EXHIBIT 8.1
[LETTERHEAD OF MULDOON, MURPHY & FAUCETTE LLP]
January 19, 1999
Board of Directors
PFSB Bancorp, Inc.
123 West Lafayette Street
Palmyra, Missouri 63461-0072
Board of Directors
Palmyra Saving and Building Association, F.A.
123 West Lafayette Street
Palmyra, Missouri 63461-0072
Re: Federal Tax Consequences of the Conversion of Palmyra Saving and
Building Association, F.A. from a Federally-chartered Mutual Savings
and Loan Association to a Federally-chartered Stock Savings Bank and
the Offer and Sale of Common Stock of PFSB Bancorp, Inc. (the
"Conversion")
To the Members of the Board of Directors:
You have requested an opinion regarding the federal income tax consequences
of the proposed conversion of Palmyra Saving and Building Association, F.A. (the
"Association") from a federally-chartered mutual savings and loan association to
a federally-chartered stock savings bank (the "Converted Bank") and the
acquisition of the Converted Bank's capital stock by PFSB Bancorp, Inc., a
Missouri corporation (the "Holding Company"), pursuant to the plan of conversion
adopted by the Board of Directors on September 24, 1998 (the "Plan of
Conversion").
The proposed transaction is described in the Prospectus and the Plan of
Conversion, and the tax consequences of the proposed transaction will be as set
forth in the section of this letter entitled "FEDERAL TAX OPINION."
Board of Directors
January 19, 1999
Page 2
We have made such inquiries and have examined such documents and records as
we have deemed appropriate for the purpose of this opinion. In rendering this
opinion, we have received factual representations of the Holding Company and the
Association concerning the Holding Company and the Association as well as the
transaction ("Representations"). These Representations are required to be
furnished prior to the execution of this letter and again prior to the closing
of the Conversion. We will rely upon the accuracy of the Representations of the
Holding Company and the Association and the statements of facts contained in the
examined documents, particularly the Plan of Conversion. We have also assumed
the authenticity of all signatures, the legal capacity of all natural persons
and the conformity to the originals of all documents submitted to us as copies.
Each capitalized term used herein, unless otherwise defined, has the meaning set
forth in the Plan of Conversion. We have assumed that the Conversion will be
consummated strictly in accordance with the terms of the Plan of
Conversion.
The Plan of Conversion and the Prospectus contain a detailed description of
the Conversion. These documents as well as the Representations to be provided
by the Holding Company and the Association are incorporated in this letter as
part of the statement of the facts.
The Association, with its headquarters in Palmyra, Missouri, is a
federally-chartered mutual savings and loan association. As a mutual savings
and loan association, the Association has never been authorized to issue stock.
Instead, the proprietary interest in the reserves and undivided profits of the
Association belong to the deposit account holders of the Association,
hereinafter sometimes referred to as "shareholders." A shareholder of the
Association has a right to share, pro rata, with respect to the withdrawal value
of his respective deposit account in any liquidation proceeds distributed in the
event the Association is ever liquidated. In addition, a shareholder of the
Association is entitled to interest on his account balance as fixed and paid by
the Association.
In order to provide organizational and economic strength to the
Association, the Board of Directors has adopted the Plan of Conversion whereby
the Association will convert itself into a federally-chartered stock savings
bank, the stock of which will be held entirely by the Holding Company. Assuming
that the Holding Company form of organization is utilized, the Holding Company
will acquire the stock of the Converted Bank by purchase, in exchange for the
Conversion proceeds that are not permitted to be retained by the Holding
Company. The Holding Company will apply to the Office of Thrift Supervision
("OTS") to retain up to 50% of the proceeds received from the Conversion. The
aggregate sales price of the Common Stock issued in the Conversion will be based
on an independent appraiser's valuation of the estimated pro forma market value
of the Holding Company and the Converted Bank. The Conversion and sale of the
Common Stock will be subject to applicable regulatory approval and the approval
by the affirmative vote of a majority of the Members.
Board of Directors
January 19, 1999
Page 3
The Association shall establish at the time of Conversion a liquidation
account in an amount equal to its net worth as of the latest practicable date
prior to Conversion. The liquidation account will be maintained by the
Converted Bank for the benefit of the Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain their deposit accounts at the
Converted Bank. Each Eligible Account Holder and Supplemental Eligible Account
Holder shall, with respect to his Savings Account, hold a related inchoate
interest in a portion of the liquidation account balance, in relation to his
deposit account balance on the Eligibility Record Date and/or Supplemental
Eligibility Record Date or to such balance as it may be subsequently reduced, as
provided in the Plan of Conversion.
In the unlikely event of a complete liquidation of the Converted Bank (and
only in such event), following all liquidation payments to creditors (including
those to Account Holders to the extent of their deposit accounts), each Eligible
Account Holder and Supplemental Eligible Account Holder shall be entitled to
receive a liquidating distribution from the liquidation account, in the amount
of the then adjusted subaccount balance for his deposit accounts then held,
before any liquidation distribution may be made to any holders of the Converted
Bank's capital stock. No merger, consolidation, purchase of bulk assets with
assumption of Savings Accounts and other liabilities, or similar transaction
with a Federal Deposit Insurance Corporation ("FDIC") institution, in which the
Converted Bank is not the surviving institution, shall be deemed to be a
complete liquidation for this purpose. In such transactions, the liquidation
account shall be assumed by the surviving institution.
LIMITATIONS ON OPINION
----------------------
Our opinions expressed herein are based solely upon current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), including applicable
regulations thereunder and current judicial and administrative authority. Any
future amendments to the Code or applicable regulations, or new judicial
decisions or administrative interpretations, any of which could be retroactive
in effect, could cause us to modify our opinion. No opinion is expressed herein
with regard to the federal, state, or city tax consequences of the Conversion
under any section of the Code except if and to the extent specifically
addressed.
FEDERAL TAX OPINION
-------------------
Based upon the Representations and the other factual information referred
to in this letter, and assuming the transaction occurs in accordance with the
Plan of Conversion, and taking into consideration the limitations noted
throughout this opinion, it is our opinion that under current federal income tax
law:
Board of Directors
January 19, 1999
Page 4
(1) Pursuant to the Conversion, the changes at the corporate level other
than changes in the form of organization will be insubstantial. Based
upon that fact and the fact that the equity interest of a shareholder
in a mutual entity is more nominal than real, unlike that of a
shareholder of a corporation, the Conversion of the Association from a
mutual entity to a stock savings bank is a tax-free reorganization
since it is a mere change in identity, form or place of organization
within the meaning of section 368(a)(1)(F) of the Code (see Rev. Rul.
80-105, 1980-1 C.B. 78). Neither the Association nor the Converted
Bank shall recognize gain or loss as a result of the Conversion. The
Association and the Converted Bank shall each be "a party to a
reorganization" within the meaning of section 368(b) of the Code.
(2) No gain or loss shall be recognized by the Converted Bank or the
Holding Company on the receipt by the Converted Bank of money from the
Holding Company in exchange for shares of the Converted Bank's capital
stock or by the Holding Company upon the receipt of money from the
sale of its Common Stock (Section 1032(a) of the Code).
(3) The basis of the assets of the Association in the hands of the
Converted Bank shall be the same as the basis of such assets in the
hands of the Association immediately prior to the Conversion (Section
362(b) of the Code).
(4) The holding period of the assets of the Association in the hands of
the Converted Bank shall include the period during which the
Association held the assets (Section 1223(2) of the Code).
(5) No gain or loss shall be recognized by the Eligible Account Holders
and the Supplemental Eligible Account Holders of the Association on
the issuance to them of withdrawable deposit accounts in the Converted
Bank plus interests in the liquidation account of the Converted Bank
in exchange for their deposit accounts in the Association or to the
other depositors on the issuance to them of withdrawable deposit
accounts (Section 354(a) of the Code).
(6) Provided that the amount to be paid for such stock pursuant to the
subscription rights is equal to the fair market value of the stock, no
gain or loss will be recognized by Eligible Account Holders and
Supplemental Eligible Account Holders upon the distribution to them of
the nontransferable subscription rights to purchase shares of stock in
the Holding Company (Section 356(a)). Gain realized, if any, by the
Eligible Account Holders and Supplemental Eligible Account
Board of Directors
January 19, 1999
Page 5
Holders on the distribution to them of nontransferable subscription
rights to purchase shares of Common Stock will be recognized but only
in an amount not in excess of the fair market value of such
subscription rights (Section 356(a)). Eligible Account Holders and
Supplemental Eligible Account Holders will not realize any taxable
income as a result of the exercise by them of the nontransferable
subscription rights (Rev. Rul. 56-572, 1956-2 C.B. 182).
(7) The basis of the deposit accounts in the Converted Bank to be received
by the Eligible Account Holders, Supplemental Eligible Account Holders
and other shareholders of the Association will be the same as the
basis of their deposit accounts in the Association surrendered in
exchange therefor (Section 358(a)(1) of the Code). The basis of the
interests in the liquidation account of the Converted Bank to be
received by the Eligible Account Holders and Supplemental Eligible
Account Holders of the Association shall be zero (Rev. Rul. 71-233,
1971-1 C.B. 113). The basis of the Holding Company Common Stock to its
stockholders will be the purchase price thereof plus the basis, if
any, of nontransferable subscription rights (Section 1012 of the
Code). Accordingly, assuming the nontransferable subscription rights
have no value, the basis of the Common Stock to the Eligible Account
Holders and Supplemental Eligible Account Holders will be the amount
paid therefor. The holding period of the Common Stock purchased
pursuant to the exercise of subscription rights shall commence on the
date on which the right to acquire such stock was exercised (Section
1223(6) of the Code).
Our opinion under paragraph (6) above is predicated on the Representation
that no person shall receive any payment, whether in money or property, in lieu
of the issuance of subscription rights. Our opinion under paragraphs (6) and
(7) above assumes that the subscription rights to purchase shares of Common
Stock received by Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members have a fair market value of zero. We understand that
you have received a letter from RP Financial, LC, that the subscription rights
do not have any value. We express no view regarding the valuation of the
subscription rights.
If the subscription rights are subsequently found to have a fair market
value, income may be recognized by various recipients of the subscription rights
(in certain cases, whether or not the rights are exercised) and Holding Company
and/or the Converted Bank may be taxable on the distribution of the subscription
rights.
* * *
Board of Directors
January 19, 1999
Page 6
Since this letter is rendered in advance of the closing of this
transaction, we have assumed that the transaction will be consummated in
accordance with the Plan of Conversion as well as all the information and
Representations referred to herein. Any change in the transaction could cause
us to modify our opinion.
We consent to the inclusion of this opinion as an exhibit to the Form AC
Application for Conversion of the Association and the references to and summary
of this opinion in such Application for Conversion. We also consent to the
inclusion of this opinion as an exhibit to the Form SB-2 Registration Statement
and the Form H-(e)1-S Application of PFSB Bancorp, Inc. and the references to
and summary of this opinion in both the Form SB-2 and the Form H-(e)1-S.
Sincerely,
/s/ Muldoon, Murphy & Faucette LLP
MULDOON, MURPHY & FAUCETTE LLP
CERTIFICATE OF REPRESENTATIONS
------------------------------
I, Eldon R. Mette, Executive Vice President, Palmyra Saving and Building
Association, F.A., a federally chartered mutual savings and loan association
(the "Association"), for the purpose of obtaining an opinion of counsel to be
rendered by Muldoon, Murphy & Faucette LLP in connection with the Conversion
from a federally chartered mutual savings and loan association to a federally
chartered stock savings bank to be known as Palmyra Savings (the "Converted
Bank"), and the offer and sale of 100% of the issued and outstanding stock of
the Converted Bank to PFSB Bancorp, Inc., a Missouri corporation (the "Holding
Company"), pursuant to the Plan of Conversion, as adopted by the Board of
Directors on September 24, 1998, (the "Plan of Conversion") do hereby certify
that all the information set forth in the following representations is true to
the best of my knowledge and belief:
(a) The fair market value of the withdrawable deposit accounts plus
interests in the liquidation account of the Converted Bank to be
received under Paragraphs XII and XIII of the Plan of Conversion will,
in each instance, be equal to the fair market value of the
withdrawable deposit accounts (plus the related interest in the
residual equity of the Converted Bank) deemed to be surrendered in
exchange therefor.
(b) If an individual's total deposits in the Association equal or exceed
$50 as of the Eligibility Record Date or the Supplemental Eligibility
Record Date, then no amount of that individual's total deposits will
be excluded from participating in the liquidation account. The fair
market value of the deposit accounts of the Association which have a
balance of less than $50 on the Eligibility Record Date or the
Supplemental Eligibility Record Date will be less than 1% of the total
fair market value of all deposit accounts of the Association.
(c) Immediately following the Conversion, the Eligible Account Holders and
the Supplemental Eligible Account Holders of the Converted Bank will
own all of the outstanding interests in the liquidation account and
will own such interest solely by reason of their ownership of deposits
in the Association immediately before the Conversion.
(d) After the Conversion, the Converted Bank will continue the business of
the Association in the same manner as prior to the Conversion. The
Converted Bank has no plan or intention and the Holding Company has no
plan or intention to cause the Converted Bank to sell its assets other
than in the ordinary course of business.
(e) The Holding Company has no plan or intention to sell, liquidate or
otherwise dispose of the stock of the Converted Bank other than in the
ordinary course of business.
(f) The Converted Bank has no plan or intention to redeem or otherwise
acquire any of the Common Stock of the Converted Bank issued in the
Conversion
transaction.
(g) Immediately after the Conversion, the assets and liabilities of the
Converted Bank will be identical to the assets and liabilities of the
Association immediately prior to the Conversion, plus the net proceeds
from the sale of the Converted Bank's common stock to the Holding
Company and any liability associated with indebtedness incurred by the
Employee Stock Option Plan ("ESOP") in the acquisition of Common Stock
by the ESOP.
(h) The Association is federally-chartered as a mutual savings and loan
association. The Converted Bank will receive a federal stock charter
as a stock savings bank. The Holding Company is incorporated under the
law of the state of Missouri.
(i) None of the shares of the Common Stock to be purchased by the
depositor-employees of the Association in the Conversion will be
issued or acquired at a discount. However, shares may be given to
certain Directors and employees as compensation by means of the
Employee Plans. Compensation to be paid to such Directors and
depositor-employees will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
(j) The fair market value of the assets of the Association, which will be
transferred to the Converted Bank in the Conversion, will equal or
exceed the sum of the liabilities of the Association which will be
assumed by the Converted Bank and any liabilities to which the
transferred assets are subject.
(k) The Association is solvent and is not under the jurisdiction of a
bankruptcy or similar court, a receivership, foreclosure, or similar
proceeding in a Federal or State court.
(l) Upon the completion of the Conversion, the Holding Company will own
and hold 100% of the issued and outstanding capital stock of the
Converted Bank and no other shares of capital stock of the Converted
Bank will be issued and/or outstanding. At the time of the
Conversion, the Association does not have any plan or intention to
issue additional shares of its stock following the transaction.
Further, no shares of preferred stock of the Converted Bank will be
issued and/or outstanding.
(m) Upon the completion of the Conversion, there will be no rights,
warrants, contracts, agreements, commitments or understandings with
respect to the capital stock of the Converted Bank, nor will there be
any securities outstanding which are convertible into the capital
stock of the Converted Bank.
(n) No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders, or others in lieu of (a)
nontransferable subscription rights, or (b) an interest in the
liquidation account of the Converted Bank.
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(o) The Association has utilized the reserve method of accounting for bad
debts in filing its federal income tax return for the past 3 tax
years. For the past two (2) tax years, the Association has calculated
its addition to the tax reserve for bad debts under the experience
method. For the 1995 tax year, the Association calculated its
addition to the bad debt reserve under the percentage of taxable
income method. Following the Conversion, the Converted Bank will
maintain a tax reserve for bad debts to the extent allowable under the
Internal Revenue Code.
(p) In preparing its federal income tax return for the 1995 taxable year,
the Association analyzed its assets by reference to whether 60% of its
total assets consists of the items listed below and has satisfied this
test. For the 1996 and 1997 tax years, this test was not performed
since the Association utilized the experience method. For the 1995
tax year, at least 60% of the amount of the total assets at the close
of the year consisted of the following items: (i) cash, (ii)
obligations of the US, of a State or political subdivision of a State,
obligations of a corporation which is an instrumentality of the US or
of a State (but excluding tax-exempt obligations), (iii) certificates
of deposit in, or obligations of a corporation organized under a State
law which specifically authorizes such corporation to insure the
deposits or share accounts, (iv) loans secured by a deposit or share
of a member, (v) loans secured by an interest in real property which
is residential real property or used primarily for church purposes,
loans made for the improvement of residential or church property, (vi)
loans secured by an interest in educational, health, or welfare
institutions or facilities, including structures designed to be used
for residential purposes, (vii) property acquired through the
liquidation of defaulted loans described in (v) or (vi) above, (viii)
loans made for the repayment of expenses of college or university
education or vocational training, (ix) property used by the
Association in the conduct of the business of acquiring the savings of
the public and investing in loans, and (x) any regular or residual
interest in a REMIC, but only in the proportion of the assets of the
REMIC which consists of property described in (i) through (ix) above.
(q) Depositors will pay the expenses of the Conversion solely applicable
to them, if any. The Holding Company and the Association will each
pay expenses of the transaction attributable to them and will not pay
any expenses solely attributable to the depositors or to the Holding
Company shareholders.
(r) The exercise price of the subscription rights received by the
Association's Eligible Account Holders, Supplemental Eligible Account
Holders, and other holders of subscription rights to purchase Holding
Company Common Stock will be equal to the fair market value of the
stock of the Holding Company at the time of the completion of the
Conversion as determined by an independent appraisal.
(s) The proprietary interests of the Eligible Account Holders and the
Supplemental Eligible Account Holders in the Association arise solely
by virtue of the fact that they are account holders in the
Association.
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(t) There is no plan or intention for the Converted Bank to be liquidated
or merged with another corporation following this proposed
transaction.
(u) The liabilities of the Association assumed by the Converted Bank plus
the liabilities, if any, to which the transferred assets are subject
were incurred by the Association in the ordinary course of its
business and are associated with the assets transferred.
(v) The Association currently has no net operating losses for federal tax
purposes, and has no such losses available for carryover to future tax
years. The Association has neither generated nor carried forward a
net operating loss for federal tax purposes in the past ten tax years.
I understand that the underlying premise of a tax-free reorganization is
grounded in the continuity of both the organization itself and the shareholders'
interests in the organization. Therefore, I understand that to the extent that
any repurchase of the Common Stock of the Converted Bank is considered to be
part of the reorganization, such repurchase could weaken continuity of interest
and thus, jeopardize the tax-free status of the reorganization. I also
understand that such repurchase could trigger recapture of the bad debt loss
reserve.
Additionally, I understand that any change in facts or in the execution of
this transaction could cause a modification of the opinion of Muldoon, Murphy &
Faucette LLP. Since these representations are being offered in advance of the
closing of this transaction, I will undertake to promptly notify Muldoon, Murphy
& Faucette LLP if I discover at any time following the date hereof that any of
the above representations cease to be true, correct and/or complete.
January 15, 1999 /s/ Eldon R. Mette
-------------------------------------------
Eldon R. Mette
Executive Vice President
Palmyra Saving and Building Association, F.A.
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