upon the death of the Executive. The Beneficiary designated under this Agreement may be the same as or different from the Beneficiary designation under any other agreement or plan of the Company in which the Executive participates. |
5.2 | Beneficiary Designation; Change. The Executive shall designate a Beneficiary by completing and signing the Beneficiary Designation Form, and delivering it to the Company or its designated agent. The Executive’s beneficiary designation shall be deemed automatically revoked if the Beneficiary predeceases the Executive or if the Executive names a spouse as Beneficiary and the marriage is subsequently dissolved. The Executive shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Company’s rules and procedures, as in effect from time to time. Upon the acceptance by the Company of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be cancelled. The Company shall be entitled to rely on the last Beneficiary Designation Form filed by the Executive and accepted by the Company prior to the Executive’s death. |
St. Landry Homestead Federal Savings Bank
Supplemental Life Insurance Agreement
5.3 | Acknowledgement. No designation or change in designation of a Beneficiary shall be effective until received, accepted and acknowledged in writing by the Company or its designated agent. |
5.4 | No Beneficiary Designation. If the Executive dies without a valid designation of beneficiary, or if all designated Beneficiaries predecease the Executive, then the Executive’s surviving spouse shall be the designated Beneficiary. If the Executive has no surviving spouse, the benefits shall be made payable to the personal representative of the Executive’s estate. |
5.5 | Facility of Payment. If the Company determines in its discretion that a benefit is to be paid to a minor, to a person declared incompetent, or to a person incapable of handling the disposition of that person’s property, the Company may direct payment of such benefit to the guardian, legal representative or person having the care or custody of such minor, incompetent person or incapable person. The Company may require proof of incompetence, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Executive and the Executive’s Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Agreement for such payment amount. |
ARTICLE 6
ASSIGNMENT
The Executive may irrevocably assign without consideration all or part of the Executive’s Interest in this Agreement to any person, entity or trust. In the event the Executive shall transfer all or part of the Executive’s Interest, then all or part of the Executive’s Interest in this Agreement shall be vested in the Executive’s transferee, who shall be substituted as a party hereunder, and the Executive shall have no further interest in this Agreement.
ARTICLE 7
INSURER
The Insurer shall be bound only by the terms of its given Policy. The Insurer shall not be bound by or deemed to have notice of the provisions of this Agreement. The Insurer shall have the right to rely on the Company’s representations with regard to any definitions, interpretations or Policy interests as specified under this Agreement.
ARTICLE 8
CLAIMS AND REVIEW PROCEDURE
8.1 | Claims Procedure. The Executive or Beneficiary (“claimant”) who has not received benefits under the Agreement that he or she believes should be paid shall make a claim for such benefits as follows: |
8.1.1 | Initiation – Written Claim. The claimant initiates a claim by submitting to the Company a written claim for the benefits. |
St. Landry Homestead Federal Savings Bank
Supplemental Life Insurance Agreement
8.1.2 | Timing of Company Response. The Company shall respond to such claimant within 90 days after receiving the claim. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 90 days by notifying the claimant in writing, prior to the end of the initial 90-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision. |
8.1.3 | Notice of Decision. If the Company denies part or all of the claim, the Company shall notify the claimant in writing of such denial. The Company shall write the notification in manner calculated to be understood by the claimant. The notification shall set forth: |
(a) | The specific reasons for the denial; |
(b) | A reference to the specific provisions of the Agreement on which the denial is based; |
(c) | A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed; |
(d) | An explanation of the Agreement’s review procedures and the time limits applicable to such procedures; and |
(e) | A statement of the claimant’s right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review. |
8.2 | Review Procedure. If the Company denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Company of the denial, as follows: |
8.2.1 | Initiation – Written Request. To initiate the review, the claimant, within 60 days after receiving the Company’s notice of denial, must file with the Company a written request for review. |
8.2.2 | Additional Submissions – Information Access. The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Company shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits. |
8.2.3 | Considerations on Review. In considering the review, the Company shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. |
8.2.4 | Timing of Company’s Response. The Company shall respond in writing to such claimant within 60 days after receiving the request for review. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 60 days by notifying the claimant in writing, prior to the end of the initial 60-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision. |
8.2.5 | Notice of Decision. The Company shall notify the claimant in writing of its decision on review. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth: |
St. Landry Homestead Federal Savings Bank
Supplemental Life Insurance Agreement
(a) | The specific reasons for the denial; |
(b) | A reference to the specific provisions of the Agreement on which the denial is based; |
(c) | A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits; and |
(d) | A statement of the claimant’s right to bring a civil action under ERISA Section 502(a). |
ARTICLE 9
AMENDMENTS AND TERMINATION
This Agreement may only be amended or terminated by mutual consent of the Company and the Executive. Provided, however, the Company in its sole discretion may surrender the Policy at any time, and upon any such surrender the Agreement shall automatically terminate.
ARTICLE 10
ADMINISTRATION
10.1 | Company Duties. This Agreement shall be administered by the Company which shall consist of the Board, or such committee or persons as the Board may choose (the “Plan Administrator”). The Company shall also have the discretion and authority to (i) make, amend, interpret and enforce all appropriate rules and regulations for the administration of this Agreement and (ii) decide or resolve any and all questions including interpretations of this Agreement, as may arise in connection with this Agreement. |
10.2 | Agents. In the administration of this Agreement, the Company may employ agents and delegate to them such administrative duties as it sees fit, (including acting through a duly appointed representative), and may from time to time consult with counsel who may counsel to the Company. |
10.3 | Binding Effect of Decisions. The decision or action of the Company with respect to any question arising out of or in connection with the administration, interpretation and application of this Agreement and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in this Agreement. |
10.4 | Indemnity of Company. The Company shall indemnify and hold harmless the members of the Company against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Agreement, except in the case of willful misconduct by the Company or any of its members. |
ARTICLE 11
MISCELLANEOUS
11.1 | Binding Effect. This Agreement shall bind the Executive and the Company, their beneficiaries, survivors, executors, administrators and transferees and any Beneficiary. |
11.2 | No Guarantee of Employment. This Agreement is not an employment policy or contract. It does not give the Executive the right to remain an Executive of the Company, nor does it interfere with the Company’s right to discharge the Executive. It also does not require the Executive to remain an Executive nor interfere with the Executive’s right to terminate employment at any time. |
St. Landry Homestead Federal Savings Bank
Supplemental Life Insurance Agreement
11.3 | Applicable Law. The Agreement and all rights hereunder shall be governed by and construed according to the laws of the State of Louisiana, except to the extent preempted by the laws of the United States of America. |
11.4 | Reorganization. The Company shall not merge or consolidate into or with another company, or reorganize, or sell substantially all of its assets to another company, firm or person unless such succeeding or continuing company, firm or person agrees to assume and discharge the obligations of the Company under this Agreement. Upon the occurrence of such event, the term “Company” as used in this Agreement shall be deemed to refer to the successor or survivor company. |
11.5 | Notice. Any notice or filing required or permitted to be given to the Company under this Agreement shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the legal address of the Company. |
Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or the receipt for registration or certification.
Any notice or filing required or permitted to be given to the Executive under this Agreement shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Executive.
11.6 | Entire Agreement. This Agreement, along with the Executive’s Beneficiary Designation Form constitute the entire agreement between the Company and the Executive as to the subject matter hereof. No rights are granted to the Executive under this Agreement other than those specifically set forth herein. |
***
IN WITNESS WHEREOF, the Executive and a duly authorized representative of the Company have executed this Agreement as of the date indicated above.
EXECUTIVE: | ST. LANDRY HOMESTEAD | ||
FEDERAL SAVINGS BANK: | |||
/s/ Joseph Zanco | By | /s/ Jutta Codori | |
Signature | |||
JOSEPH ZANCO | Title |
|
||||
2000 Kaliste Saloom Road, Suite 300 | P | 337-232-3312 | b SF CPAS.C OM | |
Lafayette, LA 70508 | F | 337-237-3614 | ||
OTHER LOCATIONS: | ||||
Eunice Morgan City Abbeville |
Exhibit 16.0
March 8, 2021
Securities and Exchange Commission
100 F Street NE
Washington, DC 20549
Dear Sir/Madam:
We have read statements made by St. Landry Homestead Federal Savings Bank, which we understand will be filed with the U.S. Securities and Exchange Commission within the prospectus constituting part of the Registration Statement of Catalyst Bancorp, Inc. under the heading “Change in Accountants” as required by item 304 of the SEC’s Regulation S-K. We confirm that we are in agreement with the statements contained therein.
Very truly yours,
Darnall, Sikes & Frederick
(A Corporation of Certified Public Accountants)
Exhibit 23.2
March 11, 2021
Boards of Directors
Catalyst Bancorp, Inc.
St. Landry Homestead Federal Savings Bank
235 N. Court Street
Opelousas, Louisiana 70570
Members of the Boards Directors:
We hereby consent to the use of our firm’s name in the Form AC Application for Conversion, and any amendments thereto, to be filed with the Office of the Comptroller of the Currency, and in the Registration Statement on Form S-1, and any amendments thereto, to be filed with the Securities and Exchange Commission. We also hereby consent to the inclusion of, summary of and references to our Valuation Appraisal Report and any Valuation Appraisal Report Updates and our statement concerning subscription rights in such filings including the prospectus and proxy statement/prospectus of Catalyst Bancorp, Inc. We also consent to the reference to our firm under the heading “Experts” in the prospectus and proxy statement/prospectus.
Sincerely, | |
RP® FINANCIAL, LC. | |
|
Washington Headquarters | |
1311-A Dolley Madison Boulevard | Telephone: (703) 528-1700 |
Suite 2A | Fax No.: (703) 528-1788 |
McLean, VA 22101 | Toll-Free No.: (866) 723-0594 |
www.rpfinancial.com | E-Mail: mail@rpfinancial.com |
Exhibit 23.3
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the inclusion in this Registration Statement on Form S-1 and the Application for Conversion on Form AC of our report dated March 12, 2021, appearing in the Registration Statement and the Application for Conversion relating to the financial statements of St. Landry Homestead Federal Savings Bank. We also consent to the reference to our firm under the heading “Experts” in such Registration Statement and the Application for Conversion.
/s/ Castaing, Hussey & Lolan, LLC
Castaing, Hussey & Lolan, LLC
New Iberia, Louisiana
March 12, 2021
RP® FINANCIAL, LC.
|
Advisory | Planning | Valuation |
Exhibit 99.1
October 15, 2020
Mr. Joseph B. Zanco
President and Chief Executive Officer
St. Landry Homestead Federal Savings Bank
235 N. Court Street
Opelousas, Louisiana 70570
Dear Mr. Zanco:
This letter sets forth the agreement between St. Landry Homestead Federal Savings Bank, Opelousas, Louisiana (the “Bank”), whereby the Bank has engaged RP Financial to provide the conversion appraisal services in conjunction with the proposed standard stock conversion transaction. The scope, timing and fee structure for these appraisal services are described below.
These appraisal services and fee schedule are described in greater detail below. The undersigned will direct this engagement and will be assisted by other members of our staff, including Gregory E. Dunn, Director, and one Consulting Associate.
Description of Appraisal Services
RP Financial will conduct financial due diligence, including on-site interviews of senior management and reviews of historical and pro forma financial information and other documents and records, to gain insight into the operations, financial condition, profitability, market area, risks and various internal and external factors impacting the Bank and its subsidiaries. This review will be considered in determining the pro forma market value of the Bank in accordance with the applicable regulatory appraisal guidelines. RP Financial will prepare a detailed written valuation report that will be fully consistent with applicable regulatory appraisal guidelines and standard pro forma valuation practices, taking into consideration the intended stock offering. The appraisal report will include an analysis of the Bank’s financial condition and operating results, as well as an assessment of the key risks and operating strategy. The appraisal report will incorporate an evaluation of the Bank’s business strategies, market area, prospects for the future and the intended use of proceeds. A peer group analysis relative to certain relatively comparable publicly-traded banking companies will be conducted for the purpose of determining appropriate valuation adjustments for the Bank relative to the peer group’s pricing ratios.
We will review pertinent sections of the prospectus and conduct discussions with the Bank and the Bank’s representatives to obtain key information for the appraisal report, including key deal elements such as holding company formation, dividend policy, use of proceeds, reinvestment rate, tax rate, offering expenses, stock plans characteristics (such as employee stock ownership plan and stock grant plan), and, if applicable, a charitable foundation contribution.
Ronald S. Riggins | Main (703) 528-1700 |
President & Managing Director | Direct (703) 647-6543 |
RP® Financial, LC. | Cell (703) 989-4665 |
www.rpfinancial.com | rriggins@rpfinancial.com |
Mr. Joseph B. Zanco
October
15, 2020
Page 2
The original appraisal report will establish a midpoint pro forma market value in accordance with the applicable regulatory requirements. The appraisal report will provide the valuation basis for the size of the stock offering. The appraisal report may be periodically updated during the application and offering process, and, in accordance with the applicable regulations, there will be at least one updated appraisal prepared at the closing of the stock offering to determine the number of shares to be issued. In the event of a syndicated community offering, it may be necessary to file an update in conjunction with the close of the subscription offering and prior to the pricing phase in the syndicated community offering. In the event of a syndicated community offering phase, RP Financial will participate in the various all hands calls regarding the offering results, pricing discussions and timing.
RP Financial agrees to deliver the original appraisal report and subsequent updates, in writing, to the Bank at the above address, in conjunction with the filing of the regulatory applications and amendments thereto. With prior approval by the Bank, subsequent updates will be filed promptly as certain events occur which would warrant the preparation and filing of such appraisal updates pursuant to regulatory guidelines. Further, RP Financial agrees to perform such other services as are necessary or required in connection with the regulatory review of the appraisal and respond to the regulatory comments, if any, regarding the original appraisal report and subsequent updates. RP Financial will also prepare the pro forma presentations for inclusion in the prospectus, reflecting the original appraisal and subsequent updates, as appropriate.
RP Financial expects to formally present the original appraisal report, including the appraisal methodology, peer group selection and assumptions, to the Board of Directors for review prior to the filing with the regulatory application. If appropriate, RP Financial will present subsequent updates to the Board. It is understood that typically this appraisal review may be presented by telephone or videoconference.
Fee Structure and Payment Schedule
The Bank agrees to pay RP Financial the following fees for preparation and delivery of the original appraisal report and subsequent appraisal updates, plus reimbursable expenses. Payment of these fees shall be made according to the following schedule:
• | $7,500 upon execution of this letter of agreement engaging RP Financial’s appraisal services; |
• | $35,000 upon delivery of the completed original appraisal report; and |
• | $7,500 upon delivery of each subsequent appraisal update report required in conjunction with the regulatory application and stock offering. It is understood that there will be at least one appraisal update report required by regulations upon completion of the stock offering. |
The Bank will reimburse RP Financial for reasonable out-of-pocket expenses incurred in preparation of the original appraisal and subsequent updates. Such out-of-pocket expenses will likely include travel, printing, communications, shipping, reasonable counsel fees, computer and data services, and will not exceed $5,000 in the aggregate, without the Bank’s authorization to exceed this level.
Mr. Joseph B. Zanco
October
15, 2020
Page 3
In the event the Bank shall, for any reason, discontinue the proposed transaction prior to delivery of the completed original appraisal report or subsequent updates and payment of the corresponding fees, the Bank agrees to compensate RP Financial according to RP Financial’s standard billing rates for consulting services based on accumulated and verifiable time expenses, not to exceed the respective fee caps noted above, after applying full credit to the initial retainer fee towards such payment, together with reasonable out-of-pocket expenses, subject to the cap on such expenses as set forth above. RP Financial’s standard billing rates range from $75 per hour for Associates to $500 per hour for Managing Directors.
If during the course of the proposed transaction, unforeseen events occur so as to materially change the nature or the work content of the services described in this contract, the terms of said contract shall be subject to renegotiation by the Bank and RP Financial. Such unforeseen events shall include, but not be limited to, material changes to the structure of the transaction such as inclusion of a simultaneous business combination transaction, material changes in the applicable regulations, appraisal guidelines or processing procedures as they relate to such appraisals, material changes in management or procedures, operating policies or philosophies, and excessive delays or suspension of processing of applications by the regulators such that completion of the transaction requires the preparation by RP Financial of a new appraisal.
Covenants, Representations and Warranties
The Bank and RP Financial agree to the following:
1. The Bank agrees to make available or to supply to RP Financial such information with respect to its business and financial condition as RP Financial may reasonably request in order to provide the aforesaid valuation. Such information heretofore or hereafter supplied or made available to RP Financial shall include, but not be limited to: annual audited and unaudited internal financial statements and management reports, business plan and budget, periodic regulatory filings and material agreements, debt instruments, off balance sheet assets or liabilities, commitments and contingencies, and other corporate books and records. All information provided by the Bank to RP Financial shall remain strictly confidential (unless such information is otherwise made available to the public), and if the reorganization and stock offering is not consummated, or the services of RP Financial are terminated hereunder, RP Financial shall promptly return to the Bank the original and any copies of such information.
2. RP Financial represents that it will comply with any and all federal, state and local laws, regulations and ordinances governing or relating to the privacy, security, confidentiality or integrity of personal information, data, and confidential information (“Privacy Laws”). RP Financial shall implement such physical, administrative and technical safeguards as shall be necessary to ensure the security and confidentiality of any personal information, data, and confidential information it receives, including maintaining written policies and procedures detailing its compliance with any applicable Privacy Laws. Such written policies and procedures shall be made available to the Bank for review upon request. The Bank represents and warrants to RP Financial that any information provided to RP Financial does not and will not, to the best of the Bank’s knowledge, at the times it is provided to RP Financial, contain any untrue statement of a material fact or in response to informational requests by RP Financial fail to state a material fact necessary to make the statements therein not false or misleading in light of the circumstances under which they were made.
Mr. Joseph B. Zanco
October
15, 2020
Page 4
3. (a) The Bank agrees that it will indemnify and hold harmless RP Financial, any affiliates of RP Financial, the respective members, officers, agents and employees of RP Financial or their successors and assigns who act for or on behalf of RP Financial in connection with the services called for under this agreement (hereinafter referred to as “RP Financial”), from and against any and all losses, claims, damages and liabilities (including, but not limited to, reasonable attorney’s fees, and all losses and expenses in connection with claims under the federal securities laws) attributable to (i) any untrue statement of a material fact contained in the financial statements or other information furnished or otherwise provided by the Bank to RP Financial, either orally or in writing; (ii) the omission of a material fact from the financial statements or other information furnished or otherwise made available by the Bank to RP Financial; or (iii) any action or omission to act by the Bank, or the Bank’s respective officers, directors, employees or agents, which action or omission is undertaken in bad faith or is negligent. The Bank will be under no obligation to indemnify RP Financial hereunder if a court determines that RP Financial was negligent or acted in bad faith with respect to any actions or omissions of RP Financial related to a matter for which indemnification is sought hereunder. Reasonable time devoted by RP Financial to situations for which RP Financial is deemed entitled to indemnification hereunder, shall be an indemnifiable cost payable by the Bank at the normal hourly professional rate chargeable by such employee.
Notwithstanding anything in this agreement to the contrary, RP Financial shall notify the Bank immediately via telephone, to be followed up in writing, of any actual, suspected or threatened security breach incident involving confidential information, and shall cooperate fully in investigating and responding to each successful or attempted security breach. RP Financial will defend, indemnify and hold the Bank harmless from and against all third party claims, losses, damages and liabilities arising out of a security breach and shall pay for all costs associated with responding to such breach, including without limitation, all legal, forensic, public relations, consultancy and other expert fees incurred by the Bank, the costs of any and all notifications that the Bank sends to individuals whose information was affected by any incident, and the cost of an annual credit monitoring services subscription for all such individuals.
(b) RP Financial shall give written notice to the Bank of such claim or facts within thirty days of the assertion of any claim or discovery of material facts upon which RP Financial intends to base a claim for indemnification hereunder, including the name of counsel that RP Financial intends to engage in connection with any indemnification related matter. In the event the Bank elects, within seven days of the receipt of the original notice thereof, to contest such claim by written notice to RP Financial, the Bank shall not be obligated to make payments under Section 3(c), but RP Financial will be entitled to be paid any amounts payable by the Bank hereunder within five days after the final non-appealable determination of such contest either by written acknowledgement of the Bank or a decision of a court of competent jurisdiction or alternative adjudication forum, unless it is determined in accordance with Section 3(c) hereof that RP Financial is not entitled to indemnity hereunder. If the Bank does not so elect to contest a claim for indemnification by RP Financial hereunder, RP Financial shall (subject to the Bank’s receipt of the written statement and undertaking under Section 3(c) hereof) be paid promptly and in any event within thirty days after receipt by the Bank of detailed billing statements or invoices for which RP Financial is entitled to reimbursement under Section 3(c) hereof.
Mr. Joseph B. Zanco
October
15, 2020
Page 5
(c) Subject to the Bank’s right to contest under Section 3(b) hereof, the Bank shall pay for or reimburse the reasonable expenses, including reasonable attorneys’ fees, incurred by RP Financial in advance of the final disposition of any proceeding within thirty days of the receipt of such request if RP Financial furnishes the Bank: (1) a written statement of RP Financial’s good faith belief that it is entitled to indemnification hereunder; (2) a written undertaking to repay the advance if it ultimately is determined in a final, non-appealable adjudication of such proceeding that it or he is not entitled to such indemnification; and (3) a detailed invoice of the expenses for which reimbursement is sought.
(d) In the event the Bank does not pay any indemnified loss or make advance reimbursements of expenses in accordance with the terms of this agreement, RP Financial shall have all remedies available at law or in equity to enforce such obligation.
This agreement constitutes the entire understanding of the Bank and RP Financial concerning the subject matter addressed herein, and such contract shall be governed and construed in accordance with the State of Louisiana. This agreement may not be modified, supplemented or amended except by written agreement executed by both parties.
The Bank and RP Financial are not affiliated, and neither the Bank nor RP Financial has an economic interest in, or is held in common with, the other and has not derived a significant portion of its gross revenues, receipts or net income for any period from transactions with the other. RP Financial represents and warrants that it is not aware of any fact or circumstance that would cause it not to be “independent” within the meaning of the conversion regulations of the federal banking agencies or otherwise prohibit or restrict in anyway RP Financial from serving in the role of independent appraiser for the Bank.
* * * * * * * * * * *
Please acknowledge your agreement to the foregoing by signing as indicated below and returning to RP Financial a signed copy of this letter, together with the engagement fee of $7,500.
Sincerely, | |
|
|
Ronald S. Riggins | |
President and Managing Director |
Agreed to and Accepted by: | Joseph B. Zanco /s/ Joseph B. Zanco |
President and Chief Executive Officer | |
St. Landry Homestead Federal Savings Bank, Opelousas, Louisiana |
Date Executed: | 10/21/20 |
|
RP® FINANCIAL, LC. Advisory | Planning | Valuation |
Exhibit 99.2
March 11, 2021
Board of Directors
Catalyst
Bancorp, Inc.
St. Landry Homestead Federal Savings Bank
235 North Court Street
Opelousas, Louisiana 70570
Re: | Plan of Conversion | |
St. Landry Homestead Federal Savings Bank |
Members of the Board of Directors:
All capitalized terms not otherwise defined in this letter have the meanings given such terms in the plan of conversion (the “Plan”) adopted by the Board of Directors of St. Landry Homestead Federal Savings Bank (“St. Landry Homestead”). Pursuant to the Plan, St. Landry Homestead will convert from the mutual form of organization to the stock form of organization. In connection with the Plan, St. Landry Homestead has organized a new Louisiana stock holding company named Catalyst Bancorp, Inc. (the “Company”), which will sell shares of common stock in a public offering. When the conversion is completed, all of the capital stock of St. Landry Homestead will be owned by the Company and all of the common stock of the Company will be owned by public stockholders.
We understand that in accordance with the Plan, subscription rights to purchase shares of common stock in the Company are to be issued to: (1) Eligible Account Holders; (2) Tax-Qualified Plans including St. Landry Homestead’s employee stock ownership plan (the “ESOP”); (3) Supplemental Eligible Account Holders; and (4) Other Members. Based solely upon our observation that the subscription rights will be available to such parties without cost, will be legally non-transferable and of short duration, and will afford such parties the right only to purchase shares of common stock at the same price as will be paid by members of the general public in the community offering and syndicated offering or firm commitment offering but without undertaking any independent investigation of state or federal law or the position of the Internal Revenue Service with respect to this issue, we are of the belief that, as a factual matter:
(1) | the subscription rights will have no ascertainable market value; and, |
(2) | the price at which the subscription rights are exercisable will not be more or less than the pro forma market value of the shares upon issuance. |
Changes in the local and national economy, the legislative and regulatory environment, the stock market, interest rates, and other external forces (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability and may materially impact the value of thrift stocks as a whole or the Company’s value alone. Accordingly, no assurance can be given that persons who subscribe to shares of common stock in the subscription offering will thereafter be able to buy or sell such shares at the same price paid in the subscription offering.
Sincerely, | |
|
|
RP Financial, LC. |
Washington Headquarters | ||
1311-A Dolley Madison Boulevard | Telephone: (703) 528-1700 | |
Suite 2A | Fax No.: (703) 528-1788 | |
McLean, VA 22101 | Toll-Free No.: (866) 723-0594 | |
www.rpfinancial.com | E-Mail: mail@rpfinancial.com |
1311-A Dolley Madison Boulevard
Suite 2A
McLean, Virginia 22101
703.528.1700
rpfinancial.com
|
RP® FINANCIAL, LC. Advisory | Planning | Valuation |
February 5, 2021
Board of Directors
Catalyst Bancorp, Inc.
St. Landry Homestead Federal Savings Bank
235 North Court Street
Opelousas, Louisiana 70570
Members of the Board of Directors:
At your request, we have completed and hereby provide an independent appraisal (“Appraisal”) of the estimated pro forma market value of the common stock which is to be issued in connection with the mutual-to-stock conversion transaction described below.
This Appraisal is furnished pursuant to the requirements stipulated in the Code of Federal Regulations and has been prepared in accordance with the “Guidelines for Appraisal Reports for the Valuation of Savings and Loan Associations Converting from Mutual to Stock Form of Organization” of the Office of Thrift Supervision (“OTS”) and accepted by the Office of the Comptroller of the Currency (“OCC”) and the Federal Reserve Board (“FRB”), and applicable regulatory interpretations thereof.
Description of Plan of Conversion
The Board of Directors of St. Landry Homestead Federal Savings Bank, Opelousas, Louisiana (“St. Landry Homestead” or the “Bank”) adopted the plan of conversion on January 27, 2021, incorporated herein by reference. Pursuant to the plan of conversion, the Bank will convert from a federally-chartered mutual savings bank to a federally-chartered stock savings bank and become a wholly-owned subsidiary of Catalyst Bancorp, Inc. (“Catalyst Bancorp” or the “Company”), a Louisiana corporation organized by St. Landry Homestead. Catalyst Bancorp will offer 100% of its common stock to qualifying depositors of the Bank in a subscription offering to Eligible Account Holders, Tax-Qualified Plans consisting of St. Landry Homestead’s employee stock ownership plan (the “ESOP”), Supplemental Eligible Account Holders and Other Members, as such terms are defined for purposes of applicable federal regulatory guidelines governing mutual-to-stock conversions. To the extent that shares remain available for purchase after satisfaction of all subscriptions received in the subscription offering, the shares may be offered for sale to the public at large in a community offering and a syndicated or firm commitment offering. Going forward, Catalyst Bancorp will own 100% of the Bank’s stock, and the Bank will initially be Catalyst Bancorp’s sole subsidiary. A portion of the net proceeds received from the sale of common stock will be used to purchase all of the then to be issued and outstanding capital stock of the Bank and the balance of the net proceeds will be retained by the Company.
At this time, no other activities are contemplated for the Company other than the ownership of the Bank, a loan to the newly-formed ESOP and reinvestment of the proceeds that are retained by the Company. In the future, Catalyst Bancorp may acquire or organize other operating subsidiaries, diversify into other banking-related activities, pay dividends or repurchase its stock, although there are no specific plans to undertake such activities at the present time.
Board of Directors
February 5, 2021
Page 2
RP® Financial, LC.
RP® Financial, LC. (“RP Financial”) is a financial consulting firm serving the financial services industry nationwide that, among other things, specializes in financial valuations and analyses of business enterprises and securities, including the pro forma valuation for savings institutions converting from mutual-to-stock form. The background and experience of RP Financial is detailed in Exhibit V-1. For its appraisal services, RP Financial is being compensated on a fixed fee basis for the original appraisal and for any subsequent updates, and such fees are payable regardless of the valuation conclusion or the completion of the conversion offering transaction. We believe that we are independent of the Bank and the other parties engaged by St. Landry Homestead or the Company to assist in the stock conversion process.
Valuation Methodology
In preparing our Appraisal, we have reviewed the regulatory applications of the Bank and the Company, including the prospectus as filed with the FRB, the OCC and the Securities and Exchange Commission (“SEC”). We have conducted a financial analysis of the Bank that has included a review of audited financial information for the years ended December 31, 2016 through December 31, 2020 and a review of various unaudited information and internal financial reports through December 31, 2020. We have also conducted due diligence related discussions with St. Landry Homestead’s management; Castaing, Hussey & Lolan, LLC, St. Landry Homestead’s independent auditor; Silver, Freedman, Taff & Tiernan LLP, St. Landry Homestead’s conversion counsel; and Piper Sandler & Co., St. Landry Homestead’s financial and marketing advisor in connection with the stock offering. All assumptions and conclusions set forth in the Appraisal were reached independently from such discussions. In addition, where appropriate, we have considered information based on other available published sources that we believe are reliable. While we believe the information and data gathered from all these sources are reliable, we cannot guarantee the accuracy and completeness of such information.
We have investigated the competitive environment within which St. Landry Homestead operates and have assessed the Bank’s relative strengths and weaknesses. We have monitored all material regulatory and legislative actions affecting financial institutions generally and analyzed the potential impact of such developments on St. Landry Homestead and the industry as a whole to the extent we were aware of such matters. We have analyzed the potential effects of the stock conversion on the Bank’s operating characteristics and financial performance as they relate to the pro forma market value of St. Landry Homestead. We have reviewed the economy and demographic characteristics of the primary market area in which the Bank currently operates. We have compared St. Landry Homestead’s financial performance and condition with publicly-traded thrift institutions evaluated and selected in accordance with the Valuation Guidelines, as well as all publicly-traded thrifts and thrift holding companies. We have reviewed conditions in the securities markets in general and the market for thrifts and thrift holding companies, including the market for new issues.
Board of Directors
February 5, 2021
Page 3
The Appraisal is based on St. Landry Homestead’s representation that the information contained in the regulatory applications and additional information furnished to us by the Bank and its independent auditors, legal counsel, investment bankers and other authorized agents are truthful, accurate and complete. We did not independently verify the financial statements and other information provided by the Bank, or its independent auditors, legal counsel, investment bankers and other authorized agents nor did we independently value the assets or liabilities of St. Landry Homestead. The valuation considers St. Landry Homestead only as a going concern and should not be considered as an indication of the Bank’s liquidation value.
Our appraised value is predicated on a continuation of the current operating environment for the Bank and for all thrifts and their holding companies. Changes in the local and national economy, the federal and state legislative and regulatory environments for financial institutions, the stock market, interest rates, and other external forces (such as natural disasters or significant world events) may occur from time to time, often with great unpredictability, and may materially impact the value of thrift stocks as a whole or the Bank’s value alone. It is our understanding that St. Landry Homestead intends to remain an independent institution and there are no current plans for selling control of the Bank as a converted institution. To the extent that such factors can be foreseen, they have been factored into our analysis.
The estimated pro forma market value is defined as the price at which the Company’s stock, immediately upon completion of the offering, would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.
Valuation Conclusion
It is our opinion that, as of February 5, 2021, the estimated aggregate pro forma market value of the shares to be issued immediately following the conversion equaled $38,500,000 at the midpoint, equal to 3,850,000 shares offered at a per share value of $10.00. Pursuant to the conversion guidelines, the 15% offering range indicates a minimum value of $32,725,000 and a maximum value of $44,275,000. Based on the $10.00 per share offering price determined by the Board, this valuation range equates to total shares outstanding of 3,272,500 at the minimum and 4,427,500 at the maximum. In the event the appraised value is subject to an increase, the aggregate pro forma market value may be increased up to a super maximum value of $50,916,250 without a resolicitation. Based on the $10.00 per share offering price, the super maximum value would result in total shares outstanding of 5,091,625.
Limiting Factors and Considerations
The valuation is not intended, and must not be construed, as a recommendation of any kind as to the advisability of purchasing shares of the common stock. Moreover, because such valuation is determined in accordance with applicable regulatory guidelines and is necessarily based upon estimates and projections of a number of matters, all of which are subject to change from time to time, no assurance can be given that persons who purchase shares of common stock in the conversion will thereafter be able to buy or sell such shares at prices related to the foregoing valuation of the estimated pro forma market value thereof. The appraisal reflects only a valuation range as of this date for the pro forma market value of Catalyst Bancorp immediately upon issuance of the stock and does not take into account any trading activity with respect to the purchase and sale of common stock in the secondary market on the date of issuance of such securities or at anytime thereafter following the completion of the public stock offering.
Board of Directors
February 5, 2021
Page 4
The valuation prepared by RP Financial, in accordance with applicable regulatory guidelines, was based on the financial condition and operations of St. Landry Homestead as of December 31, 2020, the date of the financial data included in the prospectus.
RP Financial is not a seller of securities within the meaning of any federal and state securities laws and any report prepared by RP Financial shall not be used as an offer or solicitation with respect to the purchase or sale of any securities. RP Financial maintains a policy which prohibits RP Financial, its principals or employees from purchasing stock of its financial institution clients.
The valuation will be updated as provided for in the conversion regulations and guidelines. These updates will consider, among other things, any developments or changes in the financial performance and condition of St. Landry Homestead, management policies, and current conditions in the equity markets for thrift stocks, both existing issues and new issues. These updates may also consider changes in other external factors which impact value including, but not limited to: various changes in the federal and state legislative and regulatory environments for financial institutions, the stock market in general, the market for thrift stocks and interest rates. Should any such new developments or changes be material, in our opinion, to the valuation of the shares, appropriate adjustments to the estimated pro forma market value will be made. The reasons for any such adjustments will be explained in the update at the date of the release of the update.
Respectfully submitted, | |
RP® FINANCIAL, LC. | |
|
|
Ronald S. Riggins | |
Managing Director | |
|
|
Gregory E. Dunn | |
Director |
RP® Financial, LC. | TABLE OF CONTENTS |
i |
TABLE OF CONTENTS
Catalyst Bancorp, Inc.
St. Landry Homestead Federal Savings Bank
Opelousas, Louisiana
PAGE | ||
DESCRIPTION | NUMBER | |
CHAPTER ONE OVERVIEW AND FINANCIAL ANALYSIS | ||
Introduction | I.1 | |
Plan of Conversion | I.1 | |
Strategic Overview | I.2 | |
Balance Sheet Trends | I.4 | |
Income and Expense Trends | I.7 | |
Interest Rate Risk Management | I.10 | |
Lending Activities and Strategy | I.11 | |
Asset Quality | I.14 | |
Funding Composition and Strategy | I.15 | |
Legal Proceedings | I.16 | |
CHAPTER TWO MARKET AREA | ||
Introduction | II.1 | |
National Economic Factors | II.1 | |
Market Area Demographics | II.4 | |
Local Economy | II.7 | |
Unemployment Trends | II.8 | |
Market Area Deposit Characteristics and Competition | II.9 | |
CHAPTER THREE PEER GROUP ANALYSIS | ||
Peer Group Selection | III.1 | |
Financial Condition | III.5 | |
Income and Expense Components | III.8 | |
Loan Composition | III.11 | |
Interest Rate Risk | III.14 | |
Credit Risk | III.14 | |
Summary | III.16 |
RP® Financial, LC. | TABLE OF CONTENTS |
ii |
TABLE OF CONTENTS
Catalyst Bancorp, Inc.
St. Landry Homestead Federal Savings Bank
Opelousas, Louisiana
(continued)
PAGE | ||||
DESCRIPTION | NUMBER | |||
CHAPTER FOUR VALUATION ANALYSIS | ||||
Introduction | IV.1 | |||
Appraisal Guidelines | IV.1 | |||
RP Financial Approach to the Valuation | IV.1 | |||
Valuation Analysis | IV.2 | |||
1. | Financial Condition | IV.3 | ||
2. | Profitability, Growth and Viability of Earnings | IV.4 | ||
3. | Asset Growth | IV.6 | ||
4. | Primary Market Area | IV.6 | ||
5. | Dividends | IV.7 | ||
6. | Liquidity of the Shares | IV.8 | ||
7. | Marketing of the Issue | IV.8 | ||
A. | The Public Market | IV.9 | ||
B. | The New Issue Market | IV.15 | ||
C. | The Acquisition Market | IV.17 | ||
8. | Management | IV.17 | ||
9. | Effect of Government Regulation and Regulatory Reform | IV.18 | ||
Summary of Adjustments | IV.18 | |||
Valuation Approaches: | IV.18 | |||
1. | Price-to-Earnings (“P/E”) | IV.20 | ||
2. | Price-to-Book (“P/B”) | IV.20 | ||
3. | Price-to-Assets (“P/A”) | IV.22 | ||
Comparison to Recent Offerings | IV.22 | |||
Valuation Conclusion | IV.23 |
RP® Financial, LC. | LIST OF TABLES |
iii |
LIST OF TABLES
Catalyst Bancorp, Inc.
St. Landry Homestead Federal Savings Bank
Opelousas, Louisiana
TABLE | |||
NUMBER | DESCRIPTION | PAGE | |
1.1 | Historical Balance Sheet Data | I.5 | |
1.2 | Historical Income Statements | I.8 | |
2.1 | Summary Demographic Data | II.5 | |
2.2 | Primary Market Area Employment Sectors | II.7 | |
2.3 | Market Area Largest Employers | II.8 | |
2.4 | Unemployment Trends | II.9 | |
2.5 | Deposit Summary | II.10 | |
2.6 | Market Area Deposit Competitors – As of June 30, 2020 | II.10 | |
3.1 | Peer Group of Publicly-Traded Thrifts | III.3 | |
3.2 | Balance Sheet Composition and Growth Rates | III.6 | |
3.3 | Income as a Pct. of Avg. Assets and Yields, Costs, Spreads | III.9 | |
3.4 | Loan Portfolio Composition and Related Information | III.12 | |
3.5 | Interest Rate Risk Measures and Net Interest Income Volatility | III.13 | |
3.6 | Credit Risk Measures and Related Information | III.15 | |
4.1 | Market Area Unemployment Rates | IV.7 | |
4.2 | Pricing Characteristics and After-Market Trends | IV.16 | |
4.3 | Market Pricing Versus Peer Group | IV.21 |
RP® Financial, LC. | OVERVIEW AND FINANCIAL ANALYSIS |
I.1 |
I. Overview and Financial Analysis
Introduction
St. Landry Homestead Federal Savings Bank (“St. Landry Homestead” or the “Bank”), established in 1922, is a federally-chartered mutual savings bank headquartered in Opelousas, Louisiana. The Bank serves the serves the Acadiana region of south-central Louisiana through the main office and three branch offices in St. Landry Parish and one additional branch office is maintained in Lafayette Parish. A map of the Bank’s office locations is provided in Exhibit I-1. The Bank is a member of the Federal Home Loan Bank (“FHLB”) system, and its deposits are insured up to the regulatory maximums by the Federal Deposit Insurance Corporation (“FDIC”). At December 31, 2020, the Bank had $224.7 million in assets, $164.6 million in deposits and total equity of $50.6 million, equal to 22.53% of total assets. The Bank’s audited financial statements are incorporated by reference as Exhibit I-2.
Plan of Conversion
On January 27, 2021, the Board of Directors of the Bank adopted a plan of conversion, incorporated herein by reference, in which the Bank will convert from a federally-chartered mutual savings bank to a federally-chartered stock savings bank and become a wholly-owned subsidiary of Catalyst Bancorp, Inc. (“Catalyst Bancorp” or the “Company”), a newly formed Louisiana corporation.
Catalyst Bancorp will offer its common stock in a subscription offering to Eligible Account Holders, Tax-Qualified Plans consisting of St. Landry Bank’s employee stock ownership plan (the “ESOP”), Supplemental Eligible Account Holders and Other Members, as such terms are defined for purposes of applicable federal regulatory guidelines governing mutual-to-stock conversions. To the extent that shares remain available for purchase after satisfaction of all subscriptions received in the subscription offering, the shares may be offered for sale to members of the general public in a community offering and a syndicated offering or firm commitment offering. A portion of the net proceeds received from the sale of the common stock will be used to purchase all of the then to be issued and outstanding capital stock of St. Landry Bank and the balance of the net proceeds will be retained by the Company.
RP® Financial, LC. | OVERVIEW AND FINANCIAL ANALYSIS |
I.2 |
At this time, no other activities are contemplated for the Company other than the ownership of the Bank, extending a loan to the newly-formed ESOP and reinvestment of the proceeds that are retained by the Company. In the future, Catalyst Bancorp may acquire or organize other operating subsidiaries, diversify into other banking-related activities, pay dividends or repurchase its stock, although there are no specific plans to undertake such activities at the present time.
Strategic Overview
St. Landry Homestead maintains a local community banking emphasis, with a primary strategic objective of meeting the borrowing and savings needs of its local customer base. St. Landry Homestead’s operating strategy has been fairly reflective of a traditional thrift operating strategy, in which lending has emphasized originating 1-4 family residential mortgage loans and funding has been largely generated through retail deposits. Pursuant to naming a new President and Chief Executive Officer of the Bank with commercial banking experience, growth strategies continue to focus on 1-4 family lending and, at the same time, the Bank is pursuing increased lending diversification that will emphasize growth of commercial real estate loans and commercial business loans. The Bank’s objective is to fund asset growth primarily through deposit growth, emphasizing growth of lower cost core deposits.
Investments serve as a supplement to the Bank’s lending activities and the investment portfolio is considered to be indicative of a low risk investment philosophy. As of December 31, 2020, the Bank’s holdings of investment securities consisted of mortgage-backed securities that are guaranteed or insured by government sponsored enterprises (“GSEs”) or backed by Ginnie Mae, U.S. Government agency obligations and municipal bonds.
Retail deposits have consistently served as the primary interest-bearing funding source for the Bank. Transaction and savings account deposits constitute the largest portion of the Bank’s deposit base. The Bank utilizes borrowings as a supplemental funding source to facilitate management of funding costs and interest rate risk. Borrowings currently held by the Bank consist of FHLB advances.
St. Landry Homestead’s earnings base is largely dependent upon net interest income and operating expense levels. The Bank has been effective in preserving its net interest income to average assets ratio, which in part has been supported by its strong capital position and resulting relatively low level of interest-bearing liabilities funding assets. However, in recent years, the Bank has experienced some net interest margin compression, due to such factors as the relatively flat yield curve and a shift in the Bank’s interest-earning asset mix towards a higher concentration of lower yielding cash and investments. Non-interest operating income, while somewhat limited, has become a more significant contributor to the Bank’s earnings in recent years, which has been mostly related to an increase in service charges on deposits. Operating expenses have trended higher in recent years, which combined with limited asset growth has resulted in an increase in operating expense ratios as a percent of average assets. Loan loss provisions have had a varied impact on the Bank’s earnings over the past five years, particularly as the Bank increased loan loss provisions during 2020 to address the ongoing economic uncertainty resulting from the Covid-19 pandemic.
RP® Financial, LC. | OVERVIEW AND FINANCIAL ANALYSIS |
I.3 |
The post-offering business plan of the Bank is expected to remain consistent with current strategic objectives. Specifically, St. Landry Homestead will continue to be an independent community-oriented financial institution with a commitment to lending in local markets with operations funded primarily by retail deposits. Growth strategies will continue to be implemented within the context of managing the Bank’s exposure to risk.
A key component of the Bank’s business plan is to complete a mutual-to-stock conversion offering. The Bank’s strengthened capital position will increase operating flexibility and facilitate implementation of planned growth strategies. Additionally, in the near term, the stock conversion offering will serve to substantially increase regulator capital and liquidity and, thereby, facilitate building and maintaining loss reserves while also providing the Bank with greater flexibility to work with borrowers affected by the Covid-19-induced recession. The Bank’s strengthened capital position will also provide more of a cushion against potential credit quality related losses in future periods. St. Landry Homestead’s higher capital position resulting from the infusion of stock proceeds will also serve to reduce interest rate risk, particularly through enhancing the Bank’s interest-earning assets/interest-bearing liabilities (“IEA/IBL”) ratio. The additional funds realized from the stock offering will serve to raise the level of interest-earning assets funded with equity and, thereby, reduce the ratio of interest-earning assets funded with interest-bearing liabilities as the balance of interest-bearing liabilities will initially remain relatively unchanged following the conversion, which may facilitate a reduction in St. Landry Homestead’s funding costs. St. Landry Homestead’s strengthened capital position will also position the Bank to pursue expansion opportunities. Such expansion could potentially include acquiring another financial institution and/or establishing or acquiring additional branch offices to gain a market presence in nearby markets that are complementary to the Bank’s existing branch network. At this time, the Bank is currently reviewing sites to add an additional de novo branch in the Lafayette area by the end of 2021.
RP® Financial, LC. | OVERVIEW AND FINANCIAL ANALYSIS |
I.4 |
The projected uses of proceeds are highlighted below.
○ | Catalyst Bancorp. The Company is expected to retain up to 50% of the net offering proceeds. At present, funds at the Company level, net of the loan to the ESOP, are expected to be primarily invested initially into liquid funds. Over time, the funds may be utilized for various corporate purposes, possibly including acquisitions, infusing additional equity into the Bank, repurchases of common stock, and the payment of regular and/or special cash dividends. |
○ | St. Landry Homestead. Approximately 50% of the net stock proceeds will be infused into the Bank in exchange for all of the Bank’s newly issued stock. Cash proceeds (i.e., net proceeds less deposits withdrawn to fund stock purchases) infused into the Bank are anticipated to become part of general operating funds and are expected to be primarily utilized to fund loan growth over time. |
Overall, it is the Bank’s objective to pursue growth that will serve to increase returns, while, at the same time, growth will not be pursued that could potentially compromise the overall risk associated with St. Landry Homestead’s operations.
Balance Sheet Trends
Table 1.1 shows the Bank’s historical balance sheet data for the past five years. From yearend 2016 through yearend 2020, St. Landry Homestead’s assets decreased at a 0.05% annual rate. Cash and investments accounted for most of the Bank’s asset growth during the past four years, which was offset by a decline in loans. A summary of St. Landry Homestead’s key operating ratios is presented in Exhibit I-3.
St. Landry Homestead’s loans receivable portfolio decreased at a 3.04% annual rate from yearend 2016 through yearend 2020, in which loan shrinkage occurred throughout the period with the exception of 2019. The Bank’s loan shrinkage combined with asset growth provided for a decrease the loans-to-assets ratio from 74.80% at yearend 2016 to 66.23% at yearend 2020. St. Landry Homestead’s historical emphasis on 1-4 family lending is reflected in its loan portfolio composition, as 65.79% of total loans receivable consisted of 1-4 family loans at yearend 2020.
Trends in the Bank’s loan portfolio composition over the past two years show that the concentration of 1-4 family permanent mortgage loans comprising total loans decreased from 68.81% at yearend 2019 to 65.79% at yearend 2020. Commercial real estate/multi-family loans and construction/land loans constitute the primary types of lending diversification for the Bank. From yearend 2019 to yearend 2020, commercial real estate/multi-family loans increased from 21.02% of total loans to 23.16% of total loans and construction/land loans decreased from 5.08% of total loans to 3.65% of total loans. Other areas of lending diversification for the Bank have been fairly limited, consisting primarily of commercial business loans and, to a lesser extent, consumer loans. As of December 31, 2020, commercial business loans equaled 4.44% of total loans and consumer loans equaled 2.96% of total loans.
RP® Financial, LC. | OVERVIEW AND FINANCIAL ANALYSIS |
I.5 |
Table 1.1
St. Landry Homestead Federal Savings Bank
Historical Balance Sheet Data
12/31/16- | ||||||||||||||||||||||||||||||||||||||||||||
12/31/20 | ||||||||||||||||||||||||||||||||||||||||||||
At December 31, | Annual. | |||||||||||||||||||||||||||||||||||||||||||
2016 | 2017 | 2018 | 2019 | 2020 | Growth Rate | |||||||||||||||||||||||||||||||||||||||
Amount | Pct(1) | Amount | Pct(1) | Amount | Pct(1) | Amount | Pct(1) | Amount | Pct(1) | Pct | ||||||||||||||||||||||||||||||||||
($000) | (%) | ($000) | (%) | ($000) | (%) | ($000) | (%) | ($000) | (%) | (%) | ||||||||||||||||||||||||||||||||||
Total Amount of: | ||||||||||||||||||||||||||||||||||||||||||||
Assets | $ | 225,063 | 100.00 | % | $ | 214,177 | 100.00 | % | $ | 221,620 | 100.00 | % | $ | 218,473 | 100.00 | % | $ | 224,652 | 100.00 | % | -0.05 | % | ||||||||||||||||||||||
Cash and cash equivalents | 19,381 | 8.61 | % | 8,983 | 4.19 | % | 16,841 | 7.60 | % | 17,909 | 8.20 | % | 25,245 | 11.24 | % | 6.83 | % | |||||||||||||||||||||||||||
Investment securities | 30,104 | 13.38 | % | 34,745 | 16.22 | % | 34,172 | 15.42 | % | 27,350 | 12.52 | % | 38,253 | 17.03 | % | 6.17 | % | |||||||||||||||||||||||||||
Loans receivable, net | 168,345 | 74.80 | % | 163,317 | 76.25 | % | 160,917 | 72.61 | % | 161,582 | 73.96 | % | 148,778 | 66.23 | % | -3.04 | % | |||||||||||||||||||||||||||
FHLB stock | 891 | 0.40 | % | 903 | 0.42 | % | 1,331 | 0.60 | % | 1,372 | 0.63 | % | 1,394 | 0.62 | % | 11.84 | % | |||||||||||||||||||||||||||
Bank-owned life insurance | - | 0.00 | % | - | 0.00 | % | 2,073 | 0.94 | % | 2,143 | 0.98 | % | 3,213 | 1.43 | % | NM | ||||||||||||||||||||||||||||
Deposits | $ | 166,966 | 74.19 | % | $ | 154,491 | 72.13 | % | $ | 145,512 | 65.66 | % | $ | 141,629 | 64.83 | % | $ | 164,598 | 73.27 | % | -0.36 | % | ||||||||||||||||||||||
Borrowings | 10,000 | 4.44 | % | 10,000 | 4.67 | % | 25,000 | 11.28 | % | 25,000 | 11.44 | % | 8,838 | 3.93 | % | -3.04 | % | |||||||||||||||||||||||||||
Equity | $ | 46,406 | 20.62 | % | $ | 48,096 | 22.46 | % | $ | 49,444 | 22.31 | % | $ | 51,168 | 23.42 | % | $ | 50,603 | 22.53 | % | 2.19 | % | ||||||||||||||||||||||
Loans/Deposits | 100.83 | % | 105.71 | % | 110.59 | % | 114.09 | % | 90.39 | % | ||||||||||||||||||||||||||||||||||
Number of offices | 3 | 3 | 3 | 4 | 5 |
(1) Ratios are as a percent of ending assets.
Sources: St. Landary Homestead's prospectus, audited and unaudited financial statements and RP Financial calculations.
RP® Financial, LC. | OVERVIEW AND FINANCIAL ANALYSIS |
I.6 |
The intent of the Bank’s investment policy is to provide adequate liquidity and to generate a favorable return within the context of supporting St. Landry Homestead’s overall credit and interest rate risk objectives. Over the past five years, the Bank’s level of cash and investment securities (inclusive of FHLB/FNBB stock) ranged from a low of 21.02% at yearend 2017 to a high of 28.84% at yearend 2020. U.S. Government and agency obligations totaling $19.0 million comprised the most significant component of the Bank’s investment portfolio at December 31, 2020. Other investments held by the Bank at December 31, 2020 consisted of mortgage-backed securities ($16.1 million) and municipal bonds ($489,000). As of December 31, 2020, investment securities maintained as available for sale equaled $20.7 million and investment securities maintained as held to maturity equaled $17.5 million. As of December 31, 2020, the net unrealized gain on the available for sale investment securities portfolio equaled $134,000. Exhibit I-4 provides historical detail of the Bank’s investment securities portfolio. As of December 31, 2020, the Bank also held cash and cash equivalents of $25.2 million or 11.24% of assets and FHLB stock of $1.4 million or 0.62% of assets.
The Bank also maintains an investment in bank-owned life insurance (“BOLI”) policies, which cover the lives of certain officers and Board members of the Bank. The life insurance policies earn tax-exempt income through cash value accumulation and death proceeds. As of December 31, 2020, the cash surrender value of the Bank’s BOLI equaled $3.2 million or 1.43% of assets.
Over the past five years, St. Landry Homestead’s funding needs have been addressed through a combination of deposits, borrowings and internal cash flows. From yearend 2016 through yearend 2020, the Bank’s deposits decreased at an annual rate of 0.36%. Total deposits trended lower from yearend 2016 through yearend 2019, which was followed by significant deposit growth recorded in 2020. Deposits as a percent of assets ranged from a low of 64.83% at yearend 2019 to a high of 74.19% at yearend 2016. As of December 31, 2020, deposits equaled 73.27% of assets. Transaction and savings account deposits comprise the largest concentration of the Bank’s deposits and accounted for 57.87% of the Bank’s total deposits at December 31, 2020, with the remaining 42.13% of deposits consisting of certificates of deposit (“CDs”).
RP® Financial, LC. | OVERVIEW AND FINANCIAL ANALYSIS |
I.7 |
Borrowings serve as an alternative funding source for the Bank to address funding needs for growth and to support management of deposit costs and interest rate risk. The Bank’s balance of borrowings ranged from $8.8 million at yearend 2020 to $25.0 million at year ends 2018 and 2019. During the fourth quarter of 2020, the Bank prepaid $25.0 million of FHLB advances and obtained $10.0 million in new FHLB advances, which had a carrying value of $8.8 million at December 31, 2020. Over the five year period, borrowings ranged from a low of 3.93% of assets at yearend 2020 to a high of 11.44% of assets at yearend 2019. The Bank’s utilization of borrowings over the past five years has been limited to FHLB advances.
Since yearend 2016, retention of earnings and the adjustment for accumulated other comprehensive income translated into an annual capital growth rate of 2.19% for the Bank. Capital growth combined with a slight decrease in assets provided an increase in St. Landry Homestead’s equity-to-assets ratio from 20.62% at yearend 2016 to 22.53% at yearend 2020. All of the Bank’s capital is tangible capital, and the Bank maintained capital surpluses relative to all of its regulatory capital requirements at December 31, 2020. The addition of stock proceeds will serve to strengthen the Bank’s capital position, as well as support growth opportunities. At the same time, as the result of the significant increase that will be realized in the Bank’s pro forma capital position, St. Landry Homestead’s ROE will initially be depressed following its stock conversion.
Income and Expense Trends
Table 1.2 shows the Bank’s historical income statements for the past five years. The Bank’s reported earnings over the past five years ranged from a net loss of $684,000 or 0.29% of average assets during 2020 to a high of $1.7 million or 0.78% of average assets during 2017. Net interest income and operating expenses represent the primary components of the Bank’s earnings. Other revenues for the Bank are largely derived from service charges, which have become a more significant contributor to the Bank’s earnings in recent years. Loan loss provisions have had a varied impact on the Bank’s earnings over the past five years. Losses on foreclosed real estate (“REO”) have negatively impacted the Bank’s earnings throughout the past five years. In 2020, the Bank recorded $1.5 million expense in connection with the prepayment of $25.0 million of FHLB advances.
RP® Financial, LC. | OVERVIEW AND FINANCIAL ANALYSIS |
I.8 |
Table 1.2
St. Landry Homestead Federal Savings Bank
Historical Income Statements
For the Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
2016 | 2017 | 2018 | 2019 | 2020 | ||||||||||||||||||||||||||||||||||||
Amount | Pct(1) | Amount | Pct(1) | Amount | Pct(1) | Amount | Pct(1) | Amount | Pct(1) | |||||||||||||||||||||||||||||||
($000) | (%) | ($000) | (%) | ($000) | (%) | ($000) | (%) | ($000) | (%) | |||||||||||||||||||||||||||||||
Interest income | $ | 8,819 | 3.86 | % | $ | 8,591 | 3.85 | % | $ | 8,773 | 3.96 | % | $ | 8,968 | 4.04 | % | $ | 8,490 | 3.65 | % | ||||||||||||||||||||
Interest expense | (964 | ) | -0.42 | % | (872 | ) | -0.39 | % | (1,377 | ) | -0.62 | % | (1,907 | ) | -0.86 | % | (1,705 | ) | -0.73 | % | ||||||||||||||||||||
Net interest income | $ | 7,855 | 3.44 | % | $ | 7,719 | 3.46 | % | $ | 7,396 | 3.34 | % | $ | 7,061 | 3.18 | % | $ | 6,785 | 2.91 | % | ||||||||||||||||||||
Provision for loan losses | (592 | ) | -0.26 | % | (300 | ) | -0.13 | % | (377 | ) | -0.17 | % | (75 | ) | -0.03 | % | (985 | ) | -0.42 | % | ||||||||||||||||||||
Net interest income after provisions | $ | 7,263 | 3.18 | % | $ | 7,419 | 3.33 | % | $ | 7,019 | 3.17 | % | $ | 6,986 | 3.15 | % | $ | 5,800 | 2.49 | % | ||||||||||||||||||||
Non-interest operating income | $ | 600 | 0.26 | % | $ | 694 | 0.31 | % | $ | 652 | 0.29 | % | $ | 954 | 0.43 | % | $ | 966 | 0.41 | % | ||||||||||||||||||||
Operating expense | (5,362 | ) | -2.35 | % | (5,536 | ) | -2.48 | % | (5,761 | ) | -2.60 | % | (5,969 | ) | -2.69 | % | (6,117 | ) | -2.63 | % | ||||||||||||||||||||
Net operating income | $ | 2,501 | 1.09 | % | $ | 2,577 | 1.16 | % | $ | 1,910 | 0.86 | % | $ | 1,971 | 0.89 | % | $ | 649 | 0.28 | % | ||||||||||||||||||||
Non-Operating Income/(Losses) | ||||||||||||||||||||||||||||||||||||||||
Loss and expenses on foreclosed real estate | $ | (300 | ) | -0.13 | % | $ | (261 | ) | -0.12 | % | $ | (294 | ) | -0.13 | % | $ | (299 | ) | -0.13 | % | $ | (287 | ) | -0.12 | % | |||||||||||||||
Prepayment penalty on FHLB advances | 0 | 0.00 | % | - | 0.00 | % | 0 | 0.00 | % | - | 0.00 | % | (1,510 | ) | -0.65 | % | ||||||||||||||||||||||||
Net non-operating income(loss) | $ | (300 | ) | -0.13 | % | $ | (261 | ) | -0.12 | % | $ | (294 | ) | -0.13 | % | $ | (299 | ) | -0.13 | % | $ | (1,797 | ) | -0.77 | % | |||||||||||||||
Net income before tax | $ | 2,201 | 0.96 | % | $ | 2,316 | 1.04 | % | $ | 1,616 | 0.73 | % | $ | 1,672 | 0.75 | % | $ | (1,148 | ) | -0.49 | % | |||||||||||||||||||
Income tax provision | (784 | ) | -0.34 | % | (568 | ) | -0.25 | % | (266 | ) | -0.12 | % | (334 | ) | -0.15 | % | 464 | 0.20 | % | |||||||||||||||||||||
Net income (loss) | $ | 1,417 | 0.62 | % | $ | 1,748 | 0.78 | % | $ | 1,350 | 0.61 | % | $ | 1,338 | 0.60 | % | $ | (684 | ) | -0.29 | % | |||||||||||||||||||
Adjusted Earnings | ||||||||||||||||||||||||||||||||||||||||
Net income | $ | 1,417 | 0.62 | % | $ | 1,748 | 0.78 | % | $ | 1,350 | 0.61 | % | $ | 1,338 | 0.60 | % | $ | (684 | ) | -0.29 | % | |||||||||||||||||||
Add(Deduct): Non-operating income | 300 | 0.13 | % | 261 | 0.12 | % | 294 | 0.13 | % | 299 | 0.13 | % | 1,797 | 0.77 | % | |||||||||||||||||||||||||
Tax effect (2) | (102 | ) | -0.04 | % | (89 | ) | -0.04 | % | (62 | ) | -0.03 | % | (63 | ) | -0.03 | % | (377 | ) | -0.16 | % | ||||||||||||||||||||
Adjusted earnings | $ | 1,615 | 0.71 | % | $ | 1,920 | 0.86 | % | $ | 1,582 | 0.71 | % | $ | 1,574 | 0.71 | % | $ | 736 | 0.32 | % | ||||||||||||||||||||
Expense Coverage Ratio (3) | 1.46 | x | 1.40 | x | 1.28 | x | 1.18 | x | 1.11 | x | ||||||||||||||||||||||||||||||
Efficiency Ratio (4) | 63.51 | % | 65.78 | % | 71.63 | % | 74.52 | % | 79.22 | % |
(1) | Ratios are as a percent of average assets. |
(2) | Assumes a 34.0% effective tax rate for 2016 and 2017 and a 21.0% effective tax rate for 2018 through 2020. |
(3) | Expense coverage ratio calculated as net interest income before provisions for loan losses divided by operating expenses. |
(4) | Efficiency ratio calculated as operating expenses divided by the sum of net interest income before provisions for loan losses plus non-interest operating income. |
Sources: St. Landry Homestead's prospectus, audited & unaudited financial statements and RP Financial calculations.
RP® Financial, LC. | OVERVIEW AND FINANCIAL ANALYSIS |
I.9 |
Over the past five years, the Bank’s net interest income to average assets ratio ranged from a low of 2.91% during 2020 to a high of 3.46% during 2017. After peaking during 2017, the Bank’s net interest income ratio has trended lower during the past three years. The downward in the Bank’s net interest income ratio during 2018 and 2019 was largely attributable to interest rate spread compression that resulted from a more significant increase in the cost of interest-bearing liabilities relative to the increase in yield on interest-earning assets. Comparatively, during 2020, interest rate spread compression resulted from a more significant decrease in yield on interest-earning assets relative to the decrease in the cost of interest-bearing liabilities. The Bank’s net interest rate spreads and yields and costs for the past two years are set forth in Exhibits I-3 and I-5.
Non-interest operating income has generally been somewhat of a limited contributor to the Bank’s earnings over the past five years, although non-interest operating income has increased in recent years largely due to an increase in service charges. Over the past five years, non-interest operating income ranged from a low $600,000 or 0.26% of average assets in 2016 to a high of $966,000 or 0.41% of average assets in 2020. Service charges comprise the major source of the Bank’s non-interest operating income, with other sources of non-interest operating income consisting of income earned on BOLI and miscellaneous other sources of non-interest operating income.
Operating expenses represent the other major component of the Bank’s earnings, ranging from a low of $5.4 million or 2.35% of average assets during 2016 to a high of $6.1 million or 2.63% of average assets during 2020. Further upward pressure will be placed on the Bank’s operating expense ratio following the stock offering, due to expenses associated with operating as a publicly-traded company, including expenses related to the stock benefit plans. At the same time, the increase in capital realized from the stock offering will increase the Bank’s capacity to leverage operating expenses through pursuing a more aggressive growth strategy.
Overall, the general trends in the Bank’s net interest income and operating expense ratios over the past five years reflect a decrease in core earnings, as indicated by the Bank’s expense coverage ratio (net interest income divided by operating expenses). St. Landry Homestead’s expense coverage ratio decreased from 1.46 times during 2016 to 1.11 times during 2020. The decrease in the expense coverage ratio was attributable to a both a decrease in the net interest income ratio and an increase in the operating expense ratio. Similarly, St. Landry Homestead’s efficiency ratio (operating expenses as a percent of the sum of net interest income plus non-interest operating income) trended less favorably from 63.51% during 2016 to 79.22% during 2020. An increase in the operating expense ratio and a decrease in the net interest income ratio accounted for the increase in the Bank’s efficiency ratio, which were partially offset by an increase in the ratio for non-interest operating income.
RP® Financial, LC. | OVERVIEW AND FINANCIAL ANALYSIS |
I.10 |
During the period covered in Table 1.2, the amount of loan loss provisions recorded by the Bank ranged from $75,000 or 0.03% of average assets during 2019 to $985,000 or 0.42% of average assets during 2020. The higher loan loss provisions that were established in 2020 were largely to address the continued economic uncertainty resulting from the Covid-19 pandemic. As of December 31, 2020, the Bank maintained valuation allowances of $3.0 million, equal to 1.99% of total loans and 180.74% of non-performing loans. As of December 31, 2020, non-performing loans totaled $1.7 million or 1.10% of total loans. Exhibit I-6 sets forth the Bank’s loan loss allowance activity during the past two years.
Except for the prepayment penalty on FHLB advances, non-operating income and losses over the past five years have been limited to losses on REO. Over the past five years, non-operating losses ranged from $261,000 or 0.12% of average assets during 2017 to $1.8 million or 0.77% of average assets during 2020. For 2020, the non-operating loss consisted of a loss on REO of $287,000 and a prepayment penalty on FHLB advances of $1.5 million.
The Bank’s effective tax rate ranged from a tax benefit of 40.42% during 2020 to a tax expense of 35.62% during 2016. As set forth in the prospectus, the Bank’s marginal effective statutory tax rate is 21.0%.
Interest Rate Risk Management
The Bank’s balance sheet is slightly liability sensitive in the short-term (less than one year). As interest rates have remained at or near historically low levels for an extended period of time, the Bank experienced interest spread compression during the past three years as the average cost of interest-bearing liabilities increased more than average yield on earning-assets during 2018 and 2019. Comparatively, during 2020 interest rate spread compression resulted from a more significant decrease in yield on earning-assets relative to the decrease in the cost of interest-bearing liabilities. The Bank’s interest rate risk analysis indicated that as of December 31, 2020, in the event of a 200 basis point instantaneous parallel decrease in interest rates, the Bank’s net portfolio value would decline by 2.5% and net interest income would increase by 3.6% in year 1 (see Exhibit I-7).
RP® Financial, LC. | OVERVIEW AND FINANCIAL ANALYSIS |
I.11 |
The Bank pursues a number of strategies to manage interest rate risk, particularly with respect to seeking to limit the repricing mismatch between interest rate sensitive assets and liabilities. The Bank manages interest rate risk from the asset side of the balance sheet through maintaining a high level of liquidity in the prevailing low interest rate environment, maintaining a portion of the investment securities portfolio as available for sale, emphasizing origination of 1-4 family loans with adjustable rates and diversifying into other types of lending beyond 1-4 family permanent mortgage loans which consist primarily of adjustable rate or shorter term fixed rate balloon loans. As of December 31, 2020, of the Bank’s total loans due after December 31, 2021, adjustable rate loans comprised 74.66% of those loans (see Exhibit I-8). On the liability side of the balance sheet, management of interest rate risk has been pursued through emphasizing growth of lower costing and less interest rate sensitive transaction and savings account deposits. Transaction and savings account deposits comprised 57.87% of the Bank’s deposits at December 31, 2020.
Management of the Bank’s interest rate risk is also facilitated by maintenance of a strong capital position and resulting favorable IEA/IBL ratio. The infusion of stock proceeds will serve to further limit the Bank’s interest rate risk exposure, as most of the net proceeds will be redeployed into interest-earning assets and the increase in the Bank’s capital position will lessen the proportion of interest rate sensitive liabilities funding assets.
Lending Activities and Strategy
St. Landry Homestead’s lending activities have emphasized 1-4 family permanent mortgage loans and such loans comprise the major portion of the Bank’s loan portfolio. Beyond 1-4 family loans, lending diversification by the Bank has emphasized commercial real estate/multi-family loans followed by construction/land loans. Other areas of lending diversification for the Bank include commercial business loans and consumer loans. Pursuant to the Bank’s strategic plan, the Bank is pursuing a diversified lending strategy emphasizing commercial real estate and commercial business loans as the primary area of targeted loan growth. Exhibit I-9 provides historical detail of St. Landry Homestead’s loan portfolio composition over the past two years and Exhibit I-10 provides the contractual maturity of the Bank’s loan portfolio by loan type as of December 31, 2020.
1-4 Family Residential Loans. St. Landry Homestead offers both fixed rate and adjustable rate 1-4 family permanent mortgage loans with terms of up to 30 years, which are substantially secured by local properties. Loan originations are generally underwritten to secondary market guidelines, so as to provide the Bank with the flexibility to sell the loans into the secondary market for purposes of managing interest rate risk. Adjustable rate loans offered by the Bank either adjust on an annual basis or are fixed for the initial three or five years and then adjust every three or five years thereafter. As of December 31, 2020, the Bank’s outstanding balance of 1-4 residential mortgage loans totaled $99.9 million or 65.79% of total loans outstanding.
RP® Financial, LC. | OVERVIEW AND FINANCIAL ANALYSIS |
I.12 |
Commercial Real Estate and Multi-Family Loans. Commercial real estate and multi-family loans consist largely of loans originated by the Bank, which are generally collateralized by properties in the Bank’s market area. On a limited basis, the Bank has supplemented originations of commercial real estate and multi-family loans with purchased loan participations from local banks. Loan participations are subject to the same underwriting criteria and loan approvals as applied to loans originated by the Bank. St. Landry Homestead generally originates commercial real estate and multi-family loans up to a loan-to-value LTV ratio of 80% of the lesser of the purchase price or the appraised value of the property securing the loan and generally requires a minimum debt-coverage ratio of 1.2 times. Commercial real estate and multi-family loans are typically originated as adjustable rate loans, and to a lesser extent as fixed rate loans, with amortization terms of up to 20 years. Interest rates on adjustable rate loans are generally indexed to the prime rate as published in The Wall Street Journal. Properties securing the commercial real estate and multi-family loan portfolio include hotels, retail and industrial use buildings, strip shopping centers, apartments, restaurants and farmland. As of December 31, 2020, the Bank’s largest commercial real estate loan had an outstanding balance of $4.3 million and this loan was performing in accordance with its original terms. At December 31, 2020, the Bank’s largest multi-family loan had an outstanding balance of $2.1 million and is secured by an 86-unit apartment complex. At December 31, 2020, this loan was performing in accordance with its original terms. As of December 31, 2020, the Bank’s outstanding balance of commercial real estate and multi-family loans totaled $35.2 million or 23.16% of total loans outstanding
RP® Financial, LC. | OVERVIEW AND FINANCIAL ANALYSIS |
I.13 |
Construction and Land Loans. The largest component of the Bank’s construction and land loans at December 31, 2020 consisted of loans secured by raw land (unimproved and unplatted) and lot loans (land which has been subdivided and platted), which had an aggregate outstanding balance of $3.3 million at such date. Such loans are generally secured by properties in the Bank’s market area and have maximum terms to maturity of five years in the case of raw land or eight years in the case of lot loans. The Bank’s policy generally is that such loans have maximum LTV ratios of 65% in the case of raw land or 85% in the case of lot loans, although, on an exception basis, the Bank has approved loan-to-value ratios up to 100% for land and lot loans not exceeding $100,000 and up to 90% for land and lot loans over $100,000. At December 31, 2020, the Bank’s construction and land loans included a $1.3 million, 36.4% participation interest in a $5.5 million acquisition, development and construction loan secured by property in a 143 acre mixed-use, master-planned development located in Scott, Louisiana, a suburb of Lafayette. Such loan has a remaining term to maturity of four months and has performed in accordance with its terms. The Bank’s construction and land loans also included 10 single-family residential construction loans with an aggregate outstanding balance of $936,000 at December 31, 2020. Of the 10 single-family residential construction loans at December 31, 2020, nine, with an outstanding loan balance of $851,000 at such date, consisted of construction loans to individuals for the construction and permanent financing (“construction/permanent loans”) of their homes. The Bank’s construction/permanent loans are structured to provide one closing for both the construction loan and the permanent financing. Construction/permanent loans require payment of interest only during the construction phase and are structured to be converted to fixed- or adjustable-rate permanent loans at the end of the construction phase. The Bank’s construction/permanent loans have a maximum LTV ratio of 80% during the construction phase. All of such loans had terms to maturity of 12 or 13 months and all were performing in accordance with their terms. As of December 31, 2020, St. Landry Homestead’s outstanding balance of construction and land loans totaled equaled $5.5 million or 3.65% of total loans outstanding.
Commercial Business Loans. The commercial business loan portfolio is generated through extending loans to small-to medium-sized businesses operating in the local market area. Commercial business lending is a targeted area of loan growth for the Bank, pursuant to which the Bank is seeking to become a full service community bank to its commercial loan customers through offering a full range of commercial loan products that can be packaged with lower cost commercial deposit products. Commercial business loans offered by the Bank include loans for working capital, equipment financing, inventory financing or accounts receivable financing. Commercial and industrial loans may have adjustable or fixed rates of interest and generally have terms of five years or less but may go up to seven years. Commercial and industrial loans include unsecured loans and loans secured by equipment, machinery or other corporate assets. The maximum LTV ratio for commercial and industrial loans generally is 75% and the Bank typically requires a debt service coverage ratio of 1.5x on such loans. In addition, the Bank generally obtains personal guarantees from the principals of the borrower with respect to all commercial industrial loans. At December 31, 2020, approximately $4.3 million of the Bank’s commercial and industrial loans were unsecured. This amount included 85 SBA PPP loans with an aggregate outstanding balance of $3.5 million at such date. As of December 31, 2020, the Bank’s outstanding balance of commercial business loans totaled $6.7 million or 4.54% of total loans outstanding.
RP® Financial, LC. | OVERVIEW AND FINANCIAL ANALYSIS |
I.14 |
Consumer Loans. Consumer lending has been a fairly limited area of lending diversification for the Bank, with such loans consisting of loans secured by deposits, automobile loans, boat loans, recreational vehicle loans and unsecured personal loans. As of December 31, 2020, the Bank held $4.5 million of consumer loans equal to 2.96% of total loans outstanding.
Exhibit I-11 provides a summary of the Bank’s lending activities over the past two years. Total loans originated decreased from $24.3 million in 2019 to $18.3 million in 2020. The decrease in loans originated during 2020 was primarily related to a decrease in commercial real estate loan originations and, to a lesser extent, lending volumes for 1-4 family loans, construction/land loans, multi-family loans and consumer loans also declined in 2020. Comparatively, originations of commercial business loans increased during 2020. The Bank’s self-generated loan production was supplemented with loan purchases of $3.1 million in 2019 and $1.3 million in 2020. Loan principal repayments increased from $25.4 million in 2019 to $33.2 million in 2020. Overall, net loan activity decreased from an increase of $666,000 in 2016 to a decrease of $12.8 million during 2020.
Asset Quality
Over the past two years, St. Landry Homestead’s balance of non-performing assets ranged from a high of $2.9 million or 1.31% of assets at yearend 2019 to a low of $2.1 million or 0.93% of assets at yearend 2020. As shown in Exhibit I-12, non-performing assets at December 31, 2020 consisted of $380,000 of accruing loans 90 days or more past due, $1.3 million of non-accruing loans and $415,000 of REO. Non-accruing loans held by the Bank at December 31, 2020 were concentrated in 1-4 family permanent mortgage loans totaling $1.6 million.
To track the Bank’s asset quality and the adequacy of valuation allowances, the Bank has established detailed asset classification policies and procedures which are consistent with regulatory guidelines. Classified assets are reviewed monthly by senior management and the Board. Pursuant to these procedures, when needed, the Bank establishes additional valuation allowances to cover anticipated losses in classified or non-classified assets. As of December 31, 2020, the Bank maintained loan loss allowances of $3.0 million, equal to 1.99% of total loans receivable and 180.74% of non-performing loans.
RP® Financial, LC. | OVERVIEW AND FINANCIAL ANALYSIS |
I.15 |
Funding Composition and Strategy
Deposits have consistently served as the Bank’s primary funding source and at December 31, 2020 deposits accounted for 94.90% of St. Landry Homestead’s combined balance of deposits and borrowings. Exhibit I-13 sets forth the Bank’s deposit composition for the past two years. Transaction and savings account deposits constituted 57.87% of total deposits at December 31, 2020, as compared to 54.17% of total deposits at December 31, 2019. The increase in the concentration of core deposits comprising total deposits from yearend 2019 to yearend 2020 was the result of comparatively stronger growth of core deposits relative to the increase in CDs that was recorded during 2020. As of December 31, 2020, checking accounts comprised the largest concentration of the Bank’s core deposits equaling 59.90% of core deposits.
The balance of the Bank’s deposits consists of CDs, which equaled 42.13% of total deposits at December 31, 2020 compared to 45.83% of total deposits at December 31, 2019. St. Landry Homestead’s current CD composition reflects a higher concentration of short-term CDs (maturities of one year or less). The CD portfolio totaled $69.3 million at December 31, 2020 and $53.2 million or 76.77% of the CDs were scheduled to mature in one year or less. Exhibit I-14 sets forth the maturity schedule of the Bank’s CDs as of December 31, 2020. As of December 31, 2020, jumbo CDs (CD accounts with balances of $100,000 or more) amounted to $47.5 million or 68.47% of total CDs. The Bank held $9.0 million of brokered CDs at December 31, 2020.
RP® Financial, LC. | OVERVIEW AND FINANCIAL ANALYSIS |
I.16 |
Borrowings serve as an alternative funding source for the Bank to facilitate management of funding costs and interest rate risk. FHLB advances have been the only source of borrowings utilized by the Bank over the past five years. During the fourth quarter of 2020, the Bank repaid $25.0 million of outstanding FHLB advances, which had a weighted average cost of 3.18% and remaining terms to maturity of three to five years. The Bank obtained $10.0 million (contractual amount) in new advances from the FHLB with a weighted average cost of 0.93% and maturities ranging from five to eight years. The Bank recognized $1.5 million in FHLB prepayment penalties as non-interest expense in the year ended December 31, 2020. The new advances are accounted for as a debt modification and had a carrying value of $8.8 million at December 31,2020, with $1.2 million to be recognized as an adjustment to interest expense over the lives of the advances. The repayment and modification of FHLB advances is expected to reduce the Bank’s interest expenses.
Legal Proceedings
St. Landry Homestead is not currently party to any pending legal proceedings that the Bank’s management believes would have a material adverse effect on the Bank’s financial condition, results of operations or cash flows.
RP® Financial, LC. |
MARKET
AREA
II.1 |
II. MARKET AREA
Introduction
St. Landry Homestead serves the Acadiana region of south-central Louisiana through the main office and three branch offices in St. Landry Parish and one additional branch office is maintained in Lafayette Parish. Exhibit II-1 provides information on the Bank’s office properties.
The primary market area served by the Bank is largely suburban in nature. St. Landry Homestead’s competitive environment includes a number of thrifts, commercial banks and other financial service providers, some of which have a regional or national presence. While oil-related businesses continues to be an integral component of the south-central Louisiana economy, the primary market area economy is fairly diversified with energy services, manufacturing healthcare, technology, finance, tourism and other service-related industries constituting the basis of the primary market area economy.
Future growth opportunities for the Bank depend on the future growth and stability of the regional economy, demographic growth trends, and the nature and intensity of the competitive environment. These factors have been briefly examined to help determine the growth potential that exists for the Bank and the relative economic health of the Bank’s market area.
National Economic Factors
In assessing national economic trends over the past few quarters, July 2020 manufacturing activity increased to an index reading of 54.2 and July service sector activity accelerated to an index reading of 58.1. U.S. employers added 1.8 million jobs in July and the July unemployment rate fell to 10.2%. In late-July, economic data suggested that the economic recovery was stalling, as filings for initial unemployment claims rose for two consecutive weeks after nearly four months of declining weekly unemployment claims and second quarter GDP contracted at a record annual rate of 32.9%. July existing home sales increased 24.7%, while new home sales in July rose 13.9%. At the same time, the number of homeowners that were at least 90 days delinquent soared to a 10-year high in July. August manufacturing activity accelerated to an index reading of 56.0. Comparatively, August service sector activity slowed to an index 56.9. The U.S. economy added 1.4 million jobs in August and the August unemployment rate declined to 8.4%. Record low mortgage rates helped to fuel a 2.4% increase in August existing home sales and a 4.8% increase in August new home sales. August retail sales increased 0.6%, while durable-goods orders for August increased 0.4%. The consumer confidence index for September surged to 101.8, which was its highest level since March. September manufacturing activity increased to an index reading of 55.4, while September service sector activity accelerated to an index reading of 57.8. The U.S. economy added 661,000 jobs in September and the September unemployment rate dropped to 7.9%. Existing home sales for September increased 9.4%, versus a 3.5% decline in September new home sales. Third quarter GDP rebounded from the pandemic-induced slump, increasing at a 33.1% annualized pace.
RP® Financial, LC. |
MARKET
AREA
II.2 |
Manufacturing activity for October 2020 expanded at its quickest pace in more than two years with an index reading of 59.3, while October service sector activity declined to an index reading of 56.6. U.S. employers added 638,000 jobs in October and the October unemployment rate dropped to 6.9%. October existing home sales rose to a 14-year high with an increase of 4.3% from September existing home sales, as low borrowing costs and a shift in living preferences during the pandemic fueled a surge in home purchases. November manufacturing and service activity slowed to respective index readings of 57.5 and 55.9. The U.S. economy added 245,000 job in November, which was less than expected, and the November unemployment rate dropped to 6.7%. November retail sales dropped 1.1%, amid a surge in coronavirus infections and new business restrictions. Existing home sales declined 2.5% in November, versus an 11.0% decline in November new home sales. Manufacturing activity for December accelerated to an index reading of 60.7, while service sector activity for December accelerated to an index reading of 57.2. U.S. payrolls for December declined by 140,000 which was the first decline since April. The December unemployment rate remained at 6.7%. Retail sales for December were down 0.7%. Existing and new home sales for December increased by 0.7% and 1.6%, respectively. Fourth quarter GDP increased at a 4.0% annualized rate, while GDP for all of 2020 contracted 3.5%.
January 2021 manufacturing activity slowed to an index reading of 58.7, while service sector activity for January accelerated to an index reading of 58.7. U.S. employers added 49,000 jobs in January and the January unemployment rate fell to 6.3%.
RP® Financial, LC. |
MARKET
AREA
II.3 |
In terms of interest rates trends over the past few quarters, a stable interest rate environment prevailed at the start of the third quarter of 2020. Long-term Treasury yields edged lower going into the second half of July, as a surge in coronavirus cases forced a number of states to reimpose lockdown measures. In mid-July, the average rate on a 30-year fixed rate mortgage fell to 2.98%, its lowest level on record. The 10-year Treasury yield edged below 0.60% going into late-July. At the conclusion of its late-July policy meeting, the Federal Reserve left its benchmark rate near zero and reiterated that it would continue to support the economy. The 10-year Treasury yield remained below 0.60% heading into mid-August and then trended up slightly to above 0.70% in late-August after the Federal Reserve dropped its long-standing practice of pre-emptively lifting interest rates to head off higher inflation. At the start of September, the 10-year Treasury yield fell below 0.70% and then edged back up over 0.70% with the release of the August employment report. For the balance of September, the 10-year Treasury yield stabilized in a range between 0.64% and 0.71% as the Federal Reserve signaled that it would keep its benchmark rate near zero through 2023.
Economic reports indicating the U.S. economy was continuing to improve and hopes of a new coronavirus relief deal pushed the 10-year Treasury yield above 0.75% in early-October 2020, which was followed by long-term Treasury yields stabilizing through mid-October. After increasing to a yield of 0.85% heading into late-October, the 10-year Treasury edged lower at the beginning of the last week of October as a surge in coronavirus cases added to worries about the economic outlook in the absence of a stimulus deal. Stronger-than-expected third quarter GDP growth pushed the 10-year Treasury yield up to 0.88% at the end of October. After edging lower with the release of the October employment report, long-term Treasury yields surged higher in the second week of November on news that a coronavirus vaccine being developed was 90% effective. Long-term Treasury yields edged lower going into the second half of November, as states implemented new lockdown measures amid a resurgence of coronavirus infections. Promising results for multiple Covid-19 vaccines and signs that U.S. lawmakers were committed to completing a new Covid-19 relief package contributed to long-term Treasury yields edging higher in early-December, which was followed by interest rates stabilizing for the balance of 2020. At its final meeting of the year in mid-December, the Federal Reserve left its benchmark at near zero and made no changes to its asset purchase program.
Interest rates remained stable at the start of 2021 and then edged higher following the Georgia Senate election run-offs in early-January, as the 10-year Treasury yield climbed above 1.0% on expectations that additional fiscal stimulus would be forthcoming with Democrats taking control of the Senate. The 10-year Treasury yield stabilized around 1.10% going into the last week of January and then edged lower at the end of January, amid concerns of delays in distribution of the Covid-19 vaccine and the ability to end lockdowns or other restrictions. The Federal Reserve concluded its late-January meeting leaving its benchmark rate near zero and keeping its easy money policies in place. Expectations of more stimulus pushed long-term Treasury yields higher at the end of January and the first week of February, which provided for some steepening of the yield curve. As of February 5, 2021, the bond equivalent yields for U.S. Treasury bonds with terms of one and ten years equaled 0.06% and 1.19%, respectively, versus comparable year ago yields of 1.49% and 1.66%. Exhibit II-2 provides historical interest rate trends.
RP® Financial, LC. |
MARKET
AREA
II.4 |
Based on the consensus outlook of economists surveyed by The Wall Street Journal in January 2021, GDP growth was projected to increase 4.3% in 2021 and then decrease to 3.0% in 2022. The U.S. unemployment rate was forecasted to equal 6.1% in June 2021 and then decrease to 5.3% in December 2021. An average of 419,000 jobs were projected to be added per month over the next four quarters. On average, the economists forecasted the federal funds rate to equal 0.13% in June 2021 and then edge up to 0.14% in December 2021. On average, the economists forecasted that the 10-year Treasury yield would equal 1.24% in June 2021 and then increase to 1.44% in December 2021. The surveyed economists also forecasted home prices would rise by 5.5% in 2021 and 2020 housing starts were forecasted to increase from 1.38 million in 2020 to 1.49 million in 2021.
The January 2021 mortgage finance forecast from the Mortgage Bankers Association (the “MBA”) was for 2021 existing home sales to increase by 10.2% from 2020 sales and new home sales were forecasted to increase by 18.1% in 2021 from sales in 2020. The 2021 median sale prices for existing and new homes were forecasted to increase by 3.2% and 0.4%, respectively. Total mortgage production was forecasted to decrease in 2021 to $2.719 trillion, compared to $3.573 trillion in 2020. The forecasted decrease in 2021 originations was based on a 10.5% increase in purchase volume and a 46.7% decrease in refinancing volume. Purchase mortgage originations were forecasted to total $1.574 trillion in 2021, versus refinancing volume totaling $1.145 trillion. Housing starts for 2021 were projected to increase by 7.2% to total 1.481 million.
Market Area Demographics
Key demographic and economic indicators for the Bank’s market area include population, number of households and household/per capita income levels. Demographic data for St. Landry Parish and Lafayette Parish, as well as comparative data for Louisiana and the U.S., is provided in Table 2.1.
RP® Financial, LC. |
MARKET
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II.5 |
Table 2.1 |
St. Landry Homestead Federal Savings Bank |
Summary Demographic Data |
Year | Growth Rate | |||||||||||||||||||
2016 | 2021 | 2026 | 2016-2021 | 2021-2026 | ||||||||||||||||
(000) | (000) | (000) | (%) | (%) | ||||||||||||||||
Population (000) | ||||||||||||||||||||
USA | 322,431 | 330,946 | 340,574 | 0.5 | % | 0.6 | % | |||||||||||||
Louisiana | 4,685 | 4,646 | 4,678 | -0.2 | % | 0.1 | % | |||||||||||||
St. Landry, LA | 84 | 82 | 81 | -0.6 | % | -0.2 | % | |||||||||||||
Lafayette, LA | 242 | 247 | 255 | 0.4 | % | 0.6 | % | |||||||||||||
Households (000) | ||||||||||||||||||||
USA | 122,265 | 125,733 | 129,596 | 0.6 | % | 0.6 | % | |||||||||||||
Louisiana | 1,808 | 1,800 | 1,821 | -0.1 | % | 0.2 | % | |||||||||||||
St. Landry, LA | 32 | 32 | 32 | -0.4 | % | -0.1 | % | |||||||||||||
Lafayette, LA | 96 | 99 | 103 | 0.6 | % | 0.8 | % | |||||||||||||
Median Household Income ($) | ||||||||||||||||||||
USA | 55,551 | 67,761 | 73,868 | 4.1 | % | 1.7 | % | |||||||||||||
Louisiana | 46,924 | 50,330 | 53,301 | 1.4 | % | 1.2 | % | |||||||||||||
St. Landry, LA | 34,708 | 33,134 | 32,769 | -0.9 | % | -0.2 | % | |||||||||||||
Lafayette, LA | 59,207 | 56,279 | 56,054 | -1.0 | % | -0.1 | % | |||||||||||||
Per Capita Income ($) | ||||||||||||||||||||
USA | 30,002 | 37,689 | 41,788 | 4.7 | % | 2.1 | % | |||||||||||||
Louisiana | 26,430 | 29,539 | 31,568 | 2.2 | % | 1.3 | % | |||||||||||||
St. Landry, LA | 20,276 | 20,112 | 20,038 | -0.2 | % | -0.1 | % | |||||||||||||
Lafayette, LA | 32,933 | 31,735 | 31,809 | -0.7 | % | 0.0 | % | |||||||||||||
2021 Age Distribution (%) | 0-14 Yrs. | 15-34 Yrs. | 35-54 Yrs. | 55-69 Yrs. | 70+ Yrs. | |||||||||||||||
USA | 18.3 | 26.8 | 25.1 | 18.4 | 11.4 | |||||||||||||||
Louisiana | 19.5 | 27.0 | 24.5 | 18.3 | 10.8 | |||||||||||||||
St. Landry, LA | 22.4 | 25.5 | 22.3 | 18.5 | 11.3 | |||||||||||||||
Lafayette, LA | 19.8 | 28.0 | 25.7 | 17.2 | 9.3 | |||||||||||||||
2021 HH Income Dist. (%) | Less Than 25,000 | $25,000 to 50,000 | $50,000 to 100,000 | $100,000+ | ||||||||||||||||
USA | 18.0 | 20.3 | 29.0 | 32.7 | ||||||||||||||||
Louisiana | 26.8 | 23.0 | 26.7 | 23.5 | ||||||||||||||||
St. Landry, LA | 41.1 | 23.9 | 21.2 | 13.8 | ||||||||||||||||
Lafayette, LA | 24.0 | 21.6 | 30.2 | 24.3 |
Source: S&P Global Market Intelligence
RP® Financial, LC. |
MARKET
AREA
II.6 |
St. Landry Parish, where the Bank maintains its main office and three branch offices, maintained a population of 82,000 as of 2021. Lafayette Parish, where the Bank maintain a recently opened de novo branch, maintained a population of 247,000 as of 2021. From 2016 to 2021, St. Landry’s Parish’s population decreased at an annual rate of 0.6% and Lafayette Parish’s population increased at a 0.4% annual rate. Comparatively, over the past five years, Louisiana’s population decreased at a 0.2% annual rate, versus a 0.5% annual growth rate for the U.S.
For the 2016 to 2021 period, household growth rates paralleled population growth trends in both market area counties, as well as for the U.S. and Louisiana. St. Landry Parish experienced a 0.4% annual decline in households, versus a 0.6% annual increase in households for Lafayette Parish, a 0.1% annual decrease in households for Louisiana and a 0.6% annual increase in households for the U.S. Population and household growth trends for both market area counties, as well as for Louisiana and the U.S., are generally expected to continue over the next five years, although projected population and household growth for Louisiana is projected to be positive and the rate of decline in population and households for St. Landry Parish is projected to be less.
Income measures show that Lafayette Parish is a relatively affluent market, with median household and per capita income measures exceeding the comparable Louisiana measures. Comparatively, St. Landry Parish’s median household and per capita income measures were well below the comparable Louisiana measures. Household and per capita income measures for the U.S. were above the comparable measures for Louisiana and both of the primary market area parishes. Projected income growth rates for both parishes were less than the comparable projected growth rates for Louisiana and the U.S. Household income distribution measures provide another indication of the relative affluence of Lafayette Parish. Lafayette Parish maintained a relatively high percentage of households with incomes above $100,000 at 24.3%, which exceeded the comparable ratios of 13.8% and 23.5% for St. Landry Parish and Louisiana, respectively. Age distribution measures reflect that St. Landry Parish and Lafayette Parish have fairly similar age distributions relative to the Louisiana and U.S. age distribution measures.
RP® Financial, LC. |
MARKET
AREA
II.7 |
Local Economy
Economic activity in the Acadiana region of south-central Louisiana continues to be influenced by oil-related businesses, while also exhibiting a fair degree of diversification in a number of business sectors such as energy services, manufacturing, healthcare, technology, finance, tourism and other service-related industries. Comparative employment data shown in Table 2.2 shows that employment in services constituted the major source of jobs in Lafayette Parish and Louisiana, while education/healthcare/social services employment represented the largest employment sector in St. Landry Parish and the second largest employment sector Lafayette Parish. Services employment constituted the second largest employment sector for St. Landry Parish, followed by finance/insurance/real estate and manufacturing employment for both parishes. Compared to Louisiana, St. Landry Parish maintained higher levels of employment in education/healthcare/social services, finance/insurance/real estate and manufacturing and a lower level of employment in services. Compared to Louisiana, Lafayette Parish maintained higher levels of employment in services and manufacturing and a lower level of employment in finance/insurance/real estate.
Table 2.2 |
St. Landry Homestead Federal Savings Bank |
Primary Market Area Employment Sectors |
(Percent of Labor Force) |
St. Landry | Lafayette | |||||||||||
Employment Sector | Louisiana | Parish | Parish | |||||||||
(%) | (%) | |||||||||||
Services | 25.6 | % | 20.5 | % | 27.0 | % | ||||||
Education,Healthcare, Soc. Serv. | 23.8 | % | 26.7 | % | 23.9 | % | ||||||
Government | 1.6 | % | 1.1 | % | 2.4 | % | ||||||
Wholesale/Retail Trade | 10.3 | % | 8.5 | % | 8.1 | % | ||||||
Finance/Insurance/Real Estate | 14.8 | % | 17.8 | % | 14.3 | % | ||||||
Manufacturing | 7.8 | % | 9.5 | % | 11.8 | % | ||||||
Construction | 8.2 | % | 7.9 | % | 6.1 | % | ||||||
Information | 1.5 | % | 1.1 | % | 1.7 | % | ||||||
Transportation/Utility | 5.4 | % | 5.5 | % | 4.3 | % | ||||||
Agriculture | 1.1 | % | 1.3 | % | 0.5 | % | ||||||
100.0 | % | 100.0 | % | 100.0 | % |
Source: S&P Global Market Intelligence |
RP® Financial, LC. |
MARKET
AREA
II.8 |
Table 2.3, which lists the largest employers in St. Landry Parish and Lafayette Parish, further reveals the economic makeup of the Bank’s market area. The largest employers in the regional market area are concentrated in healthcare, education, energy and government.
Table 2.3 |
St. Landry Homestead Federal Savings Bank |
Market Area Largest Employers |
Employer | Industry | Size |
St. Landry Parish | ||
Opelousas General Health System | Healthcare | 1,180 |
Wal-mart Super Center | Retail | 694 |
Evangeline Downs Racetrack & Casino | Casino & Entertainment | 643 |
Wal-Mart Distribution Center | Warehouse | 579 |
Precision Drilling | Drilling Equipment | 400 |
Immaculate Heart of Mary | Church | 385 |
Waveland Corporation | Offshore Surfacing | 287 |
Ventura Foods, LLC | Food Manufacturing | 250 |
Tanner Services & Rentals, LLC | Construction Equipment Rental | 204 |
Acadian Medical Center | Healthcare | 200 |
Lafayette Parish | ||
Lafayette Parish School System | Education | 4,556 |
Lafayette Consolidated Government | Government | 2,237 |
Lafayette General Medical | Healthcare | 1,998 |
Schlumberger | Energy Equipment | 1,988 |
Wood Group Production Services | Energy Equipment | 1,900 |
Sources: St. Landry Economic Development and Lafayette Economic Development Authority
Unemployment Trends
Comparative unemployment rates for St. Landry and Lafayette Parishes, as well as for Louisiana and the U.S., are shown in Table 2.4. The December 2020 unemployment rates for St. Landry and Lafayette Parishes equaled 7.5% and 5.6%, respectively, which were higher and lower than the comparable unemployment rates of 6.9% for Louisiana and 6.5% for the U.S. Pursuant to the coronavirus-induced recession, the December 2020 unemployment rates for the primary market area parishes, Louisiana and the U.S. were all higher compared to a year ago.
RP® Financial, LC. |
MARKET
AREA
II.9 |
Table 2.4 |
St. Landry Homestead Federal Savings Bank |
Unemployment Trends |
Unemployment Rate | Net | |||||||||||
Region | Dec. 2019 | Dec. 2020 | Change | |||||||||
USA | 3.4 | % | 6.5 | % | 3.1 | % | ||||||
Louisiana | 4.9 | % | 6.9 | % | 2.0 | % | ||||||
Saint Landry, LA | 6.6 | % | 7.5 | % | 0.9 | % | ||||||
Lafayette, LA | 4.4 | % | 5.6 | % | 1.2 | % | ||||||
Source: S&P Global Market Intelligence |
Market Area Deposit Characteristics and Competition
The Bank’s deposit base has been closely tied to the economic fortunes of St. Landry Parish and, in particular, the areas of St. Landry Parish that are nearby to one of St. Landry Homestead’s four office locations. The Bank’s branch location in Lafayette Parish was opened subsequent to June 30, 2020. Table 2.5 displays deposit market trends from June 30, 2015 through June 30, 2020 for St. Landry Homestead, as well as for all commercial bank and savings institution branches located in St. Landry Parish and the state of Louisiana. St. Landry Homestead is the only thrift institution with branches located in St. Landry Parish. Accordingly, consistent with the state of Louisiana, commercial banks maintained a significantly larger market share of deposits than savings institutions in St. Landry Parish. For the five year period covered in Table 2.5, St. Landry Homestead experienced a decline in deposits and deposit market share in St. Landry Parish. Overall, from June 30, 2015 to June 30, 2020, bank and thrift deposits increased at an annual rate of 3.9% in St. Landry Parish.
Based on June 30, 2020 deposit data, the Bank maintained a 10.1% deposit market share of bank and thrift deposits in St. Landry Parish. During the five year period covered in Table 2.5, the Bank’s deposit market share in St. Landry Parish declined from 13.1% to 10.1%.
RP® Financial, LC. |
MARKET
AREA
II.10 |
Table 2.5
St. Landry Homestead Federal Savings Bank |
Deposit Summary |
As of June 30, | ||||||||||||||||||||||||||||
2015 | 2020 | Deposit | ||||||||||||||||||||||||||
Market | No. of | Market | No. of | Growth Rate | ||||||||||||||||||||||||
Deposits | Share | Branches | Deposits | Share | Branches | 2015-2020 | ||||||||||||||||||||||
(Dollars in Thousands) | (%) | |||||||||||||||||||||||||||
Louisiana | $ | 99,971,072 | 100.0 | % | 1,584 | $ | 124,057,773 | 100.0 | % | 1,413 | 4.4 | % | ||||||||||||||||
Commercial Banks | $ | 96,433,026 | 96.5 | % | 1,498 | $ | 120,152,222 | 96.9 | % | 1,331 | 4.5 | % | ||||||||||||||||
Savings Institutions | $ | 3,538,046 | 3.5 | % | 86 | $ | 3,905,551 | 3.1 | % | 82 | 2.0 | % | ||||||||||||||||
St. Landry Parish | $ | 1,308,282 | 100.0 | % | 38 | $ | 1,582,235 | 100.0 | % | 38 | 3.9 | % | ||||||||||||||||
Commercial Banks | $ | 1,136,314 | 86.9 | % | 35 | $ | 1,422,517 | 89.9 | % | 34 | 4.6 | % | ||||||||||||||||
Savings Institutions | $ | 171,968 | 13.1 | % | 3 | $ | 159,718 | 10.1 | % | 4 | -1.5 | % | ||||||||||||||||
St. Landry Homestead FSB | $ | 171,968 | 13.1 | % | 3 | $ | 159,718 | 10.1 | % | 4 | -1.5 | % |
Sources: FDIC, S&P Global Market Intelligence and RP Financial calculations.
Financial institution competitors in St. Landry Parish include other locally-based banks, as well as regional, super-regional and money center banks. With regard to lending competition, the Bank encounters the most significant competition from the same institutions providing deposit services. In addition, the Bank competes with mortgage companies and independent mortgage brokers in originating mortgage loans. Table 2.6 lists the Bank’s largest competitors in St. Landry Parish, based on deposit market share. As of June 30, 2020, the Bank’s market share of deposits represented the 4th largest market share of bank and thrift deposits in St. Landry Parish.
Table 2.6 |
St. Landry Homestead Federal Savings Bank |
Market Area Deposit Competitors - As of June 30, 2020 |
Market | |||||||||
Location | Name | Share | Rank | ||||||
(%) | |||||||||
St. Landry Parish | St. Landry Bancshares Inc. (LA) | 18.85 | |||||||
JPMorgan Chase & Co. (NY) | 14.24 | ||||||||
Washington State Bcshs Inc. (LA) | 11.42 | ||||||||
St. Landry Homestead FSB (LA) | 10.09 | 4 of 15 | |||||||
American Bancorp Inc. (LA) | 9.92 |
Source: FDIC
RP® Financial, LC. |
PEER
GROUP ANALYSIS
|
III. PEER GROUP ANALYSIS
This chapter presents an analysis of St. Landry Homestead’s operations versus a group of comparable savings institutions (the "Peer Group") selected from the universe of all publicly-traded savings institutions in a manner consistent with the regulatory valuation guidelines. The basis of the pro forma market valuation of St. Landry Homestead is derived from the pricing ratios of the Peer Group institutions, incorporating valuation adjustments for key differences in relation to the Peer Group. Since no Peer Group can be exactly comparable to St. Landry Homestead, key areas examined for differences are: financial condition; profitability, growth and viability of earnings; asset growth; primary market area; dividends; liquidity of the shares; marketing of the issue; management; and effect of government regulations and regulatory reform.
Peer Group Selection
The Peer Group selection process is governed by the general parameters set forth in the regulatory valuation guidelines. Accordingly, the Peer Group is comprised of only those publicly-traded savings institutions whose common stock is either listed on a national exchange (NYSE), or is NASDAQ listed, since their stock trading activity is regularly reported and generally more frequent than non-publicly traded and closely-held institutions. Institutions that are not listed on a national exchange or NASDAQ are inappropriate, since the trading activity for thinly-traded or closely-held stocks is typically highly irregular in terms of frequency and price and thus may not be a reliable indicator of market value. We have also excluded from the Peer Group those companies under acquisition or subject to rumored acquisition, mutual holding companies and recent conversions, since their pricing ratios are subject to unusual distortion and/or have limited trading history. A recent listing of the universe of all publicly-traded savings institutions is included as Exhibit III-1.
RP® Financial, LC. |
PEER
GROUP ANALYSIS
|
Ideally, the Peer Group, which must have at least 10 members to comply with the regulatory valuation guidelines, should be comprised of locally- or regionally-based institutions with comparable resources, strategies and financial characteristics. There are approximately 43 publicly-traded institutions nationally and, thus, it is typically the case that the Peer Group will be comprised of institutions with relatively comparable characteristics. To the extent that differences exist between the converting institution and the Peer Group, valuation adjustments will be applied to account for the differences. Since St. Landry Homestead will be a fully-converted public company upon completion of the offering, we considered only fully-converted public companies to be viable candidates for inclusion in the Peer Group. In the selection process for St. Landry Homestead’s Peer Group, we applied two “screens” to the universe of all public companies that were eligible for consideration:
• | Screen #1 Southwest and Southeast institutions with assets less than $750 million, tangible equity-to-assets ratios of greater than 7.0% and positive core earnings. One company met the criteria for Screen #1 and it was included in the Peer Group: Home Federal Bancorp, Inc. of Louisiana. Exhibit III-2 provides financial and public market pricing characteristics of all publicly-traded Southwest and Southeast thrifts. |
• | Screen #2 Midwest, Mid-Atlantic and Northeast institutions with assets less than $7500 million, tangible equity-to-assets ratios of greater than 7.0% and positive core earnings. Nine companies met the criteria for Screen #2 and all nine were included in the Peer Group: CBM Bancorp, Inc. of Maryland, Cincinnati Bancorp, Inc. of Ohio, Elmira Savings Bank of New York, FFBW, Inc. of Wisconsin, HV Bancorp, Inc. of Pennsylvania, IF Bancorp, Inc. of Illinois, Mid-Southern Bancorp, Inc. of Indiana, Randolph Bancorp, Inc. of Massachusetts and WVS Financial Corp. of Pennsylvania Exhibit III-3 provides financial and public market pricing characteristics of all publicly-traded Midwest, Mid-Atlantic and Northeast thrifts. |
Table 3.1 shows the general characteristics of each of the 10 Peer Group companies and Exhibit III-4 provides summary demographic and deposit market share data for the primary market areas served by each of the Peer Group companies. While there are expectedly some differences between the Peer Group companies and St. Landry Homestead, we believe that the Peer Group companies, on average, provide a good basis for valuation subject to valuation adjustments. The following sections present a comparison of St. Landry Homestead’s financial condition, income and expense trends, loan composition, interest rate risk and credit risk versus the Peer Group as of the most recent publicly available date.
In addition to the selection criteria used to identify the Peer Group companies, a summary description of the key comparable characteristics of each of the Peer Group companies relative to St. Landry Homestead’s characteristics is detailed below.
• | CBM Bancorp, Inc. of Maryland. Selected due to similar size of branch network, similar asset size, similar interest-earning asset composition, similar interest-bearing funding composition, similar earnings contribution from sources of non-interest operating income and similar concentration of multi-family loans as a percent of assets. |
• | Cincinnati Bancorp, Inc. of Ohio. Selected due to similar size of branch network, similar asset size and similar concentrations of construction/land loans and commercial real estate loans as a percent of assets. |
RP® Financial, LC. |
Peer Group Analysis
Page III.3 |
Table 3.1 |
Peer Group of Publicly-Traded Thrifts |
As of September 30, 2020 or the Most Recent Date Available |
As of | ||||||||||||||||||||||||||
February 5, 2021 | ||||||||||||||||||||||||||
Total | Fiscal | Conv. | Stock | Market | ||||||||||||||||||||||
Ticker | Financial Institution | Exchange | Region | City | State | Assets | Offices | Mth End | Date | Price | Value | |||||||||||||||
($Mil) | ($) | ($Mil) | ||||||||||||||||||||||||
CBMB | CBM Bancorp, Inc. | NASDAQCM | MA | Baltimore | MD | $ | 232 | 4 | Dec | 9/27/2018 | $ | 13.95 | $ | 48 | ||||||||||||
CNNB | Cincinnati Bancorp, Inc. | NASDAQCM | MW | Cincinnati | OH | $ | 232 | 6 | Dec | 10/14/2015 | $ | 11.96 | $ | 36 | ||||||||||||
ESBK | Elmira Savings Bank | NASDAQCM | MA | Elmira | NY | $ | 674 | 12 | Dec | 3/1/1985 | $ | 12.24 | $ | 43 | ||||||||||||
FFBW | FFBW, Inc. | NASDAQCM | MW | Brookfield | WI | $ | 286 | 7 | Dec | 10/10/2017 | $ | 10.42 | $ | 74 | ||||||||||||
HFBL | Home Federal Bancorp, Inc. of Louisiana | NASDAQCM | SW | Shreveport | LA | $ | 542 | 8 | Jun | 1/18/2005 | $ | 29.09 | $ | 45 | ||||||||||||
HVBC | HV Bancorp, Inc. | NASDAQCM | MA | Doylestown | PA | $ | 508 | 5 | Dec | 1/11/2017 | $ | 16.81 | $ | 34 | ||||||||||||
IROQ | IF Bancorp, Inc. | NASDAQCM | MW | Watseka | IL | $ | 726 | 8 | Jun | 7/7/2011 | $ | 20.50 | $ | 66 | ||||||||||||
MSVB | Mid-Southern Bancorp, Inc. | NASDAQCM | MW | Salem | IN | $ | 218 | 3 | Dec | 4/8/1998 | $ | 16.24 | $ | 48 | ||||||||||||
RNDB | Randolph Bancorp, Inc. | NASDAQGM | NE | Stoughton | MA | $ | 723 | 5 | Dec | 7/1/2016 | $ | 20.00 | $ | 103 | ||||||||||||
WVFC | WVS Financial Corp. | NASDAQGM | MA | Pittsburgh | PA | $ | 332 | 6 | Jun | 11/29/1993 | $ | 15.15 | $ | 26 | ||||||||||||
Source: S&P Global Market Intelligence. |
RP® Financial, LC. |
PEER GROUP ANALYSIS
Page III.4 |
• | Elmira Savings Bank of New York. Selected due to similar operating expense ratio as a percent of average assets and similar concentrations of 1-4 family and construction/land loans as a percent of assets. |
• | FFBW, Inc. of Wisconsin. Selected due to similar asset size, similar interest-earning asset composition, relatively high equity-to-assets ratio, similar earnings contribution from sources of non-interest operating income and similar operating expense ratio as a percent of average assets. |
• | Home Federal Bancorp, Inc. of Louisiana. Selected due to Louisiana market area, similar interest-earning asset composition, similar impact of loan loss provisions on earnings, similar ratio of operating expenses as a percent of average assets and similar concentrations of construction/land and commercial real estate loans as a percent of assets. |
• | HV Bancorp, Inc. of Pennsylvania. Selected due to same size of branch network, similar concentration of deposits funding assets and similar concentrations of construction/land and consumer loans as a percent of assets. |
• | IF Bancorp, Inc. of Illinois. Selected due to similar interest-earning asset composition, similar operating expense ratio as a percent of average assets, and similar concentrations of construction/land and consumer loans as a percent of assets. |
• | Mid-Southern Bancorp, Inc. of Indiana. Selected due to similar asset size, similar interest-bearing funding composition, similar earnings contribution from sources of non-interest operating income, similar operating expense ratio as a percent of average assets and similar concentrations of construction/land, multi-family, commercial real estate and commercial business loans as a percent of assets. |
• | Randolph Bancorp, Inc. of Massachusetts. Selected due to same size of branch network, similar concentration of deposits funding assets, similar impact of loan loss provisions on earnings and similar concentrations of construction/land, multi-family, commercial real estate, commercial business and consumer loans as a percent of assets. |
• | WVS Financial Corp. of Pennsylvania. Selected due to similar asset size and similar concentration of multi-family loans as a percent of assets. |
In aggregate, the Peer Group companies maintained a higher level of tangible equity than the industry average (15.82% of assets versus 11.69% for all public companies), generated similar core earnings as a percent of average assets (0.82% core ROAA versus 0.87% for all public companies), and earned a slightly lower core ROE (6.83% core ROE versus 7.23% for all public companies). Overall, the Peer Group's average P/TB ratio and average core P/E multiple were below the respective averages for all publicly-traded thrifts.
RP® Financial, LC. |
PEER GROUP ANALYSIS
Page III.5 |
All
Publicly-Traded |
Peer Group | |||||||
Financial Characteristics (Averages) | ||||||||
Assets ($Mil) | $ | 5,167 | $ | 447 | ||||
Market capitalization ($Mil) | $ | 601 | $ | 52 | ||||
Tangible equity/assets (%) | 11.69 | % | 15.82 | % | ||||
Core return on average assets (%) | 0.87 | 0.82 | ||||||
Core return on average equity (%) | 7.23 | 6.83 | ||||||
Pricing Ratios (Averages)(1) | ||||||||
Price core/earnings (x) | 13.98 | x | 12.04 | x | ||||
Price/tangible book (%) | 114.74 | % | 92.70 | % | ||||
Price/assets (%) | 12.92 | 14.66 |
(1) Based on market prices as of February 5, 2021.
Ideally, the Peer Group companies would be comparable to St. Landry Homestead in terms of all of the selection criteria, but the universe of publicly-traded thrifts does not provide for an appropriate number of such companies. However, in general, the companies selected for the Peer Group were fairly comparable to St. Landry Homestead, as will be highlighted in the following comparative analysis.
Financial Condition
Table 3.2 shows comparative balance sheet measures for St. Landry Homestead and the Peer Group, reflecting the expected similarities and some differences given the selection procedures outlined above. The Bank’s and the Peer Group's ratios reflect balances as of December 31, 2020 and September 30, 2020, respectively. St. Landry Homestead’s equity-to-assets ratio of 22.53% was above the Peer Group's average net worth ratio of 16.01%. The Bank’s pro forma capital position will increase with the addition of stock proceeds, providing the Bank with an equity-to-assets ratio that will further exceed the Peer Group’s ratio. Tangible equity-to-assets ratios for the Bank and the Peer Group equaled 22.53% and 15.82%, respectively. The increase in St. Landry Homestead’s pro forma capital position will be favorable from a risk perspective and in terms of future earnings potential that could be realized through leverage and lower funding costs. At the same time, the Bank’s higher pro forma capitalization will initially depress return on equity. Both St. Landry Homestead’s and the Peer Group's capital ratios reflected capital surpluses with respect to the regulatory capital requirements.
RP® Financial, LC. |
Peer
Group Analysis
Page III.6 |
Table 3.2 |
Balance Sheet Composition and Growth Rates |
Comparable Institution Analysis |
As of September 30, 2020 |
Balance Sheet as a Percent of Assets | Balance Sheet Annual Growth Rates | Regulatory Capital | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash
&
Equival. |
MBS
&
Invest |
BOLI |
Net
Loans (1) |
Deposits |
Borrowed
Funds |
Sub.
Debt |
Total
Equity |
Goodwill
& Intang |
Tangible
Equity |
Assets |
MBS,
Cash
Invests |
Loans | Deposits |
Borrows.
&Subdebt |
Total
Equity |
Tangible
Equity |
Tier
1
Leverage |
Tier
1
Risk-Based |
Risk-Based
Capital |
|||||||||||||||||||||||||||||||||||||||||||||||
St. Landry Homestead FSB | LA | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
December 31, 2020 | 11.24 | % | 17.65 | % | 1.43 | % | 66.23 | % | 73.27 | % | 3.93 | % | 0.00 | % | 22.53 | % | 0.00 | % | 22.53 | % | 2.83 | % | 39.16 | % | -7.92 | % | 16.22 | % | -64.65 | % | -1.10 | % | -1.10 | % | 21.09 | % | 40.99 | % | 42.42 | % | ||||||||||||||||||||||||||
All Non-MHC Public Thrifts | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Averages | 8.62 | % | 12.96 | % | 1.54 | % | 73.21 | % | 74.64 | % | 10.75 | % | 0.42 | % | 12.62 | % | 0.92 | % | 11.69 | % | 18.75 | % | 0.00 | % | 14.86 | % | 19.30 | % | 14.55 | % | 9.52 | % | 0.00 | % | 10.75 | % | 15.35 | % | 16.79 | % | ||||||||||||||||||||||||||
Medians | 7.76 | % | 9.10 | % | 1.60 | % | 74.90 | % | 76.41 | % | 8.50 | % | 0.00 | % | 11.51 | % | 0.25 | % | 10.31 | % | 12.71 | % | 0.00 | % | 9.90 | % | 15.09 | % | 1.54 | % | 3.55 | % | 0.00 | % | 10.35 | % | 13.47 | % | 14.67 | % | ||||||||||||||||||||||||||
Comparable Group | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Averages | 8.37 | % | 18.80 | % | 1.70 | % | 68.25 | % | 71.10 | % | 11.71 | % | 0.00 | % | 16.01 | % | 0.19 | % | 15.82 | % | 10.85 | % | 37.94 | % | 7.67 | % | 7.80 | % | 28.96 | % | 16.84 | % | 16.36 | % | 13.84 | % | 19.36 | % | 20.30 | % | ||||||||||||||||||||||||||
Medians | 8.18 | % | 9.48 | % | 1.62 | % | 71.28 | % | 72.85 | % | 6.74 | % | 0.00 | % | 12.32 | % | 0.00 | % | 12.32 | % | 8.27 | % | 31.86 | % | 4.19 | % | 7.03 | % | 0.00 | % | 5.83 | % | 4.58 | % | 12.17 | % | 17.14 | % | 17.49 | % | ||||||||||||||||||||||||||
Comparable Group | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CBMB | CBM Bancorp, Inc. | MD | 17.27 | % | 8.47 | % | 2.07 | % | 70.30 | % | 74.24 | % | 2.15 | % | 0.00 | % | 22.94 | % | 0.00 | % | 22.94 | % | 6.63 | % | -1.88 | % | 10.68 | % | 11.04 | % | 0.00 | % | -12.36 | % | -12.36 | % | 18.28 | % | 27.33 | % | 28.46 | % | ||||||||||||||||||||||||
CNNB | Cincinnati Bancorp, Inc. | OH | 9.86 | % | 3.60 | % | 1.79 | % | 81.04 | % | 63.61 | % | 17.55 | % | 0.00 | % | 17.13 | % | 0.08 | % | 17.06 | % | 4.73 | % | 56.12 | % | -0.96 | % | 6.71 | % | -26.99 | % | 69.22 | % | 69.93 | % | 14.30 | % | 19.52 | % | 20.39 | % | ||||||||||||||||||||||||
ESBK | Elmira Savings Bank | NY | 12.68 | % | 3.35 | % | 2.27 | % | 76.47 | % | 81.80 | % | 8.40 | % | 0.00 | % | 8.90 | % | 1.83 | % | 7.07 | % | 9.49 | % | 115.16 | % | 0.07 | % | 6.02 | % | 82.05 | % | 2.63 | % | 3.34 | % | 7.76 | % | 11.94 | % | 13.19 | % | ||||||||||||||||||||||||
FFBW | FFBW, Inc. | WI | 2.60 | % | 21.47 | % | 2.53 | % | 71.18 | % | 58.13 | % | 5.07 | % | 0.00 | % | 35.92 | % | 0.02 | % | 35.90 | % | 10.73 | % | 38.91 | % | 4.63 | % | -7.04 | % | -2.36 | % | 67.43 | % | 67.53 | % | 25.93 | % | 32.88 | % | 34.05 | % | ||||||||||||||||||||||||
HFBL | Home Federal Bancorp, Inc. of Louisiana | LA | 13.96 | % | 10.50 | % | 1.31 | % | 70.65 | % | 89.31 | % | 0.62 | % | 0.00 | % | 9.43 | % | 0.00 | % | 9.43 | % | 17.77 | % | 31.48 | % | 13.95 | % | 19.43 | % | 47.33 | % | 2.64 | % | 2.64 | % | NA | NA | NA | |||||||||||||||||||||||||||
HVBC | HV Bancorp, Inc. | PA | 9.28 | % | 3.97 | % | 1.25 | % | 81.92 | % | 73.09 | % | 18.13 | % | 0.00 | % | 7.33 | % | 0.00 | % | 7.33 | % | 42.40 | % | 32.25 | % | 44.62 | % | 30.41 | % | 164.08 | % | 11.87 | % | 5.61 | % | 8.36 | % | 12.22 | % | 12.91 | % | ||||||||||||||||||||||||
IROQ | IF Bancorp, Inc. | IL | 2.58 | % | 22.79 | % | 1.30 | % | 71.38 | % | 82.88 | % | 4.32 | % | 0.00 | % | 11.51 | % | 0.00 | % | 11.51 | % | 7.05 | % | 14.00 | % | 5.56 | % | 8.13 | % | -10.59 | % | 8.10 | % | 8.10 | % | 10.63 | % | NA | NA | ||||||||||||||||||||||||||
MSVB | Mid-Southern Bancorp, Inc. | IN | 7.08 | % | 36.89 | % | 1.76 | % | 52.81 | % | 72.62 | % | 4.58 | % | 0.00 | % | 22.38 | % | 0.00 | % | 22.38 | % | 4.38 | % | 22.85 | % | -7.20 | % | 7.35 | % | 0.00 | % | -4.01 | % | -4.01 | % | 17.72 | % | NA | NA | ||||||||||||||||||||||||||
RNDB | Randolph Bancorp, Inc. | MA | 6.79 | % | 8.21 | % | 1.19 | % | 79.17 | % | 72.24 | % | 11.37 | % | 0.00 | % | 13.13 | % | 0.00 | % | 13.13 | % | 12.71 | % | 81.07 | % | 3.76 | % | 6.41 | % | 42.58 | % | 19.28 | % | 19.28 | % | 12.17 | % | 14.49 | % | 15.62 | % | ||||||||||||||||||||||||
WVFC | WVS Financial Corp. | PA | 1.55 | % | 68.76 | % | 1.49 | % | 27.62 | % | 43.03 | % | 44.91 | % | 0.00 | % | 11.42 | % | 0.00 | % | 11.42 | % | -7.37 | % | -10.55 | % | 1.57 | % | -10.45 | % | -6.52 | % | 3.55 | % | 3.55 | % | 9.45 | % | 17.14 | % | 17.49 | % |
(1) Includes loans held for sale.
Source: S&P Global Market Intelligence and RP® Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2021 by RP® Financial, LC.
RP® Financial, LC. |
PEER GROUP ANALYSIS
Page III.7 |
The interest-earning asset compositions for the Bank and the Peer Group were somewhat similar, with loans constituting the bulk of interest-earning assets for both St. Landry Homestead and the Peer Group. The Bank’s loans-to-assets ratio of 66.23% was slightly lower than the comparable Peer Group ratio of 68.25%. Comparatively, the Bank’s cash and investments-to-assets ratio of 28.89% was slightly higher than the comparable ratio for the Peer Group of 27.17%. Overall, St. Landry Homestead’s interest-earning assets amounted to 95.12% of assets, which approximated the comparable Peer Group ratio of 95.42%. The Peer Group’s non-interest earning assets included BOLI equal to 1.70% of assets and goodwill/intangibles equal to 0.19% of assets, while the Bank maintained BOLI equal to 1.43% of assets and a zero balance of goodwill/intangibles.
St. Landry Homestead’s funding liabilities reflected a funding strategy that was fairly similar to that of the Peer Group's funding composition. The Bank’s deposits equaled 73.27% of assets, which was slightly above the Peer Group’s comparable ratio of 71.10%. Comparatively, the Bank maintained a lower level of borrowings than the Peer Group, as indicated by borrowings-to-assets ratios of 3.93% and 11.71% for St. Landry Homestead and the Peer Group, respectively. Total interest-bearing liabilities maintained by the Bank and the Peer Group, as a percent of assets, equaled 77.20% and 82.81%, respectively, as the Bank’s lower ratio was supported by maintenance of a higher capital position.
A key measure of balance sheet strength for a thrift institution is its IEA/IBL ratio. Presently, the Bank’s IEA/IBL ratio is higher than the Peer Group’s ratio, based on IEA/IBL ratios of 123.21% and 115.23%, respectively. The additional capital realized from stock proceeds will provide St. Landry Homestead with an IEA/IBL ratio that further exceeds the Peer Group’s ratio, as the increase in capital provided by the infusion of stock proceeds will serve to lower the level of interest-bearing liabilities funding assets and will be primarily deployed into interest-earning assets.
The growth rate section of Table 3.2 shows annual growth rates for key balance sheet items. Growth rates for the Bank and the Peer Group are based on annual growth for the twelve months ended December 31, 2020 and September 30, 2020, respectively. St. Landry Homestead recorded a 2.83% increase in assets, versus a 10.85% increase in assets recorded by the Peer Group. Asset growth for St. Landry Homestead was primarily realized through a 39.16% increase in cash and investments, which was in part funded with a 7.92% decrease in loans. Asset growth for the Peer Group included a 7.67% increase in loans and a 37.94% increase in cash and investments.
RP® Financial, LC. |
PEER GROUP ANALYSIS
Page III.8 |
St. Landry Homestead’s asset growth was funded by a 16.22% increase in deposits, which also funded a 64.65% reduction in borrowings. Asset growth for the Peer Group was funded by a 7.80% increase in deposits and a 28.96% increase in borrowings. The Bank’s tangible capital decreased by 1.10%, versus tangible capital growth of 16.84% recorded by the Peer Group. The Peer Group’s relatively high tangible capital growth rate was largely attributable to second-step conversion offerings that were completed by Cincinnati Bancorp and FFBW during the twelve month period. The Bank’s post-conversion capital growth rate will initially be constrained by maintenance of a higher pro forma capital position. Dividend payments and stock repurchases, pursuant to regulatory limitations and guidelines, could also potentially slow the Bank’s capital growth rate in the longer term following the stock offering.
Income and Expense Components
Table 3.3 displays statements of operations for the Bank and the Peer Group. The Bank’s and the Peer Group’s ratios are based on earnings for the twelve months ended December 31, 2020 and September 30, 2020, respectively. St. Landry Homestead reported a net loss equal to 0.29% of average assets, while the Peer Group reported net income equal to 0.82% of average assets. The Bank maintained earnings advantages with respect to net interest income and operating expense ratios, which were more than offset by the Peer Group’s earnings advantages with respect to non-interest operating income, loan loss provisions and non-operating income.
The Bank’s stronger net interest income to average assets ratio was realized through maintenance of a higher interest income ratio and a lower interest expense ratio. The Bank’s higher interest income ratio was supported by maintaining a higher overall yield earned on interest-earning assets (3.90% versus 3.83% for the Peer Group). Likewise, the Bank’s lower interest expense ratio was supported by maintaining a lower cost of funds (1.09% versus 1.21% for the Peer Group), as well as maintaining a lower level of interest-bearing liabilities as a percent of assets. Overall, St. Landry Homestead and the Peer Group reported net interest income to average assets ratios of 2.91% and 2.72%, respectively.
RP® Financial, LC. |
Peer
Group Analysis
Page III.9 |
Table 3.3 |
Income as Percent of Average Assets and Yields, Costs, Spreads |
Comparable Institution Analysis |
For the 12 Months Ended September 30, 2020 or the Most Recent 12 Months Available |
Net Interest Income | Non-Interest Income | NonOp Items | Yields, Costs, and Spreads | |||||||||||||||||||||||||||||||||||||
Net
Income |
Income | Expense | NII |
Loss
Provis. on IEA |
NII
After Provis. |
Gain
on Sale of Loans |
Other
Non-Int Income |
Total
Non-Int Expense |
Net
Gains/
Losses (1) |
Extrao.
Items |
Provision
for Taxes |
Yield
On IEA |
Cost
Of IBL |
Yld-Cost
Spread |
MEMO:
Assets/ FTE Emp. |
MEMO:
Effective Tax Rate |
||||||||||||||||||||||||
(%) | (%) | (%) | (%) | (%) | (%) | (%) | (%) | (%) | (%) | (%) | (%) | (%) | (%) | (%) | ($000) | (%) | ||||||||||||||||||||||||
St. Landary Homestead FSB | LA | |||||||||||||||||||||||||||||||||||||||
December 31, 2020 | -0.29 | % | 3.65 | % | 0.73 | % | 2.91 | % | 0.42 | % | 2.49 | % | 0.00 | % | 0.41 | % | 2.63 | % | -0.77 | % | 0.00 | % | -0.20 | % | 3.90 | % | 1.09 | % | 2.81 | % | $ | 4,493 | -40.42 | % | ||||||
All Non-MHC Public Thrifts | ||||||||||||||||||||||||||||||||||||||||
Averages | 0.84 | % | 3.80 | % | 0.85 | % | 2.95 | % | 0.30 | % | 2.67 | % | 0.84 | % | 0.44 | % | 2.78 | % | 0.01 | % | 0.00 | % | 0.26 | % | 4.03 | % | 1.12 | % | 2.91 | % | $ | 8,680 | 22.93 | % | ||||||
Medians | 0.76 | % | 3.63 | % | 0.85 | % | 2.82 | % | 0.24 | % | 2.58 | % | 0.07 | % | 0.30 | % | 2.63 | % | 0.00 | % | 0.00 | % | 0.22 | % | 3.89 | % | 1.13 | % | 2.86 | % | $ | 7,309 | 23.10 | % | ||||||
Comparable Group | ||||||||||||||||||||||||||||||||||||||||
Averages | 0.82 | % | 3.60 | % | 0.88 | % | 2.72 | % | 0.18 | % | 2.54 | % | 1.39 | % | 0.35 | % | 3.24 | % | 0.00 | % | 0.00 | % | 0.22 | % | 3.83 | % | 1.21 | % | 2.61 | % | $ | 6,012 | 21.94 | % | ||||||
Medians | 0.63 | % | 3.60 | % | 0.88 | % | 2.68 | % | 0.15 | % | 2.48 | % | 0.46 | % | 0.25 | % | 2.77 | % | 0.02 | % | 0.00 | % | 0.20 | % | 3.83 | % | 1.22 | % | 2.73 | % | $ | 5,759 | 21.96 | % | ||||||
Comparable Group | ||||||||||||||||||||||||||||||||||||||||
CBMB | CBM Bancorp, Inc. | MD | 0.32 | % | 3.90 | % | 0.66 | % | 3.24 | % | 0.19 | % | 3.05 | % | 0.34 | % | 0.16 | % | 3.14 | % | 0.06 | % | 0.00 | % | 0.16 | % | 4.05 | % | 1.18 | % | 2.87 | % | $ | 5,654 | 33.24 | % | ||||
CNNB | Cincinnati Bancorp, Inc. | OH | 0.77 | % | 3.59 | % | 1.23 | % | 2.36 | % | 0.03 | % | 2.33 | % | 2.93 | % | 0.17 | % | 4.49 | % | 0.00 | % | 0.00 | % | 0.17 | % | 3.81 | % | 1.53 | % | 2.28 | % | $ | 3,364 | 18.00 | % | ||||
ESBK | Elmira Savings Bank | NY | 0.60 | % | 3.61 | % | 1.03 | % | 2.58 | % | 0.20 | % | 2.38 | % | 0.59 | % | 0.37 | % | 2.59 | % | 0.00 | % | 0.00 | % | 0.14 | % | 4.19 | % | 1.37 | % | 2.82 | % | $ | 5,863 | 19.27 | % | ||||
FFBW | FFBW, Inc. | WI | 0.63 | % | 3.89 | % | 0.69 | % | 3.20 | % | 0.11 | % | 3.09 | % | 0.15 | % | 0.25 | % | 2.68 | % | 0.00 | % | 0.00 | % | 0.19 | % | 4.25 | % | 1.26 | % | 2.99 | % | $ | 6,967 | 23.29 | % | ||||
HFBL | Home Federal Bancorp, Inc. of Louisiana | LA | 0.80 | % | 4.17 | % | 0.99 | % | 3.18 | % | 0.50 | % | 2.68 | % | 0.69 | % | 0.24 | % | 2.65 | % | 0.05 | % | 0.00 | % | 0.21 | % | 4.41 | % | 1.36 | % | 3.05 | % | $ | 9,190 | 20.63 | % | ||||
HVBC | HV Bancorp, Inc. | PA | 1.02 | % | 3.38 | % | 0.90 | % | 2.48 | % | 0.27 | % | 2.22 | % | 2.32 | % | 1.24 | % | 4.40 | % | 0.04 | % | 0.00 | % | 0.39 | % | 3.55 | % | 1.14 | % | 2.41 | % | $ | 4,287 | 27.77 | % | ||||
IROQ | IF Bancorp, Inc. | IL | 0.64 | % | 3.74 | % | 1.09 | % | 2.65 | % | 0.07 | % | 2.58 | % | 0.17 | % | 0.54 | % | 2.48 | % | 0.07 | % | 0.00 | % | 0.25 | % | 3.85 | % | 1.35 | % | 2.50 | % | $ | 6,661 | 27.95 | % | ||||
MSVB | Mid-Southern Bancorp, Inc. | IN | 0.56 | % | 3.58 | % | 0.47 | % | 3.11 | % | 0.05 | % | 3.06 | % | 0.00 | % | 0.34 | % | 2.86 | % | 0.05 | % | 0.00 | % | 0.04 | % | 3.75 | % | 0.80 | % | 2.95 | % | $ | 4,544 | 5.94 | % | ||||
RNDB | Randolph Bancorp, Inc. | MA | 2.30 | % | 3.57 | % | 0.86 | % | 2.71 | % | 0.37 | % | 2.34 | % | 6.71 | % | 0.12 | % | 6.14 | % | -0.24 | % | 0.00 | % | 0.49 | % | 3.77 | % | 1.13 | % | 2.64 | % | $ | 3,644 | 17.51 | % | ||||
WVFC | WVS Financial Corp. | PA | 0.59 | % | 2.56 | % | 0.84 | % | 1.72 | % | 0.02 | % | 1.70 | % | 0.00 | % | 0.11 | % | 1.00 | % | -0.01 | % | 0.00 | % | 0.21 | % | 2.61 | % | 1.01 | % | 1.60 | % | $ | 9,945 | 25.80 | % |
(1) Net gains/losses includes gain/loss on sale of securities and nonrecurring income and expense.
Source: S&P Global Market Intelligence and RP® Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2021 by RP® Financial, LC.
RP® Financial, LC. |
PEER GROUP ANALYSIS
Page III.10 |
In another key area of core earnings strength, the Bank maintained a lower level of operating expenses than the Peer Group. For the period covered in Table 3.3, the Bank and the Peer Group reported operating expense to average assets ratios of 2.63% and 3.24%, respectively. Notwithstanding the Bank’s lower operating expense ratio, the Bank’s ratio for assets per full time equivalent employee of $4.5 million was less than the comparable Peer Group ratio of $6.0 million. On a post-offering basis, the Bank’s operating expenses can be expected to increase with the addition of stock benefit plans and certain expenses that result from being a publicly-traded company, with such expenses already impacting the Peer Group's operating expenses. At the same time, St. Landry Homestead’s capacity to leverage operating expenses will increase and be significantly greater than the Peer Group’s leverage capacity following the increase in capital realized from the infusion of net stock proceeds.
When viewed together, net interest income and operating expenses provide considerable insight into a thrift's earnings strength, since those sources of income and expenses are typically the most prominent components of earnings and are generally more predictable than losses and gains realized from the sale of assets or other non-recurring activities. In this regard, as measured by their expense coverage ratios (net interest income divided by operating expenses), the Bank’s earnings were more favorable than the Peer Group’s. Expense coverage ratios posted by St. Landry Homestead and the Peer Group equaled 1.11x and 0.84x, respectively.
Sources of non-interest operating income were a less significant contributor to the Bank’s earnings, with such income amounting to 0.41% and 1.74% of St. Landry Homestead’s and the Peer Group’s average assets, respectively. Taking non-interest operating income into account in comparing the Bank’s and the Peer Group's earnings, St. Landry Homestead’s efficiency ratio (operating expenses as a percent of the sum of non-interest operating income and net interest income) of 79.22% was less favorable than the Peer Group's efficiency ratio of 72.65%.
Loan loss provisions had a larger impact on the Bank’s earnings, with loan loss provisions established by the Bank and the Peer Group equaling 0.42% and 0.18% of average assets, respectively.
Net gains and losses realized from the sale of assets and other non-operating items equaled a net loss of 0.77% of average assets for the Bank, versus no impact on the Peer Group’s earnings. Typically, gains and losses generated from the sale of assets or other non-recurring activities such as merger related expenses are viewed as earnings with a relatively high degree of volatility, particularly to the extent that such gains and losses result from the sale of investments or other not ongoing activities that are not considered to be part of an institution’s core operations. Extraordinary items were not a factor in either the Bank’s or the Peer Group's earnings.
RP® Financial, LC. |
PEER GROUP ANALYSIS
Page III.11 |
The Company recorded an effective benefit of 40.42% compared to an effective tax rate of 21.94% for the Peer Group. As indicated in the prospectus, the Bank’s effective marginal tax rate is equal to 21.0%.
Loan Composition
Table 3.4 presents data related to the Bank’s and the Peer Group’s loan portfolio compositions (including the investment in mortgage-backed securities). The Bank’s loan portfolio composition reflected a higher combined concentration of 1-4 family permanent mortgage loans and mortgage-backed securities relative to the Peer Group (51.64% of assets versus 45.99% for the Peer Group). The Bank maintained a higher concentration of 1-4 family permanent mortgage loans, while the Peer Group maintained a higher concentration of mortgage-backed securities. Loans servicing intangibles constituted a more significant balance sheet item for the Peer Group, equal to an average of $1.6 million for the Peer Group compared to zero balance for the Bank.
Diversification into higher yielding and higher risk types of loans was more significant for the Peer Group. Commercial real estate loans constituted the most significant area of lending diversification for the Bank (13.51% of assets), followed by commercial business loans (3.00% of assets), and construction/land loans (2.47% of assets). Likewise, commercial real estate loans comprised the most significant area of lending diversification for the Peer Group (13.85% of assets), followed by commercial business loans (7.89% of assets) and multi-family loans (6.61% of assets). In total, construction/land, commercial real estate, multi-family, commercial business and consumer loans comprised 23.12% and 32.71% of the Bank’s and the Peer Group’s assets, respectively. Overall, the Bank’s less significant diversification into higher risk types of lending translated into a lower risk weighted assets-to-assets ratio compared to the Peer Group’s ratio. The Bank’s risk weighted assets-to-assets ratio equaled 55.49%, versus a comparable ratio of 67.73% for the Peer Group.
RP® Financial, LC. |
Peer
Group Analysis
Page III.12 |
Table 3.4 |
Loan Portfolio Composition and Related Information |
Comparable Institution Analysis |
As of September 30, 2020 |
Portfolio Composition as a Percent of Assets | ||||||||||||||||||||||||||||||||||||||||
1-4 | Constr. | Multi- | Commerc. | RWA/ | Servicing | |||||||||||||||||||||||||||||||||||
MBS | Family | & Land | Family | Comm RE | Business | Consumer | Assets | Assets | ||||||||||||||||||||||||||||||||
(%) | (%) | (%) | (%) | (%) | (%) | (%) | (%) | ($ 000) | ||||||||||||||||||||||||||||||||
St. Landry Homestead FSB | LA | |||||||||||||||||||||||||||||||||||||||
December 31, 2020 | 7.18 | % | 44.46 | % | 2.47 | % | 2.14 | % | 13.51 | % | 3.00 | % | 2.00 | % | 55.49 | % | $ | 0 | ||||||||||||||||||||||
All Non-MHC Public Thrifts | ||||||||||||||||||||||||||||||||||||||||
Averages | 7.79 | % | 28.12 | % | 4.32 | % | 11.13 | % | 17.58 | % | 11.17 | % | 1.73 | % | 67.07 | % | $ | 9,686 | ||||||||||||||||||||||
Medians | 6.76 | % | 24.76 | % | 4.15 | % | 4.17 | % | 15.52 | % | 7.81 | % | 0.21 | % | 67.50 | % | $ | 295 | ||||||||||||||||||||||
Comparable Group | ||||||||||||||||||||||||||||||||||||||||
Averages | 9.63 | % | 36.36 | % | 3.33 | % | 6.61 | % | 13.85 | % | 7.89 | % | 1.03 | % | 67.73 | % | $ | 1,572 | ||||||||||||||||||||||
Medians | 8.32 | % | 31.66 | % | 2.53 | % | 5.17 | % | 13.40 | % | 7.32 | % | 0.44 | % | 67.92 | % | $ | 366 | ||||||||||||||||||||||
Comparable Group | ||||||||||||||||||||||||||||||||||||||||
CBMB | CBM Bancorp, Inc. | MD | 6.76 | % | 32.31 | % | 6.77 | % | 3.55 | % | 21.57 | % | 6.86 | % | 0.16 | % | 67.92 | % | $ | 0 | ||||||||||||||||||||
CNNB | Cincinnati Bancorp, Inc. | OH | 2.39 | % | 52.23 | % | 1.35 | % | 15.85 | % | 11.59 | % | 0.54 | % | 0.13 | % | 72.85 | % | $ | 1,616 | ||||||||||||||||||||
ESBK | Elmira Savings Bank | NY | 0.91 | % | 46.49 | % | 2.06 | % | 6.31 | % | 9.50 | % | 7.79 | % | 5.16 | % | 62.34 | % | $ | 1,306 | ||||||||||||||||||||
FFBW | FFBW, Inc. | WI | 13.80 | % | 20.68 | % | 7.05 | % | 10.21 | % | 25.81 | % | 8.30 | % | 0.23 | % | 78.23 | % | $ | 0 | ||||||||||||||||||||
HFBL | Home Federal Bancorp, Inc. of Louisiana | LA | 9.88 | % | 26.70 | % | 4.83 | % | 7.93 | % | 16.74 | % | 15.44 | % | 0.16 | % | NA | $ | 0 | |||||||||||||||||||||
HVBC | HV Bancorp, Inc. | PA | 1.41 | % | 56.23 | % | 1.07 | % | 0.67 | % | 4.31 | % | 19.31 | % | 1.04 | % | 54.53 | % | $ | 1,127 | ||||||||||||||||||||
IROQ | IF Bancorp, Inc. | IL | 20.38 | % | 18.45 | % | 2.14 | % | 14.72 | % | 20.87 | % | 14.98 | % | 1.12 | % | NA | $ | 731 | |||||||||||||||||||||
MSVB | Mid-Southern Bancorp, Inc. | IN | 10.84 | % | 31.02 | % | 2.92 | % | 4.03 | % | 12.09 | % | 2.82 | % | 0.65 | % | NA | $ | 0 | |||||||||||||||||||||
RNDB | Randolph Bancorp, Inc. | MA | 6.49 | % | 54.72 | % | 4.44 | % | 1.77 | % | 14.71 | % | 2.83 | % | 1.62 | % | 80.37 | % | $ | 10,944 | ||||||||||||||||||||
WVFC | WVS Financial Corp. | PA | 23.46 | % | 24.76 | % | 0.65 | % | 1.11 | % | 1.27 | % | 0.01 | % | 0.02 | % | 57.87 | % | $ | 0 |
Source: S&P Global Market Intelligence and RP® Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2021 by RP® Financial, LC.
RP® Financial, LC. |
Peer
Group Analysis
Page III.13 |
Table 3.5 |
Interest Rate Risk Measures and Net Interest Income Volatility |
Comparable Institution Analysis |
As of September 30, 2020 or the Most Recent Date Available. |
Balance Sheet Measures | ||||||||||||||||||||||||||||||||
Tangible | Non-Earn. | Quarterly Change in Net Interest Income | ||||||||||||||||||||||||||||||
Equity/ | IEA/ | Assets/ | ||||||||||||||||||||||||||||||
Assets | IBL | Assets | 9/30/2020 | 6/30/2020 | 3/31/2020 | 12/31/2019 | 9/30/2019 | 6/30/2019 | ||||||||||||||||||||||||
(%) | (%) | (%) | (change in net interest income is annualized in basis points) | |||||||||||||||||||||||||||||
St. Landry Homestead FSB | LA | |||||||||||||||||||||||||||||||
December 31, 2020 | 22.5 | % | 123.2 | % | 4.9 | % | -6 | -15 | -7 | -2 | 8 | -4 | ||||||||||||||||||||
All Non-MHC Public Thrifts | ||||||||||||||||||||||||||||||||
Average | 11.9 | % | 135.4 | % | 7.2 | % | -15 | -3 | -5 | -3 | -5 | -3 | ||||||||||||||||||||
Median | 10.5 | % | 132.9 | % | 7.2 | % | -10 | -4 | -5 | -2 | -4 | -6 | ||||||||||||||||||||
Comparable Group | ||||||||||||||||||||||||||||||||
Average | 15.8 | % | 116.6 | % | 4.6 | % | -12 | -3 | -2 | -10 | -1 | -6 | ||||||||||||||||||||
Median | 12.3 | % | 112.0 | % | 4.8 | % | -10 | -2 | 1 | -12 | 2 | -7 | ||||||||||||||||||||
Comparable Group | ||||||||||||||||||||||||||||||||
CBMB | CBM Bancorp, Inc. | MD | 22.9 | % | 125.7 | % | 4.0 | % | -24 | -23 | -2 | -14 | 2 | 10 | ||||||||||||||||||
CNNB | Cincinnati Bancorp, Inc. | OH | 17.1 | % | 116.4 | % | 5.5 | % | -10 | 1 | 3 | -29 | -18 | 0 | ||||||||||||||||||
ESBK | Elmira Savings Bank | NY | 7.1 | % | 102.5 | % | 7.5 | % | -30 | -30 | 15 | 8 | -7 | -10 | ||||||||||||||||||
FFBW | FFBW, Inc. | WI | 35.9 | % | 150.7 | % | 4.8 | % | -2 | 26 | -18 | -5 | 5 | 6 | ||||||||||||||||||
HFBL | Home Federal Bancorp, Inc. of Louisiana | LA | 9.4 | % | 105.8 | % | 4.9 | % | -29 | 22 | -21 | -14 | 9 | -22 | ||||||||||||||||||
HVBC | HV Bancorp, Inc. | PA | 7.3 | % | 104.3 | % | 4.8 | % | -11 | 23 | 5 | NA | NA | -2 | ||||||||||||||||||
IROQ | IF Bancorp, Inc. | IL | 11.5 | % | 110.9 | % | 3.2 | % | -2 | 1 | 11 | -12 | 10 | -10 | ||||||||||||||||||
MSVB | Mid-Southern Bancorp, Inc. | IN | 22.4 | % | 125.4 | % | 3.2 | % | 2 | -27 | -16 | -2 | -9 | -14 | ||||||||||||||||||
RNDB | Randolph Bancorp, Inc. | MA | 13.1 | % | 112.6 | % | 5.8 | % | -7 | -5 | 3 | -9 | 3 | -12 | ||||||||||||||||||
WVFC | WVS Financial Corp. | PA | 11.4 | % | 111.4 | % | 2.1 | % | -10 | -15 | -5 | -16 | -2 | -4 |
NA=Change is greater than 100 basis points during the quarter.
Source: S&P Global Market Intelligence and RP® Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2021 by RP® Financial, LC.
RP® Financial, LC. |
PEER
GROUP ANALYSIS
|
Interest Rate Risk
Table 3.5 reflects various key ratios highlighting the relative interest rate risk exposure of the Bank versus the Peer Group. In terms of balance sheet composition, St. Landry Homestead’s interest rate risk characteristics were considered to be more favorable than the Peer Group’s measures. Most notably, the Bank’s tangible equity-to-assets ratio and IEA/IBL ratio were higher than the comparable Peer Group ratios. Comparatively, the Peer Group maintained a slight advantage with respect to its slightly lower ratio of non-interest earning assets as a percent of assets. On a pro forma basis, the infusion of stock proceeds will serve to further increase the comparative advantages reflected in the Bank’s balance sheet interest rate risk characteristics.
To analyze interest rate risk associated with the net interest margin, we reviewed quarterly changes in net interest income as a percent of average assets for St. Landry Homestead and the Peer Group. In general, the comparative fluctuations in the Bank’s and the Peer Group’s ratios implied that the interest rate risk associated with the Bank’s net interest income was similar to the interest rate risk associated with Peer Group’s net interest income, based on the interest rate environment that prevailed during the period covered in Table 3.5. The stability of the Bank’s net interest margin should be enhanced by the infusion of stock proceeds, as interest rate sensitive liabilities will be funding a lower portion of St. Landry Bank’s assets and the proceeds will be substantially deployed into interest-earning assets.
Credit Risk
Overall, based on a comparison of credit quality measures, the Bank’s implied credit risk exposure was considered to be greater than Peer Group’s implied credit risk exposure. As shown in Table 3.6, the Bank’s non-performing assets/assets and non-performing loans/loans ratios equaled 2.53% and 3.47%, respectively, versus comparable measures of 0.74% and 0.94% for the Peer Group. It should be noted that the measures for non-performing assets and non-performing loans include performing loans that are classified as troubled debt restructurings, which accounted for slightly more than 63% of the Bank’s non-performing assets at December 31, 2020. The Bank’s and Peer Group’s loss reserves as a percent of non-performing loans equaled 57.44% and 169.47%, respectively. Loss reserves maintained as percent of loans receivable equaled 1.99% for the Bank, versus 1.07% for the Peer Group. Net loan charge-offs were slightly higher for the Peer Group, as net loan charge-offs for the Bank equaled 0.02% of loans versus 0.07% of loans for the Peer Group.
RP® Financial, LC. |
Peer
Group Analysis
Page III.15 |
Table 3.6 |
Credit Risk Measures and Related Information |
Comparable Institution Analysis |
As of September 30, 2020 |
NPAs & | Rsrves/ | |||||||||||||||||||||||||||||||||||
REO/ | 90+Del/ | NPLs/ | Rsrves/ | Rsrves/ | NPAs & | Net Loan | NLCs/ | |||||||||||||||||||||||||||||
Assets | Assets (1) | Loans (2) | Loans HFI | NPLs (2) | 90+Del (1) | Chargeoffs (3) | Loans | |||||||||||||||||||||||||||||
(%) | (%) | (%) | (%) | (%) | (%) | ($000) | (%) | |||||||||||||||||||||||||||||
St. Landry Homestead FSB | LA | |||||||||||||||||||||||||||||||||||
December 31, 2020 | 0.18 | % | 2.53 | % | 3.47 | % | 1.99 | % | 57.44 | % | 53.24 | % | $ | 34 | 0.02 | % | ||||||||||||||||||||
All Non-MHC Public Thrifts | ||||||||||||||||||||||||||||||||||||
Averages | 0.04 | % | 0.69 | % | 0.55 | % | 0.91 | % | 1.16 | % | 182.20 | % | 158.17 | % | $ | 2,583 | ||||||||||||||||||||
Medians | 0.01 | % | 0.55 | % | 0.38 | % | 0.72 | % | 1.20 | % | 125.41 | % | 126.86 | % | $ | 268 | ||||||||||||||||||||
Comparable Group | ||||||||||||||||||||||||||||||||||||
Averages | 0.07 | % | 0.74 | % | 0.94 | % | 1.07 | % | 169.47 | % | 125.41 | % | $ | 262 | 0.07 | % | ||||||||||||||||||||
Medians | 0.03 | % | 0.60 | % | 0.77 | % | 1.16 | % | 99.61 | % | 95.12 | % | $ | 26 | 0.01 | % | ||||||||||||||||||||
Comparable Group | ||||||||||||||||||||||||||||||||||||
CBMB | CBM Bancorp, Inc. | MD | 0.33 | % | 0.56 | % | 0.31 | % | 1.07 | % | 337.30 | % | 134.19 | % | $ | 10 | 0.01 | % | ||||||||||||||||||
CNNB | Cincinnati Bancorp, Inc. | OH | 0.00 | % | 0.54 | % | 0.66 | % | 0.86 | % | 118.50 | % | 118.50 | % | $ | 0 | 0.00 | % | ||||||||||||||||||
ESBK | Elmira Savings Bank | NY | 0.04 | % | 0.84 | % | 1.04 | % | 1.06 | % | 99.61 | % | 95.12 | % | $ | 416 | 0.08 | % | ||||||||||||||||||
FFBW | FFBW, Inc. | WI | 0.00 | % | 0.63 | % | 0.88 | % | 1.27 | % | 143.87 | % | 143.87 | % | -$26 | -0.01 | % | |||||||||||||||||||
HFBL | Home Federal Bancorp, Inc. of Louisiana | LA | 0.18 | % | 1.11 | % | 1.30 | % | 1.27 | % | 90.30 | % | 75.98 | % | $ | 1,447 | 0.41 | % | ||||||||||||||||||
HVBC | HV Bancorp, Inc. | PA | 0.00 | % | 0.45 | % | 0.54 | % | 0.60 | % | 84.54 | % | 84.54 | % | $ | 448 | 0.14 | % | ||||||||||||||||||
IROQ | IF Bancorp, Inc. | IL | 0.06 | % | 0.24 | % | 0.23 | % | 1.24 | % | 537.69 | % | 369.45 | % | $ | 268 | 0.05 | % | ||||||||||||||||||
MSVB | Mid-Southern Bancorp, Inc. | IN | 0.05 | % | 1.37 | % | 2.47 | % | 1.35 | % | 54.82 | % | 53.00 | % | $ | 14 | 0.01 | % | ||||||||||||||||||
RNDB | Randolph Bancorp, Inc. | MA | 0.02 | % | 1.68 | % | 1.94 | % | 1.34 | % | 58.62 | % | 54.01 | % | $ | 38 | 0.01 | % | ||||||||||||||||||
WVFC | WVS Financial Corp. | PA | 0.00 | % | 0.00 | % | 0.00 | % | 0.67 | % | NA | NA | $ | 0 | 0.00 | % |
(1) NPAs are defined as nonaccrual loans, accruing loans 90 days or more past due, performing TDRs, and OREO.
(2) NPLs are defined as nonaccrual loans, accruing loans 90 days or more past due and performing TDRs.
(3) Net loan chargeoffs are shown on a last twelve month basis.
Source: S&P Global Market Intelligence and RP® Financial, LC. calculations. The information provided in this table has been obrained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2021 by RP® Financial, LC.
RP® Financial, LC. |
PEER
GROUP ANALYSIS
|
Summary
Based on the above analysis, RP Financial concluded that the Peer Group forms a reasonable basis for determining the pro forma market value of the Bank. Such general characteristics as asset size, capital position, interest-earning asset composition, funding composition, core earnings measures, loan portfolio composition, credit quality and exposure to interest rate risk all tend to support the reasonability of the Peer Group from a financial standpoint. Those areas where differences exist will be addressed in the form of valuation adjustments to the extent necessary.
RP® Financial, LC. | VALUATION ANALYSIS |
IV.1 |
IV. VALUATION ANALYSIS
Introduction
This chapter presents the valuation analysis and methodology prepared pursuant to the regulatory valuation guidelines, and valuation adjustments and assumptions used to determine the estimated pro forma market value of the common stock to be issued in conjunction with the Bank’s conversion transaction.
Appraisal Guidelines
The federal regulatory appraisal guidelines required by the OCC, the FRB and the FDIC specify the pro forma market value methodology for estimating the pro forma market value of a converting thrift. Pursuant to this methodology: (1) a peer group of comparable publicly-traded institutions is selected; (2) a financial and operational comparison of the subject company to the peer group is conducted to discern key differences; and (3) a valuation analysis in which the pro forma market value of the subject company is determined based on the market pricing of the peer group as of the date of valuation, incorporating valuation adjustments for key differences. In addition, the pricing characteristics of recent conversions, both at conversion and in the aftermarket, must be considered.
RP Financial Approach to the Valuation
The valuation analysis herein complies with such regulatory approval guidelines. Accordingly, the valuation incorporates a detailed analysis based on the Peer Group, discussed in Chapter III, which constitutes “fundamental analysis” techniques. Additionally, the valuation incorporates a “technical analysis” of recently completed stock conversions, including closing pricing and aftermarket trading of such offerings. It should be noted that these valuation analyses cannot possibly fully account for all the market forces which impact trading activity and pricing characteristics of a particular stock on a given day.
RP® Financial, LC. | VALUATION ANALYSIS |
IV.2 |
The pro forma market value determined herein is a preliminary value for the Bank’s to-be-issued stock. Throughout the conversion process, RP Financial will: (1) review changes in St. Landry Homestead’s operations and financial condition; (2) monitor St. Landry Homestead’s operations and financial condition relative to the Peer Group to identify any fundamental changes; (3) monitor the external factors affecting value including, but not limited to, local and national economic conditions, interest rates, and the stock market environment, including the market for thrift stocks; and (4) monitor pending conversion offerings (including those in the offering phase), both regionally and nationally. If material changes should occur during the conversion process, RP Financial will evaluate if updated valuation reports should be prepared reflecting such changes and their related impact on value, if any. RP Financial will also prepare a final valuation update at the closing of the offering to determine if the prepared valuation analysis and resulting range of value continues to be appropriate.
The appraised value determined herein is based on the current market and operating environment for the Bank and for all thrifts. Subsequent changes in the local and national economy, the legislative and regulatory environment, the stock market, interest rates, and other external forces (such as natural disasters or major world events), which may occur from time to time (often with great unpredictability) may materially impact the market value of all thrift stocks, including St. Landry Homestead’s value, or St. Landry Homestead’s value alone. To the extent a change in factors impacting the Bank’s value can be reasonably anticipated and/or quantified, RP Financial has incorporated the estimated impact into the analysis.
Valuation Analysis
A fundamental analysis discussing similarities and differences relative to the Peer Group was presented in Chapter III. The following sections summarize the key differences between the Bank and the Peer Group and how those differences affect the pro forma valuation. Emphasis is placed on the specific strengths and weaknesses of the Bank relative to the Peer Group in such key areas as financial condition, profitability, growth and viability of earnings, asset growth, primary market area, dividends, liquidity of the shares, marketing of the issue, management, and the effect of government regulations and/or regulatory reform. We have also considered the market for thrift stocks, in particular new issues, to assess the impact on value of the Bank coming to market at this time.
RP® Financial, LC. | VALUATION ANALYSIS |
IV.3 |
1. | Financial Condition |
The financial condition of an institution is an important determinant in pro forma market value because investors typically look to such factors as liquidity, capital, asset composition and quality, and funding sources in assessing investment attractiveness. The similarities and differences in the Bank’s and the Peer Group’s financial strengths are noted as follows:
■ | Overall A/L Composition. In comparison to the Peer Group, the Bank’s interest-earning asset composition showed a slightly lower concentration of loans and a slightly higher concentration of cash and investments as a percent of assets. Lending diversification into higher risk and higher yielding types of loans was more significant for the Peer Group. Overall, in comparison to the Peer Group, the Bank’s interest-earning asset composition provided for a slightly higher yield earned on interest-earning assets and a lower risk weighted assets-to-assets ratio. St. Landry Homestead’s funding composition reflected a slightly higher level of deposits and a lower level of borrowings than the comparable Peer Group ratios, which translated into a slightly lower cost of funds for the Bank. Overall, as a percent of assets, the Bank maintained a similar level of interest-earning assets and a lower level interest-bearing liabilities compared to the Peer Group’s ratios, which resulted in a higher IEA/IBL ratio for the Bank. After factoring in the impact of the net stock proceeds, the Bank’s IEA/IBL ratio should further exceed the Peer Group’s ratio. On balance, RP Financial concluded that asset/liability composition was a slightly positive factor in our adjustment for financial condition. |
■ | Credit Quality. The Bank’s ratios for non-performing assets and non-performing loans were less favorable than the comparable Peer Group ratios. Loss reserves as a percent of non-performing loans were lower for the Bank, while the Bank maintained a higher level of loss reserves as a percent of loans. Net loan charge-offs were a slightly more significant factor for the Peer Group. As noted above, the Bank’s risk weighted assets-to-assets ratio was lower than the Peer Group’s ratio. Overall, RP Financial concluded that credit quality was a moderately negative factor in our adjustment for financial condition. |
■ | Balance Sheet Liquidity. The Bank operated with a slightly higher level of cash and investment securities relative to the Peer Group (28.89% of assets versus 27.16% for the Peer Group). Following the infusion of stock proceeds, the Bank’s cash and investments ratio is expected to increase as the proceeds retained at the holding company level will be initially deployed into investments. The Bank’s future borrowing capacity was considered to be slightly greater than the Peer Group’s, based on the lower level of borrowings funding the Bank’s assets. Overall, RP Financial concluded that balance sheet liquidity was a slightly positive factor in our adjustment for financial condition. |
■ | Funding Liabilities. The Bank’s interest-bearing funding composition reflected a slightly higher concentration of deposits and a lower concentration of borrowings relative to the comparable Peer Group ratios, which translated into a slightly lower cost of funds for the Bank. Total interest-bearing liabilities as a percent of assets were lower for the Bank compared to the Peer Group’s ratio, which was attributable to St. Landry Homestead’s higher capital position. Following the stock offering, the increase in the Bank’s capital position will further reduce the level of interest-bearing liabilities funding the Bank’s assets. Overall, RP Financial concluded that funding liabilities were a slightly positive factor in our adjustment for financial condition. |
■ | Capital. The Bank currently operates with a higher equity-to-assets ratio than the Peer Group. Accordingly, following the stock offering, St. Landry Homestead’s pro forma capital position can be expected to further exceed the Peer Group's equity-to-assets ratio. The Bank’s higher pro forma capital position implies greater leverage capacity, lower dependence on interest-bearing liabilities to fund assets and a greater capacity to absorb unanticipated losses. At the same time, the Bank’s more significant capital surplus will make it difficult to achieve a competitive ROE. On balance, RP Financial concluded that capital strength was a slightly positive factor in our adjustment for financial condition. |
RP® Financial, LC. | VALUATION ANALYSIS |
IV.4 |
On balance, St. Landry Homestead’s balance sheet strength was considered similar to the Peer Group’s balance sheet strength and, thus, no adjustment was applied for the Bank’s financial condition.
2. | Profitability, Growth and Viability of Earnings |
Earnings are a key factor in determining pro forma market value, as the level and risk characteristics of an institution’s earnings stream and the prospects and ability to generate future earnings heavily influence the multiple that the investment community will pay for earnings. The major factors considered in the valuation are described below.
■ | Reported Earnings. The Bank’s reported earnings were lower than the Peer Group’s on a ROAA basis, as the Bank reported a net loss equal to 0.29% of average assets. Comparatively, the Peer Group’s ROAA on a reported basis equaled 0.82%. The Bank’s earnings reflected earnings advantages with respect to higher net interest income and lower operating expenses, which were more than offset by the Peer Group’s earnings advantages with respect to higher non-interest operating income, lower loan loss provisions and lower non-operating losses. Reinvestment and leveraging of stock proceeds into interest-earning assets will serve to increase the Bank’s earnings, with the benefit of reinvesting proceeds expected to be somewhat offset by higher operating expenses associated with operating as a publicly-traded company and the implementation of stock benefit plans. On balance, RP Financial concluded that the Bank’s reported earnings were a moderately negative factor in our adjustment for profitability, growth and viability of earnings. |
■ | Core Earnings. Net interest income, operating expenses, non-interest operating income and loan loss provisions were reviewed in assessing the relative strengths and weaknesses of the Bank’s and the Peer Group’s core earnings. In these measures, the Bank operated with a higher net interest income ratio, a lower operating expense ratio, a lower level of non-interest operating income and a higher level of loss provisions. The Bank’s higher ratio for net interest income and lower operating expense ratio translated into a higher expense coverage ratio in comparison to the Peer Group’s ratio (equal to 1.11x versus 0.84X for the Peer Group). Comparatively, the Bank’s efficiency ratio of 79.22% was less favorable than the Peer Group’s efficiency ratio of 72.65%. Loan loss provisions had a more significant impact on the Bank’s earnings (0.42% of average assets versus 0.18% of average assets for the Peer Group). Overall, these measures, as well as the expected earnings benefits the Bank should realize from the redeployment of stock proceeds into interest-earning assets and leveraging of post-conversion capital, which will be somewhat negated by expenses associated with the stock benefit plans and operating as a publicly-traded company, indicate that the Bank’s pro forma core earnings will be less than the Peer Group’s core earnings. Therefore, RP Financial concluded that this was a moderately negative factor in our adjustment for profitability, growth and viability of earnings. |
RP® Financial, LC. | VALUATION ANALYSIS |
IV.5 |
■ | Interest Rate Risk. Quarterly changes in the Bank’s and the Peer Group's net interest income to average assets ratios indicated that a similar degree of volatility was associated with the Bank’s and the Peer Group’s net interest margins. Other measures of interest rate risk, such as capital and IEA/IBL ratios were more favorable for the Bank. On a pro forma basis, the infusion of stock proceeds can be expected to provide the Bank with equity-to-assets and IEA/ILB ratios that will further exceed the Peer Group’s ratios, as well as enhance the stability of the Bank’s net interest margin through the reinvestment of stock proceeds into interest-earning assets. On balance, RP Financial concluded that interest rate risk was a slightly positive factor in our adjustment for profitability, growth and viability of earnings. |
■ | Credit Risk. Loan loss provisions were a larger factor in the Bank’s earnings (0.42% of average assets versus 0.18% of average assets for the Peer Group). In terms of future exposure to credit quality related losses, the Bank maintained a slightly lower concentration of assets in loans, while lending diversification into higher risk types of loans was more significant for the Peer Group. Credit quality measures generally implied a higher degree of credit risk exposure for the Bank relative to the comparable credit quality measures for the Peer Group. Overall, RP Financial concluded that credit risk was a moderately negative factor in our adjustment for profitability, growth and viability of earnings. |
■ | Earnings Growth Potential. Several factors were considered in assessing earnings growth potential. First, the Bank maintained a slightly more favorable interest rate spread than the Peer Group, which would tend to support a stronger net interest margin going forward for the Bank. Second, the infusion of stock proceeds will provide the Bank with greater growth potential through leverage than currently maintained by the Peer Group. Third, the Peer Group’s higher ratio of non-interest operating income and the Bank’s lower operating expense ratio were viewed as reviewed as respectively advantages for the Peer Group and the Bank to sustain earnings growth during periods when net interest margins come under pressure as the result of adverse changes in interest rates. Overall, earnings growth potential was considered to be a slightly positive factor in our adjustment for profitability, growth and viability of earnings. |
■ | Return on Equity. Currently, the Bank’s core ROE is lower than the Peer Group’s ROE. Accordingly, as the result of the significant increase in capital that will be realized from the infusion of net stock proceeds into the Bank’s equity, the Bank’s pro forma return on equity on a core earnings basis will continue be less than the Peer Group’s return on equity ratio. Therefore, this was a moderately negative factor in the adjustment for profitability, growth and viability of earnings. |
On balance, St. Landry Homestead’s pro forma earnings strength was considered to be less favorable than the Peer Group’s and, thus, a moderate downward adjustment was applied for profitability, growth and viability of earnings.
RP® Financial, LC. | VALUATION ANALYSIS |
IV.6 |
3. | Asset Growth |
Comparative 12-month asset growth rates for the Bank and the Peer Group showed a 2.83% increase in the Bank’s assets, versus a 10.85% increase in the Peer Group’s assets. Asset growth for the Bank consisted of cash and investments, which was largely offset by a decrease in loans. Comparatively, asset growth for the Peer Group was realized through loan growth and an increase in cash and investments. The Peer Group’s asset growth trends would tend to be viewed more favorably than the Bank’s asset growth trends, particularly given the higher yields generally earned on loans relative to cash and investments. On a pro forma basis, the Bank’s tangible equity-to-assets ratio will significantly exceed the Peer Group's tangible equity-to-assets ratio, indicating greater leverage capacity for the Bank. On balance, no adjustment was applied for asset growth.
4. | Primary Market Area |
The general condition of an institution’s market area has an impact on value, as future success is in part dependent upon opportunities for profitable activities in the local market served. Operating in the Acadiana region of south-central Louisiana, the Bank serves a mostly suburban market area. St. Landry Parish, where the Company maintains its main office and largest branch presence, experienced a decline in population over the past five years. St. Landry Parish’s December 2020 unemployment rate was above the comparable unemployment rates for Louisiana and the U.S.
RP® Financial, LC. | VALUATION ANALYSIS |
IV.7 |
The Peer Group companies generally operate in a mix of urban, suburban and rural markets, with the majority of the markets served by the Peer Group companies having larger populations compared to St. Landry Parish. Population growth for the primary market area counties served by the Peer Group companies reflected a range of growth rates, but overall population growth rates in the markets served by the Peer Group companies showed a lesser decline in population than experienced by St. Landry Parish over the past five years. St. Landry Parish has a lower per capita income compared to the Peer Group’s average and median per capita income measures and the Peer Group’s primary market area counties were relatively more affluent markets within their respective states compared to St. Landry Parish which had a comparatively lower per capita income as a percent of Louisiana’s per capita income (54.4% versus 107.2% for the Peer Group average). The average and median deposit market shares maintained by the Peer Group companies were less than the Bank’s market share of deposits in St. Landry Parish. Overall, the degree of competition faced by the Peer Group companies was viewed to greater than faced by the Bank, while the growth potential in the markets served by the Peer Group companies was for the most part viewed to be stronger compared to the Bank’s primary market area. Summary demographic and deposit market share data for the Bank and the Peer Group companies is provided in Exhibit III-4. As shown in Table 4.1, the average unemployment rate for the primary market area counties served by the Peer Group companies was lower than the unemployment rate reflected for St. Landry Parish. On balance, we concluded that a slight downward adjustment was appropriate for the Bank’s market area.
Table 4.1
Market Area Unemployment Rates
St. Landry Homestead FSB and the Peer Group Companies(1)
County |
December 2020
Unemployment |
|||||
St. Landry Homestead FSB - LA | St. Landry | 7.5 | % | |||
Peer Group Average | 5.6 | % | ||||
CBM Bancorp, Inc. – MD | Baltimore | 5.9 | ||||
Cincinnati Bancorp, Inc. – OH | Hamilton | 5.0 | ||||
Elmira Savings Bank – NY | Chemung | 6.7 | ||||
FFBW, Inc. – WI | Waukesha | 4.5 | ||||
Home Federal Bancorp, Inc. of LA - LA | Caddo | 7.7 | ||||
HV Bancorp, Inc. - PA | Bucks | 5.3 | ||||
IF Bancorp, Inc. – IL | Iroquois | 4.7 | ||||
Mid-Southern Bancorp, Inc. – IN | Washington | 3.6 | ||||
Randolph Bancorp, Inc. – MA | Norfolk | 6.4 | ||||
WVS Financial Corp. – PA | Allegheny | 6.3 |
(1) | Unemployment rates are not seasonally adjusted. |
Source: U.S. Bureau of Labor Statistics.
5. | Dividends |
At this time the Bank has not established a dividend policy. Future declarations of dividends by the Board of Directors will depend upon a number of factors, including investment opportunities, growth objectives, financial condition, profitability, tax considerations, minimum capital requirements, regulatory limitations, stock market characteristics and general economic conditions.
Five out of the ten of the Peer Group companies pay regular cash dividends, with implied dividend yields ranging from 0.74% to 4.90%. The average dividend yield on the stocks of the Peer Group institutions equaled 1.20% as of February 5, 2021. Comparatively, as of February 5, 2021, the average dividend yield on the stocks of all fully-converted publicly-traded thrifts equaled 2.36%
RP® Financial, LC. | VALUATION ANALYSIS |
IV.8 |
While the Bank has not established a definitive dividend policy prior to converting, the Bank will have the capacity to pay a dividend comparable to the Peer Group’s average dividend yield based on its higher pro forma capitalization. On balance, we concluded that no adjustment was warranted for this factor.
6. | Liquidity of the Shares |
The Peer Group is by definition composed of companies that are traded in the public markets. All ten of the Peer Group members trade on the NASDAQ. Typically, the number of shares outstanding and market capitalization provides an indication of how much liquidity there will be in a particular stock. The market capitalization of the Peer Group companies ranged from $26.3 million to $102.9 million as of February 5, 2021, with average and median market values of $52.4 million and $46.7 million, respectively. The shares issued and outstanding to the public shareholders of the Peer Group members ranged from 1.7 million to 7.1 million, with average and median shares outstanding equaling 3.4 million and 3.0 million, respectively. The Bank’s stock offering is expected to have a pro forma market value that approximates the Peer Group’s median market value and shares outstanding that will be in the upper half of the Peer Group’s range of shares outstanding. Like all of the Peer Group companies, the Bank’s stock will be traded on the NASDAQ. Overall, we anticipate that the Bank’s public stock will have a comparable trading market compared to the stocks of the Peer Group companies and, therefore, concluded no adjustment was necessary for this factor.
7. | Marketing of the Issue |
We believe that three separate markets exist for thrift stocks, including those coming to market such as St. Landry Bank: (1) the after-market for public companies, in which trading activity is regular and investment decisions are made based upon financial condition, earnings, capital, ROE, dividends and future prospects; (2) the new issue market in which converting thrifts are evaluated on the basis of the same factors, but on a pro forma basis without the benefit of prior operations as a fully-converted publicly-held company and stock trading history; and (3) the acquisition market for thrift franchises in Louisiana. All three of these markets were considered in the valuation of the Bank’s to-be-issued stock.
RP® Financial, LC. | VALUATION ANALYSIS |
IV.9 |
A. | The Public Market |
The value of publicly-traded thrift stocks is easily measurable, and is tracked by most investment houses and related organizations. Exhibit IV-1 provides pricing and financial data on all publicly-traded thrifts. In general, thrift stock values react to market stimuli such as interest rates, inflation, perceived industry health, projected rates of economic growth, regulatory issues and stock market conditions in general. Exhibit IV-2 displays historical stock market trends for various indices and includes historical stock price index values for thrifts and commercial banks. Exhibit IV-3 displays various stock price indices as of February 5, 2021.
In terms of assessing general stock market conditions, the performance of the overall stock market has been mixed in recent quarters. Stocks opened the second quarter of 2020 with a bruising sell-off after President Trump issued a warning on the coronavirus pandemic, which was followed by major U.S. stock indexes surging higher. News that New York recorded its first daily decline in Covid-19 deaths and the Federal Reserve’s commitment to provide an unprecedent level of support for the economy were noted factors that powered the stock market rally. The second week of April concluded with stocks posting their biggest week of gains since 1974. Stocks advanced a second consecutive week going into mid-April, as investors reacted to reports that an antiviral medicine was showing promise and the growing potential for the gradual reopening of the U.S. economy. Energy shares led stocks lower heading into the second half of April, as oil prices plunged below $0 a barrel. Promising news for a coronavirus drug and the Federal Reserve’s statement that it was in no hurry to end stimulus measures contributed to broader stock market gains through the end of April. Overall, April was the best month for stocks in decades, as the Dow Jones Industrial Average (“DJIA”) and S&P 500 posted respective gains of 11% and 13%. Comparatively, the NASDAQ was down 0.3% in April. Following a sell-off at the start of May, the broader stock market trended higher ahead of the April employment report and then rallied sharply higher with the release of the April employment report on May 8th. Stocks fell broadly the first few trading days the following week, as investors reacted to a sharp decline in the April consumer price index and the Federal Reserve’s grim assessment on how long it would take the U.S. economy to recover. Going into the second half of May, stocks surged higher on positive results reported by a drugmaker’s early study of a potential coronavirus vaccine and optimism that the U.S. economy would start to recover as all 50 states relaxed some of their coronavirus restrictions. Optimism about economies reopening and the potential development of a coronavirus vaccine continued to propel stock market gains in late-May and early-June. Stocks continued to surge higher to close out the first week of trading in June, as investors reacted to a surprisingly strong May employment report. The rebound in the broader stock market continued into the beginning of the second week of June, with the NASDAQ closing at a record high and the S&P 500 moving into positive territory for the year. Stocks closed out the second week of trading in June posting their worst weekly loss since March, as growing fears of a surge in coronavirus infections fueled a stock market route on June 11th. After Federal Reserve officials highlighted the pandemic’s potential to weaken the U.S. economy over the long-term, shares of banks and manufacturers were among the hardest hit stocks in the sell-off. A rebound in May retail sales and the Federal Reserve’s announcement that it would broaden its program to purchase bonds of U.S. companies translated into stocks rallying going into the second half of June, which was followed by a wavering stock market environment through multiple trading sessions as investors weighed a rise in coronavirus infections against signs of the U.S. economy recovering. A record number of new coronavirus cases in some large states fueled a late-June sell-off in the broader stock market, as investors reacted to reinstatement of lockdown measures by some of those states. Growing expectations for additional stimulus from the Federal Reserve contributed to stocks rallying to close out the second quarter, as U.S. stocks wrapped up their best quarter in more than 20 years. For the second quarter of 2020, the DJIA was up 18%, the S&P 500 was up 20% and the NASDAQ was up 31%.
RP® Financial, LC. | VALUATION ANALYSIS |
IV.10 |
Stocks started out the third quarter of 2020 trading mixed ahead of the release of the June employment report and then rallied higher with the release of the June employment report, which showed the U.S. economy added more jobs than expected. Volatility prevailed in the broader stock market through mid-July, as investors weighed hopes of a Covid-19 vaccine after two companies received “fast track” designations for the development of their coronavirus vaccine candidates against a resurgence in Covid-19 positive cases that was providing for an uneven reopening of the U.S. economy. Stocks retreated heading into the last week of July, as the first weekly increase in new unemployment claims since March raised concerns that mounting coronavirus infections and a renewed wave of mandated lockdowns could slow an economic recovery. The broader stock market continued to trade unevenly in the final week of July, as investors reacted to mixed second quarter earnings reports by some large companies, a record decline in second quarter GDP and the Federal Reserve’s reiteration that it would continue to support the U.S. economy. Overall, technology stocks were the strongest performing stocks during July, as the NASDAQ closed out July at a new record high. Progress in Congressional negotiations for a new coronavirus relief package and initial weekly unemployment claims falling to their lowest level since the coronavirus hit the U.S. in March fueled stock market gains during the first week of August. The DJIA extended its winning streak to seven sessions on August 10th, as investors assessed the likelihood of another round of stimulus spending and the slowing pace of new coronavirus infections. Led by advances in technology shares, the broader stock market continued to surge higher through the second half of August with the NASDAQ and S&P 500 posting a number of new record highs. Overall, the month of August was the best month for U.S. stocks since April, with stimulus from the U.S. Government, signs of economic revival and progress toward a coronavirus vaccine fueling the gains in the broader stock market. An upbeat report on August manufacturing activity helped to extend the stock market rally into early-September, as the DJIA closed above 29000 for the first time since February. A sell-off in technology stocks led the stock market lower going into the second week of September, as NASDAQ fell into correction territory amid concerns that technology shares had become overvalued. Stocks rebounded heading into mid-September, as technology stocks led the broader stock market higher on large acquisitions announced by Oracle and Nvidia. A decline in oil and gold prices pressured economically sensitive shares lower going in the second half of September, which was followed by a one-day sell-off in technology shares as hopes for additional fiscal stimulus dimmed and investors continued to question the valuation of tech stocks. Stocks regained some lost ground in the final week of the third quarter, which was led by a rebound in economically sensitive shares.
RP® Financial, LC. | VALUATION ANALYSIS |
IV.11 |
Stocks traded lower at the start of the fourth quarter of 2020, as investors reacted to the September employment report that showed job growth was less than expected. News of President Trump’s improving health propelled stocks higher at the beginning of the second week of October, which was followed by a one-day sell-off caused by a halt in negotiations for a new economic relief package. Stocks rallied higher following the one-day sell-off on revived hopes for a new stimulus deal, as Democratic and White House negotiators resumed negotiations for a coronavirus relief bill. Mixed earnings reports at the start of the third quarter earnings season pressured stocks lower going into mid-October. The sell-off in the broader stock market sharpened during the second half of October, as a surge in coronavirus cases added to worries about the economic outlook in the absence of a stimulus deal. Better-than-expected economic data for third quarter GDP growth and October manufacturing activity contributed to stocks rallying ahead of the election in early-November. The stock market rallied continued on Election Day and the following day, as Wall Street reacted to election results that indicated a Biden presidency gridlocked by a Republican-controlled Senate. News of promising results for two Covid-19 vaccines bolstered stock markets gains through the end of November, which included the DJIA closing above 30000 for the first time. Overall, for the month of November, the DJIA increased 12%, marking its best month since January 1987, while the NASDAQ and S&P 500 posted respective gains of 12% and 11%. Signs of progress on a stimulus relief package and the effectiveness rates for the forthcoming Covid-19 vaccines helped to sustain the broader stock market rally through the first week of December, with the NASDAQ and S&P 500 closing at new record highs. Stocks retreated going into mid-December, as negotiations over a coronavirus relief package stalled. As Congress neared a deal on a new coronavirus relief package, all three major U.S. stock indexes closed at record highs going into the second half of December. Stocks paused after closing at new record highs, as Covid-19 concerns overshadowed Congress’s approval of a coronavirus relief package. All three major U.S. stock indexes closed at record highs in the final week of 2020, as the rollout of the coronavirus vaccine and passage of a new stimulus package buoyed investors’ sentiment.
RP® Financial, LC. | VALUATION ANALYSIS |
IV.12 |
A wave of new Covid-19 infections prompted a sell-off in the broader stock at the at the start of 2021, which was followed by stocks rallying higher on expectations that there would be a big boost in government spending under a Democrat-controlled Senate. Stocks fell in mid-January, as initial jobless claims posted their biggest weekly increase since the Covid-19 pandemic hit in March. After all three major U.S. stock indexes closed at record highs going into the second half of January, all three major U.S. stock indexes suffered their sharpest losses in late-January amid concerns about how effectively the Covid-19 vaccine was being distributed. Robust fourth quarter earnings posted by some large-cap stocks and a decline in initial jobless claims for a third straight week contributed to stocks rallying higher in the first week of February. On February 5, 2021, the DJIA closed at 31148.24, an increase of 7.0% from one year ago and an increase of 1.8% year-to-date, and the NASDAQ closed at 13856.30, an increase of 45.5% from one year ago and an increase of 7.5% year-to-date. The S&P 500 Index closed at 3886.83 on February 5, 2021, an increase of 16.8% from one year ago and an increase of 3.5% year-to-date.
RP® Financial, LC. | VALUATION ANALYSIS |
IV.13 |
The market for thrift stocks has also experienced varied trends in recent quarters. Market volatility prevailed for financial institution stocks during the first two weeks of April 2020. Financial shares stocks spiked lower with the release of the March employment report, which was followed by bank and thrift stocks rebounding along with the broader stock market ahead of the start of first quarter earnings season. First quarter earnings reports posted by some of the big banks fueled a sell-off in financial shares in mid-April, as plunging profits due to significant increases in loan loss provisions sent a message that big banks were preparing for a bad recession and a flood of borrower defaults. Growing expectations of the U.S. economy gradually reopening helped financial stocks rebound along with the broader stock market at the end of April. Financial shares traded lower during the first half of May, amid uncertainty of how quickly the economy would rebound with the gradual easing of social distancing rules. Beaten down financial shares rebounded along with the broader stock market going in the second half of May, as investors reacted to promising early-stage results for a potential coronavirus vaccine and all 50 states had entered the initial phase of reopening the U.S. economy. Financial shares generally drifted lower at the end of May and the start of June, which was followed by thrift and bank shares surging higher with the release of the May employment report. Fears of a surge in coronavirus infections and statements from Federal Reserve officials concerning the potential long term impact that the pandemic would have on the U.S. economy prompted a sell-off in bank and thrift stocks going into the second half of June, as economically sensitive shares were particularly hard hit by the threat of a prolonged economic downturn. The roll back of federal regulations that placed curbs on swaps and investing contributed to a one-day rally in financial shares in late-June, which was followed by a sharp sell-off in bank and thrift shares on fears of possible reinstatement of lockdown measures in states that were experiencing an increase in COVID-19 cases. Financial shares participated in the broader stock market rally to close out the second quarter, although fell well short of the gains posted by the major stock U.S. indexes for the entire second quarter.
Financial shares pulled back in early-July 2020 amid a dramatic surge in confirmed coronavirus infections in the south and west regions of the U.S., which forced several states to pause or reverse plans to reopen businesses. Growing optimism of a Covid-19 vaccine being developed in the near term contributed to financial shares trading higher along with the broader stock market heading into mid-July, which was followed by a slight pullback in financial shares as big bank second quarter earnings reports warned of a protracted downturn for the U.S. economy. Financial shares traded unevenly throughout the second half of July, in light of uncertainty over the outlook for the U.S. economy and related impact on credit quality. After trading lower the first few trading days of August, financial shares participated in the broader stock market rally going into mid-August. Financial shares diverged from the broader stock market rally in the second half of August and into early-September, as economic uncertainty revolving around the Covid-19 pandemic weighed on the shares of economically sensitive stocks. After trading higher with the release of the better-than-expected employment report for August 2020, thrift stocks retreated in the second week of September. Financial shares edged higher at the conclusion of the Federal Reserve’s mid-September policy meeting, whereby the Federal Reserve pledged to support the economic recovery by setting a higher bar to raise interest rates and by signaling it expected to hold rates near zero for at least three more years. The sell-off in economically sensitive shares going into the second half of September translated into market losses for bank and thrift stocks, which was followed by an uptick in financial shares at the close of the third quarter.
RP® Financial, LC. | VALUATION ANALYSIS |
IV.14 |
The positive trend in thrift stocks continued through the first two weeks of October 2020, as economically sensitive stocks climbed on hopes for passage of a new coronavirus stimulus bill. Despite better-than-expected third quarter earnings results posted by some big banks at the start of the third quarter earnings season, financial shares traded lower in mid-October. Financial shares rallied going into late-October, as news that weekly initial jobless claims fell by 55,000 pushed the 10-year Treasury yield up to 0.85%. Financial shares sold-off along with the broader stock market during the last week of October, as rising coronavirus cases shook investors’ confidence in the economic recovery. Financial shares also participated in the broader stock market rally during the first two trading days of November and on Election Day, but then diverged from the broader stock market rally the day following the election as investors bet that the election results and a potentially long period of vote counting would delay and potentially reduce another round of stimulus. Amid building hopes that drug-makers were on the brink of pushing out vaccines effective enough to fight the coronavirus, economically sensitive stocks, such as bank stocks, were among the strongest performing sectors for the balance of November. After trading lower on last day of November, the positive trend in thrift stocks resumed through the first half of December on signs of a progress in negotiations over a coronavirus relief package. Amid a surge in coronavirus infections and the Federal Reserve leaving its benchmark interest rate near zero, thrift shares edged lower going into final week of 2020 and then rebounded in the last week of 2020 after President Trump signed a Covid-19 relief bill.
Thrift shares traded flat at the start of 2021 and then rallied higher in the second week of January on expectations of additional stimulus after Democrats took control of the Senate. Thrift shares reversed course and trended lower in the second half of January on concerns over the lingering economic impact of the coronavirus and related impact on loan demand and credit quality. A decline in coronavirus cases across the U.S. helped thrift shares to rebound in the first week of February. On February 5, 2021, the SNL Thrift Index for all publicly-traded thrifts closed at 851.8, a decrease of 5.2% from one year ago and an increase of 4.3% year-to-date.
RP® Financial, LC. | VALUATION ANALYSIS |
IV.15 |
B. | The New Issue Market |
In addition to thrift stock market conditions in general, the new issue market for converting thrifts is also an important consideration in determining the Bank’s pro forma market value. The new issue market is separate and distinct from the market for seasoned thrift stocks in that the pricing ratios for converting issues are computed on a pro forma basis, specifically: (1) the numerator and denominator are both impacted by the conversion offering amount, unlike existing stock issues in which price change affects only the numerator; and (2) the pro forma pricing ratio incorporates assumptions regarding source and use of proceeds, effective tax rates, stock plan purchases, etc. which impact pro forma financials, whereas pricing for existing issues are based on reported financials. The distinction between pricing of converting and existing issues is perhaps no clearer than in the case of the price/book (“P/B”) ratio in that the P/B ratio of a converting thrift will typically result in a discount to book value whereas in the current market for existing thrifts the P/B ratio may reflect a premium to book value. Therefore, it is appropriate to also consider the market for new issues, both at the time of the conversion and in the aftermarket.
As shown in Table 4.2,
there have been no standard conversions completed during the past three months and two standard conversion offerings have been
completed during the past twelve months. Both standard conversion offerings were completed in October 2020, one of which was significantly
larger than St. Landry Homestead and one of which was significantly smaller than St. Landry Homestead. The average closing pro
forma price/tangible book ratio of the two recent standard conversion offerings equaled 61.8%. On average, the two standard conversion
offerings reflected price appreciation of 12.4% after the first week of trading. As of February 5, 2021, the two recent standard
conversion offerings reflected an average stock price increase of 30.9% from their IPO prices.
RP® Financial, LC. | Valuation Analysis |
IV.16
Table 4.2
Pricing Characteristics and After-Market Trends
Conversions Completed in Trailing 12 Months
Pre-Conversion Data | Contribution to | Insider Purchases | Pro Forma Data | Post-IPO Pricing Trends | ||||||||||||||||||||||||||||
Institutional Information | Financial Info. | Asset Quality | Offering Information | Char. Found. | % Off Incl. Fdn.+Merger Shares | Pricing Ratios(2)(5) | Financial Charac. | Closing Price: | ||||||||||||||||||||||||
Excluding Foundation | % of | Benefit Plans | Initial | First | After | After | ||||||||||||||||||||||||||
Conversion | Equity/ | NPAs/ | Res. | Gross | % | % of | Exp./ | Public Off. | Recog. | Stk | Mgmt.& | Div. | Core | Core | Core | IPO | Trading | % | First | % | First | % | Thru | % | ||||||||
Institution | Date | Ticker | Assets | Assets | Assets | Cov. | Proc. | Offer | Mid. | Proc. | Form | Inc. Fdn. | ESOP | Plans | Option | Dirs. | Yield | P/TB | P/E | P/A | ROA | TE/A | ROE | Price | Day | Chg | Week(3) | Chg | Month(4) | Chg | 2/5/2021 | Chg |
($Mil) | (%) | (%) | (%) | ($Mil.) | (%) | (%) | (%) | (%) | (%) | (%) | (%) | (%)(1) | (%) | (%) | (x) | (%) | (%) | (%) | (%) | ($) | ($) | (%) | ($) | (%) | ($) | (%) | ($) | (%) | ||||
Standard Conversions | ||||||||||||||||||||||||||||||||
Eastern Bankshares, Inc., MA* | 10/15/20 | EBC-NASDAQ | $ 13,997 | 12.10% | 0.04% | 211% | $ 1,797.1 | 100% | 118% | 1.6% | S | 4.0% | 8.0% | 4.0% | 10.0% | 0.1% | 0.00% | 65.0% | 22.8x | 12.0% | 0.5% | 19.0% | 2.5% | $10.00 | $12.15 | 21.5% | $12.48 | 24.8% | $13.62 | 36.2% | $16.18 | 61.8% |
Systematic Savings Bank, MO | 10/14/20 | SSSB-OTCPink | $ 40 | 12.64% | 8.00% | NM | $ 6.0 | 100% | 132% | 14.3% | N.A. | N.A. | 0.0% | 0.0% | 0.0% | 18.0% | 0.00% | 58.6% | 46.5x | 13.2% | 0.3% | 22.5% | 1.3% | $10.00 | $10.00 | 0.0% | $10.00 | 0.0% | $10.00 | 0.0% | $10.00 | 0.0% |
Averages - Standard Conversions: | $ 7,018 | 12.37% | 4.02% | 211% | $ 901.5 | 100% | 125% | 7.9% | N.A. | N.A. | 4.0% | 2.0% | 5.0% | 9.1% | 0.00% | 61.8% | 34.7x | 12.6% | 0.4% | 20.8% | 1.9% | $10.00 | $11.08 | 10.8% | $11.24 | 12.4% | $11.81 | 18.1% | $13.09 | 30.9% | ||
Medians - Standard Conversions: | $ 7,018 | 12.37% | 4.02% | 211% | $ 901.5 | 100% | 125% | 7.9% | N.A. | N.A. | 4.0% | 2.0% | 5.0% | 9.1% | 0.00% | 61.8% | 34.7x | 12.6% | 0.4% | 20.8% | 1.9% | $10.00 | $11.08 | 10.8% | $11.24 | 12.4% | $11.81 | 18.1% | $13.09 | 30.9% | ||
Second Step Conversions | ||||||||||||||||||||||||||||||||
Affinity Bancshares, Inc., GA | 1/21/21 | AFBI-NASDAQ | $ 888 | 8.93% | 0.56% | 154% | $ 37.0 | 54% | 132% | 4.1% | N.A. | N.A. | 8.0% | 4.0% | 10.0% | 3.5% | 0.00% | 75.3% | 17.6x | 7.5% | 0.4% | 10.2% | 3.6% | $10.00 | $10.85 | 8.5% | $10.75 | 7.5% | $10.75 | 7.5% | $10.75 | 7.5% |
Generations Bancorp NY, Inc. | 1/13/21 | GBNY-NASDAQ | $ 368 | 8.10% | 1.08% | 54% | $ 14.8 | 60% | 98% | 8.8% | N.A. | N.A. | 8.0% | 4.0% | 10.0% | 3.1% | 0.00% | 61.7% | 15.0x | 6.5% | 0.4% | 10.5% | 4.0% | $10.00 | $10.05 | 0.5% | $9.56 | -4.4% | $9.74 | -2.6% | $9.74 | -2.6% |
Averages - Second Step Conversions: | $ 628 | 8.52% | 0.82% | 104% | $ 25.9 | 57% | 115% | 6.5% | N.A. | N.A. | 8.0% | 4.0% | 10.0% | 3.3% | 0.00% | 68.5% | 16.3x | 7.0% | 0.4% | 10.3% | 3.8% | $10.00 | $10.45 | 4.5% | $10.16 | 1.6% | $10.25 | 2.5% | $10.25 | 2.5% | ||
Medians - Second Step Conversions: | $ 628 | 8.52% | 0.82% | 104% | $ 25.9 | 57% | 115% | 6.5% | N.A. | N.A. | 8.0% | 4.0% | 10.0% | 3.3% | 0.00% | 68.5% | 16.3x | 7.0% | 0.4% | 10.3% | 3.8% | $10.00 | $10.45 | 4.5% | $10.16 | 1.6% | $10.25 | 2.5% | $10.25 | 2.5% | ||
Mutual Holding Companies | ||||||||||||||||||||||||||||||||
Averages - All Conversions: | $ 3,823 | 10.44% | 2.42% | 139% | $ 463.7 | 78% | 120% | 7.2% | N.A. | N.A. | 6.0% | 3.0% | 7.5% | 6.2% | 0.00% | 65.1% | 23.6x | 9.8% | 0.4% | 15.5% | 2.8% | $10.00 | $10.76 | 7.6% | $10.70 | 7.0% | $11.03 | 10.3% | $11.67 | 16.7% | ||
Medians - All Conversions: | $ 628 | 10.52% | 4.02% | 154% | $ 25.9 | 80% | 125% | 6.5% | N.A. | N.A. | 8.0% | 4.0% | 10.0% | 3.3% | 0.00% | 63.4% | 20.2x | 9.8% | 0.4% | 14.8% | 3.0% | $10.00 | $10.45 | 4.5% | $10.38 | 3.8% | $10.38 | 3.8% | $10.38 | 3.8% | ||
RP® Financial, LC. | VALUATION ANALYSIS |
IV.17 |
C. | The Acquisition Market |
Also considered in the valuation was the potential impact on St. Landry Homestead’s stock price of recently completed and pending acquisitions of other financial institutions operating in Louisiana. As shown in Exhibit IV-4, there were eleven acquisitions of Louisiana banks and thrifts completed from the beginning of 2017 through February 5, 20221, and there are currently two pending acquisitions for Louisiana banks. The recent acquisition activity involving Louisiana financial institutions may imply a certain degree of acquisition speculation for the Bank’s stock. To the extent that acquisition speculation may impact the Bank’s offering, we have largely taken this into account in selecting companies for the Peer Group that could be subject to the same type of acquisition speculation that may influence St. Landry Homestead’s’ stock. However, since converting thrifts are subject to a three-year regulatory moratorium from being acquired, acquisition speculation in St. Landry Homestead’s stock would tend to be less compared to the stocks of the Peer Group companies.
* * * * * * * * * * *
In determining our valuation adjustment for marketing of the issue, we considered trends in both the overall thrift market, the new issue market including the new issue market for thrift conversions and the local acquisition market for thrift stocks. Taking these factors and trends into account, RP Financial concluded that no adjustment was appropriate in the valuation analysis for purposes of marketing of the issue.
8. | Management |
St. Landry Homestead’s management team appears to have experience and expertise in all of the key areas of the Bank’s operations. During the past year, the Bank hired a new President and Chief Executive Officer to facilitate implementation of the Bank’s strategic plan. Exhibit IV-5 provides summary resumes of St. Landry Homestead’s Board of Directors and senior management. While the Bank does not have the resources to develop a great deal of management depth, given its asset size and the impact it would have on operating expenses, management and the Board have been effective in implementing an operating strategy that can be well managed by the Bank’s present organizational structure. St. Landry Homestead currently does not have any executive management positions that are vacant.
Similarly, the returns, equity positions and other operating measures of the Peer Group companies are indicative of well-managed financial institutions, which have Boards and management teams that have been effective in implementing competitive operating strategies. Therefore, on balance, we concluded no valuation adjustment relative to the Peer Group was appropriate for this factor.
RP® Financial, LC. | VALUATION ANALYSIS |
IV.18 |
9. | Effect of Government Regulation and Regulatory Reform |
In summary, as a fully-converted FDIC insured institution, St. Landry Homestead will operate in substantially the same regulatory environment as the Peer Group members -- all of whom are adequately capitalized institutions and are operating with no apparent restrictions. Exhibit IV-6 reflects the Bank’s pro forma regulatory capital ratios. On balance, no adjustment has been applied for the effect of government regulation and regulatory reform.
Summary of Adjustments
Overall, based on the factors discussed above, we concluded that the Bank’s pro forma market value should reflect the following valuation adjustments relative to the Peer Group:
Key Valuation Parameters: | Valuation Adjustment |
Financial Condition | No Adjustment |
Profitability, Growth and Viability of Earnings | Moderate Downward |
Asset Growth | No Adjustment |
Primary Market Area | Slight Downward |
Dividends | No Adjustment |
Liquidity of the Shares | No Adjustment |
Marketing of the Issue | No Adjustment |
Management | No Adjustment |
Effect of Govt. Regulations and Regulatory Reform | No Adjustment |
Valuation Approaches
In applying the accepted valuation methodology promulgated by the OCC i.e., the pro forma market value approach, we considered the three key pricing ratios in valuing the Bank’s to-be-issued stock -- price/earnings (“P/E”), price/book (“P/B”), and price/assets (“P/A”) approaches -- all performed on a pro forma basis including the effects of the stock proceeds. In computing the pro forma impact of the conversion and the related pricing ratios, we have incorporated the valuation parameters disclosed in the Bank’s prospectus for reinvestment rate, effective tax rate, stock benefit plan assumptions and expenses (summarized in Exhibits IV-7 and IV-8).
In our estimate of value, we assessed the relationship of the pro forma pricing ratios relative to the Peer Group and recent conversion offerings.
RP® Financial, LC. | VALUATION ANALYSIS |
IV.19 |
RP Financial’s valuation placed an emphasis on the following:
• | P/E Approach. The P/E approach is generally the best indicator of long-term value for a stock. However, given that the Company’s pro forma earnings reflect a net loss on both a reported and core earnings basis, the P/E approach was less meaningful for the Company’s valuation. |
• | P/B Approach. P/B ratios have generally served as a useful benchmark in the valuation of thrift stocks, particularly in the context of an initial public offering, as the earnings approach involves assumptions regarding the use of proceeds. RP Financial considered the P/B approach to be a useful indicator of pro forma value, taking into account the pricing ratios under the P/E approach, which were not meaningful (“NM”) and the P/A approach. We have also modified the P/B approach to exclude the impact of intangible assets (i.e., price/tangible book value or “P/TB”), in that the investment community frequently makes this adjustment in its evaluation of this pricing approach. |
• | P/A Approach. P/A ratios are generally a less reliable indicator of market value, as investors typically assign less weight to assets and attribute greater weight to book value and earnings. Furthermore, this approach as set forth in the regulatory valuation guidelines does not take into account the amount of stock purchases funded by deposit withdrawals, thus understating the pro forma P/A ratio. At the same time, the P/A ratio is an indicator of franchise value, and, in the case of highly capitalized institutions, high P/A ratios may limit the investment community’s willingness to pay market multiples for earnings or book value when ROE is expected to be low. |
The Bank will adopt “Employers’ Accounting for Employee Stock Ownership Plans” (“ASC 718-40”), which will cause earnings per share computations to be based on shares issued and outstanding excluding unreleased ESOP shares. For purposes of preparing the pro forma pricing analyses, we have reflected all shares issued in the offering, including all ESOP shares, to capture the full dilutive impact, particularly since the ESOP shares are economically dilutive, receive dividends and can be voted. However, we did consider the impact of the adoption of ASC 718-40 in the valuation.
Based on the application of the three valuation approaches, taking into consideration the valuation adjustments discussed above, RP Financial concluded that, as of February 5, 2021, the pro forma market value of St. Landry Homestead’s conversion stock was $38,500,000 at the midpoint, equal to 3,850,000 shares at $10.00 per share.
RP® Financial, LC. | VALUATION ANALYSIS |
IV.20 |
1. Price-to-Earnings (“P/E”). The application of the P/E valuation method requires calculating the Bank’s pro forma market value by applying a valuation P/E multiple to the pro forma earnings base. In applying this technique, we considered both reported earnings and a recurring earnings base, that is, earnings adjusted to exclude any one-time non-operating items, plus the estimated after-tax earnings benefit of the reinvestment of the net proceeds. The Bank’s reported earnings equaled a net loss of $684,000 for the twelve months ended December 31, 2020. In deriving St. Landry Homestead’s core earnings, the adjustments made to reported earnings were to eliminate the losses on REO of $287,000 and the prepayment penalties on FHLB advances of $1.510 million. As shown below, on a tax effected basis, assuming an effective marginal tax rate of 21.0% for the earnings adjustments, the Bank’s core earnings were determined to equal $736,000 for the twelve months ended December 31, 2020.
Amount | ||||
($000) | ||||
Net income(loss) | $ | (684 | ) | |
Add: Prepayment penalties on FHLB advances | 1,193 | |||
Add: Loss on REO(1) | 227 | |||
Core earnings estimate | $ | 736 |
(1) | Tax effected at 21.0%. |
Based on the Bank’s pro forma reported and core earnings net losses at the midpoint, the Company’s pro forma reported and core P/E multiples were not meaningful “(NM”). Comparatively, the Peer Group’s average reported and core P/E multiples equaled 12.03 times and 12.04 times, respectively (see Table 4.3). The Peer Group’s median reported and core earnings multiples equaled 10.73 times and 10.30 times, respectively.
2. Price-to-Book (“P/B”). The application of the P/B valuation method requires calculating the Bank’s pro forma market value by applying a valuation P/B ratio, as derived from the Peer Group’s P/B ratio, to the Bank’s pro forma book value. Based on the $38.5 million midpoint valuation, the Bank’s pro forma P/B and P/TB ratios both equaled 46.34%. In comparison to the average P/B and P/TB ratios for the Peer Group of 90.84% and 92.70%, the Bank’s ratios reflected a discount of 48.99% on a P/B basis and a discount of 50.01% on a P/TB basis. In comparison to the Peer Group’s median P/B and P/TB ratios of 92.53% and 92.73%, respectively, the Bank’s pro forma P/B and P/TB ratios at the midpoint value reflected discounts of 49.92% and 50.03%, respectively. At the top of the super range, the Bank’s P/B and P/TB ratios both equaled 54.23%. In comparison to the Peer Group’s average P/B and P/TB ratios, the Bank’s P/B and P/TB ratios at the top of the super range reflected discounts of 40.30% and 41.50%, respectively. In comparison to the Peer Group’s median P/B and P/TB ratios, the Bank’s P/B and P/TB ratios at the top of the super range reflected discounts of 41.39% and 41.52%, respectively. RP Financial considered the discounts under the P/B approach to be reasonable, given the nature of the calculation of the P/B ratio which mathematically results in a ratio discounted to book value. The discounts reflected under the P/B approach were also supported by the Bank’s NM pro forma reported and core P/E multiples.
RP® Financial, LC. | VALUATION ANALYSIS |
IV.21
Table 4.3
Market Pricing Versus Peer Group
St. Landry Homestead FSB
As of February 5, 2021
Market | Per Share Data | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Capitalization | Core | Book | Dividends(3) | Financial Characteristics(5) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Price/ | Market | 12 Month | Value/ | Pricing Ratios(2) | Amount/ | Payout | Total | Equity/ | Tang. Eq./ | NPAs/ | Reported | Core | ||||||||||||||||||||||||||||||||||||||||||||||||
Share | Value | EPS(1) | Share | P/E | P/B | P/A | P/TB | P/Core | Share | Yield | Ratio(4) | Assets | Assets | T. Assets | Assets | ROAA | ROAE | ROAA | ROAE | |||||||||||||||||||||||||||||||||||||||||
($) | ($Mil) | ($) | ($) | (x) | (%) | (%) | (%) | (x) | ($) | (%) | (%) | ($Mil) | (%) | (%) | (%) | (%) | (%) | (%) | (%) | |||||||||||||||||||||||||||||||||||||||||
St. Landry Homestead FSB | LA | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Super Maximum | $ | 10.00 | $ | 50.92 | $ | (0.06 | ) | $ | 18.44 | NM | 54.23 | % | 19.00 | % | 54.23 | % | NM | $ | 0.00 | 0.00 | % | 0.00 | % | $ | 268 | 35.05 | % | 35.05 | % | 2.12 | % | -0.64 | % | -1.82 | % | -0.11 | % | -0.31 | % | |||||||||||||||||||||
Maximum | $ | 10.00 | $ | 44.28 | $ | (0.04 | ) | $ | 19.90 | NM | 50.25 | % | 16.89 | % | 50.25 | % | NM | $ | 0.00 | 0.00 | % | 0.00 | % | $ | 262 | 33.61 | % | 33.61 | % | 2.16 | % | -0.61 | % | -1.82 | % | -0.07 | % | -0.21 | % | |||||||||||||||||||||
Midpoint | $ | 10.00 | $ | 38.50 | $ | (0.02 | ) | $ | 21.58 | NM | 46.34 | % | 14.97 | % | 46.34 | % | NM | $ | 0.00 | 0.00 | % | 0.00 | % | $ | 257 | 32.31 | % | 32.31 | % | 2.21 | % | -0.58 | % | -1.80 | % | -0.03 | % | -0.09 | % | |||||||||||||||||||||
Minimum | $ | 10.00 | $ | 32.73 | $ | 0.02 | $ | 23.85 | NM | 41.93 | % | 12.98 | % | 41.93 | % | NM | $ | 0.00 | 0.00 | % | 0.00 | % | $ | 252 | 30.96 | % | 30.96 | % | 2.25 | % | -0.54 | % | -1.75 | % | 0.02 | % | 0.07 | % | ||||||||||||||||||||||
All Non-MHC Public Thrifts(6) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Averages | $ | 23.33 | $ | 601.07 | $ | 1.85 | $ | 19.90 | 13.96 | x | 103.63 | % | 12.92 | % | 114.74 | % | 13.98 | x | $ | 0.43 | 2.36 | % | 47 | % | $ | 5,167 | 12.62 | % | 11.78 | % | 0.69 | % | 0.84 | % | 6.91 | % | 0.87 | % | 7.23 | % | ||||||||||||||||||||
Median | $ | 15.28 | $ | 192.19 | $ | 0.87 | $ | 15.86 | 12.66 | x | 94.14 | % | 11.60 | % | 100.75 | % | 13.14 | x | $ | 0.32 | 2.21 | % | 36 | % | $ | 1,791 | 11.51 | % | 10.33 | % | 0.55 | % | 0.76 | % | 5.88 | % | 0.78 | % | 6.15 | % | ||||||||||||||||||||
All Non-MHC State of LA(6) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Averages | $ | 29.09 | $ | 45.46 | $ | 2.10 | $ | 29.74 | 10.73 | x | 95.50 | % | 9.18 | % | 95.50 | % | 13.82 | x | $ | 0.66 | 2.27 | % | 24 | % | $ | 542 | 9.43 | % | 9.43 | % | 1.11 | % | 0.80 | % | 7.72 | % | 0.76 | % | 7.37 | % | ||||||||||||||||||||
Medians | $ | 29.09 | $ | 45.46 | $ | 2.10 | $ | 29.74 | 10.73 | x | 95.50 | % | 9.18 | % | 95.50 | % | 13.82 | x | $ | 0.66 | 2.27 | % | 24 | % | $ | 542 | 9.43 | % | 9.43 | % | 1.11 | % | 0.80 | % | 7.72 | % | 0.76 | % | 7.37 | % | ||||||||||||||||||||
Comparable Group | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Averages | $ | 16.64 | $ | 52.42 | $ | 1.33 | $ | 18.26 | 12.03 | x | 90.84 | % | 14.66 | % | 92.70 | % | 12.04 | x | $ | 0.21 | 1.20 | % | 16.44 | % | $ | 447 | 16.01 | % | 15.83 | % | 0.72 | % | 0.82 | % | 6.81 | % | 0.82 | % | 6.83 | % | ||||||||||||||||||||
Medians | $ | 15.70 | $ | 46.74 | $ | 1.22 | $ | 16.88 | 10.73 | x | 92.53 | % | 12.30 | % | 92.73 | % | 10.30 | x | $ | 0.06 | 0.37 | % | 9.20 | % | $ | 420 | 12.32 | % | 12.32 | % | 0.59 | % | 0.63 | % | 5.99 | % | 0.61 | % | 6.06 | % | ||||||||||||||||||||
Comparable Group | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CBMB | CBM Bancorp, Inc. | MD | $ | 13.95 | $ | 48.02 | $ | 0.17 | $ | 14.34 | NM | 97.29 | % | 22.31 | % | 97.29 | % | NM | $ | 0.00 | 0.00 | % | 0.00 | % | $ | 232 | 22.94 | % | 22.94 | % | 0.55 | % | 0.32 | % | 1.27 | % | 0.27 | % | 1.07 | % | ||||||||||||||||||||
CNNB | Cincinnati Bancorp, Inc. | OH | $ | 11.96 | $ | 35.59 | $ | 0.61 | $ | 13.35 | 19.93 | x | 89.56 | % | 15.34 | % | 89.97 | % | 19.71 | x | $ | 0.00 | 0.00 | % | 0.00 | % | $ | 232 | 17.13 | % | 17.07 | % | 0.54 | % | 0.77 | % | 6.10 | % | 0.78 | % | 6.17 | % | ||||||||||||||||||
ESBK | Elmira Savings Bank | NY | $ | 12.24 | $ | 43.12 | $ | 1.09 | $ | 17.01 | 10.29 | x | 71.03 | % | 6.69 | % | 89.11 | % | 10.30 | x | $ | 0.60 | 4.90 | % | 57.14 | % | $ | 674 | 8.90 | % | 7.20 | % | 0.84 | % | 0.60 | % | 6.42 | % | 0.60 | % | 6.44 | % | ||||||||||||||||||
FFBW | FFBW, Inc. | WI | $ | 10.42 | $ | 74.11 | NA | $ | 13.32 | NM | 78.24 | % | 28.10 | % | 78.28 | % | NM | $ | 0.00 | 0.00 | % | 0.00 | % | $ | 286 | 35.92 | % | 35.90 | % | 0.63 | % | 0.63 | % | 2.41 | % | 0.63 | % | 2.41 | % | |||||||||||||||||||||
HFBL | Home Federal Bancorp, Inc. of Louisiana | LA | $ | 29.09 | $ | 45.46 | $ | 2.10 | $ | 29.74 | 10.73 | x | 95.50 | % | 9.18 | % | 95.50 | % | NM | $ | 0.66 | 2.27 | % | 24.17 | % | $ | 542 | 9.43 | % | 9.43 | % | 1.11 | % | 0.80 | % | 7.72 | % | 0.76 | % | 7.37 | % | |||||||||||||||||||
HVBC | HV Bancorp, Inc. | PA | $ | 16.81 | $ | 33.81 | $ | 1.87 | $ | 16.75 | 8.76 | x | 100.35 | % | 7.36 | % | 100.35 | % | 9.01 | x | $ | 0.00 | 0.00 | % | 0.00 | % | $ | 508 | 7.33 | % | 7.33 | % | 0.49 | % | 1.02 | % | 11.87 | % | 0.99 | % | 11.54 | % | ||||||||||||||||||
IROQ | IF Bancorp, Inc. | IL | $ | 20.50 | $ | 66.43 | $ | 1.34 | $ | 25.78 | 12.58 | x | 78.23 | % | 9.31 | % | 78.23 | % | NM | $ | 0.30 | 1.46 | % | 18.40 | % | $ | 726 | 11.51 | % | 11.51 | % | 0.24 | % | 0.64 | % | 5.57 | % | 0.59 | % | 5.10 | % | |||||||||||||||||||
MSVB | Mid-Southern Bancorp, Inc. | IN | $ | 16.24 | $ | 48.50 | $ | 0.35 | $ | 15.20 | NM | 106.86 | % | 23.91 | % | 106.86 | % | NM | $ | 0.12 | 0.74 | % | 24.32 | % | $ | 218 | 22.38 | % | 22.38 | % | 1.19 | % | 0.56 | % | 2.36 | % | 0.52 | % | 2.20 | % | ||||||||||||||||||||
RNDB | Randolph Bancorp, Inc. | MA | $ | 20.00 | $ | 102.86 | $ | 3.28 | $ | 17.19 | 6.60 | x | 116.38 | % | 15.28 | % | 116.38 | % | 6.11 | x | $ | 0.00 | 0.00 | % | 0.00 | % | $ | 723 | 13.13 | % | 13.13 | % | 1.57 | % | 2.30 | % | 18.55 | % | 2.49 | % | 20.05 | % | ||||||||||||||||||
WVFC | WVS Financial Corp. | PA | $ | 15.15 | $ | 26.33 | $ | 1.22 | $ | 19.94 | 15.30 | x | 75.00 | % | 9.08 | % | 75.00 | % | 15.10 | x | $ | 0.40 | 2.64 | % | 40.40 | % | $ | 332 | 11.42 | % | 11.42 | % | 0.00 | % | 0.59 | % | 5.88 | % | 0.60 | % | 5.96 | % |
(1) | Core income, on a diluted per-share basis. Core income is net income after taxes and before extraordinary items, less net income attributable to noncontrolling interest, gain on the sale of securities, amortization of intangibles, goodwill and nonrecurring items. Assumed tax rate is 35%. |
(2) | P/E = Price to earnings; P/B = Price to book; P/A = Price to assets; P/TB = Price to tangible book value; and P/Core = Price to core earnings. P/E and P/Core =NM if the ratio is negative or above 35x. |
(3) | Indicated 12 month dividend, based on last quarterly dividend declared. |
(4) | Indicated 12 month dividend as a percent of trailing 12 month earnings. |
(5) | Equity and tangible equity equal common equity and tangible common equity, respectively. ROAA (return on average assets) and ROAE (return on average equity) are indicated ratios based on trailing 12 month earnings and average equity and assets balances. |
(6) | Excludes from averages and medians those companies the subject of actual or rumored acquisition activities or unusual operating characteristics. |
Source: | S&P Global Market Intelligence and RP Financial, LC. calculations. The information provided in this report has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information. |
Copyright (c) 2021 by RP® Financial, LC.
RP® Financial, LC. | VALUATION ANALYSIS |
IV.22 |
3. Price-to-Assets (“P/A”). The P/A valuation methodology determines market value by applying a valuation P/A ratio to the Bank’s pro forma asset base, conservatively assuming no deposit withdrawals are made to fund stock purchases. In all likelihood there will be deposit withdrawals, which results in understating the pro forma P/A ratio which is computed herein. At the $38.5 million midpoint of the valuation range, the Bank’s value equaled 14.97% of pro forma assets. Comparatively, the Peer Group companies exhibited an average P/A ratio of 14.66%, which implies a premium of 2.11% has been applied to the Bank’s pro forma P/A ratio. In comparison to the Peer Group’s median P/A ratio of 12.30%, the Bank’s pro forma P/A ratio at the midpoint value reflects a premium of 21.71%.
Comparison to Recent Offerings
As indicated at the beginning of this chapter, RP Financial’s analysis of recent conversion offering pricing characteristics at closing and in the aftermarket has been limited to a “technical” analysis and, thus, the pricing characteristics of recent conversion offerings can not be a primary determinate of value. Particular focus was placed on the P/TB approach in this analysis, since the P/E multiples do not reflect the actual impact of reinvestment and the source of the stock proceeds (i.e., external funds vs. deposit withdrawals). As discussed previously, the two most recent standard conversion offerings were completed in October 2020. In comparison to the 61.80% average closing forma P/TB ratio of the two recent standard conversions, the Bank’s P/TB ratio of 46.34% at the midpoint value reflects an implied discount of 25.02%. At the top of the super maximum, the Bank’s P/TB ratio of 54.23% reflects an implied discount of 12.25% relative to the recent standard conversions average P/TB ratio at closing.
RP® Financial, LC. | VALUATION ANALYSIS |
IV.23 |
Valuation Conclusion
Based on the foregoing, it is our opinion that, as of February 5, 2021, the estimated aggregate pro forma market value of the shares to be issued immediately following the conversion equaled $38,500,000 at the midpoint, equal to 3,850,000 shares offered at a per share value of $10.00. Pursuant to conversion guidelines, the 15% offering range indicates a minimum value of $32,725,000 and a maximum value of $44,275,000. Based on the $10.00 per share offering price determined by the Board, this valuation range equates to total shares outstanding of 3,272,500 at the minimum and 4,427,500 at the maximum. In the event the appraised value is subject to an increase, the aggregate pro forma market value may be increased up to a super maximum value of $50,916,250 without a resolicitation. Based on the $10.00 per share offering price, the super range value would result in total shares outstanding of 5,091,625. The pro forma valuation calculations relative to the Peer Group are shown in Table 4.3 and are detailed in Exhibit IV-7 and Exhibit IV-8.
EXHIBITS
LIST OF EXHIBITS
Exhibit Number |
Description | |
I-1 | Map of Office Locations | |
I-2 | Audited Financial Statements | |
I-3 | Key Operating Ratios | |
I-4 | Investment Portfolio Composition | |
I-5 | Yields and Costs | |
I-6 | Loan Loss Allowance Activity | |
I-7 | Interest Rate Risk Analysis | |
I-8 | Fixed and Adjustable Rate Loans | |
I-9 | Loan Portfolio Composition | |
I-10 | Contractual Maturity by Loan Type | |
I-11 | Loan Originations, Purchases, Sales and Repayments | |
I-12 | Non-Performing Assets | |
I-13 | Deposit Composition | |
I-14 | Maturity of Time Deposits | |
I-15 | Borrowing Activity | |
II-1 | Description of Office Properties | |
II-2 | Historical Interest Rates |
LIST OF EXHIBITS (continued)
Exhibit Number |
Description | |
III-1 | General Characteristics of Publicly-Traded Institutions | |
III-2 | Public Market Pricing of Southwest and Southeast Thrift Institutions | |
III-3 | Public Market Pricing of Mid-Atlantic, Midwest and New England Thrift Institutions | |
III-4 | Peer Group Market Area Comparative Analysis | |
IV-1 | Stock Prices: As of February 5, 2021 | |
IV-2 | Historical Stock Price Indices | |
IV-3 | Stock Indices as of February 5, 2021 | |
IV-4 | Market Area Acquisition Activity | |
IV-5 | Director and Senior Management Summary Resumes | |
IV-6 | Pro Forma Regulatory Capital Ratios | |
IV-7 | Pro Forma Analysis Sheet | |
IV-8 | Pro Forma Effect of Conversion Proceeds | |
V-1 | Firm Qualifications Statement |
EXHIBIT I-1
St. Landry Homestead Federal Savings Bank
Map of Office Locations
Exhibit
I-1
St. Landry Homestead Federal Savings Bank
Map of Office Locations
EXHIBIT
I-2
St. Landry Homestead Federal Savings Bank
Audited Financial Statements
[Incorporated by Reference]
EXHIBIT
I-3
St. Landry Homestead Federal Savings Bank
Key Operating Ratios
Exhibit
I-3
St. Landry Homestead Federal Savings Bank
Key Operating Ratios
At December 31, | ||||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Selected Operating Data: | ||||||||
Total interest income | $ | 8,490 | $ | 8,968 | ||||
Total interest expense | 1,705 | 1,907 | ||||||
Net interest income | 6,785 | 7,061 | ||||||
Provision for loan losses | 985 | 75 | ||||||
Net interest income after provision for loan losses | 5,800 | 6,986 | ||||||
Total non-interest income | 966 | 954 | ||||||
Total non-interest expense | 7,914 | 6,268 | ||||||
Income (loss) before income taxes | (1,148 | ) | 1,672 | |||||
Income taxes | (464 | ) | 334 | |||||
Net (loss) income | $ | (684 | ) | $ | 1,338 | |||
Selected Performance Ratios:(1) | ||||||||
Average yield on interest-earning assets | 3.90 | % | 4.31 | % | ||||
Average rate on interest-bearing liabilities | 1.09 | % | 1.24 | % | ||||
Average interest rate spread(2) | 2.81 | % | 3.07 | % | ||||
Net interest margin(2) | 3.12 | % | 3.39 | % | ||||
Average interest-earning assets to average interest-bearing liabilities | 138.83 | % | 135.07 | % | ||||
Net interest income after provision for loan losses to non-interest expense | 73.29 | % | 111.46 | % | ||||
Total non-interest expense to average assets | 3.40 | % | 2.83 | % | ||||
Efficiency ratio(3) | 102.10 | % | 78.20 | % | ||||
Return on average assets (ratio of net income to average total assets) | -0.29 | % | 0.60 | % | ||||
Return on average equity (ratio of net income to average equity) | -1.33 | % | 2.67 | % |
Exhibit
I-3 (continued)
St. Landry Homestead Federal Savings Bank
Key Operating Ratios
At or For the Year Ended
December 31, |
||||||||
2020 | 2019 | |||||||
Asset Quality Ratios:(4) | ||||||||
Non-accrual loans as a percent of total loans outstanding | 0.85 | % | 0.97 | % | ||||
Non-performing assets as a percent of total assets(5) | 0.93 | % | 1.31 | % | ||||
Non-performing assets and troubled debt restructurings as a percent of total assets(5) |
2.60 | % | 1.97 | % | ||||
Allowance for loan losses as a percent of total loans outstanding | 1.99 | % | 1.27 | % | ||||
Allowance for loan losses as a percent of non-performing loans | 180.74 | % | 114.55 | % | ||||
Net charge-offs to average loans receivable | 0.02 | % | 0.08 | % | ||||
Capital Ratios:(4) | ||||||||
Common equity Tier 1 capital (to risk-weighted assets) | 40.99 | % | 40.07 | % | ||||
Tier 1 leverage (core) capital (to adjusted tangible assets) | 21.09 | % | 23.23 | % | ||||
Tier 1 risk-based capital (to risk-weighted assets) | 40.99 | % | 40.07 | % | ||||
Total risk-based capital (to risk-weighted assets) | 42.42 | % | 41.32 | % | ||||
Average equity to average assets | 22.09 | % | 22.62 | % | ||||
Other Data: | ||||||||
Banking offices | 5 | 4 | ||||||
Full-time equivalent employees | 52 | 48 |
(1) | With the exception of end of period ratios, all ratios are based on average daily balances during the indicated periods. |
(2) | Average interest rate spread represents the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities, and net interest margin represents net interest income as a percentage of average interest-earning assets. |
(3) | The efficiency ratio represents the ratio of non-interest expense divided by the sum of net interest income and non-interest income. |
(4) | Asset quality ratios and capital ratios are end of period ratios, except for net charge-offs to average loans receivable. |
(5) | Non-performing assets consist of non-performing loans and real estate owned. Non-performing loans consist of all loans 90 days or more past due. Real estate owned consists of real estate acquired through foreclosure, real estate acquired by acceptance of a deed-in-lieu of foreclosure. |
Source: Catalyst Bancorp’s prospectus.
EXHIBIT
I-4
St. Landry Homestead Federal Savings Bank
Investment Portfolio Composition
Exhibit
I-4
St. Landry Homestead Federal Savings Bank
Investment Portfolio Composition
December 31, | ||||||||||||||||
2020 | 2019 | |||||||||||||||
Amortized
Cost |
Market
Value |
Amortized
Cost |
Market
Value |
|||||||||||||
(In thousands) | ||||||||||||||||
Securities available-for-sale: | ||||||||||||||||
Mortgage-backed securities | $ | 15,968 | $ | 16,140 | $ | 9,236 | $ | 9,230 | ||||||||
U.S. Government and agency obligations | 2,000 | 1,961 | 5,000 | 4,991 | ||||||||||||
Municipal obligations | 2,628 | 2,629 | -- | -- | ||||||||||||
Total securities available-for-sale | 20,596 | 20,730 | 14,236 | 14,221 | ||||||||||||
Securities held to maturity: | ||||||||||||||||
Mortgage-backed securities | -- | -- | -- | -- | ||||||||||||
U.S. Government and agency obligations | 17,034 | 17,006 | 13,000 | 12,866 | ||||||||||||
Municipal obligations | 489 | 499 | 129 | 129 | ||||||||||||
Total securities held to maturity | 17,523 | 17,505 | 13,129 | 12,995 | ||||||||||||
Total investment securities | $ | 38,119 | $ | 38,235 | $ | 27,365 | $ | 27,216 |
Source: Catalyst Bancorp’s prospectus.
EXHIBIT
I-5
St. Landry Homestead Federal Savings Bank
Yields and Costs
Exhibit
I-5
St. Landry Homestead Federal Savings Bank
Yields and Costs
Year Ended December 31, | |||||||||||||||||||||||||||
2020 | 2019 | ||||||||||||||||||||||||||
Yield/Rate
at December 31, 2020 |
Average
Balance |
Interest |
Average
Yield/ Rate |
Average
Balance |
Interest |
Average
Yield/ Rate |
|||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||||
Interest-earning assets: | |||||||||||||||||||||||||||
Loans receivable(1) | 4.65 | % | $ | 158,909 | $ | 7,827 | 4.93 | % | $ | 161,568 | $ | 7,943 | 4.92 | % | |||||||||||||
Investment securities | 2.21 | 34,663 | 568 | 1.64 | 30,914 | 688 | 2.22 | ||||||||||||||||||||
Other interest-earning assets | 0.25 | 24,038 | 95 | 0.39 | 15,520 | 337 | 2.17 | ||||||||||||||||||||
Total interest-earning assets | 3.76 | 217,610 | 8,490 | 3.90 | 208,002 | 8,968 | 4.31 | ||||||||||||||||||||
Non-interest-earning assets | 15,056 | 13,576 | |||||||||||||||||||||||||
Total assets | $ | 232,666 | $ | 221,578 | |||||||||||||||||||||||
Interest-bearing liabilities: | |||||||||||||||||||||||||||
Savings, NOW and money market accounts | 0.18 | 65,833 | 191 | 0.29 | 59,804 | 315 | 0.53 | ||||||||||||||||||||
Certificates of deposit | 0.81 | 66,525 | 729 | 1.10 | 69,195 | 797 | 1.15 | ||||||||||||||||||||
Total deposits | 0.49 | 132,358 | 920 | 0.69 | 128,999 | 1,112 | 0.86 | ||||||||||||||||||||
FHLB advances | 0.93 | (2) | 24,382 | 785 | 3.22 | 25,000 | 795 | 3.18 | |||||||||||||||||||
Total interest-bearing liabilities | 0.52 | 156,740 | 1,705 | 1.09 | 153,999 | 1,907 | 1.24 | ||||||||||||||||||||
Non-interest-bearing liabilities | 24,533 | 17,461 | |||||||||||||||||||||||||
Total liabilities | 181,273 | 171,460 | |||||||||||||||||||||||||
Retained earnings | 51,393 | 50,118 | |||||||||||||||||||||||||
Total liabilities and retained earnings | $ | 232,666 | $ | 221,578 | |||||||||||||||||||||||
Net interest-earning assets | 3.24 | % | $ | 60,870 | $ | 54,003 | |||||||||||||||||||||
Net interest income; average interest rate spread | $ | 6,785 | 2.81 | % | $ | 7,061 | 3.07 | % | |||||||||||||||||||
Net interest margin(3) | 3.12 | % | 3.39 | % | |||||||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities | 138.83 | % | 135.07 | % |
(1) | Includes non-accrual loans during the respective periods. Calculated net of deferred fees and discounts, loans in process and allowance for loan losses. |
(2) | Contractual rate at December 31, 2020. |
(3) | Equals net interest income divided by average interest-earning assets. |
Source: Catalyst Bancorp’s prospectus.
EXHIBIT
I-6
St. Landry Homestead Federal Savings Bank
Loan Loss Allowance Activity
Exhibit
I-6
St. Landry Homestead Federal Savings Bank
Loan Loss Allowance Activity
At or for the Year Ended
December 31, |
||||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Total loans outstanding at end of period | $ | 151,800 | $ | 163,653 | ||||
Total non-accrual loans at end of period | 1,292 | 1,589 | ||||||
Total non-performing loans at end of period | 1,672 | 1,808 | ||||||
Average loans outstanding: | ||||||||
One- to four-family residential | 107,585 | 115,084 | ||||||
Commercial real estate | 30,713 | 26,299 | ||||||
Construction and land | 6,922 | 8,635 | ||||||
Multi-family residential | 5,147 | 5,082 | ||||||
Farmland | 57 | 65 | ||||||
Consumer | 4,973 | 5,625 | ||||||
Commercial and industrial | 5,784 | 2,840 | ||||||
Total average loans outstanding | $ | 161,181 | $ | 163,630 | ||||
Allowance for loan losses, beginning of period | $ | 2,071 | $ | 2,125 | ||||
Provision for loan losses | 985 | 75 | ||||||
Charge-offs: | ||||||||
One- to four-family residential | 84 | 200 | ||||||
Commercial real estate | -- | -- | ||||||
Construction and land | -- | 3 | ||||||
Multi-family residential | 1 | -- | ||||||
Farmland | -- | -- | ||||||
Consumer | 40 | 31 | ||||||
Commercial and industrial | 15 | 1 | ||||||
Total charge-offs | 140 | 235 | ||||||
Recoveries on loans previously charged-off: | ||||||||
One- to-four-family residential | 67 | 80 | ||||||
Commercial real estate | -- | -- | ||||||
Construction and land | -- | 9 | ||||||
Multi-family residential | 1 | -- | ||||||
Farmland | -- | -- | ||||||
Consumer | 23 | 14 | ||||||
Commercial and industrial | 15 | 3 | ||||||
Total recoveries | 106 | 106 | ||||||
Net charge offs | 34 | 129 | ||||||
Allowance for loan losses, end of period | $ | 3,022 | $ | 2,071 | ||||
Allowance for loan losses as a percent of non-performing loans | 180.74 | % | 114.55 | % | ||||
Allowance for loan losses as a percent of total loans outstanding | 1.99 | % | 1.27 | % | ||||
Allowance for loan losses as a percent of total non-accrual loans | 233.9 | % | 130.3 | % | ||||
Ratio of net charge-offs during the period to average loans outstanding during the period | 0.02 | % | 0.08 | % |
Source: Catalyst Bancorp’s prospectus.
EXHIBIT
I-7
St. Landry Homestead Federal Savings Bank
Interest Rate Risk Analysis
Exhibit
I-7
St. Landry Homestead Federal Savings Bank
Interest Rate Risk Analysis
Change in Interest Rates in Basis Points (Rate Shock) |
Net Interest Income | $ Change | % Change | |||||||||
(Dollars in thousands) | ||||||||||||
300bp | $ | 7,485 | $ | 144 | 2.50 | % | ||||||
200 | 7,548 | 207 | 3.60 | |||||||||
100 | 7,425 | 84 | 1.50 | |||||||||
Static | 7,185 | (156 | ) | -2.70 | ||||||||
(50) | 7,034 | (307 | ) | -5.40 | ||||||||
(100) | 6,911 | (430 | ) | -7.50 | ||||||||
(200) | 6,888 | (453 | ) | -7.90 |
Change in Interest Rates | Net Portfolio Value | NPV as % of Portfolio Value of Assets | |||||||||||||||||||
In Basis Points (Rate Shock) | Amount | $ Change | % Change | NPV Ratio | Change | ||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||
300bp | $ | 52,540 | $ | (1,449 | ) | -2.7 | % | 24.8 | % | 0.8 | % | ||||||||||
200 | 52,646 | (1,343 | ) | -2.5 | 24.1 | 0.1 | |||||||||||||||
100 | 53,889 | (100 | ) | -0.2 | 24.4 | 0.4 | |||||||||||||||
Static | 53,989 | 24.0 | |||||||||||||||||||
(50) | 51,770 | (2,219 | ) | -4.1 | 22.7 | -1.3 | |||||||||||||||
(100) | 50,356 | (3,633 | ) | -6.7 | 21.9 | -2.1 | |||||||||||||||
(200) | 50,309 | (3,680 | ) | -6.8 | 21.8 | -2.2 |
Source: Catalyst Bancorp’s prospectus.
EXHIBIT
I-8
St. Landry Homestead Federal Savings Bank
Fixed and Adjustable Rate Loans
Exhibit
I-8
St. Landry Homestead Federal Savings Bank
Fixed and Adjustable Rate Loans
The following table shows the dollar amount of our loans at December 31, 2020, due after December 31, 2021, as shown in the preceding table, which have fixed interest rates or which have floating or adjustable interest rates.
Fixed-Rate | Floating or Adjustable-Rate |
Total at
December 31, 2020 |
||||||||||
(In thousands) | ||||||||||||
One- to four-family residential | $ | 20,274 | $ | 79,122 | $ | 99,396 | ||||||
Commercial real estate | 6,659 | 22,302 | 28,961 | |||||||||
Construction and land | 1,704 | 1,226 | 2,930 | |||||||||
Multi-family residential | 401 | 4,400 | 4,801 | |||||||||
Farmland | 26 | 27 | 53 | |||||||||
Consumer | 2,136 | 2,008 | 4,144 | |||||||||
Commercial and industrial | 5,820 | -- | 5,820 | |||||||||
Total | $ | 37,020 | $ | 109,085 | $ | 146,105 |
Source: Catalyst Bancorp’s prospectus.
EXHIBIT
I-9
St. Landry Homestead Federal Savings Bank
Loan Portfolio Composition
Exhibit
I-9
St. Landry Homestead Federal Savings Bank
Loan Portfolio Composition
December 31, | ||||||||||||||||
2020 | 2019 | |||||||||||||||
Amount | % | Amount | % | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Real estate loans: | ||||||||||||||||
One- to four-family residential | $ | 99,869 | 65.8 | % | $ | 112,616 | 68.8 | % | ||||||||
Commercial real estate | 30,304 | 20.0 | 28,840 | 17.6 | ||||||||||||
Construction and land | 5,538 | 3.6 | 8,306 | 5.1 | ||||||||||||
Multi-family residential | 4,801 | 3.2 | 5,492 | 3.4 | ||||||||||||
Farmland | 53 | -- | 61 | -- | ||||||||||||
Total real estate loans | 140,565 | 92.6 | 155,315 | 94.9 | ||||||||||||
Other loans: | ||||||||||||||||
Consumer | 4,499 | 3.0 | 5,477 | 3.3 | ||||||||||||
Commercial and industrial | 6,736 | 4.4 | 2,861 | 1.7 | ||||||||||||
Total other loans | 11,235 | 7.4 | 8,338 | 5.1 | ||||||||||||
Total loans | 151,800 | 100.0 | % | 163,653 | 100.0 | % | ||||||||||
Less: Allowance for loan losses | (3,022 | ) | (2,071 | ) | ||||||||||||
Net loans | $ | 148,778 | $ | 161,582 |
Source: Catalyst Bancorp’s prospectus.
EXHIBIT
I-10
St. Landry Homestead Federal Savings Bank
Contractual Maturity by Loan Type
Exhibit
I-10
St. Landry Homestead Federal Savings Bank
Contractual Maturity by Loan Type
One- to Four- Family Residential | Commercial Real Estate | Construction and Land | Multi-Family Residential | Farmland | Consumer | Commercial and Industrial | Total | |||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||
Amounts due after December 31, 2020 in: | ||||||||||||||||||||||||||||||||
One year or less | $ | 473 | $ | 1,343 | $ | 2,608 | $ | -- | $ | -- | $ | 355 | $ | 916 | $ | 5,695 | ||||||||||||||||
After one year through two years | 322 | 2,908 | 48 | 31 | -- | 407 | 3,534 | 7,250 | ||||||||||||||||||||||||
After two years through three years | 958 | 2,036 | 197 | -- | -- | 789 | 396 | 4,376 | ||||||||||||||||||||||||
After three years through five years | 1,882 | 1,961 | 404 | 557 | 26 | 1,422 | 1,312 | 7,564 | ||||||||||||||||||||||||
After five years through ten years | 12,565 | 6,347 | 1,386 | -- | -- | 1,068 | 275 | 21,641 | ||||||||||||||||||||||||
After ten years through 15 years | 23,359 | 5,578 | 497 | 2,393 | 27 | 256 | 39 | 32,149 | ||||||||||||||||||||||||
After 15 years | 60,310 | 10,131 | 398 | 1,820 | -- | 202 | 264 | 73,125 | ||||||||||||||||||||||||
Total | $ | 99,869 | $ | 30,304 | $ | 5,538 | $ | 4,801 | $ | 53 | $ | 4,499 | $ | 6,736 | $ | 151,800 |
Source: Catalyst Bancorp’s prospectus.
EXHIBIT
I-11
St. Landry Homestead Federal Savings Bank
Loan Originations, Purchases, Sales and Repayments
Exhibit
I-11
St. Landry Homestead Federal Savings Bank
Loan Originations, Purchases, Sales and Repayments
Year Ended December 31, | ||||||||
2020 | 2019 | |||||||
(In thousands) | ||||||||
Loan originations: | ||||||||
One- to four-family residential | $ | 3,793 | $ | 7,601 | ||||
Commercial real estate | 1,322 | 6,449 | ||||||
Construction and land | 2,349 | 3,576 | ||||||
Multi-family residential | -- | 1,675 | ||||||
Farmland | -- | -- | ||||||
Consumer | 2,302 | 3,133 | ||||||
Commercial and industrial | 8,581 | 1,910 | ||||||
Total loan originations | 18,347 | 24,344 | ||||||
Loans purchased | 1,250 | 3,100 | ||||||
Loans sold | -- | -- | ||||||
Loan principal repayments | (33,166 | ) | (25,446 | ) | ||||
Total loans sold and principal repayments | (33,166 | ) | (25,446 | ) | ||||
Increase or (decrease) due to other items, net(1) | 765 | (1,332 | ) | |||||
Net increase (decrease) in total loans | $ | (12,804 | ) | $ | 666 |
(1) | Other items consist of loans in process, deferred fees, the allowance for loan losses and the transfer of loans to real estate owned. |
Source: Catalyst Bancorp’s prospectus.
EXHIBIT
I-12
St. Landry Homestead Federal Savings Bank
Non-Performing Assets
Exhibit
I-12
St. Landry Homestead Federal Savings Bank
Non-Performing Assets
December 31, | ||||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Non-accruing loans: | ||||||||
One- to four-family residential | $ | 1,241 | $ | 1,412 | ||||
Commercial real estate | -- | -- | ||||||
Construction and land | 47 | 49 | ||||||
Multi-family residential | -- | 122 | ||||||
Farmland | -- | -- | ||||||
Consumer | -- | -- | ||||||
Commercial and industrial | 4 | 6 | ||||||
Total non-accruing loans | 1,292 | 1,589 | ||||||
Accruing loans 90 days or more past due: | ||||||||
One- to four-family residential | 367 | 213 | ||||||
Commercial real estate | -- | -- | ||||||
Construction and land | -- | -- | ||||||
Multi-family residential | -- | -- | ||||||
Farmland | -- | -- | ||||||
Consumer | 13 | 6 | ||||||
Commercial and industrial | -- | -- | ||||||
Total accruing loans 90 days or more past due | 380 | 219 | ||||||
Total non-performing loans | 1,672 | 1,808 | ||||||
Real estate owned | 415 | 1,059 | ||||||
Total non-performing assets | 2,087 | 2,867 | ||||||
Performing troubled debt restructurings | $ | 3,625 | $ | 1,284 | ||||
Total non-performing assets and performing TDRs | $ | 5,676 | $ | 3,778 | ||||
Total loans outstanding | $ | 151,800 | $ | 163,653 | ||||
Total assets outstanding | $ | 224,652 | $ | 218,473 | ||||
Total non-accruing loans as a percentage of total loans outstanding | 0.85 | % | 0.97 | % | ||||
Total non-performing loans as a percentage of total loans outstanding | 1.10 | % | 1.10 | % | ||||
Total non-performing loans as a percentage of total assets | 0.74 | % | 0.83 | % | ||||
Total non-performing assets as a percentage of total assets | 0.93 | % | 1.31 | % |
Source: Catalyst Bancorp’s prospectus.
EXHIBIT I-13
St.
Landry Homestead Federal Savings Bank
Deposit Composition
Exhibit
I-13
St. Landry Homestead Federal Savings Bank
Deposit Composition
December 31, | ||||||||||||||||
2020 | 2019 | |||||||||||||||
Amount | % | Amount | % | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Certificate accounts: | ||||||||||||||||
0.00% - 0.99% | $ | 46,672 | 28.36 | % | $ | 21,975 | 15.52 | % | ||||||||
1.00% - 1.99% | 21,502 | 13.06 | 25,488 | 18.00 | ||||||||||||
2.00% - 2.99% | 1,167 | 0.71 | 17,441 | 12.31 | ||||||||||||
3.00% or more | -- | -- | -- | -- | ||||||||||||
Total certificate accounts | 69,341 | 42.13 | 64,904 | 45.83 | ||||||||||||
Transaction accounts: | ||||||||||||||||
Savings | 22,209 | 13.49 | % | 19,180 | 13.54 | % | ||||||||||
Checking: | ||||||||||||||||
Interest bearing | 30,890 | 18.77 | 26,421 | 12.31 | ||||||||||||
Non-interest bearing | 26,169 | 15.90 | 17,438 | 18.66 | ||||||||||||
Money market | 15,989 | 9.71 | 13,686 | 9.66 | ||||||||||||
Total transaction accounts | 95,257 | 57.87 | 76,725 | 54.17 | ||||||||||||
Total deposits | $ | 164,598 | 100.00 | % | $ | 141,629 | 100.00 | % |
Source: CatalystBancorp’s prospectus.
EXHIBIT
I-14
St.
Landry Homestead Federal Savings Bank
Maturity of Time Deposits
Exhibit
I-14
St. Landry Homestead Federal Savings Bank
Maturity of Time Deposits
Balance at December 31, 2020
Maturing in the 12 Months Ending December 31, |
||||||||||||||||||||
Certificates of Deposit | 2021 | 2022 | 2023 | Thereafter | Total | |||||||||||||||
(In thousands) | ||||||||||||||||||||
0.00% - 0.99% | $ | 37,722 | $ | 8,443 | $ | 309 | $ | 198 | $ | 46,672 | ||||||||||
1.00% - 1.99% | 15,348 | 3,196 | 901 | 2,057 | 21,502 | |||||||||||||||
2.00% - 2.99% | 162 | 1,005 | -- | -- | 1,167 | |||||||||||||||
3.00% - or more | -- | -- | -- | -- | -- | |||||||||||||||
Total certificate accounts | $ | 53,232 | $ | 12,644 | $ | 1,210 | $ | 2,255 | $ | 69,341 |
Source: Catalyst Bancorp’s prospectus.
EXHIBIT
I-15
St.
Landry Homestead Federal Savings Bank
Borrowing Activity
Exhibit
I-15
St. Landry Homestead Federal Savings Bank
Borrowing Activity
At or For the Year Ended December 31, | ||||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
FHLB advances and other borrowings: | ||||||||
Average balance outstanding | $ | 24,382 | $ | 25,000 | ||||
Maximum amount outstanding at any month-end during the period | 25,000 | 25,000 | ||||||
Balance outstanding at end of period | 8,838 | 25,000 | ||||||
Average interest rate during the period | 3.22 | % | 3.18 | % | ||||
Weighted average interest rate at end of period | 0.93 | % | 3.18 | % |
(1) | Reflects the contractual rate of FHLB advances at December 31, 2020. |
Source: Catalyst Bancorp’s prospectus.
EXHIBIT
II-1
Description of Office Properties
Exhibit
II-1
St. Landry Homestead Federal Savings Bank
Description of Office Properties
Description/Address | Net Book Value of Property | Amount of Deposits | ||||||
(In thousands) | ||||||||
Main Office: | ||||||||
235 N. Court Street
Opelousas, Louisiana 70570 |
$ | 1,413 | $ | 138,554 | ||||
Branch Offices: | ||||||||
840 E. Laurel Avenue
Eunice, Louisiana 70535 |
275 | 15,722 | ||||||
341 Saizan Avenue
Port Barre, Louisiana 70577 |
780 | 6,738 | ||||||
231 Harry Guilbeau Road Opelousas, Louisiana 70570(1) |
1,711 | 3,140 | ||||||
800 Veterans Drive Carencro, Louisiana 70520(2) |
1,310 | 444 | ||||||
Total | $ | 5,489 | $ | 164,598 |
(1) | Opened in July 2019. |
(2) | Opened in October 2020. |
Source: Catalyst Bancorp’s prospectus.
EXHIBIT
II-2
Historical Interest Rates
Exhibit II-2
Historical Interest Rates(1)
Year/Qtr. Ended |
Prime
Rate |
90
Day
T-Note |
One Year T-Note |
10
Year
T-Note |
||||||||||
2007: | Quarter 1 | 8.25 | % | 5.04 | % | 4.90 | % | 4.65 | % | |||||
Quarter 2 | 8.25 | % | 4.82 | % | 4.91 | % | 5.03 | % | ||||||
Quarter 3 | 7.75 | % | 3.82 | % | 4.05 | % | 4.59 | % | ||||||
Quarter 4 | 7.25 | % | 3.36 | % | 3.34 | % | 3.91 | % | ||||||
2008: | Quarter 1 | 5.25 | % | 1.38 | % | 1.55 | % | 3.45 | % | |||||
Quarter 2 | 5.00 | % | 1.90 | % | 2.36 | % | 3.99 | % | ||||||
Quarter 3 | 5.00 | % | 0.92 | % | 1.78 | % | 3.85 | % | ||||||
Quarter 4 | 3.25 | % | 0.11 | % | 0.37 | % | 2.25 | % | ||||||
2009: | Quarter 1 | 3.25 | % | 0.21 | % | 0.57 | % | 2.71 | % | |||||
Quarter 2 | 3.25 | % | 0.19 | % | 0.56 | % | 3.53 | % | ||||||
Quarter 3 | 3.25 | % | 0.14 | % | 0.40 | % | 3.31 | % | ||||||
Quarter 4 | 3.25 | % | 0.06 | % | 0.47 | % | 3.85 | % | ||||||
2010: | Quarter 1 | 3.25 | % | 0.16 | % | 0.41 | % | 3.84 | % | |||||
Quarter 2 | 3.25 | % | 0.18 | % | 0.32 | % | 2.97 | % | ||||||
Quarter 3 | 3.25 | % | 0.18 | % | 0.32 | % | 2.97 | % | ||||||
Quarter 4 | 3.25 | % | 0.12 | % | 0.29 | % | 3.30 | % | ||||||
2011: | Quarter 1 | 3.25 | % | 0.09 | % | 0.30 | % | 3.47 | % | |||||
Quarter 2 | 3.25 | % | 0.03 | % | 0.19 | % | 3.18 | % | ||||||
Quarter 3 | 3.25 | % | 0.02 | % | 0.13 | % | 1.92 | % | ||||||
Quarter 4 | 3.25 | % | 0.02 | % | 0.12 | % | 1.89 | % | ||||||
2012: | Quarter 1 | 3.25 | % | 0.07 | % | 0.19 | % | 2.23 | % | |||||
Quarter 2 | 3.25 | % | 0.09 | % | 0.21 | % | 1.67 | % | ||||||
Quarter 3 | 3.25 | % | 0.10 | % | 0.17 | % | 1.65 | % | ||||||
Quarter 4 | 3.25 | % | 0.05 | % | 0.16 | % | 1.78 | % | ||||||
2013: | Quarter 1 | 3.25 | % | 0.07 | % | 0.14 | % | 1.87 | % | |||||
Quarter 2 | 3.25 | % | 0.04 | % | 0.15 | % | 2.52 | % | ||||||
Quarter 3 | 3.25 | % | 0.02 | % | 0.10 | % | 2.64 | % | ||||||
Quarter 4 | 3.25 | % | 0.07 | % | 0.13 | % | 3.04 | % | ||||||
2014: | Quarter 1 | 3.25 | % | 0.05 | % | 0.13 | % | 2.73 | % | |||||
Quarter 2 | 3.25 | % | 0.04 | % | 0.11 | % | 2.53 | % | ||||||
Quarter 3 | 3.25 | % | 0.02 | % | 0.13 | % | 2.52 | % | ||||||
Quarter 4 | 3.25 | % | 0.04 | % | 0.25 | % | 2.17 | % | ||||||
2015: | Quarter 1 | 3.25 | % | 0.03 | % | 0.26 | % | 1.94 | % | |||||
Quarter 2 | 3.25 | % | 0.01 | % | 0.28 | % | 2.35 | % | ||||||
Quarter 3 | 3.25 | % | 0.00 | % | 0.33 | % | 2.06 | % | ||||||
Quarter 4 | 3.50 | % | 0.16 | % | 0.65 | % | 2.27 | % | ||||||
2016: | Quarter 1 | 3.50 | % | 0.21 | % | 0.59 | % | 1.78 | % | |||||
Quarter 2 | 3.50 | % | 0.26 | % | 0.45 | % | 1.49 | % | ||||||
Quarter 3 | 3.50 | % | 0.29 | % | 0.59 | % | 1.60 | % | ||||||
Quarter 4 | 3.75 | % | 0.51 | % | 0.85 | % | 2.45 | % | ||||||
2017: | Quarter 1 | 4.00 | % | 0.76 | % | 1.03 | % | 2.40 | % | |||||
Quarter 2 | 4.25 | % | 1.03 | % | 1.24 | % | 2.31 | % | ||||||
Quarter 3 | 4.25 | % | 1.06 | % | 1.31 | % | 2.33 | % | ||||||
Quarter 4 | 4.50 | % | 1.39 | % | 1.76 | % | 2.40 | % | ||||||
2018: | Quarter 1 | 4.75 | % | 1.73 | % | 2.09 | % | 2.74 | % | |||||
Quarter 2 | 5.00 | % | 1.93 | % | 2.33 | % | 2.85 | % | ||||||
Quarter 3 | 5.25 | % | 2.19 | % | 2.59 | % | 3.05 | % | ||||||
Quarter 4 | 5.50 | % | 2.45 | % | 2.63 | % | 2.69 | % | ||||||
2019: | Quarter 1 | 5.50 | % | 2.40 | % | 2.40 | % | 2.41 | % | |||||
Quarter 2 | 5.00 | % | 2.12 | % | 1.92 | % | 2.00 | % | ||||||
Quarter 3 | 4.75 | % | 1.88 | % | 1.75 | % | 1.68 | % | ||||||
Quarter 4 | 4.75 | % | 1.55 | % | 1.59 | % | 1.92 | % | ||||||
2020: | Quarter 1 | 3.25 | % | 0.11 | % | 0.17 | % | 0.70 | % | |||||
Quarter 2 | 3.25 | % | 0.16 | % | 0.16 | % | 0.66 | % | ||||||
Quarter 3 | 3.25 | % | 0.10 | % | 0.12 | % | 0.69 | % | ||||||
Quarter 4 | 3.25 | % | 0.09 | % | 0.10 | % | 0.93 | % | ||||||
As of February 5, 2021 | 3.25 | % | 0.03 | % | 0.06 | % | 1.19 | % |
(1) | End of period data. |
Sources: Federal Reserve and The Wall Street Journal. |
EXHIBIT III-1
General Characteristics of Publicly-Traded Institutions
Exhibit III-1
Characteristics of Publicly-Traded Thrifts
February 5, 2021
As of February 5, 2021 | |||||||||||||||||||||||||||||||||
Ticker | Financial Institution | Exchange | Region | City | State |
Total
Assets |
Offices |
Fiscal
Mth End |
Conv.
Date |
Stock
Price |
Market
Value |
||||||||||||||||||||||
($Mil) | ($) | ($Mil) | |||||||||||||||||||||||||||||||
AFBI | Affinity Bancshares, Inc. | NASDAQCM | SE | Covington | GA | $ | 888 | 3 | Dec | 4/27/17 | $ | 10.75 | $ | 74 | |||||||||||||||||||
AX | Axos Financial, Inc. | NYSE | WE | Las Vegas | NV | $ | 13,382 | 1 | Jun | 3/14/05 | $ | 43.95 | $ | 2,595 | |||||||||||||||||||
BYFC | Broadway Financial Corporation | NASDAQCM | WE | Los Angeles | CA | $ | 499 | 3 | Dec | 1/8/96 | $ | 2.21 | $ | 41 | |||||||||||||||||||
CFFN | Capitol Federal Financial, Inc. | NASDAQGS | MW | Topeka | KS | $ | 9,487 | 54 | Sep | 3/31/99 | $ | 12.65 | $ | 1,711 | |||||||||||||||||||
CARV | Carver Bancorp, Inc. | NASDAQCM | MA | New York | NY | $ | 673 | 7 | Mar | 10/24/94 | $ | 8.90 | $ | 27 | |||||||||||||||||||
CBMB | CBM Bancorp, Inc. | NASDAQCM | MA | Baltimore | MD | $ | 232 | 4 | Dec | 9/27/18 | $ | 13.95 | $ | 48 | |||||||||||||||||||
CNNB | Cincinnati Bancorp, Inc. | NASDAQCM | MW | Cincinnati | OH | $ | 232 | 6 | Dec | 10/14/15 | $ | 11.96 | $ | 36 | |||||||||||||||||||
ESBK | Elmira Savings Bank | NASDAQCM | MA | Elmira | NY | $ | 674 | 12 | Dec | 3/1/85 | $ | 12.24 | $ | 43 | |||||||||||||||||||
ESSA | ESSA Bancorp, Inc. | NASDAQGS | MA | Stroudsburg | PA | $ | 1,894 | 23 | Sep | 4/3/07 | $ | 15.59 | $ | 157 | |||||||||||||||||||
FFBW | FFBW, Inc. | NASDAQCM | MW | Brookfield | WI | $ | 286 | 7 | Dec | 10/10/17 | $ | 10.42 | $ | 74 | |||||||||||||||||||
FNWB | First Northwest Bancorp | NASDAQGM | WE | Port Angeles | WA | $ | 1,565 | 12 | Dec | 1/29/15 | $ | 15.71 | $ | 149 | |||||||||||||||||||
FBC | Flagstar Bancorp, Inc. | NYSE | MW | Troy | MI | $ | 29,476 | 159 | Dec | 4/30/97 | $ | 45.06 | $ | 2,373 | |||||||||||||||||||
FSBW | FS Bancorp, Inc. | NASDAQCM | WE | Mountlake Terrace | WA | $ | 2,055 | 23 | Dec | 7/9/12 | $ | 58.85 | $ | 253 | |||||||||||||||||||
GBNY | Generations Bancorp NY, Inc. | NASDAQCM | MA | Seneca Falls | NY | #VALUE! | 11 | Dec | 7/10/06 | $ | 9.74 | $ | 24 | ||||||||||||||||||||
HONE | HarborOne Bancorp, Inc. | NASDAQGS | NE | Brockton | MA | $ | 4,428 | 29 | Dec | 6/29/16 | $ | 11.32 | $ | 616 | |||||||||||||||||||
HIFS | Hingham Institution for Savings | NASDAQGM | NE | Hingham | MA | $ | 2,719 | 10 | Dec | 12/13/88 | $ | 236.30 | $ | 505 | |||||||||||||||||||
HMNF | HMN Financial, Inc. | NASDAQGM | MW | Rochester | MN | $ | 898 | 14 | Dec | 6/30/94 | $ | 19.00 | $ | 91 | |||||||||||||||||||
HFBL | Home Federal Bancorp, Inc. of Louisiana | NASDAQCM | SW | Shreveport | LA | $ | 542 | 8 | Jun | 1/18/05 | $ | 29.09 | $ | 45 | |||||||||||||||||||
HVBC | HV Bancorp, Inc. | NASDAQCM | MA | Doylestown | PA | $ | 508 | 5 | Dec | 1/11/17 | $ | 16.81 | $ | 34 | |||||||||||||||||||
IROQ | IF Bancorp, Inc. | NASDAQCM | MW | Watseka | IL | $ | 726 | 8 | Jun | 7/7/11 | $ | 20.50 | $ | 66 | |||||||||||||||||||
KRNY | Kearny Financial Corp. | NASDAQGS | MA | Fairfield | NJ | $ | 7,310 | 49 | Jun | 2/23/05 | $ | 10.65 | $ | 922 | |||||||||||||||||||
EBSB | Meridian Bancorp, Inc. | NASDAQGS | NE | Peabody | MA | $ | 6,567 | 43 | Dec | 1/22/08 | $ | 15.91 | $ | 799 | |||||||||||||||||||
MSVB | Mid-Southern Bancorp, Inc. | NASDAQCM | MW | Salem | IN | $ | 218 | 3 | Dec | 4/8/98 | $ | 16.24 | $ | 48 | |||||||||||||||||||
NYCB | New York Community Bancorp, Inc. | NYSE | MA | Westbury | NY | $ | 54,932 | 239 | Dec | 11/23/93 | $ | 10.41 | $ | 4,829 | |||||||||||||||||||
NFBK | Northfield Bancorp, Inc. | NASDAQGS | MA | Woodbridge | NJ | $ | 5,589 | 38 | Dec | 11/7/07 | $ | 13.22 | $ | 690 | |||||||||||||||||||
NWBI | Northwest Bancshares, Inc. | NASDAQGS | MA | Warren | PA | $ | 13,789 | 171 | Dec | 11/4/94 | $ | 13.17 | $ | 1,673 | |||||||||||||||||||
PCSB | PCSB Financial Corporation | NASDAQCM | MA | Yorktown Heights | NY | $ | 1,791 | 16 | Jun | 4/20/17 | $ | 15.75 | $ | 241 | |||||||||||||||||||
PVBC | Provident Bancorp, Inc. | NASDAQCM | NE | Amesbury | MA | $ | 1,498 | 7 | Dec | 7/15/15 | $ | 12.10 | $ | 219 | |||||||||||||||||||
PROV | Provident Financial Holdings, Inc. | NASDAQGS | WE | Riverside | CA | $ | 1,184 | 14 | Jun | 6/27/96 | $ | 15.40 | $ | 115 | |||||||||||||||||||
PFS | Provident Financial Services, Inc. | NYSE | MA | Jersey City | NJ | $ | 12,871 | 101 | Dec | 1/15/03 | $ | 18.99 | $ | 1,446 | |||||||||||||||||||
PBIP | Prudential Bancorp, Inc. | NASDAQGM | MA | Philadelphia | PA | $ | 1,223 | 10 | Sep | 3/29/05 | $ | 12.69 | $ | 101 | |||||||||||||||||||
RNDB | Randolph Bancorp, Inc. | NASDAQGM | NE | Stoughton | MA | $ | 723 | 5 | Dec | 7/1/16 | $ | 20.00 | $ | 103 | |||||||||||||||||||
RVSB | Riverview Bancorp, Inc. | NASDAQGS | WE | Vancouver | WA | $ | 1,425 | 17 | Mar | 10/26/93 | $ | 5.62 | $ | 126 | |||||||||||||||||||
SVBI | Severn Bancorp, Inc. | NASDAQCM | MA | Annapolis | MD | $ | 939 | 7 | Dec | $ | 7.80 | $ | 100 | ||||||||||||||||||||
STXB | Spirit of Texas Bancshares, Inc. | NASDAQGS | SW | Conroe | TX | $ | 2,925 | 37 | Dec | 5/3/18 | $ | 19.37 | $ | 331 | |||||||||||||||||||
SBT | Sterling Bancorp, Inc. | NASDAQCM | MW | Southfield | MI | $ | 3,937 | 30 | Dec | 11/16/17 | $ | 5.11 | $ | 255 | |||||||||||||||||||
TBNK | Territorial Bancorp Inc. | NASDAQGS | WE | Honolulu | HI | $ | 2,106 | 30 | Dec | 7/13/09 | $ | 24.77 | $ | 226 | |||||||||||||||||||
TSBK | Timberland Bancorp, Inc. | NASDAQGM | WE | Hoquiam | WA | $ | 1,566 | 24 | Sep | 1/12/98 | $ | 27.10 | $ | 225 | |||||||||||||||||||
TBK | Triumph Bancorp, Inc. | NASDAQGS | SW | Dallas | TX | $ | 5,837 | 64 | Dec | 11/6/14 | $ | 64.06 | $ | 1,580 | |||||||||||||||||||
TRST | TrustCo Bank Corp NY | NASDAQGS | MA | Glenville | NY | $ | 5,736 | 148 | Dec | $ | 6.51 | $ | 628 | ||||||||||||||||||||
WSBF | Waterstone Financial, Inc. | NASDAQGS | MW | Wauwatosa | WI | $ | 2,221 | 16 | Dec | 10/4/05 | $ | 19.19 | $ | 455 | |||||||||||||||||||
WNEB | Western New England Bancorp, Inc. | NASDAQGS | NE | Westfield | MA | $ | 2,487 | 27 | Dec | 12/27/01 | $ | 7.23 | $ | 165 | |||||||||||||||||||
WSFS | WSFS Financial Corporation | NASDAQGS | MA | Wilmington | DE | $ | 13,830 | 93 | Dec | 11/26/86 | $ | 45.26 | $ | 2,161 | |||||||||||||||||||
WVFC | WVS Financial Corp. | NASDAQGM | MA | Pittsburgh | PA | $ | 332 | 6 | Jun | 11/29/93 | $ | 15.15 | $ | 26 | |||||||||||||||||||
BCOW | 1895 Bancorp Of Wisconsin, Inc. (MHC) | NASDAQCM | MW | Greenfield | WI | $ | 505 | 6 | Dec | 1/8/19 | $ | 9.85 | $ | 45 | |||||||||||||||||||
BSBK | Bogota Financial Corp. (MHC) | NASDAQCM | MA | Teaneck | NJ | $ | 754 | 4 | Dec | 1/15/20 | $ | 9.12 | $ | 120 | |||||||||||||||||||
CLBK | Columbia Financial, Inc. (MHC) | NASDAQGS | MA | Fair Lawn | NJ | $ | 8,865 | 61 | Dec | 4/19/18 | $ | 15.80 | $ | 1,753 | |||||||||||||||||||
FSEA | First Seacoast Bancorp (MHC) | NASDAQCM | NE | Dover | NH | $ | 477 | 5 | Dec | 7/16/19 | $ | 8.73 | $ | 51 | |||||||||||||||||||
GCBC | Greene County Bancorp, Inc. (MHC) | NASDAQCM | MA | Catskill | NY | $ | 1,799 | 19 | Jun | 12/30/98 | $ | 24.70 | $ | 210 | |||||||||||||||||||
KFFB | Kentucky First Federal Bancorp (MHC) | NASDAQGM | MW | Frankfort | KY | $ | 328 | 7 | Jun | 3/2/05 | $ | 6.46 | $ | 53 | |||||||||||||||||||
LSBK | Lake Shore Bancorp, Inc. (MHC) | NASDAQGM | MA | Dunkirk | NY | $ | 683 | 12 | Dec | 4/3/06 | $ | 13.44 | $ | 77 | |||||||||||||||||||
MGYR | Magyar Bancorp, Inc. (MHC) | NASDAQGM | MA | New Brunswick | NJ | $ | 754 | 7 | Sep | 1/23/06 | $ | 10.61 | $ | 62 | |||||||||||||||||||
OFED | Oconee Federal Financial Corp. (MHC) | NASDAQCM | SE | Seneca | SC | $ | 520 | 8 | Jun | 1/13/11 | $ | 24.00 | $ | 135 | |||||||||||||||||||
PDLB | PDL Community Bancorp (MHC) | NASDAQGM | MA | Bronx | NY | $ | 1,277 | 14 | Dec | 9/29/17 | $ | 9.72 | $ | 161 | |||||||||||||||||||
PBFS | Pioneer Bancorp, Inc. (MHC) | NASDAQCM | MA | Albany | NY | $ | 1,629 | 23 | Jun | 7/17/19 | $ | 10.91 | $ | 273 | |||||||||||||||||||
RBKB | Rhinebeck Bancorp, Inc. (MHC) | NASDAQCM | MA | Poughkeepsie | NY | $ | 1,113 | 15 | Dec | 1/16/19 | $ | 9.21 | $ | 99 | |||||||||||||||||||
TFSL | TFS Financial Corporation (MHC) | NASDAQGS | MW | Cleveland | OH | $ | 14,642 | 37 | Sep | 4/20/07 | $ | 17.53 | $ | 4,848 |
Source: S&P Global Market Intelligence.
EXHIBIT III-2
Public Market Pricing of Southwest and Southeast Thrift Institutions
Exhibit III-2
Public Market Pricing of Southwest and Southeast Institutions
As of February 5, 2021
Market Capitalization | Per Share Data | Dividends(3) | Financial Characteristics(5) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Core | Book | Pricing Ratios(2) | Tang. | Reported | Core | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Price/
Share |
Market
Value |
12 Month
EPS(1) |
Value/
Share |
P/E | P/B | P/A | P/TB | P/Core |
Amount/
Share |
Yield |
Payout
Ratio(4) |
Total
Assets |
Equity/
Assets |
Eq./T. Assets |
NPAs/
Assets |
ROAA | ROAE | ROAA | ROAE | ||||||||||||||||||||||||||||||||||||||||||||||||
($) | ($Mil) | ($) | ($) | (x) | (%) | (%) | (%) | (x) | ($) | (%) | (%) | ($Mil) | (%) | (%) | (%) | (%) | (%) | (%) | (%) | ||||||||||||||||||||||||||||||||||||||||||||||||
All Non-MHC Public Companies(6) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Averages | $ | 23.33 | $ | 601.07 | $ | 1.85 | $ | 19.90 | 13.96 | 103.6 | % | 12.9 | % | 114.7 | % | 13.98 | $ | 0.43 | 2.36 | % | 47 | % | $ | 5,167 | 12.62 | % | 11.78 | % | 0.69 | % | 0.84 | % | 6.91 | % | 0.87 | % | 7.23 | % | |||||||||||||||||||||||||||||
Median | $ | 15.28 | $ | 192.19 | $ | 0.87 | $ | 15.86 | 12.66 | 94.1 | % | 11.6 | % | 100.8 | % | 13.14 | $ | 0.32 | 2.21 | % | 36 | % | $ | 1,791 | 11.51 | % | 10.33 | % | 0.55 | % | 0.76 | % | 5.88 | % | 0.78 | % | 6.15 | % | |||||||||||||||||||||||||||||
Comparable Group | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Averages | $ | 30.82 | $ | 507.50 | $ | 1.49 | $ | 21.65 | 15.65 | x | 130.91 | % | 14.03 | % | 169.01 | % | 14.41 | x | $ | 0.51 | 2.06 | % | 16.58 | % | $ | 2,548 | 10.56 | % | 8.62 | % | 0.73 | % | 0.75 | % | 6.30 | % | 0.84 | % | 6.95 | % | |||||||||||||||||||||||||||
Medians | $ | 24.23 | $ | 202.39 | $ | 1.64 | $ | 23.20 | 10.88 | x | 99.12 | % | 9.95 | % | 128.32 | % | 14.41 | x | $ | 0.51 | 2.06 | % | 16.58 | % | $ | 1,907 | 10.66 | % | 9.07 | % | 0.74 | % | 0.86 | % | 7.46 | % | 0.80 | % | 7.08 | % | |||||||||||||||||||||||||||
Comparable Group | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
AFBI | Affinity Bancshares, Inc. | GA | $ | 10.75 | $ | 73.91 | $ | 0.56 | $ | 10.46 | NM | 102.74 | % | 9.16 | % | 135.14 | % | 19.09 | x | NA | NA | NA | $ | 888 | 8.92 | % | 6.93 | % | 0.76 | % | 0.32 | % | 2.55 | % | 0.69 | % | 5.55 | % | |||||||||||||||||||||||||||||
HFBL | Home Federal Bancorp, Inc. of Louisiana | LA | $ | 29.09 | $ | 45.46 | $ | 2.10 | $ | 29.74 | 10.73 | x | 95.50 | % | 9.18 | % | 95.50 | % | NM | $ | 0.66 | 2.27 | % | 24.17 | % | $ | 542 | 9.43 | % | 9.43 | % | 1.11 | % | 0.80 | % | 7.72 | % | 0.76 | % | 7.37 | % | ||||||||||||||||||||||||||
STXB | Spirit of Texas Bancshares, Inc. | TX | $ | 19.37 | $ | 330.88 | $ | 1.56 | $ | 20.30 | 10.88 | x | 91.71 | % | 10.72 | % | 121.50 | % | 9.73 | x | $ | 0.36 | 1.86 | % | 8.99 | % | $ | 2,925 | 12.02 | % | 9.24 | % | 0.32 | % | 0.96 | % | 7.37 | % | 1.06 | % | 8.10 | % | |||||||||||||||||||||||||
TBK | Triumph Bancorp, Inc. | TX | $ | 64.06 | $ | 1,579.73 | $ | 1.72 | $ | 26.11 | 25.32 | x | 233.66 | % | 27.04 | % | 323.89 | % | NM | NA | NA | NA | $ | 5,837 | 11.89 | % | 8.89 | % | 0.72 | % | 0.93 | % | 7.55 | % | 0.83 | % | 6.79 | % | |||||||||||||||||||||||||||||
MHCs | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
OFED | Oconee Federal Financial Corp. (MHC) | SC | $ | 24.00 | $ | 134.51 | $ | 0.73 | $ | 15.87 | 32.88 | x | 151.25 | % | 25.88 | % | 156.14 | % | 32.86 | x | $ | 0.40 | 1.67 | % | 54.79 | % | $ | 520 | 17.11 | % | 16.66 | % | 0.49 | % | 0.82 | % | 4.72 | % | 0.82 | % | 4.71 | % |
(1) | Core income, on a diluted per-share basis. Core income is net income after taxes and before extraordinary items, less net income attributable to noncontrolling interest, gain on the sale of securities, amortization of intangibles, goodwill and nonrecurring items. Assumed tax rate is 35%. |
(2) | P/E = Price to earnings; P/B = Price to book; P/A = Price to assets; P/TB = Price to tangible book value; and P/Core = Price to core earnings. P/E and P/Core =NM if the ratio is negative or above 35x. |
(3) | Indicated 12 month dividend, based on last quarterly dividend declared. |
(4) | Indicated 12 month dividend as a percent of trailing 12 month earnings. |
(5) | Equity and tangible equity equal common equity and tangible common equity, respectively. ROAA (return on average assets) and ROAE (return on average equity) are indicated ratios based on trailing 12 month earnings and average equity and assets balances. |
(6) | Excludes from averages and medians those companies the subject of actual or rumored acquisition activities or unusual operating characteristics. |
Source: SNL Financial, LC. and RP Financial, LC. calculations. The information provided in this report has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2021 by RP® Financial, LC.
EXHIBIT III-3
Public Market Pricing of Mid-Atlantic, Midwest and New England Thrift Institutions
Exhibit III-3
Public Market Pricing of Mid-Atlantic, Midwest and New England Institutions
As of February 5, 2021
Market | Per Share Data | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Capitalization | Core | Book | Dividends(3) | Financial Characteristics(5) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Price/ | Market | 12 Month | Value/ | Pricing Ratios(2) | Amount/ | Payout | Total | Equity/ | Tang. Eq./ | NPAs/ | Reported | Core | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share | Value | EPS(1) | Share | P/E | P/B | P/A | P/TB | P/Core | Share | Yield | Ratio(4) | Assets | Assets | T. Assets | Assets | ROAA | ROAE | ROAA | ROAE | ||||||||||||||||||||||||||||||||||||||||||||||||
($) | ($Mil) | ($) | ($) | (x) | (%) | (%) | (%) | (x) | ($) | (%) | (%) | ($Mil) | (%) | (%) | (%) | (%) | (%) | (%) | (%) | ||||||||||||||||||||||||||||||||||||||||||||||||
All Non-MHC Public Companies(6) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Averages | $ | 23.33 | $ | 601.07 | $ | 1.85 | $ | 19.90 | 13.96 | 103.6 | % | 12.9 | % | 114.7 | % | 13.98 | $ | 0.43 | 2.36 | % | 47 | % | $ | 5,167 | 12.62 | % | 11.78 | % | 0.69 | % | 0.84 | % | 6.91 | % | 0.87 | % | 7.23 | % | |||||||||||||||||||||||||||||
Median | $ | 15.28 | $ | 192.19 | $ | 0.87 | $ | 15.86 | 12.66 | 94.1 | % | 11.6 | % | 100.8 | % | 13.14 | $ | 0.32 | 2.21 | % | 36 | % | $ | 1,791 | 11.51 | % | 10.33 | % | 0.55 | % | 0.76 | % | 5.88 | % | 0.78 | % | 6.15 | % | |||||||||||||||||||||||||||||
Comparable Group | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Averages | $ | 22.18 | $ | 645.89 | $ | 1.74 | $ | 19.52 | 14.10 | x | 97.58 | % | 13.03 | % | 106.06 | % | 14.14 | x | $ | 0.40 | 2.37 | % | 51.64 | % | $ | 6,072 | 13.36 | % | 12.60 | % | 0.73 | % | 0.81 | % | 6.50 | % | 0.82 | % | 6.61 | % | |||||||||||||||||||||||||||
Medians | $ | 13.20 | $ | 192.19 | $ | 0.74 | $ | 14.34 | 13.12 | x | 91.54 | % | 12.22 | % | 97.50 | % | 13.43 | x | $ | 0.31 | 2.13 | % | 40.81 | % | $ | 1,894 | 11.53 | % | 11.13 | % | 0.59 | % | 0.76 | % | 5.57 | % | 0.74 | % | 5.63 | % | |||||||||||||||||||||||||||
Comparable Group | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CARV | Carver Bancorp, Inc. | NY | $ | 8.90 | $ | 27.26 | ($ | 1.44 | ) | $ | 9.91 | NM | 89.80 | % | 3.89 | % | 89.80 | % | NM | $ | 0.00 | 0.00 | % | NA | $ | 673 | 6.90 | % | 6.90 | % | 1.25 | % | -0.79 | % | -9.90 | % | -0.90 | % | -11.29 | % | |||||||||||||||||||||||||||
CBMB | CBM Bancorp, Inc. | MD | $ | 13.95 | $ | 48.02 | $ | 0.17 | $ | 14.34 | NM | 97.29 | % | 22.31 | % | 97.29 | % | NM | NA | NA | 250.00 | % | $ | 232 | 22.94 | % | 22.94 | % | 0.55 | % | 0.32 | % | 1.27 | % | 0.27 | % | 1.07 | % | |||||||||||||||||||||||||||||
ESBK | Elmira Savings Bank | NY | $ | 12.24 | $ | 43.12 | $ | 1.09 | $ | 17.01 | 10.29 | x | 71.03 | % | 6.69 | % | 89.11 | % | 10.30 | x | $ | 0.60 | 4.90 | % | 57.14 | % | $ | 674 | 8.90 | % | 7.20 | % | NA | 0.60 | % | 6.42 | % | 0.60 | % | 6.44 | % | ||||||||||||||||||||||||||
ESSA | ESSA Bancorp, Inc. | PA | $ | 15.59 | $ | 157.22 | $ | 1.38 | $ | 17.60 | 10.68 | x | 86.89 | % | 9.03 | % | 93.91 | % | 10.71 | x | $ | 0.44 | 2.82 | % | 30.14 | % | $ | 1,894 | 10.11 | % | 9.41 | % | 1.09 | % | 0.76 | % | 7.43 | % | 0.75 | % | 7.37 | % | |||||||||||||||||||||||||
GBNY | Generations Bancorp NY, Inc. | NY | $ | 9.74 | $ | 23.94 | NA | NA | NM | NA | NA | NA | NM | NA | NA | NA | NA | NA | NA | NA | NA | NA | NA | NA | |||||||||||||||||||||||||||||||||||||||||||
HVBC | HV Bancorp, Inc. | PA | $ | 16.81 | $ | 33.81 | $ | 1.87 | $ | 16.75 | 8.76 | x | 100.35 | % | 7.36 | % | 100.35 | % | 9.01 | x | NA | NA | NA | $ | 508 | 7.33 | % | 7.33 | % | 0.49 | % | 1.02 | % | 11.87 | % | 0.99 | % | 11.54 | % | ||||||||||||||||||||||||||||
KRNY | Kearny Financial Corp. | NJ | $ | 10.65 | $ | 922.29 | $ | 0.58 | $ | 12.56 | 17.46 | x | 82.81 | % | 12.33 | % | 104.93 | % | 16.59 | x | $ | 0.32 | 3.00 | % | 52.46 | % | $ | 7,310 | 15.38 | % | 12.81 | % | 0.72 | % | 0.66 | % | 4.11 | % | 0.70 | % | 4.40 | % | |||||||||||||||||||||||||
NYCB | New York Community Bancorp, Inc. | NY | $ | 10.41 | $ | 4,829.22 | $ | 0.83 | $ | 13.43 | 10.21 | x | 76.18 | % | 8.65 | % | 123.43 | % | 10.30 | x | $ | 0.68 | 6.53 | % | 66.67 | % | $ | 54,932 | 12.26 | % | 8.21 | % | 0.13 | % | 0.79 | % | 6.32 | % | 0.78 | % | 6.25 | % | |||||||||||||||||||||||||
NFBK | Northfield Bancorp, Inc. | NJ | $ | 13.22 | $ | 690.21 | $ | 0.78 | $ | 14.26 | 17.39 | x | 91.54 | % | 12.52 | % | 96.94 | % | 15.30 | x | $ | 0.44 | 3.33 | % | 57.89 | % | $ | 5,589 | 13.55 | % | 12.89 | % | 0.39 | % | 0.67 | % | 4.78 | % | 0.73 | % | 5.26 | % | |||||||||||||||||||||||||
NWBI | Northwest Bancshares, Inc. | PA | $ | 13.17 | $ | 1,672.85 | $ | 0.70 | $ | 12.11 | 21.24 | x | 108.72 | % | 12.12 | % | 147.19 | % | 16.48 | x | $ | 0.76 | 5.77 | % | 122.58 | % | $ | 13,789 | 11.22 | % | 8.52 | % | 0.92 | % | 0.54 | % | 4.53 | % | 0.68 | % | 5.70 | % | |||||||||||||||||||||||||
PCSB | PCSB Financial Corporation | NY | $ | 15.75 | $ | 241.41 | $ | 0.59 | $ | 16.45 | 25.00 | x | 94.14 | % | 14.17 | % | 96.39 | % | 24.90 | x | $ | 0.16 | 1.02 | % | 25.40 | % | $ | 1,791 | 15.28 | % | 14.98 | % | NA | 0.54 | % | 3.34 | % | 0.54 | % | 3.36 | % | ||||||||||||||||||||||||||
PFS | Provident Financial Services, Inc. | NJ | $ | 18.99 | $ | 1,446.18 | $ | 1.32 | $ | 20.41 | 13.66 | x | 90.99 | % | 11.41 | % | 127.76 | % | 13.22 | x | $ | 0.92 | 4.84 | % | 66.19 | % | $ | 12,871 | 12.44 | % | 9.30 | % | 0.71 | % | 0.78 | % | 5.70 | % | 0.84 | % | 6.15 | % | |||||||||||||||||||||||||
PBIP | Prudential Bancorp, Inc. | PA | $ | 12.69 | $ | 101.48 | $ | 0.58 | $ | 15.86 | 11.97 | x | 77.32 | % | 8.50 | % | 81.30 | % | NM | $ | 0.28 | 2.21 | % | 66.98 | % | $ | 1,223 | 10.55 | % | 10.08 | % | 1.10 | % | 0.76 | % | 6.88 | % | 0.39 | % | 3.56 | % | ||||||||||||||||||||||||||
SVBI | Severn Bancorp, Inc. | MD | $ | 7.80 | $ | 99.98 | $ | 0.42 | $ | 8.45 | 15.00 | x | 91.15 | % | 10.49 | % | 92.08 | % | 14.87 | x | $ | 0.16 | 2.05 | % | 30.77 | % | $ | 939 | 11.53 | % | 11.43 | % | 1.57 | % | 0.63 | % | 5.06 | % | 0.64 | % | 5.11 | % | |||||||||||||||||||||||||
TRST | TrustCo Bank Corp NY | NY | $ | 6.51 | $ | 627.78 | $ | 0.53 | $ | 5.81 | 11.99 | x | 110.49 | % | 10.64 | % | 110.60 | % | 12.20 | x | $ | 0.27 | 4.19 | % | 50.19 | % | $ | 5,736 | 9.77 | % | 9.76 | % | 0.59 | % | 0.97 | % | 9.64 | % | 0.95 | % | 9.47 | % | |||||||||||||||||||||||||
WSFS | WSFS Financial Corporation | DE | $ | 45.26 | $ | 2,161.44 | $ | 2.02 | $ | 36.77 | 19.94 | x | 120.63 | % | 15.08 | % | 175.11 | % | 22.48 | x | $ | 0.48 | 1.06 | % | 21.15 | % | $ | 13,830 | 13.46 | % | 9.83 | % | 0.33 | % | 0.78 | % | 5.38 | % | 0.80 | % | 5.55 | % | |||||||||||||||||||||||||
WVFC | WVS Financial Corp. | PA | $ | 15.15 | $ | 26.33 | $ | 1.22 | $ | 19.94 | 15.30 | x | 75.00 | % | 9.08 | % | 75.00 | % | 15.10 | x | $ | 0.40 | 2.64 | % | 40.40 | % | $ | 332 | 11.42 | % | 11.42 | % | 0.00 | % | 0.59 | % | 5.88 | % | 0.60 | % | 5.96 | % | |||||||||||||||||||||||||
CFFN | Capitol Federal Financial, Inc. | KS | $ | 12.65 | $ | 1,710.52 | $ | 0.48 | $ | 9.25 | 28.75 | x | 137.54 | % | 18.28 | % | 138.41 | % | 28.22 | x | $ | 0.34 | 2.69 | % | 106.82 | % | $ | 9,487 | 13.54 | % | 13.41 | % | 0.27 | % | 0.69 | % | 4.92 | % | 0.70 | % | 5.04 | % | |||||||||||||||||||||||||
CNNB | Cincinnati Bancorp, Inc. | OH | $ | 11.96 | $ | 35.59 | $ | 0.61 | $ | 13.35 | 19.93 | x | 89.56 | % | 15.34 | % | 89.97 | % | 19.71 | x | NA | NA | NA | $ | 232 | 17.13 | % | 17.07 | % | 0.54 | % | 0.77 | % | 6.10 | % | 0.78 | % | 6.17 | % | ||||||||||||||||||||||||||||
FFBW | FFBW, Inc. | WI | $ | 10.42 | $ | 74.11 | NA | $ | 13.32 | NM | 78.24 | % | 28.10 | % | 78.28 | % | NM | NA | NA | NA | $ | 286 | 35.92 | % | 35.90 | % | 0.63 | % | 0.63 | % | 2.41 | % | NA | NA | |||||||||||||||||||||||||||||||||
FBC | Flagstar Bancorp, Inc. | MI | $ | 45.06 | $ | 2,372.68 | $ | 7.90 | $ | 38.41 | 4.73 | x | 117.33 | % | NA | 126.55 | % | 4.64 | x | $ | 0.20 | 0.44 | % | 1.58 | % | $ | 29,476 | 7.45 | % | 6.94 | % | 0.33 | % | 1.75 | % | 22.74 | % | 1.79 | % | 23.96 | % | ||||||||||||||||||||||||||
HMNF | HMN Financial, Inc. | MN | $ | 19.00 | $ | 90.61 | $ | 1.84 | $ | 20.91 | 8.56 | x | 87.76 | % | 9.96 | % | 88.50 | % | NM | $ | 0.00 | 0.00 | % | NA | $ | 898 | 11.26 | % | 11.17 | % | 0.38 | % | 1.03 | % | 8.83 | % | 1.04 | % | 8.95 | % | |||||||||||||||||||||||||||
IROQ | IF Bancorp, Inc. | IL | $ | 20.50 | $ | 66.43 | $ | 1.34 | $ | 25.78 | 12.58 | x | 78.23 | % | 9.31 | % | 78.23 | % | NM | $ | 0.30 | 1.46 | % | 18.40 | % | $ | 726 | 11.51 | % | 11.51 | % | 0.24 | % | 0.64 | % | 5.57 | % | 0.59 | % | 5.10 | % | ||||||||||||||||||||||||||
MSVB | Mid-Southern Bancorp, Inc. | IN | $ | 16.24 | $ | 48.50 | $ | 0.35 | $ | 15.20 | NM | 106.86 | % | 23.91 | % | 106.86 | % | NM | $ | 0.12 | 0.74 | % | 24.32 | % | $ | 218 | 22.38 | % | 22.38 | % | 1.19 | % | 0.56 | % | 2.36 | % | 0.52 | % | 2.20 | % | |||||||||||||||||||||||||||
SBT | Sterling Bancorp, Inc. | MI | $ | 5.11 | $ | 255.41 | ($ | 0.30 | ) | $ | 6.63 | NM | 79.92 | % | 6.53 | % | 79.92 | % | NM | $ | 0.00 | 0.00 | % | NA | $ | 3,937 | 8.41 | % | 8.41 | % | 2.50 | % | -0.43 | % | -4.39 | % | -0.43 | % | -4.43 | % | |||||||||||||||||||||||||||
WSBF | Waterstone Financial, Inc. | WI | $ | 19.19 | $ | 454.54 | $ | 2.60 | $ | 15.84 | 5.82 | x | 116.54 | % | 22.04 | % | 121.36 | % | 5.66 | x | $ | 0.80 | 4.17 | % | 41.21 | % | $ | 2,221 | 17.99 | % | 17.96 | % | 0.70 | % | 2.97 | % | 15.96 | % | 3.07 | % | 16.53 | % | |||||||||||||||||||||||||
HONE | HarborOne Bancorp, Inc. | MA | $ | 11.32 | $ | 616.39 | $ | 0.61 | $ | 11.90 | 13.80 | x | 93.00 | % | 14.44 | % | 104.09 | % | 13.43 | x | $ | 0.12 | 1.06 | % | 10.98 | % | $ | 4,428 | 15.67 | % | 14.23 | % | 1.22 | % | 0.76 | % | 4.66 | % | 0.80 | % | 4.91 | % | |||||||||||||||||||||||||
HIFS | Hingham Institution for Savings | MA | $ | 236.30 | $ | 504.95 | $ | 18.50 | $ | 130.24 | 10.16 | x | 172.45 | % | 17.68 | % | 172.45 | % | 11.64 | x | $ | 1.88 | 0.80 | % | 10.62 | % | $ | 2,719 | 10.24 | % | 10.24 | % | 0.27 | % | 1.71 | % | 17.54 | % | 1.53 | % | 15.71 | % | |||||||||||||||||||||||||
EBSB | Meridian Bancorp, Inc. | MA | $ | 15.91 | $ | 799.05 | $ | 1.21 | $ | 14.28 | 12.33 | x | 108.46 | % | 12.60 | % | 111.66 | % | 13.05 | x | $ | 0.32 | 2.01 | % | 24.81 | % | $ | 6,567 | 11.39 | % | 11.09 | % | 0.08 | % | 1.00 | % | 8.73 | % | 0.97 | % | 8.46 | % | |||||||||||||||||||||||||
PVBC | Provident Bancorp, Inc. | MA | $ | 12.10 | $ | 219.00 | $ | 0.66 | $ | 12.30 | 18.33 | x | 97.72 | % | 15.31 | % | 97.72 | % | 16.00 | x | $ | 0.12 | 0.99 | % | 18.18 | % | $ | 1,498 | 15.98 | % | 15.98 | % | NA | 0.81 | % | 4.57 | % | 0.93 | % | 5.21 | % | ||||||||||||||||||||||||||
RNDB | Randolph Bancorp, Inc. | MA | $ | 20.00 | $ | 102.86 | $ | 3.28 | $ | 17.19 | 6.60 | x | 116.38 | % | 15.28 | % | NA | 6.11 | x | NA | NA | NA | $ | 723 | 13.13 | % | NA | 1.57 | % | 2.30 | % | 18.55 | % | 2.49 | % | 20.05 | % | ||||||||||||||||||||||||||||||
WNEB | Western New England Bancorp, Inc. | MA | $ | 7.23 | $ | 165.39 | $ | 0.40 | $ | 8.99 | 16.07 | x | 80.63 | % | 7.72 | % | 86.52 | % | 15.23 | x | $ | 0.20 | 2.77 | % | 44.44 | % | $ | 2,487 | 9.26 | % | 8.69 | % | NA | 0.42 | % | 4.16 | % | 0.45 | % | 4.45 | % | ||||||||||||||||||||||||||
MHCs | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
BSBK | Bogota Financial Corp. (MHC) | NJ | $ | 9.12 | $ | 120.00 | NA | $ | 9.68 | NM | 93.41 | % | 16.20 | % | 93.41 | % | 27.98 | x | NA | NA | NA | $ | 754 | 16.91 | % | 16.91 | % | NA | 0.25 | % | 1.63 | % | 0.50 | % | 3.27 | % | |||||||||||||||||||||||||||||||
CLBK | Columbia Financial, Inc. (MHC) | NJ | $ | 15.80 | $ | 1,752.85 | $ | 0.51 | $ | 8.89 | 30.38 | x | 173.33 | % | 19.92 | % | 189.54 | % | 27.57 | x | NA | NA | NA | $ | 8,865 | 11.48 | % | 10.55 | % | NA | 0.60 | % | 4.98 | % | 0.66 | % | 5.55 | % | |||||||||||||||||||||||||||||
GCBC | Greene County Bancorp, Inc. (MHC) | NY | $ | 24.70 | $ | 210.28 | $ | 2.19 | $ | 15.62 | 10.65 | x | 151.57 | % | 11.28 | % | 151.57 | % | NM | $ | 0.48 | 1.94 | % | 20.26 | % | $ | 1,799 | 7.39 | % | 7.39 | % | 0.29 | % | 1.19 | % | 15.05 | % | 1.19 | % | 15.05 | % | ||||||||||||||||||||||||||
LSBK | Lake Shore Bancorp, Inc. (MHC) | NY | $ | 13.44 | $ | 76.62 | $ | 0.76 | $ | 14.55 | 17.45 | x | 91.09 | % | 11.41 | % | 91.09 | % | 17.62 | x | $ | 0.52 | 3.87 | % | 48.05 | % | $ | 683 | 12.43 | % | 12.43 | % | 0.56 | % | 0.70 | % | 5.34 | % | 0.70 | % | 5.31 | % | |||||||||||||||||||||||||
MGYR | Magyar Bancorp, Inc. (MHC) | NJ | $ | 10.61 | $ | 61.62 | $ | 0.37 | $ | 9.78 | 20.79 | x | 105.88 | % | 8.31 | % | 105.88 | % | 21.16 | x | NA | NA | NA | $ | 754 | 7.54 | % | 7.54 | % | 2.03 | % | 0.32 | % | 3.85 | % | 0.31 | % | 3.75 | % | ||||||||||||||||||||||||||||
PDLB | PDL Community Bancorp (MHC) | NY | $ | 9.72 | $ | 161.09 | ($ | 0.01 | ) | $ | 9.25 | NM | 105.05 | % | 13.02 | % | 105.05 | % | NM | NA | NA | NA | $ | 1,277 | 12.40 | % | 12.40 | % | 1.38 | % | -0.46 | % | -3.28 | % | -0.02 | % | -0.15 | % | |||||||||||||||||||||||||||||
PBFS | Pioneer Bancorp, Inc. (MHC) | NY | $ | 10.91 | $ | 273.28 | $ | 0.27 | $ | 8.68 | NM | 125.74 | % | 17.40 | % | 131.19 | % | NM | NA | NA | NA | $ | 1,629 | 13.84 | % | 13.34 | % | 1.01 | % | 0.51 | % | 3.35 | % | 0.48 | % | 3.11 | % | ||||||||||||||||||||||||||||||
RBKB | Rhinebeck Bancorp, Inc. (MHC) | NY | $ | 9.21 | $ | 98.87 | $ | 0.50 | $ | 10.35 | 16.75 | x | 88.02 | % | 9.08 | % | 89.25 | % | 16.62 | x | NA | NA | NA | $ | 1,113 | 10.35 | % | 10.22 | % | 0.63 | % | 0.51 | % | 4.72 | % | 0.51 | % | 4.78 | % | ||||||||||||||||||||||||||||
BCOW | 1895 Bancorp Of Wisconsin, Inc. (MHC) | WI | $ | 9.85 | $ | 45.20 | $ | 0.12 | $ | 12.50 | 32.83 | x | 78.78 | % | 9.31 | % | 78.78 | % | NM | NA | NA | NA | $ | 505 | 11.81 | % | 11.81 | % | 0.37 | % | 0.30 | % | 2.52 | % | 0.13 | % | 1.05 | % | |||||||||||||||||||||||||||||
KFFB | Kentucky First Federal Bancorp (MHC) | KY | $ | 6.46 | $ | 53.05 | ($ | 0.21 | ) | $ | 6.29 | NM | 102.66 | % | 16.09 | % | 104.57 | % | NM | $ | 0.40 | 6.19 | % | NA | $ | 328 | 15.82 | % | 15.57 | % | NA | -3.81 | % | -20.62 | % | -0.54 | % | -2.94 | % | ||||||||||||||||||||||||||||
TFSL | TFS Financial Corporation (MHC) | OH | $ | 17.53 | $ | 4,848.02 | NA | $ | 5.97 | NM | 296.67 | % | 33.75 | % | 298.42 | % | NM | $ | 1.12 | 6.39 | % | 373.33 | % | $ | 14,642 | 11.42 | % | 11.36 | % | 1.04 | % | 0.56 | % | 4.88 | % | NA | NA | ||||||||||||||||||||||||||||||
FSEA | First Seacoast Bancorp (MHC) | NH | $ | 8.73 | $ | 51.21 | $ | 0.18 | $ | 9.66 | NM | 90.40 | % | 11.13 | % | 90.40 | % | NM | NA | NA | NA | $ | 477 | 12.31 | % | 12.31 | % | 0.19 | % | 0.30 | % | 2.29 | % | 0.25 | % | 1.88 | % |
(1) | Core income, on a diluted per-share basis. Core income is net income after taxes and before extraordinary items, less net income attributable to noncontrolling interest, gain on the sale of securities, amortization of intangibles, goodwill and nonrecurring items. Assumed tax rate is 35%. |
(2) | P/E = Price to earnings; P/B = Price to book; P/A = Price to assets; P/TB = Price to tangible book value; and P/Core = Price to core earnings. P/E and P/Core =NM if the ratio is negative or above 35x. |
(3) | Indicated 12 month dividend, based on last quarterly dividend declared. |
(4) | Indicated 12 month dividend as a percent of trailing 12 month earnings. |
(5) | Equity and tangible equity equal common equity and tangible common equity, respectively. ROAA (return on average assets) and ROAE (return on average equity) are indicated ratios based on trailing 12 month earnings and average equity and assets balances. |
(6) | Excludes from averages and medians those companies the subject of actual or rumored acquisition activities or unusual operating characteristics. |
Source: SNL Financial, LC. and RP Financial, LC. calculations. The information provided in this report has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2021 by RP® Financial, LC.
EXHIBIT III-4
Peer Group Market Area Comparative Analysis
Exhibit III-4
Peer Group Market Area Comparative Analysis
Proj. | Per Capita Income | Deposit | ||||||||||||||||||||||||||||||||
Population | Pop. | 2016-2021 | 2021-2026 | 2021 | % State | Market | ||||||||||||||||||||||||||||
Institution | County | 2016 | 2021 | 2026 | % Change | % Change | Amount | Average | Share(1) | |||||||||||||||||||||||||
CBM Bancorp, Inc. | Baltimore, MD | 833,355 | 827,833 | 838,202 | -0.1 | % | 0.2 | % | 44,121 | 119.6 | % | 0.65 | % | |||||||||||||||||||||
Cincinnati Bancorp, Inc. | Hamilton, OH | 809,436 | 820,001 | 828,307 | 0.3 | % | 0.2 | % | 39,101 | 92.8 | % | 0.10 | % | |||||||||||||||||||||
Elmira Savings Bank | Chemung, NY | 86,984 | 82,370 | 80,032 | -1.1 | % | -0.6 | % | 31,386 | 76.6 | % | 24.23 | % | |||||||||||||||||||||
FFBW, Inc. | Waukesha, WI | 397,051 | 406,583 | 413,751 | 0.5 | % | 0.4 | % | 50,395 | 176.4 | % | 1.02 | % | |||||||||||||||||||||
Home Federal Bancorp, Inc. of LA | Caddo, LA | 250,014 | 236,376 | 230,003 | -1.1 | % | -0.5 | % | 26,312 | 71.3 | % | 5.92 | % | |||||||||||||||||||||
HV Bancorp, Inc. | Bucks, PA | 627,070 | 628,796 | 630,606 | 0.1 | % | 0.1 | % | 51,097 | 135.3 | % | 0.41 | % | |||||||||||||||||||||
IF Bancorp, Inc. | Iroquois, IL | 28,599 | 26,613 | 25,608 | -1.4 | % | -0.8 | % | 28,928 | 59.1 | % | 22.22 | % | |||||||||||||||||||||
Mid-Southern Bancorp, Inc. | Washington, IN | 27,824 | 28,097 | 28,348 | 0.2 | % | 0.2 | % | 27,232 | 59.8 | % | 27.66 | % | |||||||||||||||||||||
Randolph Bancorp, Inc. | Norfolk, MA | 699,079 | 711,405 | 729,065 | 0.4 | % | 0.5 | % | 60,544 | 164.1 | % | 1.65 | % | |||||||||||||||||||||
WVS Financial Corp. | Allegheny, PA | 1,231,991 | 1,212,006 | 1,206,155 | -0.3 | % | -0.1 | % | 43,296 | 117.4 | % | 0.08 | % | |||||||||||||||||||||
Averages: | 499,140 | 498,008 | 501,008 | -0.3 | % | 0.0 | % | 40,241 | 107.2 | % | 8.39 | % | ||||||||||||||||||||||
Medians: | 512,061 | 517,690 | 522,179 | 0.0 | % | 0.1 | % | 41,199 | 105.1 | % | 1.34 | % | ||||||||||||||||||||||
St. Landry Homestead | St. Landry, LA | 83,910 | 81,534 | 80,860 | -0.6 | % | -0.2 | % | 20,112 | 54.5 | % | 10.09 | % |
(1) | Total institution deposits in headquarters county as percent of total county deposits as of June 30, 2020. |
Sources: S&P Global Market Intelligence and FDIC.
EXHIBIT IV-1
Stock Prices:
As of February 5, 2021
RP® Financial, LC.
Exhibit IV-1A
Weekly Thrift Market Line - Part One
Prices As of February 5, 2021
Market Capitalization | Price Change Data | Current Per Share Financials | |||||||||||||||||||||||||||||||||
Price/ | Shares | Market | 52 Week (1) | % Change From | LTM | LTM Core | BV/ | TBV/ | Assets/ | Assets | |||||||||||||||||||||||||
Share(1) | Outstanding | Capitalization | High | Low | Last Wk | Last Wk | 52 Wks (2) | MRY (2) | EPS (3) | EPS (3) | Share | Share (4) | Share | ||||||||||||||||||||||
($) | (000) | ($Mil) | ($) | ($) | ($) | (%) | (%) | (%) | ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||||||
Companies | |||||||||||||||||||||||||||||||||||
AFBI | Affinity Bancshares, Inc. | SE | 10.75 | 6,876 | 73.9 | 11.80 | 5.36 | 10.67 | 0.75 | -8.46 | 8.60 | 0.26 | 0.56 | 10.46 | 7.95 | 129.18 | 888,170 | ||||||||||||||||||
AX | Axos Financial, Inc. | WE | 43.95 | 59,077 | 2,595.0 | 44.05 | 13.69 | 38.95 | 12.84 | 53.40 | 17.11 | 3.45 | 3.71 | 21.79 | 19.75 | 243.64 | 14,393,267 | ||||||||||||||||||
BYFC | Broadway Financial Corporation | WE | 2.21 | 27,466 | 60.7 | 7.23 | 1.04 | 2.03 | 8.87 | 47.33 | 19.46 | 0.00 | NA | 1.76 | 1.76 | 18.18 | 499,217 | ||||||||||||||||||
CFFN | Capitol Federal Financial, Inc. | MW | 12.65 | 135,324 | 1,710.5 | 13.50 | 8.75 | 12.42 | 1.85 | -5.10 | 1.20 | 0.44 | 0.45 | 9.20 | NA | 70.99 | 9,606,964 | ||||||||||||||||||
CARV | Carver Bancorp, Inc. | MA | 8.90 | 3,063 | 27.3 | 22.97 | 1.25 | 8.19 | 8.67 | 256.00 | 37.13 | -1.31 | -1.44 | 9.91 | 9.91 | 219.62 | 672,653 | ||||||||||||||||||
CBMB | CBM Bancorp, Inc. | MA | 13.95 | 3,442 | 48.0 | 15.05 | 10.61 | 13.95 | 0.00 | -2.52 | 5.05 | 0.20 | 0.17 | 14.34 | 14.34 | 67.45 | 232,186 | ||||||||||||||||||
CNNB | Cincinnati Bancorp, Inc. | MW | 11.96 | 2,976 | 35.6 | 12.00 | 6.33 | 11.75 | 1.79 | 11.88 | 0.08 | 0.60 | 0.61 | 13.35 | 13.29 | 77.95 | 231,943 | ||||||||||||||||||
ESBK | Elmira Savings Bank | MA | 12.24 | 3,523 | 43.1 | 16.57 | 10.30 | 12.21 | 0.25 | -26.27 | 6.43 | 1.19 | 1.19 | 17.23 | 13.74 | 0.00 | 644,587 | ||||||||||||||||||
ESSA | ESSA Bancorp, Inc. | MA | 15.59 | 10,085 | 157.2 | 17.58 | 9.70 | 14.28 | 9.17 | -10.20 | 3.93 | 1.46 | 1.46 | 17.94 | 16.60 | 0.00 | 1,868,818 | ||||||||||||||||||
FFBW | FFBW, Inc. | MW | 10.42 | 7,112 | 74.1 | 10.76 | 6.74 | 10.28 | 1.36 | -3.07 | 3.99 | 0.26 | NA | 13.32 | 13.31 | 0.00 | 285,787 | ||||||||||||||||||
FNWB | First Northwest Bancorp | WE | 15.71 | 9,480 | 148.9 | 17.85 | 8.77 | 13.70 | 14.67 | -6.77 | 0.71 | 1.10 | 0.84 | 18.19 | 18.19 | 0.00 | 1,654,349 | ||||||||||||||||||
FBC | Flagstar Bancorp, Inc. | MW | 45.06 | 52,656 | 2,372.7 | 47.92 | 16.76 | 42.85 | 5.16 | 23.28 | 10.55 | 9.52 | 9.70 | NA | NA | 0.00 | 31,038,000 | ||||||||||||||||||
FSBW | FS Bancorp, Inc. | WE | 58.85 | 4,157 | 252.6 | 60.65 | 27.50 | 53.62 | 9.75 | 8.56 | 7.39 | 8.97 | 8.77 | 54.27 | 52.61 | 0.00 | 2,113,241 | ||||||||||||||||||
GBNY | Generations Bancorp NY, Inc. | MA | 9.74 | 2,458 | 23.9 | 11.75 | 5.85 | 9.83 | -0.91 | -5.98 | -6.53 | NA | NA | NA | NA | 0.00 | 371,789 | ||||||||||||||||||
HONE | HarborOne Bancorp, Inc. | NE | 11.32 | 54,451 | 616.4 | 11.65 | 6.45 | 10.86 | 4.24 | 2.44 | 4.24 | 0.82 | 0.84 | 12.17 | 10.88 | 0.00 | 4,483,615 | ||||||||||||||||||
HIFS | Hingham Institution for Savings | NE | 236.30 | 2,137 | 504.9 | 238.99 | 125.55 | 219.26 | 7.77 | 15.29 | 9.40 | 23.25 | 20.31 | 137.02 | 137.02 | 0.00 | 2,857,093 | ||||||||||||||||||
HMNF | HMN Financial, Inc. | MW | 19.00 | 4,769 | 90.6 | 21.50 | 13.06 | 17.76 | 6.98 | -9.97 | 10.46 | 2.22 | NA | 21.65 | 21.47 | 0.00 | 909,580 | ||||||||||||||||||
HFBL | Home Federal Bancorp, Inc. of Louisiana | SW | 29.09 | 1,563 | 45.5 | 35.93 | 20.00 | 30.91 | -5.89 | -15.02 | 0.73 | 2.71 | NA | 30.46 | 30.46 | 0.00 | 535,394 | ||||||||||||||||||
HVBC | HV Bancorp, Inc. | MA | 16.81 | 2,012 | 33.8 | 17.48 | 9.75 | 16.40 | 2.50 | -1.98 | -2.10 | 1.92 | 1.87 | 16.75 | 16.75 | 0.00 | 507,739 | ||||||||||||||||||
IROQ | IF Bancorp, Inc. | MW | 20.50 | 3,240 | 66.4 | 23.00 | 15.03 | 19.82 | 3.41 | -10.87 | -6.95 | 1.63 | NA | 26.21 | 26.21 | 0.00 | 713,399 | ||||||||||||||||||
KRNY | Kearny Financial Corp. | MA | 10.65 | 86,600 | 922.3 | 12.26 | 6.91 | 10.35 | 2.90 | -12.27 | 0.85 | 0.61 | 0.64 | 12.86 | NA | 0.00 | 7,335,153 | ||||||||||||||||||
EBSB | Meridian Bancorp, Inc. | NE | 15.91 | 50,223 | 799.1 | 18.36 | 8.88 | 15.15 | 5.02 | -11.98 | 6.71 | 1.29 | 1.22 | 14.67 | 14.25 | 0.00 | 6,619,848 | ||||||||||||||||||
MSVB | Mid-Southern Bancorp, Inc. | MW | 16.24 | 2,986 | 48.5 | 16.59 | 9.71 | 15.13 | 7.34 | 20.30 | 12.70 | 0.37 | 0.35 | 15.20 | 15.20 | 0.00 | 218,281 | ||||||||||||||||||
NYCB | New York Community Bancorp, Inc. | MA | 10.41 | 463,902 | 4,829.2 | 11.88 | 7.72 | 10.46 | -0.48 | -8.76 | -1.33 | 1.02 | 1.01 | 13.66 | 8.43 | 0.00 | 56,306,120 | ||||||||||||||||||
NFBK | Northfield Bancorp, Inc. | MA | 13.22 | 52,210 | 690.2 | 16.33 | 8.72 | 12.36 | 6.96 | -18.55 | 7.22 | 0.76 | 0.86 | 14.44 | 13.64 | 0.00 | 5,514,544 | ||||||||||||||||||
NWBI | Northwest Bancshares, Inc. | MA | 13.17 | 127,019 | 1,672.8 | 15.99 | 8.52 | 12.75 | 3.29 | -16.27 | 3.38 | 0.62 | 0.80 | 12.11 | 8.95 | 0.00 | 13,806,268 | ||||||||||||||||||
PCSB | PCSB Financial Corporation | MA | 15.75 | 15,328 | 241.4 | 20.35 | 11.01 | 14.74 | 6.89 | -22.38 | -1.19 | 0.63 | 0.63 | 16.73 | 16.34 | 0.00 | 1,789,839 | ||||||||||||||||||
PVBC | Provident Bancorp, Inc. | NE | 12.10 | 18,099 | 219.0 | 12.50 | 7.21 | 11.53 | 4.94 | 1.00 | 0.83 | 0.66 | 0.76 | 12.38 | 12.38 | 0.00 | 1,505,781 | ||||||||||||||||||
PROV | Provident Financial Holdings, Inc. | WE | 15.40 | 7,442 | 114.6 | 22.46 | 11.40 | 16.05 | -4.05 | -30.88 | -1.97 | 0.72 | 0.72 | 16.79 | 16.79 | 0.00 | 1,170,727 | ||||||||||||||||||
PFS | Provident Financial Services, Inc. | MA | 18.99 | 76,155 | 1,446.2 | 23.56 | 9.05 | 18.52 | 2.54 | -19.09 | 5.73 | 1.39 | 1.44 | 20.87 | 14.86 | 0.00 | 12,919,741 | ||||||||||||||||||
PBIP | Prudential Bancorp, Inc. | MA | 12.69 | 7,997 | 101.5 | 18.36 | 9.53 | 11.81 | 7.45 | -28.91 | -8.38 | 1.06 | NA | 16.41 | 15.61 | 0.00 | 1,193,267 | ||||||||||||||||||
RNDB | Randolph Bancorp, Inc. | NE | 20.00 | 5,143 | 102.9 | 24.70 | 7.92 | 19.00 | 5.26 | 23.08 | -9.34 | 3.03 | 3.28 | 17.19 | NA | 0.00 | 722,968 | ||||||||||||||||||
RVSB | Riverview Bancorp, Inc. | WE | 5.62 | 22,345 | 125.6 | 7.35 | 3.77 | 5.21 | 7.87 | -22.38 | 6.84 | 0.44 | 0.45 | 6.80 | 5.56 | 0.00 | 1,436,184 | ||||||||||||||||||
SVBI | Severn Bancorp, Inc. | MA | 7.80 | 12,817 | 100.0 | 8.80 | 4.26 | 7.75 | 0.65 | -4.67 | 9.24 | 0.52 | 0.52 | 8.56 | 8.47 | 0.00 | 952,553 | ||||||||||||||||||
STXB | Spirit of Texas Bancshares, Inc. | SW | 19.37 | 17,082 | 330.9 | 21.59 | 8.96 | 17.94 | 7.97 | -7.05 | 15.30 | 1.78 | 1.99 | 21.12 | 15.94 | 0.00 | 3,085,464 | ||||||||||||||||||
SBT | Sterling Bancorp, Inc. | MW | 5.11 | 49,982 | 255.4 | 7.58 | 2.53 | 4.68 | 9.19 | -30.85 | 12.56 | -0.26 | NA | 6.39 | 6.39 | 0.00 | 3,914,045 | ||||||||||||||||||
TBNK | Territorial Bancorp Inc. | WE | 24.77 | 9,110 | 225.7 | 30.41 | 19.23 | 23.86 | 3.81 | -16.82 | 3.08 | 2.01 | 1.90 | 26.14 | 26.14 | 0.00 | 2,110,799 | ||||||||||||||||||
TSBK | Timberland Bancorp, Inc. | WE | 27.10 | 8,318 | 225.4 | 28.28 | 13.60 | 25.25 | 7.33 | -3.25 | 11.71 | 2.97 | 3.01 | 23.24 | 21.24 | 0.00 | 1,588,405 | ||||||||||||||||||
TBK | Triumph Bancorp, Inc. | SW | 64.06 | 24,660 | 1,579.7 | 65.63 | 19.03 | 57.34 | 11.72 | 49.25 | 31.95 | 2.53 | NA | 27.42 | 19.78 | 0.00 | 5,935,791 | ||||||||||||||||||
TRST | TrustCo Bank Corp NY | MA | 6.51 | 96,433 | 627.8 | 8.19 | 4.30 | 6.22 | 4.66 | -19.83 | -2.40 | 0.54 | 0.53 | 5.89 | 5.89 | 0.00 | 5,901,796 | ||||||||||||||||||
WSBF | Waterstone Financial, Inc. | MW | 19.19 | 23,686 | 454.5 | 19.98 | 12.10 | 18.47 | 3.90 | 7.03 | 1.97 | 3.30 | 3.39 | 16.47 | NA | 0.00 | 2,184,587 | ||||||||||||||||||
WNEB | Western New England Bancorp, Inc. | NE | 7.23 | 24,664 | 165.4 | 9.53 | 4.45 | 6.41 | 12.79 | -22.92 | 4.93 | 0.45 | 0.47 | 8.97 | 8.36 | 0.00 | 2,365,886 | ||||||||||||||||||
WSFS | WSFS Financial Corporation | MA | 45.26 | 47,756 | 2,161.4 | 47.78 | 17.84 | 42.97 | 5.33 | 8.54 | 0.85 | 2.27 | 2.01 | 37.52 | 25.85 | 0.00 | 14,333,914 | ||||||||||||||||||
WVFC | WVS Financial Corp. | MA | 15.15 | 1,742 | 26.3 | 16.89 | 13.00 | 14.70 | 3.06 | -9.85 | 5.75 | 0.99 | 1.00 | 20.20 | 20.20 | 0.00 | 317,444 | ||||||||||||||||||
MHCs | |||||||||||||||||||||||||||||||||||
BCOW | 1895 Bancorp Of Wisconsin, Inc. (MHC) | MW | 9.85 | 4,589 | 45.2 | 12.01 | 7.43 | 9.46 | 4.12 | -17.02 | -1.10 | 0.30 | 0.12 | 12.50 | 12.50 | 0.00 | |||||||||||||||||||
BSBK | Bogota Financial Corp. (MHC) | MA | 9.12 | 13,158 | 120.0 | 11.50 | 6.07 | 9.07 | 0.55 | -20.70 | 2.36 | 0.17 | 0.33 | 9.76 | 9.76 | 0.00 | |||||||||||||||||||
CLBK | Columbia Financial, Inc. (MHC) | MA | 15.80 | 110,940 | 1,752.8 | 17.34 | 10.27 | 15.42 | 2.46 | -8.09 | 1.54 | 0.52 | 0.57 | 9.12 | 8.34 | 0.00 | |||||||||||||||||||
FSEA | First Seacoast Bancorp (MHC) | NE | 8.73 | 5,866 | 51.2 | 9.80 | 5.07 | 8.67 | 0.69 | -9.06 | -1.68 | 0.22 | 0.18 | 9.66 | 9.66 | 0.00 | |||||||||||||||||||
GCBC | Greene County Bancorp, Inc. (MHC) | MA | 24.70 | 8,513 | 210.3 | 30.25 | 15.01 | 23.72 | 4.13 | -16.13 | -3.10 | 2.32 | NA | 16.30 | 16.30 | 0.00 | |||||||||||||||||||
KFFB | Kentucky First Federal Bancorp (MHC) | MW | 6.46 | 8,212 | 53.1 | 8.16 | 4.40 | 6.31 | 2.38 | -17.22 | 2.22 | -1.50 | NA | 6.29 | 6.18 | 0.00 | |||||||||||||||||||
LSBK | Lake Shore Bancorp, Inc. (MHC) | MA | 13.44 | 5,701 | 76.6 | 15.90 | 8.95 | 13.01 | 3.31 | -13.35 | 3.38 | 0.77 | 0.76 | 14.75 | 14.75 | 0.00 | |||||||||||||||||||
MGYR | Magyar Bancorp, Inc. (MHC) | MA | 10.61 | 5,811 | 61.6 | 14.30 | 7.50 | 11.00 | -3.59 | -14.20 | 10.01 | 0.51 | 0.50 | 10.02 | 10.02 | 0.00 | |||||||||||||||||||
OFED | Oconee Federal Financial Corp. (MHC) | SE | 24.00 | 5,604 | 134.5 | 28.00 | 15.25 | 24.39 | -1.60 | -8.01 | -5.14 | 0.73 | 0.73 | 15.87 | 15.37 | 0.00 | |||||||||||||||||||
PDLB | PDL Community Bancorp (MHC) | MA | 9.72 | 16,574 | 161.1 | 14.64 | 7.31 | 9.42 | 3.18 | -32.97 | -7.52 | -0.29 | -0.01 | 9.25 | 9.25 | 0.00 | |||||||||||||||||||
PBFS | Pioneer Bancorp, Inc. (MHC) | MA | 10.91 | 25,048 | 273.3 | 15.28 | 8.02 | 10.45 | 4.40 | -28.22 | 3.22 | 0.30 | 0.27 | 8.68 | 8.32 | 0.00 | |||||||||||||||||||
RBKB | Rhinebeck Bancorp, Inc. (MHC) | MA | 9.21 | 10,735 | 98.9 | 11.25 | 5.90 | 9.03 | 2.05 | -15.74 | 7.72 | 0.55 | 0.55 | 10.46 | 10.32 | 0.00 | |||||||||||||||||||
TFSL | TFS Financial Corporation (MHC) | MW | 17.53 | 276,556 | 4,848.0 | 22.47 | 12.65 | 17.67 | -0.79 | -18.08 | -0.57 | 0.30 | NA | 5.91 | 5.87 | 0.00 |
(1) | Average of High/Low or Bid/Ask price per share. |
(2) | Or since offering price if converted of first listed in the past 52 weeks. Percent change figures are actual year-to-date and are not annualized. |
(3) | EPS (earnings per share) is based on actual trailing 12 month data and is not shown on a pro forma basis. |
(4) | Excludes intangibles (such as goodwill, value of core deposits, etc.). |
(5) | ROA (return on assets) and ROE (return on equity) are indicated ratios based on trailing 12 month common earnings and average common equity and total assets balances. |
(6) | Annualized based on last regular quarterly cash dividend announcement. |
(7) | Indicated dividend as a percent of trailing 12 month earnings. |
(8) | Excluded from averages due to actual or rumored acquisition activities or unusual operating characteristics. |
(9) | For MHC institutions, market value reflects share price multiplied by public (non-MHC) shares. |
Source: S&P Global Market Intelligence and RP® Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2021 by RP® Financial, LC.
RP® Financial, LC.
Exhibit IV-1B
Weekly Thrift Market Line - Part Two
Prices As of February 5, 2021
Key Financial Ratios | Asset Quality Ratios | Pricing Ratios | Dividend Data (6) | |||||||||||||||||||||||||||||||||
Equity/ | Tang Equity/ | Reported Earnings | Core Earnings | NPAs/ | Rsvs/ | Price/ | Price/ | Price/ | Price/ | Price/ | Div/ | Dividend | Payout | |||||||||||||||||||||||
Assets(1) | Assets(1) | ROA(5) | ROE(5) | ROA(5) | ROE(5) | Assets | NPLs | Earnings | Book | Assets | Tang Book | Core Earnings | Share | Yield | Ratio (7) | |||||||||||||||||||||
(%) | (%) | (%) | (%) | (%) | (%) | (%) | (%) | (x) | (%) | (%) | (%) | (x) | ($) | (%) | (%) | |||||||||||||||||||||
Companies | ||||||||||||||||||||||||||||||||||||
AFBI | Affinity Bancshares, Inc. | SE | 8.92 | 6.93 | 0.32 | 2.55 | 0.69 | 5.55 | 0.76 | 103.99 | 41.35 | 102.74 | 9.16 | 135.14 | 19.09 | NA | NA | NM | ||||||||||||||||||
AX | Axos Financial, Inc. | WE | 8.95 | 8.18 | 1.59 | 16.93 | 1.71 | 18.20 | 1.22 | 80.58 | 12.74 | 201.65 | 18.04 | 222.50 | 11.85 | NA | NA | NM | ||||||||||||||||||
BYFC | Broadway Financial Corporation | WE | 9.89 | 9.89 | -0.03 | -0.26 | NA | NA | 0.96 | 66.99 | NM | 125.52 | 12.41 | 125.52 | NA | 0.00 | 0.00 | NM | ||||||||||||||||||
CFFN | Capitol Federal Financial, Inc. | MW | 13.29 | NA | 0.64 | 4.69 | 0.64 | 4.69 | NA | NA | 28.75 | 137.54 | 18.28 | 138.41 | 28.22 | 0.34 | 2.69 | 106.82 | ||||||||||||||||||
CARV | Carver Bancorp, Inc. | MA | 6.90 | 6.90 | -0.79 | -9.90 | -0.90 | -11.29 | 1.25 | 58.83 | NM | 89.80 | 3.89 | 89.80 | NM | 0.00 | 0.00 | NM | ||||||||||||||||||
CBMB | CBM Bancorp, Inc. | MA | 22.94 | 22.94 | 0.32 | 1.27 | 0.27 | 1.07 | 0.55 | 337.30 | 69.75 | 97.29 | 22.31 | 97.29 | 84.11 | NA | NA | 250.00 | ||||||||||||||||||
CNNB | Cincinnati Bancorp, Inc. | MW | 17.13 | 17.07 | 0.77 | 6.10 | 0.78 | 6.17 | 0.54 | 118.50 | 19.93 | 89.56 | 15.34 | 89.97 | 19.71 | NA | NA | NM | ||||||||||||||||||
ESBK | Elmira Savings Bank | MA | 9.43 | 7.66 | 0.64 | 6.95 | 0.64 | 6.97 | NA | 103.71 | 10.29 | 71.03 | 6.69 | 89.11 | 10.30 | 0.60 | 4.90 | 57.14 | ||||||||||||||||||
ESSA | ESSA Bancorp, Inc. | MA | 10.39 | 9.69 | 0.79 | 7.77 | 0.78 | 7.75 | NA | NA | 10.68 | 86.89 | 9.03 | 93.91 | 10.71 | 0.44 | 2.82 | 30.14 | ||||||||||||||||||
FFBW | FFBW, Inc. | MW | 35.92 | 35.90 | 0.63 | 2.41 | NA | NA | 0.63 | 143.79 | 40.08 | 78.24 | 28.10 | 78.28 | NA | NA | NA | NM | ||||||||||||||||||
FNWB | First Northwest Bancorp | WE | 11.27 | 11.27 | 0.72 | 5.79 | 0.55 | 4.40 | NA | NA | 14.28 | 86.37 | 9.73 | 86.37 | 18.80 | 0.24 | 1.53 | 20.00 | ||||||||||||||||||
FBC | Flagstar Bancorp, Inc. | MW | 7.09 | 6.62 | 2.00 | 26.22 | 2.04 | NA | 0.35 | 247.06 | 4.73 | 117.33 | NA | 126.55 | 4.64 | 0.20 | 0.44 | 1.58 | ||||||||||||||||||
FSBW | FS Bancorp, Inc. | WE | 10.88 | 10.59 | 2.02 | 18.74 | 1.98 | 18.32 | NA | NA | 6.56 | 108.43 | 11.80 | 111.87 | 6.71 | 0.84 | 1.43 | 7.02 | ||||||||||||||||||
GBNY | Generations Bancorp NY, Inc. | MA | 7.75 | NA | NA | NA | NA | NA | NA | NA | NA | NA | NA | NA | NA | NA | NA | NA | ||||||||||||||||||
HONE | HarborOne Bancorp, Inc. | NE | 15.53 | 14.11 | 1.05 | 6.55 | 1.08 | 6.73 | NA | NA | 13.80 | 93.00 | 14.44 | 104.09 | 13.43 | 0.12 | 1.06 | 10.98 | ||||||||||||||||||
HIFS | Hingham Institution for Savings | NE | 10.25 | 10.25 | 1.88 | 18.96 | 1.65 | 16.56 | NA | NA | 10.16 | 172.45 | 17.68 | 172.45 | 11.64 | 1.88 | 0.80 | 10.62 | ||||||||||||||||||
HMNF | HMN Financial, Inc. | MW | 11.35 | 11.27 | 1.21 | 10.56 | NA | NA | NA | NA | 8.56 | 87.76 | 9.96 | 88.50 | NA | 0.00 | 0.00 | NM | ||||||||||||||||||
HFBL | Home Federal Bancorp, Inc. of Louisiana | SW | 9.61 | 9.61 | 0.93 | 9.31 | NA | NA | NA | NA | 10.73 | 95.50 | 9.18 | 95.50 | NA | 0.66 | 2.27 | 24.17 | ||||||||||||||||||
HVBC | HV Bancorp, Inc. | MA | 7.33 | 7.33 | 1.02 | 11.87 | 0.99 | 11.54 | 0.49 | 76.54 | 8.76 | 100.35 | 7.36 | 100.35 | 9.01 | NA | NA | NM | ||||||||||||||||||
IROQ | IF Bancorp, Inc. | MW | 11.90 | 11.90 | 0.70 | 6.06 | NA | NA | NA | NA | 12.58 | 78.23 | 9.31 | 78.23 | NA | 0.30 | 1.46 | 18.40 | ||||||||||||||||||
KRNY | Kearny Financial Corp. | MA | 14.89 | NA | 0.73 | 4.66 | 0.76 | 4.85 | NA | NA | 17.46 | 82.81 | 12.33 | 104.93 | 16.59 | 0.32 | 3.00 | 52.46 | ||||||||||||||||||
EBSB | Meridian Bancorp, Inc. | NE | 11.61 | 11.32 | 1.01 | 8.76 | 0.95 | 8.28 | NA | NA | 12.33 | 108.46 | 12.60 | 111.66 | 13.05 | 0.32 | 2.01 | 24.81 | ||||||||||||||||||
MSVB | Mid-Southern Bancorp, Inc. | MW | 22.38 | 22.38 | 0.56 | 2.36 | 0.52 | 2.20 | 1.19 | 63.20 | 43.89 | 106.86 | 23.91 | 106.86 | 46.93 | 0.12 | 0.74 | 24.32 | ||||||||||||||||||
NYCB | New York Community Bancorp, Inc. | MA | 12.15 | 8.19 | 0.94 | 7.62 | 0.94 | 7.55 | NA | NA | 10.21 | 76.18 | 8.65 | 123.43 | 10.30 | 0.68 | 6.53 | 66.67 | ||||||||||||||||||
NFBK | Northfield Bancorp, Inc. | MA | 13.67 | 13.01 | 0.70 | 5.07 | 0.80 | 5.76 | NA | 231.96 | 17.39 | 91.54 | 12.52 | 96.94 | 15.30 | 0.44 | 3.33 | 57.89 | ||||||||||||||||||
NWBI | Northwest Bancshares, Inc. | MA | 11.14 | 8.48 | 0.58 | 4.72 | 0.75 | 6.09 | 0.92 | 108.18 | 21.24 | 108.72 | 12.12 | 147.19 | 16.48 | 0.76 | 5.77 | 122.58 | ||||||||||||||||||
PCSB | PCSB Financial Corporation | MA | 15.05 | 14.75 | 0.55 | 3.50 | 0.55 | 3.51 | NA | 194.03 | 25.00 | 94.14 | 14.17 | 96.39 | 24.90 | 0.16 | 1.02 | 25.40 | ||||||||||||||||||
PVBC | Provident Bancorp, Inc. | NE | 15.66 | 15.66 | 0.89 | 5.05 | 1.02 | 5.79 | NA | NA | 18.33 | 97.72 | 15.31 | 97.72 | 16.00 | 0.12 | 0.99 | 18.18 | ||||||||||||||||||
PROV | Provident Financial Holdings, Inc. | WE | 10.68 | 10.68 | 0.47 | 4.34 | 0.47 | 4.34 | 0.88 | 83.14 | 21.39 | 91.70 | 9.79 | 91.70 | 21.39 | 0.56 | 3.64 | 77.78 | ||||||||||||||||||
PFS | Provident Financial Services, Inc. | MA | 12.54 | 9.26 | 0.86 | 6.49 | 0.88 | 6.70 | NA | NA | 13.66 | 90.99 | 11.41 | 127.76 | 13.22 | 0.92 | 4.84 | 66.19 | ||||||||||||||||||
PBIP | Prudential Bancorp, Inc. | MA | 11.00 | 10.52 | 0.73 | 6.77 | NA | NA | NA | NA | 11.97 | 77.32 | 8.50 | 81.30 | NA | 0.28 | 2.21 | 66.98 | ||||||||||||||||||
RNDB | Randolph Bancorp, Inc. | NE | 13.13 | NA | 2.30 | 18.55 | 2.49 | 20.05 | 1.57 | 58.62 | 6.60 | 116.38 | 15.28 | NA | 6.11 | NA | NA | NM | ||||||||||||||||||
RVSB | Riverview Bancorp, Inc. | WE | 10.57 | 8.81 | 0.74 | 6.61 | 0.75 | 6.68 | NA | NA | 12.77 | 82.69 | 8.74 | 101.16 | 12.63 | 0.20 | 3.56 | 45.45 | ||||||||||||||||||
SVBI | Severn Bancorp, Inc. | MA | 11.51 | 11.41 | 0.76 | 6.21 | 0.76 | 6.27 | 1.26 | 79.04 | 15.00 | 91.15 | 10.49 | 92.08 | 14.87 | 0.16 | 2.05 | 30.77 | ||||||||||||||||||
STXB | Spirit of Texas Bancshares, Inc. | SW | 11.69 | 9.09 | 1.12 | 8.97 | 1.25 | 10.03 | NA | NA | 10.88 | 91.71 | 10.72 | 121.50 | 9.73 | 0.36 | 1.86 | 8.99 | ||||||||||||||||||
SBT | Sterling Bancorp, Inc. | MW | 8.17 | 8.17 | -0.35 | -3.85 | NA | NA | NA | NA | NM | 79.92 | 6.53 | 79.92 | NA | 0.00 | 0.00 | NM | ||||||||||||||||||
TBNK | Territorial Bancorp Inc. | WE | 11.78 | 11.78 | 0.89 | 7.55 | 0.84 | 7.12 | NA | NA | 12.32 | 94.75 | 11.16 | 94.75 | 13.06 | 0.92 | 3.71 | 50.75 | ||||||||||||||||||
TSBK | Timberland Bancorp, Inc. | WE | 12.17 | 11.24 | 1.69 | 13.63 | 1.71 | 13.79 | 0.37 | 246.50 | 9.12 | 116.60 | 14.19 | 127.60 | 9.02 | 0.84 | 3.10 | 30.64 | ||||||||||||||||||
TBK | Triumph Bancorp, Inc. | SW | 12.24 | 9.34 | 1.18 | 9.67 | NA | NA | NA | NA | 25.32 | 233.66 | 27.04 | 323.89 | NA | NA | NA | NM | ||||||||||||||||||
TRST | TrustCo Bank Corp NY | MA | 9.63 | 9.62 | 0.94 | 9.47 | 0.93 | 9.31 | NA | NA | 11.99 | 110.49 | 10.64 | 110.60 | 12.20 | 0.27 | 4.19 | 50.19 | ||||||||||||||||||
WSBF | Waterstone Financial, Inc. | MW | 18.91 | NA | 3.77 | 20.62 | 3.87 | 21.19 | NA | NA | 5.82 | 116.54 | 22.04 | 121.36 | 5.66 | 0.80 | 4.17 | 41.21 | ||||||||||||||||||
WNEB | Western New England Bancorp, Inc. | NE | 9.58 | 8.99 | 0.48 | 4.86 | 0.51 | 5.13 | NA | NA | 16.07 | 80.63 | 7.72 | 86.52 | 15.23 | 0.20 | 2.77 | 44.44 | ||||||||||||||||||
WSFS | WSFS Financial Corporation | MA | 12.48 | 8.94 | 0.86 | 6.18 | 0.76 | 5.46 | 0.42 | 398.30 | 19.94 | 120.63 | 15.08 | 175.11 | 22.48 | 0.48 | 1.06 | 21.15 | ||||||||||||||||||
WVFC | WVS Financial Corp. | MA | 12.11 | 12.11 | 0.50 | 4.81 | 0.51 | 4.87 | NA | NA | 15.30 | 75.00 | 9.08 | 75.00 | 15.10 | 0.40 | 2.64 | 40.40 | ||||||||||||||||||
MHCs | ||||||||||||||||||||||||||||||||||||
BCOW | 1895 Bancorp Of Wisconsin, Inc. (MHC) | MW | 11.81 | 11.81 | 0.30 | 2.52 | 0.13 | 1.05 | 0.37 | 143.09 | 32.83 | 78.78 | 9.31 | 78.78 | 79.58 | NA | NA | NM | ||||||||||||||||||
BSBK | Bogota Financial Corp. (MHC) | MA | 17.34 | 17.34 | 0.28 | 1.66 | 0.54 | 3.19 | NA | NA | 53.65 | 93.41 | 16.20 | 93.41 | 27.98 | NA | NA | NM | ||||||||||||||||||
CLBK | Columbia Financial, Inc. (MHC) | MA | 11.49 | 10.62 | 0.66 | 5.67 | 0.73 | 6.25 | NA | NA | 30.38 | 173.33 | 19.92 | 189.54 | 27.57 | NA | NA | NM | ||||||||||||||||||
FSEA | First Seacoast Bancorp (MHC) | NE | 12.31 | 12.31 | 0.30 | 2.29 | 0.25 | 1.88 | 0.19 | 349.03 | 39.68 | 90.40 | 11.13 | 90.40 | 48.17 | NA | NA | NM | ||||||||||||||||||
GCBC | Greene County Bancorp, Inc. (MHC) | MA | 7.44 | 7.44 | 1.18 | 15.37 | NA | NA | NA | NA | 10.65 | 151.57 | 11.28 | 151.57 | NA | 0.48 | 1.94 | 20.26 | ||||||||||||||||||
KFFB | Kentucky First Federal Bancorp (MHC) | MW | 15.67 | 15.43 | -3.78 | -21.67 | NA | NA | NA | NA | NM | 102.66 | 16.09 | 104.57 | NA | 0.40 | 6.19 | NM | ||||||||||||||||||
LSBK | Lake Shore Bancorp, Inc. (MHC) | MA | 12.52 | 12.52 | 0.69 | 5.38 | 0.68 | 5.33 | NA | NA | 17.45 | 91.09 | 11.41 | 91.09 | 17.62 | 0.52 | 3.87 | 48.05 | ||||||||||||||||||
MGYR | Magyar Bancorp, Inc. (MHC) | MA | 7.85 | 7.85 | 0.41 | 5.31 | 0.40 | 5.21 | NA | NA | 20.79 | 105.88 | 8.31 | 105.88 | 21.16 | NA | NA | NM | ||||||||||||||||||
OFED | Oconee Federal Financial Corp. (MHC) | SE | 17.11 | 16.66 | 0.82 | 4.72 | 0.82 | 4.71 | 0.49 | 57.09 | 32.88 | 151.25 | 25.88 | 156.14 | 32.86 | 0.40 | 1.67 | 54.79 | ||||||||||||||||||
PDLB | PDL Community Bancorp (MHC) | MA | 12.40 | 12.40 | -0.46 | -3.28 | -0.02 | -0.15 | 1.38 | 81.43 | NM | 105.05 | 13.02 | 105.05 | NM | NA | NA | NM | ||||||||||||||||||
PBFS | Pioneer Bancorp, Inc. (MHC) | MA | 13.84 | 13.34 | 0.51 | 3.35 | 0.48 | 3.11 | 1.01 | 145.52 | 36.37 | 125.74 | 17.40 | 131.19 | 39.86 | NA | NA | NM | ||||||||||||||||||
RBKB | Rhinebeck Bancorp, Inc. (MHC) | MA | 10.32 | 10.19 | 0.55 | 5.18 | 0.55 | 5.22 | NA | NA | 16.75 | 88.02 | 9.08 | 89.25 | 16.62 | NA | NA | NM | ||||||||||||||||||
TFSL | TFS Financial Corporation (MHC) | MW | 11.38 | 11.32 | 0.56 | 4.89 | NA | NA | NA | NA | 58.43 | 296.67 | 33.75 | 298.42 | NA | 1.12 | 6.39 | 373.33 |
(1) | Average of High/Low or Bid/Ask price per share. |
(2) | Or since offering price if converted of first listed in the past 52 weeks. Percent change figures are actual year-to-date and are not annualized. |
(3) | EPS (earnings per share) is based on actual trailing 12 month data and is not shown on a pro forma basis. |
(4) | Excludes intangibles (such as goodwill, value of core deposits, etc.). |
(5) | ROA (return on assets) and ROE (return on equity) are indicated ratios based on trailing 12 month common earnings and average common equity and total assets balances. |
(6) | Annualized based on last regular quarterly cash dividend announcement. |
(7) | Indicated dividend as a percent of trailing 12 month earnings. |
(8) | Excluded from averages due to actual or rumored acquisition activities or unusual operating characteristics. |
(9) | For MHC institutions, market value reflects share price multiplied by public (non-MHC) shares. |
Source: S&P Global Market Intelligence and RP® Financial, LC. calculations. The information provided in this table has been obtained from sources we believe are reliable, but we cannot guarantee the accuracy or completeness of such information.
Copyright (c) 2021 by RP® Financial, LC.
EXHIBIT IV-2
Historical Stock Price Indices
Exhibit IV-2
Historical Stock Price Indices(1)
SNL | SNL | ||||||||||||||||||||||
NASDAQ | Thrift | Bank | |||||||||||||||||||||
Year/Qtr. Ended | DJIA | S&P 500 | Composite | Index | Index | ||||||||||||||||||
2007: | Quarter 1 | 12354.4 | 1420.9 | 2421.6 | 1703.6 | 634.40 | |||||||||||||||||
Quarter 2 | 13408.6 | 1503.4 | 2603.2 | 1645.9 | 622.63 | ||||||||||||||||||
Quarter 3 | 13895.6 | 1526.8 | 2701.5 | 1523.3 | 595.80 | ||||||||||||||||||
Quarter 4 | 13264.8 | 1468.4 | 2652.3 | 1058.0 | 492.85 | ||||||||||||||||||
2008: | Quarter 1 | 12262.9 | 1322.7 | 2279.1 | 1001.5 | 442.5 | |||||||||||||||||
Quarter 2 | 11350.0 | 1280.0 | 2293.0 | 822.6 | 332.2 | ||||||||||||||||||
Quarter 3 | 10850.7 | 1166.4 | 2082.3 | 760.1 | 414.8 | ||||||||||||||||||
Quarter 4 | 8776.4 | 903.3 | 1577.0 | 653.9 | 268.3 | ||||||||||||||||||
2009: | Quarter 1 | 7608.9 | 797.9 | 1528.6 | 542.8 | 170.1 | |||||||||||||||||
Quarter 2 | 8447.0 | 919.3 | 1835.0 | 538.8 | 227.6 | ||||||||||||||||||
Quarter 3 | 9712.3 | 1057.1 | 2122.4 | 561.4 | 282.9 | ||||||||||||||||||
Quarter 4 | 10428.1 | 1115.1 | 2269.2 | 587.0 | 260.8 | ||||||||||||||||||
2010: | Quarter 1 | 10856.6 | 1169.4 | 2398.0 | 626.3 | 301.1 | |||||||||||||||||
Quarter 2 | 9744.0 | 1030.7 | 2109.2 | 564.5 | 257.2 | ||||||||||||||||||
Quarter 3 | 9744.0 | 1030.7 | 2109.2 | 564.5 | 257.2 | ||||||||||||||||||
Quarter 4 | 11577.5 | 1257.6 | 2652.9 | 592.2 | 290.1 | ||||||||||||||||||
2011: | Quarter 1 | 12319.7 | 1325.8 | 2781.1 | 578.1 | 293.1 | |||||||||||||||||
Quarter 2 | 12414.3 | 1320.6 | 2773.5 | 540.8 | 266.8 | ||||||||||||||||||
Quarter 3 | 10913.4 | 1131.4 | 2415.4 | 443.2 | 198.9 | ||||||||||||||||||
Quarter 4 | 12217.6 | 1257.6 | 2605.2 | 481.4 | 221.3 | ||||||||||||||||||
2012: | Quarter 1 | 13212.0 | 1408.5 | 3091.6 | 529.3 | 284.9 | |||||||||||||||||
Quarter 2 | 12880.1 | 1362.2 | 2935.1 | 511.6 | 257.3 | ||||||||||||||||||
Quarter 3 | 13437.1 | 1440.7 | 3116.2 | 557.6 | 276.8 | ||||||||||||||||||
Quarter 4 | 13104.1 | 1426.2 | 3019.5 | 565.8 | 292.7 | ||||||||||||||||||
2013: | Quarter 1 | 14578.5 | 1569.2 | 3267.5 | 602.3 | 318.9 | |||||||||||||||||
Quarter 2 | 14909.6 | 1606.3 | 3404.3 | 625.3 | 346.7 | ||||||||||||||||||
Quarter 3 | 15129.7 | 1681.6 | 3771.5 | 650.8 | 354.4 | ||||||||||||||||||
Quarter 4 | 16576.7 | 1848.4 | 4176.6 | 706.5 | 394.4 | ||||||||||||||||||
2014: | Quarter 1 | 16457.7 | 1872.3 | 4199.0 | 718.9 | 410.8 | |||||||||||||||||
Quarter 2 | 16826.6 | 1960.2 | 4408.2 | 723.9 | 405.2 | ||||||||||||||||||
Quarter 3 | 17042.9 | 1972.3 | 4493.4 | 697.7 | 411.0 | ||||||||||||||||||
Quarter 4 | 17823.1 | 2058.9 | 4736.1 | 738.7 | 432.8 | ||||||||||||||||||
2015: | Quarter 1 | 17776.1 | 2067.9 | 4900.9 | 749.3 | 418.8 | |||||||||||||||||
Quarter 2 | 17619.5 | 2063.1 | 4986.9 | 795.7 | 448.4 | ||||||||||||||||||
Quarter 3 | 16284.7 | 1920.0 | 4620.2 | 811.7 | 409.4 | ||||||||||||||||||
Quarter 4 | 17425.0 | 2043.9 | 5007.4 | 809.1 | 431.5 | ||||||||||||||||||
2016: | Quarter 1 | 17685.1 | 2059.7 | 4869.9 | 788.1 | 381.4 | |||||||||||||||||
Quarter 2 | 17930.0 | 2098.9 | 4842.7 | 780.9 | 385.6 | ||||||||||||||||||
Quarter 3 | 18308.2 | 2168.3 | 5312.0 | 827.2 | 413.7 | ||||||||||||||||||
Quarter 4 | 19762.6 | 2238.8 | 5383.1 | 966.7 | 532.7 | ||||||||||||||||||
2017: | Quarter 1 | 20663.2 | 2362.7 | 5911.7 | 918.9 | 535.8 | |||||||||||||||||
Quarter 2 | 21349.6 | 2423.4 | 6140.4 | 897.1 | 552.4 | ||||||||||||||||||
Quarter 3 | 22405.1 | 2519.4 | 6496.0 | 939.3 | 573.2 | ||||||||||||||||||
Quarter 4 | 24719.2 | 2673..6 | 6903.4 | 937.6 | 617.7 | ||||||||||||||||||
2018: | Quarter 1 | 24103.1 | 2640.9 | 7063.5 | 941.5 | 606.8 | |||||||||||||||||
Quarter 2 | 24271.4 | 2718.4 | 7510.3 | 961.2 | 597.8 | ||||||||||||||||||
Quarter 3 | 26458.3 | 2914.0 | 8046.4 | 905.6 | 597.8 | ||||||||||||||||||
Quarter 4 | 23327.5 | 2506.9 | 6635.3 | 772.0 | 502.9 | ||||||||||||||||||
2019: | Quarter 1 | 25928.7 | 2834.4 | 7729.3 | 837.8 | 543.8 | |||||||||||||||||
Quarter 2 | 26600.0 | 2941.8 | 8006.2 | 845.3 | 573.0 | ||||||||||||||||||
Quarter 3 | 26916.8 | 2976.7 | 7999.3 | 890.5 | 584.5 | ||||||||||||||||||
Quarter 4 | 28538.4 | 3230.8 | 8972.6 | 920.7 | 663.9 | ||||||||||||||||||
2020: | Quarter 1 | 21917.2 | 2584.6 | 7700.1 | 632.8 | 392.9 | |||||||||||||||||
Quarter 2 | 25812.9 | 3100.3 | 10058.8 | 658.5 | 430.8 | ||||||||||||||||||
Quarter 3 | 27781.7 | 3363.0 | 11167.5 | 605.8 | 417.8 | ||||||||||||||||||
Quarter 4 | 30606.5 | 3756.1 | 12888.3 | 816.7 | 558.8 | ||||||||||||||||||
As of February 5, 2021 | 31148.2 | 3886.8 | 13856.3 | 851.8 | 604.8 |
(1) End of period data. |
Sources: S&P Global Market Intelligence and The Wall Street Journal. |
EXHIBIT IV-3
Stock Indices as of February 5, 2021
Index Summary (Current Data)
Industry Banking
Geography All
Index Name | Current Value | As Of | Day's Change |
Day's Change
(%) |
||||||||||||
SNL Banking Indexes | ||||||||||||||||
SNL U.S. Bank and Thrift | 576.20 | 2/5/2021 | (0.66 | ) | (0.11 | ) | ||||||||||
SNL U.S. Bank | 604.77 | 2/5/2021 | (0.66 | ) | (0.11 | ) | ||||||||||
SNL U.S. Thrift | 851.79 | 2/5/2021 | (2.74 | ) | (0.32 | ) | ||||||||||
SNL TARP Participants | 143.21 | 2/5/2021 | 1.23 | 0.87 | ||||||||||||
KBW Nasdaq Bank Index | 106.28 | 2/5/2021 | (0.08 | ) | (0.07 | ) | ||||||||||
KBW Nasdaq Regional Bank Index | 106.62 | 2/5/2021 | (0.10 | ) | (0.10 | ) | ||||||||||
S&P 500 Bank | 339.96 | 2/5/2021 | (0.82 | ) | (0.24 | ) | ||||||||||
NASDAQ Bank | 3,972.37 | 2/5/2021 | (2.57 | ) | (0.06 | ) | ||||||||||
S&P 500 Commercial Banks | 485.69 | 2/5/2021 | (1.17 | ) | (0.24 | ) | ||||||||||
S&P 500 Diversified Banks | 569.50 | 2/5/2021 | (1.04 | ) | (0.18 | ) | ||||||||||
S&P 500 Regional Banks | 126.76 | 2/5/2021 | (0.54 | ) | (0.42 | ) | ||||||||||
SNL Asset Size Indexes | ||||||||||||||||
SNL U.S. Bank < $250M | 34.52 | 2/5/2021 | (1.49 | ) | (4.13 | ) | ||||||||||
SNL U.S. Bank $250M-$500M | 534.79 | 2/5/2021 | 16.23 | 3.13 | ||||||||||||
SNL U.S. Thrift < $250M | 1,612.75 | 2/5/2021 | (2.19 | ) | (0.14 | ) | ||||||||||
SNL U.S. Thrift $250M-$500M | 5,753.50 | 2/5/2021 | 52.37 | 0.92 | ||||||||||||
SNL U.S. Bank < $500M | 1,054.55 | 2/5/2021 | 13.01 | 1.25 | ||||||||||||
SNL U.S. Thrift < $500M | 2,025.68 | 2/5/2021 | 11.48 | 0.57 | ||||||||||||
SNL U.S. Bank $500M-$1B | 1,159.06 | 2/5/2021 | 12.41 | 1.08 | ||||||||||||
SNL U.S. Thrift $500M-$1B | 3,623.95 | 2/5/2021 | 9.87 | 0.27 | ||||||||||||
SNL U.S. Bank $1B-$5B | 1,102.99 | 2/5/2021 | 2.55 | 0.23 | ||||||||||||
SNL U.S. Thrift $1B-$5B | 2,416.16 | 2/5/2021 | 6.03 | 0.25 | ||||||||||||
SNL U.S. Bank $5B-$10B | 1,473.68 | 2/5/2021 | 2.06 | 0.14 | ||||||||||||
SNL U.S. Thrift $5B-$10B | 1,029.23 | 2/5/2021 | 0.79 | 0.08 | ||||||||||||
SNL U.S. Bank > $10B | 487.22 | 2/5/2021 | (0.61 | ) | (0.13 | ) | ||||||||||
SNL U.S. Thrift > $10B | 149.61 | 2/5/2021 | (1.01 | ) | (0.67 | ) | ||||||||||
SNL Market Cap Indexes | ||||||||||||||||
SNL Micro Cap U.S. Bank | 556.34 | 2/5/2021 | 2.27 | 0.41 | ||||||||||||
SNL Micro Cap U.S. Thrift | 1,078.57 | 2/5/2021 | 4.11 | 0.38 | ||||||||||||
SNL Micro Cap U.S. Bank & Thrift | 654.43 | 2/5/2021 | 2.64 | 0.41 | ||||||||||||
SNL Small Cap U.S. Bank | 659.74 | 2/5/2021 | 0.92 | 0.14 | ||||||||||||
SNL Small Cap U.S. Thrift | 654.55 | 2/5/2021 | 0.08 | 0.01 | ||||||||||||
SNL Small Cap U.S. Bank & Thrift | 677.04 | 2/5/2021 | 0.86 | 0.13 | ||||||||||||
SNL Mid Cap U.S. Bank | 401.78 | 2/5/2021 | 0.11 | 0.03 | ||||||||||||
SNL Mid Cap U.S. Thrift | 286.55 | 2/5/2021 | (1.40 | ) | (0.49 | ) | ||||||||||
SNL Mid Cap U.S. Bank & Thrift | 395.31 | 2/5/2021 | (0.12 | ) | (0.03 | ) | ||||||||||
SNL Large Cap U.S. Bank | 384.45 | 2/5/2021 | (0.54 | ) | (0.14 | ) | ||||||||||
SNL Large Cap U.S. Thrift | 97.84 | 1/29/2021 | (4.65 | ) | ||||||||||||
SNL Large Cap U.S. Bank & Thrift | 387.76 | 2/5/2021 | (0.54 | ) | (0.14 | ) | ||||||||||
SNL Geographic Indexes | ||||||||||||||||
SNL Mid-Atlantic U.S. Bank | 631.73 | 2/5/2021 | (0.44 | ) | (0.07 | ) | ||||||||||
SNL Mid-Atlantic U.S. Thrift | 2,883.60 | 2/5/2021 | (20.56 | ) | (0.71 | ) | ||||||||||
SNL Midwest U.S. Bank | 630.72 | 2/5/2021 | (0.26 | ) | (0.04 | ) | ||||||||||
SNL Midwest U.S. Thrift | 3,188.59 | 2/5/2021 | (23.51 | ) | (0.73 | ) | ||||||||||
SNL New England U.S. Bank | 558.98 | 2/5/2021 | 2.12 | 0.38 | ||||||||||||
SNL New England U.S. Thrift | 3,150.15 | 2/5/2021 | (8.49 | ) | (0.27 | ) | ||||||||||
SNL Southeast U.S. Bank | 420.99 | 2/5/2021 | (1.01 | ) | (0.24 | ) | ||||||||||
SNL Southeast U.S. Thrift | 447.93 | 2/5/2021 | 3.16 | 0.71 | ||||||||||||
SNL Southwest U.S. Bank | 1,153.01 | 2/5/2021 | (4.16 | ) | (0.36 | ) | ||||||||||
SNL Southwest U.S. Thrift | 1,305.60 | 2/5/2021 | 16.43 | 1.27 | ||||||||||||
SNL Western U.S. Bank | 1,137.71 | 2/5/2021 | (0.97 | ) | (0.09 | ) | ||||||||||
SNL Western U.S. Thrift | 190.79 | 2/5/2021 | 2.98 | 1.59 | ||||||||||||
SNL Stock Exchange Indexes | ||||||||||||||||
SNL U.S. Bank NYSE | 521.89 | 2/5/2021 | (0.71 | ) | (0.14 | ) | ||||||||||
SNL U.S. Thrift NYSE | 121.84 | 2/5/2021 | (0.51 | ) | (0.42 | ) | ||||||||||
SNL U.S. Bank NYSE American | 763.00 | 2/5/2021 | 2.35 | 0.31 | ||||||||||||
SNL U.S. Bank NASDAQ | 903.80 | 2/5/2021 | (0.09 | ) | (0.01 | ) | ||||||||||
SNL U.S. Thrift NASDAQ | 2,496.30 | 2/5/2021 | (6.89 | ) | (0.28 | ) | ||||||||||
SNL U.S. Bank Pink | 448.34 | 2/5/2021 | 1.17 | 0.26 | ||||||||||||
SNL U.S. Thrift Pink | 411.35 | 2/5/2021 | 1.88 | 0.46 | ||||||||||||
SNL Bank TSX | 1,184.94 | 2/5/2021 | 1.54 | 0.13 | ||||||||||||
SNL OTHER Indexes | ||||||||||||||||
SNL U.S. Thrift MHCs | 5,695.92 | 2/5/2021 | (45.06 | ) | (0.78 | ) | ||||||||||
SNL Pink Asset Size Indexes | ||||||||||||||||
SNL U.S. Bank Pink < $100M | 213.80 | 2/5/2021 | 0.00 | 0.00 | ||||||||||||
SNL U.S. Bank Pink $100M-$500M | 511.65 | 2/5/2021 | (1.07 | ) | (0.21 | ) | ||||||||||
SNL U.S. Bank Pink > $500M | 387.59 | 2/5/2021 | 1.30 | 0.34 | ||||||||||||
Broad Market Indexes | ||||||||||||||||
DJIA | 31,148.24 | 2/5/2021 | 92.38 | 0.30 | ||||||||||||
S&P 500 | 3,886.83 | 2/5/2021 | 15.09 | 0.39 | ||||||||||||
S&P 400 Mid Cap | 2,476.67 | 2/5/2021 | 24.35 | 0.99 | ||||||||||||
S&P 600 Small Cap | 1,252.75 | 2/5/2021 | 14.47 | 1.17 | ||||||||||||
S&P 500 Financials | 512.69 | 2/5/2021 | 0.44 | 0.09 | ||||||||||||
SNL U.S. Financial Institutions | 1,090.64 | 2/5/2021 | (0.82 | ) | (0.08 | ) | ||||||||||
MSCI US IMI Financials | 1,857.09 | 2/5/2021 | 3.47 | 0.19 | ||||||||||||
NASDAQ | 13,856.30 | 2/5/2021 | 78.56 | 0.57 | ||||||||||||
NASDAQ Finl | 5,553.40 | 2/5/2021 | 15.51 | 0.28 | ||||||||||||
NYSE | 15,069.60 | 2/5/2021 | 94.17 | 0.63 | ||||||||||||
Russell 1000 | 2,204.27 | 2/5/2021 | 10.49 | 0.48 | ||||||||||||
Russell 2000 | 2,233.33 | 2/5/2021 | 30.91 | 1.40 | ||||||||||||
Russell 3000 | 2,350.17 | 2/5/2021 | 12.68 | 0.54 | ||||||||||||
S&P TSX Composite | 18,135.90 | 2/5/2021 | 93.92 | 0.52 |
Intraday data is available for certain exchanges. In all cases,
the data is at least 15 minutes delayed.
* - Intraday data is not currently available. Data is as of the previous close.
** - Non-publicly traded institutions and institutions outside of your current subscription are not included in custom indexes.
Data is as of the previous close.
All SNL indexes are market-value weighted; i.e., an institution's effect on an index is proportional to that institution's market
capitalization.
Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect
to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or
any securities or financial products.
EXHIBIT IV-4
Market Area Acquisition Activity
Exhibit IV-4
Louisiana Bank and Thrift Acquisitions 2017-Present
Target Financials at Announcement | Deal Terms and Pricing at Announcement | ||||||||||||||||||||||||||||||||||||||
Total | NPAs/ | Rsrvs/ | Deal | Value/ | Prem/ | ||||||||||||||||||||||||||||||||||
Announce | Complete | Assets | E/A | TE/A | ROAA | ROAE | Assets | NPLs | Value | Share | P/B | P/TB | P/E | P/A | Cdeps | ||||||||||||||||||||||||
Date | Date | Buyer Name | Target Name | ($000) | (%) | (%) | (%) | (%) | (%) | (%) | ($M) | ($) | (%) | (%) | (x) | (%) | (%) | ||||||||||||||||||||||
10/05/2020 | Pending | Investor Group | LA | Delta Bancshares of Louisiana, Inc. | LA | 62,313 | 10.74 | 10.74 | 1.02 | 9.79 | 0.61 | 94.76 | 11.0 | NA | 162.77 | 162.77 | 18.64 | 17.65 | 10.59 | ||||||||||||||||||||
12/17/2019 | Pending | American Bancshares Inc. | LA | Mississippi River Bank | LA | 110,558 | 14.63 | 14.63 | 3.19 | 24.38 | 0.73 | 109.43 | 25.2 | 95.000 | 170.51 | 170.51 | 8.86 | 23.11 | 12.09 | ||||||||||||||||||||
11/04/2019 | 07/01/2020 | First Horizon National Corp. | TN | IBERIABANK Corporation | LA | 31,734,598 | 13.50 | 9.80 | 1.39 | 10.42 | 0.80 | 64.53 | 3971.0 | 74.765 | 96.37 | 141.92 | 9.65 | 12.51 | NA | ||||||||||||||||||||
01/22/2020 | 05/01/2020 | Bus. First Bancshares Inc. | LA | Pedestal Bancshares, Inc. | LA | 1,243,545 | 12.96 | 12.01 | 1.80 | 14.23 | 0.54 | 278.18 | 209.4 | 47.979 | 141.61 | 155.78 | 12.32 | 16.84 | 9.36 | ||||||||||||||||||||
08/05/2019 | 11/07/2019 | First Guaranty Bancshares Inc. | LA | Union Bancshares, Incorporated | LA | 261,371 | 10.77 | 10.77 | 1.28 | 12.85 | 1.78 | 47.12 | 43.4 | 1061.200 | 154.12 | 154.12 | 12.81 | 16.60 | 9.01 | ||||||||||||||||||||
04/30/2019 | 09/20/2019 | Hancock Whitney Corp. | MS | MidSouth Bancorp, Inc. | LA | 1,745,335 | 12.67 | 10.40 | -1.87 | -13.92 | 1.41 | 103.66 | 217.2 | 12.983 | 120.44 | 159.70 | NA | 12.45 | 5.86 | ||||||||||||||||||||
11/06/2018 | 03/01/2019 | First Bancshares Inc. | MS | FPB Financial Corp. | LA | 382,659 | 11.49 | 11.49 | 1.16 | 9.83 | NA | 95.76 | 83.6 | 30.826 | 189.54 | 189.54 | 20.97 | 21.85 | NA | ||||||||||||||||||||
06/04/2018 | 11/30/2018 | Bus. First Bancshares Inc. | LA | Richland State Bancorp, Inc. | LA | 304,994 | 10.67 | 10.67 | 1.32 | 11.93 | 0.38 | 324.10 | 50.8 | 100.738 | 147.95 | 147.95 | 16.54 | 16.66 | 7.29 | ||||||||||||||||||||
12/11/2017 | 07/01/2018 | Union S&L Association | LA | Hibernia Bancorp, Inc. | LA | 136,460 | 15.18 | 15.18 | 0.26 | 1.59 | NA | NA | 28.0 | 32.000 | 130.47 | 130.47 | NM | 20.53 | 11.67 | ||||||||||||||||||||
10/06/2017 | 01/01/2018 | Bus. First Bancshares Inc. | LA | Minden Bancorp, Inc. | LA | 318,172 | 15.48 | 15.48 | 1.63 | 10.73 | 2.61 | 24.70 | 55.8 | 23.200 | 190.96 | 190.96 | 10.58 | 18.69 | 14.19 | ||||||||||||||||||||
08/23/2017 | 12/06/2017 | Home Bancorp Inc. | LA | Saint Martin Bancshares, Inc. | LA | 596,448 | 10.04 | 9.21 | 2.10 | 21.06 | 1.73 | 61.71 | 75.0 | 356.223 | 188.76 | 227.02 | 9.60 | 13.01 | 9.48 | ||||||||||||||||||||
08/07/2017 | 12/01/2017 | Investar Holding Corp. | LA | BOJ Bancshares, Inc. | LA | 150,135 | 12.88 | 12.88 | 1.35 | 10.90 | 1.95 | 32.12 | 22.1 | 122.697 | 131.91 | 131.91 | 20.63 | 14.69 | 5.69 | ||||||||||||||||||||
03/08/2017 | 07/01/2017 | Investar Holding Corp. | LA | Citizens Bancshares, Inc. | LA | 245,464 | 14.51 | 14.51 | 0.87 | 6.16 | 0.58 | 144.75 | 45.8 | 419.200 | 128.37 | 128.37 | 21.21 | 18.66 | 6.93 | ||||||||||||||||||||
Average: | 2,868,619 | 12.73 | 12.14 | 1.19 | 10.00 | 1.19 | 115.07 | 150.29 | 160.85 | 14.71 | 17.17 | 9.29 | |||||||||||||||||||||||||||
Median: | 304,994 | 12.88 | 11.49 | 1.32 | 10.73 | 0.80 | 95.26 | 147.95 | 155.78 | 12.81 | 16.84 | 9.36 |
Source: S&P Global Market Intelligence.
EXHIBIT IV-5
St. Landry Homestead Federal Savings Bank
Director and Senior Management Summary Resumes
Exhibit IV-5
St. Landry Homestead Federal Savings Bank
Director and Senior Management Summary Resumes
The following table sets forth certain information regarding our directors, all of whom also serve as directors of St. Landry Homestead Federal Savings Bank. Ages are reflected as of December 31, 2020.
Catalyst Bancorp, Inc.
Name | Age |
Principal Occupation During the Past Five Years/ Public Directorships |
Year Term
Expires |
|||
Todd A. Kidder | 56 | Chairman of the Board of St. Landry Homestead Federal Savings Bank since December 2016. Engineering Technician, Louisiana State Department of Transportation since July 1987. | 2022 | |||
Mr. Kidder brings management expertise to the board as a utility relocation specialist responsible for coordinating the relocation of utilities in connection with state highway projects in an eight Parish area in Louisiana. Mr. Kidder serves as a committee member of the Opelousas Chapter of Ducks Unlimited and has served on the Board of Directors of Indian Hills Country Club, Opelousas, Louisiana. Director of St. Landry Homestead since 2009. | ||||||
Ted D. Bellard | 52 | Director and Secretary. President and owner of Targil, Inc., a seasoning supply company located in Opelousas, Louisiana since July 1995 and President and owner of Juneau’s Cajun Meats, Mansura, Louisiana since July 2002. | 2024 | |||
Mr. Bellard brings business and management expertise to the board as the owner of local businesses in the communities served by St. Landry Homestead Federal Savings Bank. Director of St. Landry Homestead since 2014. | ||||||
Kirk E. Kleiser | 65 | Director. Senior Managing Principal and founder, K&G On the Geaux LLC, a convenience store located in Lafayette, Louisiana and Kleiser Enterprises, Carencro, Louisiana. | 2022 | |||
Mr. Kleiser brings to the board experience in business planning and small business development as well as knowledge of the communities served by St. Landry Homestead. Mr. Kleiser serves on the Chevron National Dealer Council and is a member of both the Crowley and Carencro Chambers of Commerce. Director of St. Landry Homestead since January 2021. | ||||||
Frederick R. Lafleur, CPA | 62 | Director. President and Chief Executive Officer of Savoie’s Sausage & Food Products, Inc. (“Savoie’s”) since October 2019. Prior thereto, Executive Vice President and Chief Operations Officer of Savoie’s from January 2016 through September 2019. | 2023 | |||
Mr. Lafleur brings management and leadership experience to the board as the Chief Executive Officer of a food processing and distribution company located in Opelousas, Louisiana. Mr. Lafleur serves on the Board of Directors of Vision St. Landry. He is a member of the American Institute of CPAs (“AICPA”) and the Society of Louisiana CPAs (“LCPA”). Director of St. Landry Homestead since 2016. |
Exhibit IV-5 (continued)
St. Landry Homestead Federal Savings Bank
Director and Senior Management Summary Resumes
Craig C. LeBouef, MBA,CPA, CFP | 62 | Director. Partner of Going, Sebastien, Fisher & LeBouef, LLP and Owner of Craig C. LeBouef CPA, LLC Opelousas, Louisiana, since September 1994 and December 2008, respectively. | 2024 | |||
Mr. LeBouef brings to the board a broad knowledge in accounting and financial management and expertise in investment management and personal financial planning. Mr. LeBouef serves on the Board of Directors and was past President of the St. Landry-Evangeline United Way. Mr. LeBouef is a member of the Board of Directors of the Louisiana Citizens Property Insurance Corporation (Chair of Audit and Investment Committee). He is a member of the AICPA and LCPA. He is a current member and past President of the Rotary Club of Opelousas. Director of St. Landry Homestead since 2017. | ||||||
Matthew L. Scruggins | 52 | Director. Supervisor of Personnel, St. Landry Parish School System since 2009. | 2023 | |||
Mr. Scruggins brings oversight experience to the board as supervisor of employees and staffing and oversight of payroll and benefits for the local St. Landry Parish School System. Mr. Scruggins is a member of the Louisiana Association of School Executives and the Louisiana State Association of School Personnel Administrators. Director of St. Landry Homestead since 2014. | ||||||
Joseph B. Zanco, CPA, CIA | 50 | Director, President and Chief Executive Officer of St. Landry Homestead Federal Savings Bank since August 2020. Prior thereto, Executive Vice President and Chief Financial Officer of Home Bancorp, Inc. and Home Bank, National Association, Lafayette, Louisiana from April 2008 until August 2020. Mr. Zanco served as Controller and Principal Accounting Officer of IBERIABANK from February 2005 to April 2008. | 2024 | |||
Mr. Zanco brings public company experience to the board as a former Chief Financial Officer of a publicly traded company headquartered in Lafayette, Louisiana. Mr. Zanco serves on the Board of Trustees of Ochsner Lafayette General, the Board of Directors of the Louisiana Association of Business and Industry and is the Past Chairman of the Board of Directors of One Acadiana (the Greater Lafayette Chamber of Commerce). Director of St. Landry Homestead since January 2021. |
Exhibit IV-5 (continued)
St. Landry Homestead Federal Savings Bank
Director and Senior Management Summary Resumes
Executive Officers Who Are Not Also Directors of Catalyst Bancorp
Our executive officers are elected annually and hold office until their successors have been elected and qualified or until death, resignation or removal by the board of directors. The following table sets forth certain information regarding our executive officers who are not also directors of Catalyst Bancorp. Ages are reflected as of December 31, 2020.
Name | Age | Principal Occupation During the Past Five Years | ||
Jutta A. Codori | 58 | Senior Vice President of Deposit Operations and Chief Financial Officer of St. Landry Homestead Federal Savings Bank since October 2006. Previously, Assistant Vice President of Teche Federal Savings Bank, a subsidiary of Teche Holding Co. Prior thereto, Assistant Vice President and Chief Financial Officer of First Federal Savings and Loan, a subsidiary of St. Landry Financial Co. from 1997 to 2004. | ||
Kevin J. Brown | 60 | Senior Vice President and Chief Lending Officer of St. Landry Homestead Federal Savings Bank since 2012. Prior thereto, Mr. Brown served as Branch Lender/Manager and in various other positions with St. Landry Homestead since 2001. Mr. Brown also serves as a member of the Advisory Board of St. Landry Homestead. | ||
Gina McCoy | 58 | Senior Vice President and Chief Risk Officer of St. Landry Homestead Federal Savings Bank since November 2020. Previously, Senior Vice President, Retail Services, Compliance and Technology at Pedestal Bank, Houma, Louisiana, a subsidiary of Pedestal Bancshares, Inc. from February 2018 through May 2020. Prior thereto, Executive Vice President and Chief Operations Officer of Tri Parish Bank, Eunice, Louisiana, from 2004 through February 2018 and served in various other positions with Tri Parish Bank since 1996. |
Source: Catalyst Bancorp’s prospectus.
EXHIBIT IV-6
St. Landry Homestead Federal Savings Bank
Pro Forma Regulatory Capital Ratios
Exhibit IV-6
St. Landry Homestead Federal Savings Bank
Pro Forma Regulatory Capital Ratios
St. Landry Homestead
Federal Savings Bank Historical at |
St.
Landry Homestead Federal Savings Bank
Pro Forma at December 31, 2020 Based Upon the Sale in the Offering of: |
|||||||||||||||||||||||||||||||||||||||
December 31, 2020 | 3,272,500 Shares | 3,850,000 Shares | 4,427,500 Shares | 5,091,625 Shares (1) | ||||||||||||||||||||||||||||||||||||
Amount |
Percent
of Assets |
Amount |
Percent
of Assets |
Amount |
Percent
of Assets |
Amount |
Percent
of Assets |
Amount |
Percent
of Assets |
|||||||||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||
Equity | $ | 50,603 | 22.53 | % | $ | 62,365 | 25.95 | % | $ | 64,536 | 26.54 | % | $ | 66,706 | 27.11 | % | $ | 69,202 | 27.75 | % | ||||||||||||||||||||
Tier 1 leverage capital (2)(3) | $ | 50,496 | 21.09 | % | $ | 62,258 | 24.41 | % | $ | 64,429 | 24.98 | % | $ | 66,599 | 25.53 | % | $ | 69,095 | 26.16 | % | ||||||||||||||||||||
Tier 1 leverage requirement | 11,970 | 5.00 | 12,755 | 5.00 | 12,898 | 5.00 | 13,041 | 5.00 | 13,206 | 5.00 | ||||||||||||||||||||||||||||||
Excess | $ | 38,526 | 16.09 | % | $ | 49,503 | 19.41 | % | $ | 51,531 | 19.98 | % | $ | 53,558 | 20.53 | % | $ | 55,889 | 21.16 | % | ||||||||||||||||||||
Tier 1 risk-based capital (2)(3) | $ | 50,496 | 40.99 | % | $ | 62,258 | 49.28 | % | $ | 64,429 | 50.77 | % | $ | 66,599 | 52.24 | % | $ | 69,095 | 53.92 | % | ||||||||||||||||||||
Tier 1 risk-based requirement | 9,856 | 8.00 | 10,107 | 8.00 | 10,152 | 8.00 | 10,198 | 8.00 | 10,251 | 8.00 | ||||||||||||||||||||||||||||||
Excess | $ | 40,640 | 32.99 | % | $ | 52,151 | 41.28 | % | $ | 54,277 | 42.77 | % | $ | 56,401 | 44.24 | $ | 58,844 | 45.92 | % | |||||||||||||||||||||
Total risk-based capital (2)(3) | $ | 52,257 | 42.42 | % | $ | 64,019 | 50.67 | % | $ | 66,190 | 52.16 | % | $ | 68,360 | 53.62 | % | $ | 70,856 | 55.30 | % | ||||||||||||||||||||
Total risk-based requirement | 12,320 | 10.00 | 12,633 | 10.00 | 12,691 | 10.00 | 12,748 | 10.00 | 12,814 | 10.00 | ||||||||||||||||||||||||||||||
Excess | $ | 39,937 | 32.42 | % | $ | 51,386 | 40.67 | % | $ | 53,499 | 42.16 | % | $ | 55,612 | 43.62 | % | $ | 580.42 | 45.30 | % | ||||||||||||||||||||
Common equity tier 1 risk-based capital (2)(3) | $ | 50,496 | 40.99 | % | $ | 62,258 | 49.28 | % | $ | 64,429 | 50.77 | % | $ | 66,599 | 52.24 | % | $ | 69,095 | 53.92 | % | ||||||||||||||||||||
Common equity tier 1 risk-based requirement | 8,008 | 6.50 | 8,212 | 6.50 | 8,249 | 6.50 | 8,286 | 6.50 | 8,329 | 6.50 | ||||||||||||||||||||||||||||||
Excess | $ | 42,488 | 34.49 | % | $ | 54,046 | 42.78 | % | $ | 56,180 | 44.27 | % | $ | 58,313 | 45.74 | % | $ | 60,766 | 47.42 | % | ||||||||||||||||||||
Reconciliation of capital infused into St. Landry Homestead Federal Savings Bank: | ||||||||||||||||||||||||||||||||||||||||
Net proceeds | $ | 15,689 | $ | 18,553 | $ | 21,416 | $ | 24,709 | ||||||||||||||||||||||||||||||||
Less: Common stock acquired by employee stock ownership plan | (2,618 | ) | (3,080 | ) | (3,542 | ) | (4,073 | ) | ||||||||||||||||||||||||||||||||
Less: Common stock acquired by recognition and retention plan | (1,309 | ) | (1,540 | ) | (1,771 | ) | (2,037 | ) | ||||||||||||||||||||||||||||||||
Pro forma increase | $ | 11,762 | $ | 13,933 | $ | 16,103 | $ | 18,599 |
(1) | As adjusted to give effect to an increase in the number of shares, which could occur due to a 15% increase in the offering range to reflect demand for the shares or changes in market conditions following the commencement of the offering. |
(2) | Tier 1 leverage capital levels are shown as a percentage of total average assets. Risk-based capital levels are shown as a percentage of risk-weighted assets. |
(3) | Pro forma amounts and percentages assume net proceeds are invested in assets that carry a 20% risk weighting. |
Source: Catalyst Bancorp’s prospectus.
EXHIBIT IV-7
St. Landry Homestead Federal Savings Bank
Pro Forma Analysis Sheet
Exhibit IV-7
PRO FORMA ANALYSIS SHEET
St. Landry Homestead Federal Savings Bank
Prices as of February 5, 2021
Peer Group | Louisiana Companies | All Publicly-Traded | ||||||||||||||||||||||||
Price Multiple | Symbol | Subject (1) | Average | Median | Average | Median | Average | Median | ||||||||||||||||||
Price-earnings ratio (x) | P/E | NMx | 12.03 | x | 10.73 | x | 10.73 | x | 10.73 | x | 13.96 | x | 12.66 | x | ||||||||||||
Price-core earnings ratio (x) | P/Core | NMx | 12.04 | x | 10.30 | x | 13.82 | x | 13.82 | x | 13.98 | x | 13.14 | x | ||||||||||||
Price-book ratio (%) | = | P/B | 46.34 | % | 90.84 | % | 92.53 | % | 95.50 | % | 95.50 | % | 103.63 | % | 94.14 | % | ||||||||||
Price-tangible book ratio (%) | = | P/TB | 46.34 | % | 92.70 | % | 92.73 | % | 95.50 | % | 95.50 | % | 114.74 | % | 100.75 | % | ||||||||||
Price-assets ratio (%) | = | P/A | 14.97 | % | 14.66 | % | 12.30 | % | 9.18 | % | 9.18 | % | 12.92 | % | 11.60 | % |
Valuation Parameters
Pre-Conversion Earnings (Y) | ($684,000) | ESOP Stock Purchases (E) | 8.00 | % | (5) | |||
Pre-Conversion Earnings (CY) | $736,000 | Cost of ESOP Borrowings (S) | 0.00 | % | (4) | |||
Pre-Conversion Book Value (B) | $50,603,000 | ESOP Amortization (T) | 20.00 | years | ||||
Pre-Conv. Tang. Book Val. (TB) | $50,603,000 | RRP Amount (M) | 4.00 | % | ||||
Pre-Conversion Assets (A) | $224,652,000 | RRP Vesting (N) | 5.00 | years (5) | ||||
Reinvestment Rate (2)(R) | 0.36% | Foundation (F) | 0.00 | % | ||||
Est. Conversion Expenses (3)(X) | 3.62% | Tax Benefit (Z) | 0 | |||||
Tax Rate (TAX) | 21.00% | Percentage Sold (PCT) | 100.00 | % | ||||
Louisiana Shares/Franchise Tax | $311,000 | Option (O1) | 10.00 | % | (6) | |||
Estimated Option Value (O2) | 31.70 | % | (6) | |||||
Option vesting (O3) | 5.00 | (6) | ||||||
Option pct taxable (O4) | 25.00 | % | (6) |
Calculation of Pro Forma Value After Conversion
1. | V= | P/E * (Y) | V= | NM | ||||
1 - P/E * PCT * ((1-X-E-M-F)*R*(1-TAX) - (1-TAX)*E/T - (1-TAX)*M/N) - (1-(TAX*O4))*(O1*O2)/O3) | ||||||||
2. | V= | P/Core * (Y) | V= | NM | ||||
1 - P/core * PCT * ((1-X-E-M-F)*R*(1-TAX) - (1-TAX)*E/T - (1-TAX)*M/N) - (1-(TAX*O4))*(O1*O2)/O3) | ||||||||
3. | V= | P/B * (B+Z) | V= | $38,500,000 | ||||
1 - P/B * PCT * (1-X-E-M-F) | ||||||||
4. | V= | P/TB * (TB+Z) | V= | $38,500,000 | ||||
1 - P/TB * PCT * (1-X-E-M-F) | ||||||||
5. | V= | P/A * (A+Z) | V= | $38,500,000 | ||||
1 - P/A * PCT * (1-X-E-M-F) |
Conclusion |
Shares Issued
To the Public |
Price Per
Share |
Gross Offering
Proceeds |
Shares
Issued To Foundation |
Total Shares
Issued |
Aggregate
Market Value of Shares Issued |
|||||||||||||||||||
Supermaximum | 5,091,625 | 10.00 | $ | 50,916,250 | 0 | 5,091,625 | $ | 50,916,250 | |||||||||||||||||
Maximum | 4,427,500 | 10.00 | 44,275,000 | 0 | 4,427,500 | 44,275,000 | |||||||||||||||||||
Midpoint | 3,850,000 | 10.00 | 38,500,000 | 0 | 3,850,000 | 38,500,000 | |||||||||||||||||||
Minimum | 3,272,500 | 10.00 | 32,725,000 | 0 | 3,272,500 | 32,725,000 |
(1) | Pricing ratios shown reflect the midpoint value. |
(2) | Net return reflects a reinvestment rate of 0.36 percent and a tax rate of 21.0 percent. |
(3) | Offering expenses shown at estimated midpoint value. |
(4) | No cost is applicable since holding company will fund the ESOP loan. |
(5) | ESOP and MRP amortize over 20 years and 5 years, respectively; amortization expenses tax effected at 21.0 percent. |
(6) | 10 percent option plan with an estimated Black-Scholes valuation of 31.70 percent of the exercise price, including a 5 year vesting with 25 percent of the options (granted to directors) tax effected at 21.0 percent. |
EXHIBIT IV-8
St. Landry Homestead Federal Savings Bank
Pro Forma Effect of Conversion Proceeds
Exhibit IV-8
PRO FORMA EFFECT OF CONVERSION PROCEEDS
St. Landry Homestead FSB
At the Minimum
1. | Pro Forma Market Capitalization | $ | 32,725,000 | |||
Less: Foundation Shares | - | |||||
2. | Offering Proceeds | $ | 32,725,000 | |||
Less: Estimated Offering Expenses | 1,347,013 | |||||
Net Conversion Proceeds | $ | 31,377,987 | ||||
3. | Estimated Additional Income from Conversion Proceeds | |||||
Net Conversion Proceeds | $ | 31,377,987 | ||||
Less: Cash Contribution to Foundation | 0 | |||||
Less: Non-Cash Stock Purchases (1) | 3,927,000 | |||||
Net Proceeds Reinvested | $ | 27,450,987 | ||||
Estimated net incremental rate of return | 0.28 | % | ||||
Reinvestment Income | $ | 78,071 | ||||
Less: Louisiana Shares/Franchise Tax | 252,000 | |||||
Less: Estimated cost of ESOP borrowings (2) | 0 | |||||
Less: Amortization of ESOP borrowings (3) | 103,411 | |||||
Less: Amortization of Options (4) | 196,584 | |||||
Less: Recognition Plan Vesting (5) | 206,822 | |||||
Net Earnings Impact | $ | (680,746 | ) |
Net | |||||||||||||||
Before | Earnings | After | |||||||||||||
4. | Pro Forma Earnings | Conversion | Increase | Conversion | |||||||||||
12 Months ended December 31, 2020 (reported) | $ | (684,000 | ) | $ | (680,746 | ) | $ | (1,364,746 | ) | ||||||
12 Months ended December 31, 2020 (core) | $ | 736,000 | $ | (680,746 | ) | $ | 55,254 |
Before | Net Cash | Tax Benefit | After | |||||||||||||||
5. | Pro Forma Net Worth | Conversion | Proceeds | Of Contribution | Conversion | |||||||||||||
December 31, 2020 | $ | 50,603,000 | $ | 27,450,987 | $ | 0 | $ | 78,053,987 | ||||||||||
December 31, 2020 (Tangible) | $ | 50,603,000 | $ | 27,450,987 | $ | 0 | $ | 78,053,987 |
Before | Net Cash | Tax Benefit | After | |||||||||||||||
6. | Pro Forma Assets | Conversion | Proceeds | Of Contribution | Conversion | |||||||||||||
December 31, 2020 | $ | 224,652,000 | $ | 27,450,987 | $ | 0 | $ | 252,102,987 |
(1) | Includes ESOP and RRP stock purchases equal to 8.0 and 4.0 percent of total shares issued, respectively. |
(2) | ESOP stock purchases are internally financed by a loan from the holding company. |
(3) | ESOP borrowings are amortized over 20 years, amortization expense is tax-effected at a 21.0 percent rate. |
(4) | Option valuation based on Black-Scholes model, 5 year vesting, and assumes 25 percent is taxable. |
(5) | RRP is amortized over 5 years, and amortization expense is tax effected at 21.0 percent. |
Exhibit IV-8
PRO FORMA EFFECT OF CONVERSION PROCEEDS
St. Landry Homestead FSB
At the Midpoint
1. | Pro Forma Market Capitalization | $ | 38,500,000 | |||
Less: Foundation Shares | - | |||||
2. | Offering Proceeds | $ | 38,500,000 | |||
Less: Estimated Offering Expenses | 1,394,830 | |||||
Net Conversion Proceeds | $ | 37,105,170 | ||||
3. | Estimated Additional Income from Conversion Proceeds | |||||
Net Conversion Proceeds | $ | 37,105,170 | ||||
Less: Cash Contribution to Foundation | 0 | |||||
Less: Non-Cash Stock Purchases (1) | 4,620,000 | |||||
Net Proceeds Reinvested | $ | 32,485,170 | ||||
Estimated net incremental rate of return | 0.28 | % | ||||
Reinvestment Income | $ | 92,388 | ||||
Less: Louisiana Shares/Franchise Tax | 311,000 | |||||
Less: Estimated cost of ESOP borrowings (2) | 0 | |||||
Less: Amortization of ESOP borrowings (3) | 121,660 | |||||
Less: Amortization of Options (4) | 231,275 | |||||
Less: Recognition Plan Vesting (5) | 243,320 | |||||
Net Earnings Impact | $ | (814,867 | ) |
Net | |||||||||||||||
Before | Earnings | After | |||||||||||||
4. | Pro Forma Earnings | Conversion | Increase | Conversion | |||||||||||
12 Months ended December 31, 2020 (reported) | $ | (684,000 | ) | $ | (814,867 | ) | $ | (1,498,867 | ) | ||||||
12 Months ended December 31, 2020 (core) | $ | 736,000 | $ | (814,867 | ) | $ | (78,867 | ) |
Before | Net Cash | Tax Benefit | After | |||||||||||||||
5. | Pro Forma Net Worth | Conversion | Proceeds | Of Contribution | Conversion | |||||||||||||
December 31, 2020 | $ | 50,603,000 | $ | 32,485,170 | $ | 0 | $ | 83,088,170 | ||||||||||
December 31, 2020 (Tangible) | $ | 50,603,000 | $ | 32,485,170 | $ | 0 | $ | 83,088,170 |
Before | Net Cash | Tax Benefit | After | |||||||||||||||
6. | Pro Forma Assets | Conversion | Proceeds | Of Contribution | Conversion | |||||||||||||
December 31, 2020 | $ | 224,652,000 | $ | 32,485,170 | $ | 0 | $ | 257,137,170 |
(1) | Includes ESOP and RRP stock purchases equal to 8.0 and 4.0 percent of total shares issued, respectively. |
(2) | ESOP stock purchases are internally financed by a loan from the holding company. |
(3) | ESOP borrowings are amortized over 20 years, amortization expense is tax-effected at a 21.0 percent rate. |
(4) | Option valuation based on Black-Scholes model, 5 year vesting, and assumes 25 percent is taxable. |
(5) | RRP is amortized over 5 years, and amortization expense is tax effected at 21.0 percent. |
Exhibit IV-8
PRO FORMA EFFECT OF CONVERSION PROCEEDS
St. Landry Homestead FSB
At the Maximum Value
1. | Pro Forma Market Capitalization | $ | 44,275,000 | |||
Less: Foundation Shares | - | |||||
2. | Offering Proceeds | $ | 44,275,000 | |||
Less: Estimated Offering Expenses | 1,442,647 | |||||
Net Conversion Proceeds | $ | 42,832,353 | ||||
3. | Estimated Additional Income from Conversion Proceeds | |||||
Net Conversion Proceeds | $ | 42,832,353 | ||||
Less: Cash Contribution to Foundation | 0 | |||||
Less: Non-Cash Stock Purchases (1) | 5,313,000 | |||||
Net Proceeds Reinvested | $ | 37,519,353 | ||||
Estimated net incremental rate of return | 0.28 | % | ||||
Reinvestment Income | $ | 106,705 | ||||
Less: Louisiana Shares/Franchise Tax | 338,000 | |||||
Less: Estimated cost of ESOP borrowings (2) | 0 | |||||
Less: Amortization of ESOP borrowings (3) | 139,909 | |||||
Less: Amortization of Options (4) | 265,967 | |||||
Less: Recognition Plan Vesting (5) | 279,818 | |||||
Net Earnings Impact | $ | (916,989 | ) |
Net | |||||||||||||||
Before | Earnings | After | |||||||||||||
4. | Pro Forma Earnings | Conversion | Increase | Conversion | |||||||||||
12 Months ended December 31, 2020 (reported) | $ | (684,000 | ) | $ | (916,989 | ) | $ | (1,600,989 | ) | ||||||
12 Months ended December 31, 2020 (core) | $ | 736,000 | $ | (916,989 | ) | $ | (180,989 | ) |
Before | Net Cash | Tax Benefit | After | |||||||||||||||
5. | Pro Forma Net Worth | Conversion | Proceeds | Of Contribution | Conversion | |||||||||||||
December 31, 2020 | $ | 50,603,000 | $ | 37,519,353 | $ | 0 | $ | 88,122,353 | ||||||||||
December 31, 2020 (Tangible) | $ | 50,603,000 | $ | 37,519,353 | $ | 0 | $ | 88,122,353 |
Before | Net Cash | Tax Benefit | After | |||||||||||||||
6. | Pro Forma Assets | Conversion | Proceeds | Of Contribution | Conversion | |||||||||||||
December 31, 2020 | $ | 224,652,000 | $ | 37,519,353 | $ | 0 | $ | 262,171,353 |
(1) | Includes ESOP and RRP stock purchases equal to 8.0 and 4.0 percent of total shares issued, respectively. |
(2) | ESOP stock purchases are internally financed by a loan from the holding company. |
(3) | ESOP borrowings are amortized over 20 years, amortization expense is tax-effected at a 21.0 percent rate. |
(4) | Option valuation based on Black-Scholes model, 5 year vesting, and assumes 25 percent is taxable. |
(5) | RRP is amortized over 5 years, and amortization expense is tax effected at 21.0 percent. |
Exhibit IV-8
PRO FORMA EFFECT OF CONVERSION PROCEEDS
St. Landry Homestead FSB
At the Supermaximum Value
1. | Pro Forma Market Capitalization | $ | 50,916,250 | |||
Less: Foundation Shares | - | |||||
2. | Offering Proceeds | $ | 50,916,250 | |||
Less: Estimated Offering Expenses | 1,497,637 | |||||
Net Conversion Proceeds | $ | 49,418,613 | ||||
3. | Estimated Additional Income from Conversion Proceeds | |||||
Net Conversion Proceeds | $ | 49,418,613 | ||||
Less: Cash Contribution to Foundation | 0 | |||||
Less: Non-Cash Stock Purchases (1) | 6,109,950 | |||||
Net Proceeds Reinvested | $ | 43,308,663 | ||||
Estimated net incremental rate of return | 0.28 | % | ||||
Reinvestment Income | $ | 123,170 | ||||
Less: Louisiana Shares/Franchise Tax | 358,000 | |||||
Less: Estimated cost of ESOP borrowings (2) | 0 | |||||
Less: Amortization of ESOP borrowings (3) | 160,895 | |||||
Less: Amortization of Options (4) | 305,862 | |||||
Less: Recognition Plan Vesting (5) | 321,791 | |||||
Net Earnings Impact | $ | (1,023,378 | ) |
Net | |||||||||||||||
Before | Earnings | After | |||||||||||||
4. | Pro Forma Earnings | Conversion | Increase | Conversion | |||||||||||
12 Months ended December 31, 2020 (reported) | $ | (684,000 | ) | $ | (1,023,378 | ) | $ | (1,707,378 | ) | ||||||
12 Months ended December 31, 2020 (core) | $ | 736,000 | $ | (1,023,378 | ) | $ | (287,378 | ) |
Before | Net Cash | Tax Benefit | After | |||||||||||||||
5. | Pro Forma Net Worth | Conversion | Proceeds | Of Contribution | Conversion | |||||||||||||
December 31, 2020 | $ | 50,603,000 | $ | 43,308,663 | $ | 0 | $ | 93,911,663 | ||||||||||
December 31, 2020 (Tangible) | $ | 50,603,000 | $ | 43,308,663 | $ | 0 | $ | 93,911,663 |
Before | Net Cash | Tax Benefit | After | |||||||||||||||
6. | Pro Forma Assets | Conversion | Proceeds | Of Contribution | Conversion | |||||||||||||
December 31, 2020 | $ | 224,652,000 | $ | 43,308,663 | $ | 0 | $ | 267,960,663 |
(1) | Includes ESOP and RRP stock purchases equal to 8.0 and 4.0 percent of total shares issued, respectively. |
(2) | ESOP stock purchases are internally financed by a loan from the holding company. |
(3) | ESOP borrowings are amortized over 20 years, amortization expense is tax-effected at a 21.0 percent rate. |
(4) | Option valuation based on Black-Scholes model, 5 year vesting, and assumes 25 percent is taxable. |
(5) | RRP is amortized over 5 years, and amortization expense is tax effected at 21.0 percent. |
EXHIBIT V-1
RP® Financial, LC.
Firm Qualifications Statement
|
RP® FINANCIAL, LC. Advisory | Planning | Valuation |
FIRM QUALIFICATION STATEMENT |
RP® Financial (“RP®) provides financial and management consulting, merger advisory and valuation services to the financial services industry nationwide. We offer a broad array of services, high quality and prompt service, hands-on involvement by principals and senior staff, careful structuring of strategic initiatives and sophisticated valuation and other analyses consistent with industry practices and regulatory requirements. Our staff maintains extensive background in financial and management consulting, valuation and investment banking. Our clients include commercial banks, thrifts, credit unions, mortgage companies, insurance companies and other financial services companies.
STRATEGIC PLANNING SERVICES |
RP®’s strategic planning services are designed to provide effective feasible plans with quantifiable results. We analyze strategic options to enhance shareholder value, achieve regulatory approval or realize other objectives. Such services involve conducting situation analyses; establishing mission/vision statements, developing strategic goals and objectives; and identifying strategies to enhance franchise and/or market value, capital management, earnings enhancement, operational matters and organizational issues. Strategic recommendations typically focus on: capital formation and management, asset/liability targets, profitability, return on equity and stock pricing. Our proprietary financial simulation models provide the basis for evaluating the impact of various strategies and assessing their feasibility and compatibility with regulations.
MERGER ADVISORY SERVICES |
RP®’s merger advisory services include targeting potential buyers and sellers, assessing acquisition merit, conducting due diligence, negotiating and structuring merger transactions, preparing merger business plans and financial simulations, rendering fairness opinions, preparing mark-to-market analyses, valuing intangible assets and supporting the implementation of post-acquisition strategies. Our merger advisory services involve transactions of financially healthy companies and failed bank deals. RP® is also expert in de novo charters and shelf charters. Through financial simulations, comprehensive data bases, valuation proficiency and regulatory familiarity, RP®’s merger advisory services center on enhancing shareholder returns.
VALUATION SERVICES |
RP®’s extensive valuation practice includes bank and thrift mergers, thrift mutual-to-stock conversions, goodwill impairment, insurance company demutualizations, ESOPs, subsidiary companies, merger accounting and other purposes. We are highly experienced in performing appraisals which conform to regulatory guidelines and appraisal standards. RP® is the nation’s leading valuation firm for thrift mutual-to-stock conversions, with appraised values ranging up to $4 billion.
OTHER CONSULTING SERVICES |
RP® offers other consulting services including evaluating the impact of regulatory changes (TARP, etc.), branching and diversification strategies, feasibility studies and special research. We assist banks/thrifts in preparing CRA plans and evaluating wealth management activities on a de novo or merger basis. Our other consulting services are facilitated by proprietary valuation and financial simulation models.
KEY PERSONNEL (Years of Relevant Experience & Contact Information) |
Ronald S. Riggins, Managing Director (40) | (703) 647-6543 | rriggins@rpfinancial.com |
William E. Pommerening, Managing Director (36) | (703) 647-6546 | wpommerening@rpfinancial.com |
Gregory E. Dunn, Director (37) | (703) 647-6548 | gdunn@rpfinancial.com |
James P. Hennessey, Director (33) | (703) 647-6544 | jhennessey@rpfinancial.com |
James J. Oren, Director (33) | (703) 647-6549 | joren@rpfinancial.com |
Washington Headquarters | |
1311-A Dolley Madison Boulevard | Telephone: (703) 528-1700 |
Suite 2A | Fax No.: (703) 528-1788 |
McLean, VA 22101 | Toll-Free No.: (866) 723-0594 |
www.rpfinancial.com |
E-Mail: mail@rpfinancial.com |