As filed with the Securities and Exchange Commission on October 26, 2000
Registration No. 333-45404
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO THE
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
LAWRENCE FINANCIAL HOLDINGS, INC.
(Name of Small Business Issuer in its Articles of Incorporation)
MARYLAND 6035 31-1724442
(State or Other Jurisdiction (Primary Standard (IRS Employer
of Incorporation Industrial Classification Identification No.)
or Organization) Code Number)
311 South Fifth Street 311 South Fifth Street
Ironton, Ohio 45638 Ironton, Ohio 45638
(740) 532-0263 (740) 532-0263
(Address and Telephone Number (Address of Principal Place of Business
of Principal Executive Offices) or Intended Principal Place of Business)
Jack L. Blair
President and Chief Executive Officer
Lawrence Financial Holdings, Inc.
311 South Fifth Street
Ironton, Ohio 45638
(740) 532-0263
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Paul M. Aguggia, Esquire Kenneth Lehman, Esquire
Aaron M. Kaslow, Esquire Luse Lehman Gorman Pomerenk &
Muldoon, Murphy & Faucette LLP Schick
5101 Wisconsin Avenue, N.W. 5335 Wisconsin Avenue, N.W., Suite 400
Washington, D.C. 20016 Washington, D.C. 20015
(202) 362-0840 (202) 274-2000
Approximate date of proposed sale to public: As soon as practicable after
this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act Registration Statement number of the earlier
effective Registration Statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Proposed Proposed Maximum
Title of each Class Maximum Aggregate Amount of
of Securities to be Amount to Offering Price Offering Registration
Registered be Registered Per Unit Price (1) Fee
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Common Stock
$.01 par Value 859,625 Shares $10.00 $8,596,250 (2)
- --------------------------------------------------------------------------------
Participation
Interests (3) -- $ 402,738 (4)
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) The registation fee of $2,269.41 was paid previously upon the initial
filing of the Form SB-2 on September 8, 2000.
(3) The securities of Lawrence Financial Holdings, Inc. to be purchased by the
Lawrence Federal Savings Bank Employees' Savings & Profit Sharing Plan and
Trust are included in the amount shown for Common Stock.
(4) No separate is required for the participation interests. In accordance with
Rule 457(h) of the Securities Act of 1933, as amended, the registration fee
has been calculated on the basis of the number of shares of Common Stock
that may be purchased with the current assets of such plan.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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INTERESTS IN
LAWRENCE FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN AND TRUST
AND
OFFERING OF 40,273 SHARES OF
LAWRENCE FINANCIAL HOLDINGS, INC.
COMMON STOCK ($.01 PAR VALUE)
This prospectus supplement relates to the offer and sale to
participants in the Lawrence Federal Savings Bank Employees' Savings & Profit
Sharing Plan and Trust of participation interests and shares of common stock of
Lawrence Financial Holdings, Inc.
The Board of Directors of Lawrence Federal has adopted a plan that will
convert the structure of Lawrence Federal from a mutual savings institution to a
stock savings institution. As part of the conversion, Lawrence Financial
Holdings, Inc. has been established to acquire all of the stock of Lawrence
Federal and simultaneously offer Lawrence Financial common stock to the public
under certain purchase priorities in the plan of conversion. Savings Plan
participants are now permitted to direct the trustee of the Savings Plan to use
their current account balances to subscribe for and purchase shares of Lawrence
Financial common stock through the Lawrence Financial Stock Fund. Based upon the
value of the Savings Plan assets at June 30, 2000, the trustee of the Savings
Plan could purchase up to 40,273 shares of Lawrence Financial common stock
assuming a purchase price of $10.00 per share. This prospectus supplement
relates to the election of Savings Plan participants to direct the trustee of
the Savings Plan to invest all or a portion of their Savings Plan accounts in
Lawrence Financial common stock.
The prospectus dated ____________, 2000 of Lawrence Financial, which we
have attached to this prospectus supplement, includes detailed information
regarding the conversion of Lawrence Federal, Lawrence Financial common stock
and the financial condition, results of operations and business of Lawrence
Federal. This prospectus supplement provides information regarding the Savings
Plan. You should read this prospectus supplement together with the prospectus
and keep both for future reference.
Please refer to "Risk Factors" beginning on page ____ of the
prospectus.
Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation, nor any other
state or federal agency or any state securities commission, has
approved or disapproved these securities. Any representation
to the contrary is a criminal offense.
These securities are not deposits or accounts and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
This prospectus supplement may be used only in connection with offers
and sales by Lawrence Financial of interests or shares of common stock under the
Savings Plan to employees of Lawrence Federal. No one may use this prospectus
supplement to reoffer or resell interests or shares of common stock acquired
through the Savings Plan.
You should rely only on the information contained in this prospectus
supplement and the attached prospectus. Lawrence Financial, Lawrence Federal and
the Savings Plan have not authorized anyone to provide you with information that
is different.
This prospectus supplement does not constitute an offer to sell or
solicitation of an offer to buy any securities in any jurisdiction to any person
to whom it is unlawful to make an offer or solicitation in that jurisdiction.
Neither the delivery of this prospectus supplement and the prospectus nor any
sale of common stock shall under any circumstances imply that there has been no
change in the affairs of Lawrence Federal or the Savings Plan since the date of
this prospectus supplement, or that the information contained in this prospectus
supplement or incorporated by reference is correct as of any time after the date
of this prospectus supplement.
The date of this Prospectus Supplement is______________, 2000.
TABLE OF CONTENTS
THE OFFERING..............................................................1
Securities Offered...............................................1
Election to Purchase Lawrence Financial Common Stock in
the Conversion of Lawrence Federal.............................1
Value of Participation Interests.................................1
Method of Directing Transfer.....................................2
Time for Directing Transfer......................................2
Irrevocability of Transfer Direction.............................2
Purchase Price of Lawrence Financial Common Stock................2
Nature of a Participant's Interest in Lawrence Financial
Common Stock...................................................2
Voting and Tender Rights of Lawrence Financial
Common Stock...................................................2
DESCRIPTION OF THE SAVINGS PLAN...........................................3
Introduction.....................................................3
Eligibility and Participation....................................3
Contributions Under the Savings Plan.............................3
Limitations on Contributions.....................................4
Investment of Contributions......................................5
Benefits Under the Savings Plan..................................7
Withdrawals and Distributions From the Savings Plan..............7
Administration of the Savings Plan...............................7
Reports to Savings Plan Participants.............................8
Plan Administrator...............................................8
Amendment and Termination........................................8
Merger, Consolidation or Transfer................................8
Federal Income Tax Consequences..................................8
Restrictions on Resale..........................................10
SEC Reporting and Short-Swing Profit Liability..................11
LEGAL OPINION............................................................11
CHANGE OF INVESTMENT ALLOCATION FORM
THE OFFERING
Securities Offered
The securities offered in connection with this prospectus supplement
are participation interests in the Savings Plan. Assuming a purchase price of
$10.00 per share, the trustee may acquire up to 40,273 shares of Lawrence
Financial common stock for the Lawrence Financial Stock Fund. The interests
offered under this prospectus supplement are conditioned on the completion of
the conversion of Lawrence Federal. Your investment in the Lawrence Financial
Stock Fund in connection with the conversion of Lawrence Federal is also
governed by the purchase priorities contained in the plan of conversion of
Lawrence Federal.
This prospectus supplement contains information regarding the Savings
Plan. The attached prospectus contains information regarding the conversion of
Lawrence Federal and the financial condition, results of operations and business
of Lawrence Federal. The address of the principal executive office of Lawrence
Federal is 311 South Fifth Street, Ironton, Ohio 45638. The telephone number of
Lawrence Federal is (740) 532-0263.
Value of Participation Interests
As of June 30, 2000, the market value of the assets of the Savings Plan
equaled approximately $402,738. The plan administrator has informed each
participant of the value of his or her beneficial interest in the Savings Plan
as of June 30, 2000. The value of Savings Plan assets represents past
contributions to the Savings Plan on your behalf, plus or minus earnings or
losses on the contributions, less previous withdrawals and loans.
Election to Purchase Lawrence Financial Common Stock in the Conversion of
Lawrence Federal
In connection with the conversion of Lawrence Federal, the Savings Plan
will permit you to direct the trustee to transfer all or part of the funds which
represent your current beneficial interest in the assets of the Savings Plan to
the Lawrence Financial Stock Fund. The trustee of the Savings Plan will
subscribe for Lawrence Financial common stock offered for sale in connection
with the conversion of Lawrence Federal in accordance with each participant's
direction. If Lawrence Financial receives subscriptions for more shares than are
to be sold in connection with the offering, the trustee for the Savings Plan may
not be able to purchase all of the common stock you requested in the initial
public offering. In such case, the shares of common stock that are available in
connection with the conversion will be purchased by the trustee and pro-rated to
each participant's account based on the purchase priorities set forth in the
Lawrence Federal plan of conversion and outlined below. The trustee will
purchase shares of common stock in the open market after the conversion to
complete your initial request. Purchases in the open market may be at prices
higher or lower than the initial public offering price.
Purchase Priorities
All plan participants are eligible to direct a transfer of funds to
the Lawrence Financial Stock Fund. However, such directions are subject to the
purchase priorities in the plan of conversion of Lawrence Federal. Your order
will be filled based on your status as an eligible account holder or
supplemental eligible account holder in the conversion of Lawrence Federal. An
eligible account holder is a depositor whose deposit account(s) totalled $50.00
or more on March 31, 1999. A supplemental eligible account holder is a depositor
whose deposit account(s) totalled $50 or more on September 30, 2000.
1
If you fall into one of the above subscription offering categories, you have
subscription rights to purchase shares of common stock in the subscription
offering and you may use funds in the Savings Plan account to pay for the shares
of Lawrence Financial common stock which you are eligible to purchase.
Minimum and Maximum Purchases
No eligible account holders or supplemental eligible account holders
may purchase in the subscription offering less than $250 or more than $75,000 of
Lawrence Financial common stock.
Purchase Price of Lawrence Financial Common Stock
The trustee will pay the same price for shares of Lawrence Financial
common stock as all other persons who purchase shares of Lawrence Financial
common stock in the conversion of Lawrence Federal. Shares of common stock
purchased in the open market, if any, will be purchased at prevailing market
prices.
Method of Directing Transfer
The last two pages of this prospectus supplement is a form for you to
direct a transfer to the Lawrence Financial Stock Fund (the "Change of
Investment Allocation Form"). If you wish to transfer all, or part, in multiples
of not less than 1%, of your beneficial interest in the assets of the Savings
Plan to the Lawrence Financial Stock Fund, you should complete the Change of
Investment Allocation Form. If you do not wish to make such an election at this
time, you do not need to take any action.
Time for Directing Transfer
The deadline for submitting a direction to transfer amounts to the
Lawrence Financial Stock Fund in connection with the conversion of Lawrence
Federal is ___________, 2000. You should return the Change of Investment
Allocation Form to ___________________ by ______ p.m. on ____________, 2000.
Irrevocability of Transfer Direction
Your direction to transfer amounts credited to such account in the
Savings Plan to the Lawrence Financial Stock Fund cannot be changed.
Nature of a Participant's Interest in Lawrence Financial Common Stock
The trustee will hold Lawrence Financial common stock in the name of
the Savings Plan. The trustee will allocate shares of common stock acquired at
your direction to your account under the Savings Plan. Therefore, earnings with
respect to your account will not be affected by the investment designations of
other participants in the Savings Plan.
2
Voting and Tender Rights of Lawrence Financial Common Stock
The Savings Plan provides that you may direct the trustee as to the
manner in which shares of common stock held by the Lawrence Financial Stock Fund
Trust (and credited to your account) are to be voted. In the event the trustee
does not receive voting instructions from participants investing in the Lawrence
Financial Stock Fund or if such instructions are not received in a timely
manner, Lawrence Federal can direct the trustee to vote those shares of common
stock in the same manner as the shares of common stock for which instructions
were given were voted.
If there is a tender offer for Lawrence Financial common stock, the
Savings Plan provides that you will be allotted a number of tender instruction
rights reflecting your interest in the Lawrence Financial Stock Fund. The
percentage of shares of Lawrence Financial common stock held in the Lawrence
Financial Stock Fund that will be tendered will be the same as the percentage of
the total number of tender instruction rights that are exercised in favor of
tendering. The remaining shares of Lawrence Financial common stock held in the
Lawrence Financial Stock Fund will not be tendered.
All participants' voting instructions and tender instructions will be
confidential.
DESCRIPTION OF THE SAVINGS PLAN
I. Introduction
Effective October 1, 2000, Lawrence Federal amended its existing
401(k) Plan in its entirety into the Lawrence Federal Savings Bank Employees'
Savings & Profit Sharing Plan and Trust. Lawrence Federal intends for the
Savings Plan to comply, in form and in operation, with all applicable provisions
of the Internal Revenue Code and the Employee Retirement Income Security Act or
"ERISA." Lawrence Federal may change the Savings Plan from time to time in the
future to ensure continued compliance with these laws. Lawrence Federal may also
amend the Savings Plan from time to time in the future to add, modify, or
eliminate certain features of the plan, as it sees fit. As a plan governed by
ERISA, federal law provides you with various rights and protections as a plan
participant. Although the Savings Plan is governed by many of the provisions of
ERISA, your benefits under the plan are not guaranteed by the Pension Benefit
Guaranty Corporation.
Reference to Full Text of Plan. The following portions of this
prospectus supplement provide an overview of the material provisions of the
Savings Plan. Lawrence Federal qualifies this overview in its entirety by
reference to the full text of the Savings Plan. You may obtain copies of the
full Savings Plan document by sending a request to ____________________ at
Lawrence Federal. You should carefully read the full text of the Savings Plan
document to understand your rights and obligations under the plan.
3
II. Eligibility and Participation
Any employee of Lawrence Federal may participate in the Savings Plan as
of the first day of the calendar quarter coinciding with or next following the
date an employee completes six consecutive months of service with Lawrence
Federal in which the employee performed at least 500 hours of service.
As of _____________, 2000, ______ of the _____________ eligible
employees of Lawrence Federal elected to participate in the Savings Plan.
III. Contributions Under the Savings Plan
Savings Plan Participant Contributions. The Savings Plan permits each
participant to annually defer receipt of up to 10% of compensation that Lawrence
Federal would otherwise currently pay. For purposes of calculating deferrals,
the Savings Plan considers compensation to include your base salary, plus
overtime, bonuses and commissions. However, by law, the Savings Plan may not
consider more than $170,000 of compensation for purposes of determining
deferrals for 2000. Participants in the Savings Plan may modify the amount
contributed to the plan, effective on the first day of each calendar quarter.
Lawrence Federal Contributions. Lawrence Federal has discretion under
the Savings Plan about whether or not to make matching contributions. Lawrence
Federal currently makes matching contributions to the Savings Plan equal to 50%
of a Participant's contributions up to 5% of a participant's compensation for
purposes of the Savings Plan.
IV. Limitations on Contributions
Limitation on Employee Salary Deferral. Although the Savings Plan
permits you to defer up to 10% of your compensation, by law your total deferrals
under the Savings Plan, together with similar plans, may not exceed $10,500 for
2000. The Internal Revenue Service will periodically increase this annual
limitation. Contributions in excess of this limitation, or excess deferrals,
will be included in an affected participant's gross income for federal income
tax purposes in the year they are made. In addition, a participant will have to
pay federal income taxes on any excess deferrals when distributed by the Savings
Plan to the participant, unless the excess deferral and any related income
allocable is distributed to the participant not later than the first April 15th
following the close of the taxable year in which the excess deferral is made.
Any income on the excess deferral that is distributed not later than such date
shall be treated, for federal income tax purposes, as earned and received by the
participant in the taxable year in which the distribution is made.
Limitations on Annual Additions and Benefits. Under the requirements of
the Internal Revenue Code, the Savings Plan provides that the total amount of
contributions and forfeitures (annual additions) allocated to a participant
during any year may not exceed the lesser of 25% of the participant's
compensation for that year, or $30,000. The Savings Plan will also limit annual
additions to the extent necessary to prevent the limitations contained in the
Internal Revenue Code for all of the qualified defined benefit plans and defined
contribution plans maintained by Lawrence Federal from being exceeded.
Limitation on Plan Contributions for Highly Compensated Employees.
Special provisions of the Internal Revenue Code limit the amount of salary
deferrals and matching contributions that may be made to the Savings Plan in any
year on behalf of highly compensated employees in relation to the amount of
deferrals and matching contributions made by or on behalf of all other employees
eligible to participate in the Savings Plan. If these limitations are exceeded,
the level of deferrals by highly compensated employees must be adjusted.
4
In general, a highly compensated employee includes any employee who,
(1) was a five percent owner of the sponsoring employer at any time during the
year or preceding year, or (2) had compensation for the preceding year in excess
of $80,000 and, if the sponsoring employer so elects, was in the top 20% of
employees by compensation for such year. The dollar amounts in the foregoing
sentence are for 1999, but may be adjusted annually to reflect increases in the
cost of living.
Top-Heavy Plan Requirements. If for any calendar year the Savings Plan
is a Top-Heavy Plan, then Lawrence Federal may be required to make certain
minimum contributions to the Savings Plan on behalf of non-key employees. In
addition, certain additional restrictions would apply with respect to the
combination of contributions to the Savings Plan and projected annual benefits
under any defined benefit plan maintained by Lawrence Federal.
In general, the Savings Plan will be treated as a "Top-Heavy Plan" for
any calendar year if, as of the last day of the preceding calendar year, the
aggregate balance of the accounts of participants who are Key Employees exceeds
60% of the aggregate balance of the accounts of all participants. Key Employees
generally include any employee who, at any time during the calendar year or any
of the four preceding years, is:
(1) an officer of Lawrence Federal having annual compensation in excess
of $60,000 who is in an administrative or policy-making capacity,
(2) one of the ten employees having annual compensation in excess of
$30,000 and owning, directly or indirectly, the largest interests in Lawrence
Federal,
(3) a person who owns, directly or indirectly, more than 5% of the
stock of Lawrence Financial, or stock possessing more than 5% of the total
combined voting power of all stock of Lawrence Financial, or
(4) a person who owns directly or indirectly combined voting power of
all stock and more than 1% of the total stock of Lawrence Financial and has
annual compensation in excess of $150,000.
The foregoing dollar amounts are for 2000.
V. Investment of Contributions
All amounts credited to participants' accounts under the Savings Plan
are held in trust. A trustee appointed by the board of directors of Lawrence
Federal administers the trust.
The Savings Plan offers the following investment choices:
S&P 500 Stock Fund. This stock fund invests in the stocks of a broad
array of established U.S. companies. Its objective is long-term: to earn higher
returns by investing in the largest companies in the U.S. economy.
Stable Value Fund. This fund invests primarily in Guaranteed Investment
Contracts and Synthetic Guaranteed Investment Contracts. These contracts pay a
steady rate of interest over a certain period of time, usually between three and
five years. Its objective is short to intermediate-term: to achieve a stable
return over short to intermediate periods of time while preserving the value of
your investment.
5
S&P MidCap Stock Fund. This stock fund invests in the stocks of
mid-sized U.S. companies, which are expected to grow faster than larger, more
established companies. Its objective is long-term: to earn higher returns which
reflect the growth potential of mid-sized companies.
Money Market Fund. This fund invests in a broad range of high-quality,
short-term instruments issued by banks, corporations and the U.S. Government and
its agencies. These instruments include certificates of deposit and U.S.
Treasury bills. Its objective is short-term: to achieve competitive, short- term
rates of return while preserving the value of your principal.
Government Bond Fund. This bond fund invests in U.S. Treasury bonds
with a maturity of 20 years or more. Its objective is long-term: to earn a
higher level of income along with the potential for capital appreciation.
International Stock Fund. This fund invests in over 1,000 foreign
stocks in 20 countries, based in Europe, Australia, and the Far East. Its
objective is long-term: to offer the potential return of investing in the stocks
of established non-U.S. companies, as well as the potential risk-reduction of
broad diversification.
Income Plus Asset Allocation Fund. This fund diversifies among a broad
range of stable value securities to reduce short-term risk and among a broad
range of large U.S. and international companies to capture growth potential. The
fund is structured to take advantage of market opportunities with a small
flexible component. Its objective is intermediate-term: to preserve the value of
your investment over short periods of time and to offer some potential for
growth.
Growth and Income Asset Allocation Fund. This fund diversifies among
U.S. and international stocks, U.S. bonds, and stable value investments to
pursue long-term appreciation and short-term stability and takes advantage of
market opportunities with a small flexible component. Its objective is
intermediate- term: to provide a balance between the pursuit of growth and
protection from risk.
Growth Asset Allocation Fund. This fund diversifies among a broad range
of domestic and international stocks and takes advantage of market opportunities
with a large flexible component. Its objective is long-term: to pursue high
growth of your investment over time.
Lawrence Federal Certificate of Deposit. Participants may invest their
funds in Lawrence Federal certificates of deposit at prevailing market rates.
The Savings Plan now provides the Lawrence Financial Stock Fund as an
additional choice to these investment alternatives. The Lawrence Financial Stock
Fund invests primarily in the common stock of Lawrence Financial. Participants
in the Savings Plan may direct the trustee to invest all or a portion of their
Savings Plan account balance in the Lawrence Financial Stock Fund.
6
The annual percentage return on the funds (net of fees) listed above
for the prior three years was:
1999 1998 1997
---- ---- ----
S&P 500 Stock Fund......................... 20.4% 27.9% 32.7%
Stable Value Fund.......................... 5.7 5.9 6.2
S&P MidCap Stock Fund...................... 14.3 18.6 31.5
Money Market Fund.......................... 4.9 5.5 5.5
Government Bond Fund....................... -10.6 13.8 15.4
International Stock Fund................... 26.0 19.3 3.6
Income Plus Asset Allocation Fund.......... 7.4 9.7 8.9
Growth and Income Asset Allocation Fund.... 14.8 15.5 13.6
Growth Asset Allocation Fund............... 22.7 19.0 18.0
Lawrence Federal Certificate of Deposit....
The Lawrence Financial Stock Fund consists of investments in the common
stock of Lawrence Financial made on the effective date of the conversion of
Lawrence Federal. After the conversion of Lawrence Federal, the trustee of the
Savings Plan will, to the extent practicable, use all amounts held by it in the
Lawrence Financial Stock Fund, including cash dividends paid on the common stock
held in the fund, to purchase shares of common stock of Lawrence Financial.
As of the date of this prospectus supplement, none of the shares of
Lawrence Financial common stock have been issued or are outstanding and there is
no established market for the Lawrence Financial common stock. Accordingly,
there is no record of the historical performance of the Lawrence Financial Stock
Fund. Performance of the Lawrence Financial Stock Fund depends on a number of
factors, including the financial condition and profitability of Lawrence
Financial and Lawrence Federal and market conditions for Lawrence Financial
common stock generally.
VI. Benefits Under the Savings Plan
Vesting. You are always 100% vested in your elective deferrals under
the Savings Plan. You vest in regular matching contributions at a rate of 100%
after three (3) years of employment with Lawrence Federal.
VII. Withdrawals and Distributions From the Savings Plan
Withdrawals Before Termination of Employment. You may receive
in-service distributions from the Savings Plan under limited circumstances in
the form of hardship distributions. In order to qualify for a hardship
withdrawal, you must have an immediate and substantial need to meet certain
expenses and have no other reasonably available resources to meet the financial
need. If you qualify for a hardship distribution, the trustee will make the
distribution proportionately from the investment funds in which you have
invested your account balances.
Distribution Upon Retirement or Disability. Upon retirement or
disability, you may receive a partial lump sum payment, a full lump sum payment,
or installment payments from the Savings Plan equal to the vested value of your
accounts.
7
Distribution Upon Death. If you die before your benefits are paid from
the Savings Plan, your benefits will be paid to your surviving spouse or
beneficiary under one or more of the forms available under the Savings Plan.
Distribution Upon Termination for Any Other Reason. If you terminate
employment for any reason other than retirement, disability or death and your
account balance exceeds $500, the trustee will make your distribution on your
normal retirement date, unless you request otherwise. If your account balances
do not exceed $500, the trustee will generally distribute your benefits to you
as soon as administratively practicable following termination of employment.
Nonalienation of Benefits. Except with respect to federal income tax
withholding and as provided with respect to a qualified domestic relations
order, benefits payable under the Savings Plan shall not be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to
benefits payable under the Savings Plan shall be void.
Applicable federal tax law requires the Savings Plan to impose
substantial restrictions on your right to withdraw amounts held under the plan
before your termination of employment with Lawrence Federal. Federal law may
also impose an excise tax on withdrawals made from the Savings Plan before you
attain 59 1/2 years of age regardless of whether the withdrawal occurs during
your employment with Lawrence Federal or after termination of employment.
Administration of the Savings Plan
The trustee with respect to the Savings Plan is the named fiduciary of
the Savings Plan for purposes of ERISA.
Trustees. The board of trustees of Lawrence Federal appoints the
trustee to serve at its pleasure. The board of trustees has appointed Bank of
New York as trustee of the Lawrence Financial Stock Fund.
The trustee receives, holds and invests the contributions to the
Savings Plan in trust and distributes them to participants and beneficiaries in
accordance with the terms of the Savings Plan and the directions of the plan
administrator. The trustee is responsible for investment of the assets of the
trust.
Reports to Savings Plan Participants
The plan administrator will furnish you a statement at least quarterly
showing the balance in your account as of the end of that period, the amount of
contributions allocated to your account for that period, and any adjustments to
your account to reflect earnings or losses.
Plan Administrator
The current plan administrator of the Savings Plan is Lawrence Federal.
The plan administrator is responsible for the administration of the Savings
Plan, interpretation of the provisions of the plan, prescribing procedures for
filing applications for benefits, preparation and distribution of information
explaining the plan, maintenance of plan records, books of account and all other
data necessary for the proper administration of the plan, and preparation and
filing of all returns and reports relating to the plan which are required to be
filed with the U.S. Department of Labor and the Internal Revenue Service, and
for all disclosures required to be made to participants, beneficiaries and
others under ERISA.
8
Amendment and Termination
Lawrence Federal intends to continue the Savings Plan indefinitely.
Nevertheless, Lawrence Federal may terminate the Savings Plan at any time. If
Lawrence Federal terminates the Savings Plan in whole or in part, then
regardless of other provisions in the plan, all affected participants will
become fully vested in their accounts. Lawrence Federal reserves the right to
make, from time to time, changes which do not cause any part of the trust to be
used for, or diverted to, any purpose other than the exclusive benefit of
participants or their beneficiaries; provided, however, that Lawrence Federal
may amend the plan as it determines necessary or desirable, with or without
retroactive effect, to comply with ERISA or the Internal Revenue Code.
Merger, Consolidation or Transfer
If the Savings Plan merges or consolidates with another plan or
transfers the trust assets to another plan, and if either the Savings Plan or
the other plan is then terminated, the Savings Plan requires that you would
receive a benefit immediately after the merger, consolidation or transfer. The
benefit would be equal to or greater than the benefit you would have been
entitled to receive immediately before the merger, consolidation or transfer if
the Savings Plan had then terminated.
Federal Income Tax Consequences
The following is a brief description of the material federal income tax
aspects of the Savings Plan which are of general application under the Internal
Revenue Code. It is not intended to be a complete or definitive description of
the federal income tax consequences of participating in or receiving
distributions from the Savings Plan. Accordingly, you are urged to consult a tax
advisor concerning the federal, state and local tax consequences of
participating in and receiving distributions from the Savings Plan.
As a "qualified retirement plan," the Internal Revenue Code affords the
Savings Plan special tax treatment, including:
(1) The sponsoring employer is allowed an immediate tax deduction for
the amount contributed to the plan each year;
(2) participants pay no current income tax on amounts contributed by
the employer on their behalf; and
(3) earnings of the plan are tax-deferred thereby permitting the
tax-free accumulation of income and gains on investments.
Lawrence Federal will administer the Savings Plan to comply in
operation with the requirements of the Internal Revenue Code as of the
applicable effective date of any change in the law. If Lawrence Federal receives
an adverse determination letter regarding its tax exempt status from the
Internal
9
Revenue Service, all participants would generally recognize income equal to
their vested interest in the Savings Plan, the participants would not be
permitted to transfer amounts distributed from the Savings Plan to an Individual
Retirement Account or to another qualified retirement plan, and Lawrence Federal
may be denied certain deductions taken with respect to the Savings Plan.
Lump Sum Distribution. A distribution from the Savings Plan to a
participant or the beneficiary of a participant will qualify as a lump sum
distribution if it is made within one taxable year, on account of the
participant's death, disability or separation from service, or after the
participant attains age 59 1/2; and consists of the balance to the credit of the
participant under this plan and all other profit sharing plans, if any,
maintained by Lawrence Federal. The portion of any lump sum distribution
required to be included in your taxable income for federal income tax purposes
consists of the entire amount of the lump sum distribution less the amount of
after-tax contributions, if any, you have made to any other profit sharing plans
maintained by Lawrence Federal which is included in the distribution.
Averaging Rules. The portion of any lump sum distribution, required to
be included in your federal taxable income for federal income tax purposes,
attributable to participation after 1973 in the Savings Plan or in any other
profit sharing plan maintained by Lawrence Federal, known as the "ordinary
income portion," will be taxable generally as ordinary income for federal income
tax purposes. However, if you have completed at least five (5) years of
participation in the Savings Plan before the taxable year in which the
distribution is made, or receive a lump sum distribution on account of your
death, regardless of the period of your participation in this plan or any other
profit sharing plan maintained by Lawrence Federal, you may elect to have the
ordinary income portion of such lump sum distribution taxed according to a
special five-year averaging rule. The election of the special five-year
averaging rule may apply only to one lump sum distribution you or your
beneficiary receive, provided such amount is received on or after the date you
turn 59 1/2 and the recipient elects to have any other lump sum distribution
from a qualified plan received in the same taxable year taxed under the special
five-year averaging rule. Under a special grandfather rule, individuals who
turned 50 by 1986 may elect to have their lump sum distribution taxed under
either the five-year averaging rule or, under prior law, the ten-year averaging
rule. These individuals also may elect to have that portion of the lump sum
distribution attributable to the participant's pre-1974 participation in the
plan taxed at a flat 20% rate as gain from the sale of a capital asset.
Lawrence Financial Common Stock Included in Lump Sum Distribution. If a
lump sum distribution includes Lawrence Financial common stock, the distribution
generally will be taxed in the manner described above, except that the total
taxable amount will be reduced by the amount of any net unrealized appreciation
with respect to Lawrence Financial common stock that is the excess of the value
of Lawrence Financial common stock at the time of the distribution over its cost
or other basis of the securities to the trust. The tax basis of Lawrence
Financial common stock for purposes of computing gain or loss on its subsequent
sale equals the value of Lawrence Financial common stock at the time of
distribution less the amount of net unrealized appreciation. Any gain on a
subsequent sale or other taxable disposition of Lawrence Financial common stock,
to the extent of the amount of net unrealized appreciation at the time of
distribution, will constitute long-term capital gain regardless of the holding
period of Lawrence Financial common stock. Any gain on a subsequent sale or
other taxable disposition of Lawrence Financial common stock in excess of the
amount of net unrealized appreciation at the time of distribution will be
considered long-term capital gain regardless of the holding period of Lawrence
Financial common stock. Any gain on a subsequent sale or other taxable
disposition of Lawrence Financial common stock in excess of the amount of net
unrealized appreciation at the time of distribution will be considered either
short-term or long-term capital gain depending upon the length of the holding
period of Lawrence Financial common stock. The recipient of a distribution may
elect to include the amount of any net unrealized appreciation in the total
taxable amount of the distribution to the extent allowed by the regulations to
be issued by the IRS.
10
Distributions: Rollovers and Direct Transfers to Another Qualified Plan
or to an IRA. You may roll over virtually all distributions from the Savings
Plan to another qualified plan or to an individual retirement account generally.
Restrictions on Resale
Any person receiving a distribution of shares of common stock under the
Savings Plan who is an "affiliate" of Lawrence Financial under Rules 144 and 405
under the Securities Act of 1933 may reoffer or resell such shares only under a
registration statement filed under the Securities Act of 1933, assuming the
availability of a registration statement, under Rule 144 or some other exemption
of the registration requirements of the Securities Act of 1933. Directors,
officers and substantial shareholders of Lawrence Financial are generally
considered "affiliates." Any person who may be an "affiliate" of Lawrence
Federal may wish to consult with counsel before transferring any common stock
they own. In addition, participants are advised to consult with counsel as to
the applicability of Section 16 of the Securities Exchange Act of 1934 which may
restrict the sale of Lawrence Financial common stock acquired under the Savings
Plan, or other sales of Lawrence Financial common stock.
Persons who are not deemed to be "affiliates" of Lawrence Federal at
the time of resale will be free to resell any shares of Lawrence Financial
common stock distributed to them under the Savings Plan, either publicly or
privately, without regard to the registration and prospectus delivery
requirements of the Securities Act or compliance with the restrictions and
conditions contained in the exemptive rules under federal law. An "affiliate" of
Lawrence Federal is someone who directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control, with
Lawrence Federal. Normally, a director, principal officer or major shareholder
of a corporation may be deemed to be an "affiliate" of that corporation. A
person who may be deemed an "affiliate" of Lawrence Federal at the time of a
proposed resale will be permitted to make public resales of the common stock
only under a "reoffer" prospectus or in accordance with the restrictions and
conditions contained in Rule 144 under the Securities Act of 1933, or some other
exemption from registration, and will not be permitted to use this prospectus in
connection with any such resale. In general, the amount of the common stock
which any such affiliate may publicly resell under Rule 144 in any three-month
period may not exceed the greater of one percent of Lawrence Financial common
stock then outstanding or the average weekly trading volume reported on the
National Association of Securities Dealers Automated Quotation System during the
four calendar weeks before the sale. Such sales may be made only through brokers
without solicitation and only at a time when Lawrence Financial is current in
filing the reports required of it under the Securities Exchange Act of 1934.
SEC Reporting and Short-Swing Profit Liability
Section 16 of the Securities Exchange Act of 1934 imposes reporting and
liability requirements on officers, directors and persons beneficially owning
more than ten percent of public companies such as Lawrence Financial. Section
16(a) of the Securities Exchange Act of 1934 requires the filing of reports of
beneficial ownership. Within ten days of becoming a person required to file
reports under Section 16(a), a Form 3 reporting initial beneficial ownership
must be filed with the Securities and Exchange Commission. Certain changes in
beneficial ownership, such as purchases, sales, gifts and participation in
savings and retirement plans must be reported periodically, either on a Form 4
within ten days after the end of the month in which a change occurs, or annually
on a Form 5 within 45 days after the close of Lawrence Federal's fiscal year.
Participation in the Lawrence Financial Stock Fund of the Savings Plan by
officers, directors and persons beneficially owning more than ten percent of the
common stock of Lawrence Financial must be reported to the SEC annually on a
Form 5 by such individuals.
11
In addition to the reporting requirements described above, Section
16(b) of the Securities Exchange Act of 1934 provides for the recovery by
Lawrence Financial of profits realized by any officer, director or any person
beneficially owning more than ten percent of the common stock resulting from the
purchase and sale or sale and purchase of the common stock within any six-month
period.
The SEC has adopted rules that exempt many transactions involving the
Savings Plan from the "short-swing" profit recovery provisions of Section 16(b).
The exemptions generally involve restrictions upon the timing of elections to
buy or sell employer securities for the accounts of any officer, director or any
person beneficially owning more than ten percent of the common stock.
Except for distributions of the common stock due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order, persons who are governed by Section 16(b) may, under limited
circumstances involving the purchase of common stock within six months of the
distribution, be required to hold shares of the common stock distributed from
the Savings Plan for six months following the distribution date.
LEGAL OPINIONS
The validity of the issuance of the common stock of Lawrence Financial
will be passed upon by Muldoon, Murphy & Faucette LLP, Washington, D.C. Muldoon,
Murphy & Faucette LLP acted as special counsel for Lawrence Federal in
connection with the conversion of Lawrence Federal.
12
LAWRENCE FEDERAL SAVINGS BANK EMPLOYEES' SAVINGS & PROFIT SHARING PLAN
AND TRUST
CHANGE OF INVESTMENT ALLOCATION
1. Member Data
________________________________________________________________________________
Print your full name above (Last, first, middle initial) Social Security Number
________________________________________________________________________________
Street Address City State Zip
2. Instructions
Lawrence Federal Savings Bank Employees' Savings & Profit Sharing Plan and Trust
(the "Plan" or "401(k) Plan") is giving you a special opportunity to invest your
401(k) Plan account balance in a new investment fund - the Lawrence Financial
Stock Fund - which is comprised primarily of common stock ("Common Stock")
issued by Lawrence Financial Holdings, Inc. (the "Company") in connection with
the conversion of Lawrence Federal Savings Bank from mutual to stock form. The
percentage of your account transferred into the Lawrence Financial Stock Fund
will be used to purchase shares of Common Stock during the Subscription and
Community Offering. Please review the Prospectus (the "Prospectus") and the
Prospectus Supplement (the "Supplement") before making any decision.
If there is not enough common stock in the conversion to fill all subscriptions,
the trustee for the Plan will not be able to purchase all of the common stock
you request in the initial public offering. In that case, the shares of common
stock that are available in connection with the conversion will be purchased by
the trustee and pro- rated to each participant's account based on the purchase
priorities set forth in the Lawrence Federal plan of conversion and outlined in
the prospectus supplement under Purchase Priorities. The trustee will purchase
shares of common stock in the open market after the conversion to complete your
initial request. These open market purchases may be at prices higher or lower
than the initial public offering price.
Investing in Common Stock entails some risks, and we encourage you to discuss
this investment decision with your spouse and investment advisor. The Plan
trustee and the Plan administrator are not authorized to make any
representations about this investment other than what appears in the Prospectus
and Supplement, and you should not rely on any information other than what is
contained in the Prospectus and Supplement. For a discussion of certain factors
that should be considered by each member as to an investment in the Common
Stock, see "Risk Factors" beginning on page _____ of the Prospectus. Any shares
purchased by the Plan pursuant to your election will be subject to the
conditions or restrictions otherwise applicable to Common Stock, as discussed in
the Prospectus and Supplement.
3. Investment Directions (Applicable to Accumulated Balances Only)
To direct a transfer of all or part of the funds credited to your accounts to
the Lawrence Financial Stock Fund, you should complete and file this form with
_______________________ at Lawrence Federal Savings Bank, no later
than____________, 2000 at ________ p.m. If you need any assistance in completing
this form, please contact ____________________. If you do not complete and
return this form to _____________ by ________p.m., the funds credited to
accounts under the Plan will continue to be invested in accordance with your
prior investment direction, or in accordance with the terms of the 401(k) Plan
if no investment direction had been provided.
I hereby revoke any previous investment direction and now direct that the market
value of the units that I have invested in the following funds, to the extent
permissible, be transferred out of the specified fund and invested (in whole
percentages) in the Lawrence Financial Stock Fund as follows:
Fund Percentage to be transferred
---- ----------------------------
S&P 500 Stock Fund _____%
Stable Value Fund _____%
S&P MidCap Stock Fund _____%
Money Market Fund _____%
Government Bond Fund _____%
International Stock Fund _____%
Income Plus Fund _____%
Growth & Income Fund _____%
Growth Fund _____%
Lawrence Federal Savings Bank Certificate of Deposit _____%
Note: The total amount transferred may not exceed the total value of your
accounts.
4. Investment Directions (Applicable to Future Contributions Only)
I hereby revoke any previous investment instructions and now direct that any
future contributions and/or loan repayments, if any, made by me or on my behalf
by Lawrence Federal Savings Bank, including those contributions and/or
repayments received by Lawrence Federal Savings Bank Employees' Savings & Profit
Sharing Plan and Trust during the same reporting period as this form, be
invested in the following whole percentages. If I elect to invest in Lawrence
Financial Holdings, Inc. Common Stock, such future contributions or loan
repayments, if any, will be invested in the Lawrence Financial Stock Fund the
month following the conclusion of the Offering.
Fund Percentage
---- ----------
S&P 500 Stock Fund ____%
Stable Value Fund ____%
S&P MidCap Stock Fund ____%
Money Market Fund ____%
Government Bond Fund ____%
International Stock Fund ____%
Income Plus Fund ____%
Growth & Income Fund ____%
Growth Fund ____%
Lawrence Federal Savings Bank Certificate of Deposit ____%
Lawrence Financial Stock Fund ____%
Total (Important!) 100 %
Notes: No amounts invested in the Stable Value Fund may be transferred directly
to the Money Market Fund. Stable Value Fund amounts invested in the S&P
500 Stock Fund, S&P MidCap Stock Fund,
Government Bond Fund, International Stock Fund, Income Plus Fund, Growth
& Income Fund, Growth Fund and/or Employer Stock Fund, for a period of
three months may be transferred to the Money Market Fund upon the
submission of a separate Change of Investment Allocation Form.
The percentage that can be transferred to the Money Market Fund may be
limited by any amounts previously transferred from the Stable Value Fund
that have not satisfied the equity wash requirement. Such amounts will
remain in either the S&P 500 Stock Fund, S&P MidCap Stock Fund,
Government Bond Fund, International Stock Fund, Income Plus Fund, Growth
& Income Fund, Growth Fund and/or Employer Stock Fund and a separate
direction to transfer them to the Money Market Fund will be required when
they become available.
5. Participant Signature and Acknowledgment - Required
By signing this Change Of Investment Allocation Form, I authorize and direct the
Plan administrator and trustee to carry out my instructions. I acknowledge that
I have been provided with and read a copy of the Prospectus and Prospectus
Supplement relating to the issuance of Common Stock. I am aware of the risks
involved in the investment in Common Stock, and understand that the trustee and
Plan administrator are not responsible for my choice of investment.
MEMBER'S SIGNATURE
________________________________________________ ______________________
Signature of Member Date
Pentegra Services, Inc. is hereby authorized to make the above listed change(s)
to this member's record.
________________________________________________ ______________________
Signature of Lawrence Federal Savings Bank Date
Authorized Representative
Minimum Stock Purchase is $250
Maximum Stock Purchase is $75,000
PLEASE COMPLETE AND RETURN TO __________________ AT
LAWRENCE FEDERAL SAVINGS BANK BY________ P.M. ON ________, 2000.
[To be used in connection with Syndicated Community Offering only]
PROSPECTUS SUPPLEMENT FOR SYNDICATED COMMUNITY OFFERING
[LOGO] LAWRENCE FINANCIAL HOLDINGS, INC.
(Proposed Holding Company for Lawrence Federal Savings Bank)
311 South Fifth Street
Ironton, Ohio 45638
(740) 532-0263
- --------------------------------------------------------------------------------
Lawrence Federal Savings Bank is converting from a mutual to a stock
form of organization. After the conversion, Lawrence Financial Holdings, Inc.
will own all of Lawrence Federal's stock. Lawrence Financial has already
received subscriptions for _________ shares. Up to ________ shares will be sold
in the conversion. The conversion will not be completed and no common stock will
be sold unless additional subscriptions are received for at least the minimum
number of shares in the offering. Lawrence Financial will hold all funds of
subscribers in an interest-bearing savings account at Lawrence Federal until the
conversion is completed or terminated. Funds will be returned promptly with
interest if the conversion is terminated.
Keefe, Bruyette & Woods, Inc. will use its best efforts to assist
Lawrence Financial in selling at least the minimum number of shares but does not
guarantee that this number will be sold. Neither Keefe, Bruyette & Woods nor any
selected broker-dealer is obligated to purchase any shares of common stock in
the syndicated community offering. Keefe, Bruyette & Woods intends to make a
market in the common stock.
- --------------------------------------------------------------------------------
PRICE PER SHARE: $10.00
EXPECTED TRADING MARKET: OTC-Bulletin Board
This offering will expire no later than 12:00 noon, Eastern time, on
____________, 2000, unless extended.
Minimum Maximum
------- -------
Number of shares: 552,500 747,500
Gross offering proceeds: $5,525,000 $7,475,000
Estimated underwriting commissions
and other offering expenses: $570,000 $570,000
Estimated net proceeds: $4,955,000 $6,905,000
Estimated net proceeds per share: $8.97 $9.24
Please refer to "Risk Factors" beginning on page __ of the attached Prospectus
dated ________ __, 2000.
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
Investing in Lawrence Financial's common stock involves risk. See "Risk Factors"
beginning on page _.
Neither the Securities and Exchange Commission, the Office of Thrift Supervision
nor any state securities commission has approved or disapproved of these
securities or determined whether this prospectus is truthful or complete. Anyone
who tells you otherwise is committing a crime.
Keefe, Bruyette & Woods, Inc.
The date of this Prospectus Supplement is _______________, 2000
1
THE SYNDICATED COMMUNITY OFFERING
Lawrence Financial is offering for sale between ________ and _______
shares of common stock at a price of $10.00 per share in a syndicated community
offering. These shares are to be sold in connection with the conversion of
Lawrence Federal from the mutual to the stock form of organization and the
issuance of Lawrence Federal's outstanding capital stock to Lawrence Financial.
The remaining __________ shares of common stock to be sold in connection with
the conversion have been subscribed for in subscription and community offerings.
The prospectus in the form used in the subscription and direct community
offerings is attached to this prospectus supplement. The purchase price for all
shares sold in the syndicated community offering will be the same as the price
paid by subscribers in the subscription and community offerings.
Funds sent with purchase orders will earn interest at Lawrence
Federal's passbook rate from the date Lawrence Federal receives them until the
completion or termination of the conversion. If the syndicated community
offering is not completed by _________________, 2000, and the Office of Thrift
Supervision allows more time to complete the conversion, Lawrence Federal will
contact everyone who subscribed for shares to see if they still want to purchase
stock, and subscribers will be able to confirm, modify or cancel their
subscriptions. A failure to respond will be treated as a cancellation of the
purchase order. If payment for the stock was made by check or money order,
subscription funds will be returned with accrued interest. If payment was
authorized by withdrawal of funds on deposit at Lawrence Federal, that
authorization would terminate. The conversion must be completed by _______,
2002.
The minimum number of shares that may be purchased is 25 shares. Except
for the Lawrence Federal employee stock ownership plan, which intends to
purchase up to 8% of the total number of shares of common stock sold in the
conversion, no person, together with related persons and persons acting
together, may purchase more than $75,000 of common stock (7,500 shares) in the
syndicated community offering. However, the maximum purchase of shares of common
stock that may be subscribed for or purchased in all categories of the
conversion by any person, related persons or persons acting together is $125,000
of common stock (12,500 shares). Lawrence Financial reserves the right, in its
absolute discretion, to accept or reject, in whole or in part, any or all
subscriptions in the syndicated community offering. If a subscription is
rejected in part, you cannot cancel the remainder of your order.
Lawrence Financial and Lawrence Federal have engaged Keefe, Bruyette &
Woods as their financial advisor to assist them in the sale of the common stock
in the syndicated community offering. Keefe, Bruyette & Woods expects to use the
services of other registered broker-dealers and that fees to Keefe, Bruyette &
Woods and other selected broker-dealers will not exceed __% of the aggregate
purchase price of the shares sold in the syndicated community offering.
Before this offering, there has not been a public market for the common
stock, and there can be no assurance that an active trading market for the
common stock will develop. The absence of an active trading market may hurt the
market price of the common stock. See "Risk Factors--Limited market for Lawrence
Financial's common stock may negatively affect the market price" in the attached
prospectus.
2
PROSPECTUS
[LOGO]
Lawrence Financial Holdings, Inc.
(Proposed Holding Company for Lawrence Federal Savings Bank)
747,500 Shares of Common Stock
Lawrence Federal Savings Bank is converting from the mutual form to the stock
form of organization. As part of the conversion, Lawrence Financial Holdings,
Inc. is offering its shares of common stock to depositors and borrowers of
Lawrence Federal and, if necessary to complete the offering, to the general
public. After the conversion, Lawrence Financial will own Lawrence Federal.
Price Per Share: $10.00
Minimum Purchase: 25 shares ($250.00)
Expected Trading Market: OTC-Bulletin Board
Minimum Maximum
------- -------
Number of shares: ............................ 552,500 747,500
Gross offering proceeds: ..................... $5,525,000 $7,475,000
Estimated underwriting commissions
and other offering expenses: ............... $ 570,000 $ 570,000
Estimated net proceeds: ...................... $4,955,000 $6,905,000
Estimated net proceeds per share: ............ $ 8.97 $ 9.24
With regulatory approval, we may increase the maximum number of shares by up to
15%, to 859,625 shares, without any further notice to you.
Keefe, Bruyette & Woods, Inc. will use its best efforts to assist us in selling
at least the minimum number of shares, but does not guarantee that this number
will be sold. Keefe, Bruyette & Woods is not obligated to purchase any shares of
common stock in the offering. Keefe, Bruyette & Woods intends to make a market
in the common stock.
The offering to depositors and borrowers of Lawrence Federal will end at 12:00
Noon, Eastern time, on ________, 2000. An offering to the general public may
also be held and may end as early as 12:00 Noon, Eastern time, on _________ __,
2000. If the conversion is not completed by _________ __, 2000, and the Office
of Thrift Supervision allows more time to complete the conversion, all
subscribers will be able to increase, decrease or cancel their orders. All
extensions may not go beyond ________, 2002. We will hold all funds of
subscribers in an interest-bearing savings account at Lawrence Federal until the
conversion is completed or terminated. Funds will be returned promptly with
interest if the conversion is terminated.
- --------------------------------------------------------------------------------
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
Investing in Lawrence Financial's common stock involves risk. See "Risk Factors"
beginning on page ___.
Neither the Securities and Exchange Commission, the Office of Thrift Supervision
nor any state securities commission has approved or disapproved of these
securities or determined whether this prospectus is truthful or complete. Anyone
who tells you otherwise is committing a crime.
- --------------------------------------------------------------------------------
For assistance, please contact our stock information center at (740) ___-____.
KEEFE, BRUYETTE & WOODS, INC.
The date of this prospectus is ________, 2000
[map of Ohio showing office locations of Lawrence Federal appears here]
Questions and Answers about the Stock Offering
The following are answers to frequently asked questions. You should
read this entire prospectus, including "Risk Factors" beginning on page __ and
"The Conversion" beginning on page __, for more information.
Q. Why is Lawrence Federal converting to stock form?
A. We have decided to convert to a stock company to increase our potential for
long-term growth and financial strength in ways not available to us as a
mutual company. The conversion will be important to our future growth and
performance because it will allow us to compete more effectively in our
market.
Q. How many shares of stock are being offered, and at what price?
A. We are offering for sale up to 747,500 shares of common stock at a
subscription price of $10.00 per share. We must sell at least 552,500
shares. If, as a result of changing stock market or financial conditions,
the independent appraiser retained by us to determine the market value of
Lawrence Federal concludes that the market value has increased, we may sell
up to 859,625 shares without notice to you.
Q. Will I be charged a commission?
A. No. You will not be charged a commission or fee to purchase shares in the
conversion.
Q. How much stock may I buy?
A. The minimum order is 25 shares. Generally, no person or group of persons on
a single account may purchase more than $75,000 of common stock (which
equals 7,500 shares) in the subscription offering, and no person, either
alone or together with associates and persons acting in concert with such
person, may purchase more than $125,000 of common stock (which equals
12,500 shares).
Q. Will Lawrence Financial pay dividends on the stock?
A. We intend to adopt a policy of paying regular cash dividends, but we have
not yet decided on the amount or frequency of payments or when payments may
begin.
Q. How do I sell my stock after I purchase it?
A. After shares of the common stock begin trading, you may contact a
stockbroker to buy or sell shares. We intend to have our stock quoted on
the OTC-Bulletin Board, but we cannot guarantee that quotations will be
available. Because of the small size of our stock offering, it is highly
unlikely that there will be an active trading market for our stock. You
should consider the possibility that you may be unable to easily sell our
stock. There may also be a wide spread between the bid and asked price for
our stock.
Q. Will my stock be covered by deposit insurance or guaranteed by any
government agency?
A. No. Unlike insured deposit accounts at Lawrence Federal, our stock, like
other common stock, will not be insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
Q. When is the deadline for subscribing for stock?
A. We must receive a properly signed and completed order form with the
required payment on or before 12:00 noon, Eastern time on ___________,
2000.
-i-
Q. How do I purchase stock?
A. First, you should read this entire prospectus carefully. Then, complete,
sign and return the enclosed stock order and certification form, together
with your payment. Subscription orders may be delivered in person to our
office during regular banking hours, or by mail in the enclosed business
reply envelope. Subscription orders received after the subscription
offering expiration date may be held for participation in any community
offering.
Q. Can I change my mind after I place an order to subscribe for stock?
A. No. Once we receive your order, you cannot cancel or change it without our
consent. If we intend to sell fewer than 552,500 shares or more than
859,625 shares, all subscribers will be notified and given the opportunity
to change or cancel their orders. If you do not respond to this notice, we
will return your funds promptly with interest.
Q. How can I pay for the stock?
A. You have two options: (1) you can pay by check or money order, or (2) you
can authorize a withdrawal from your deposit account at Lawrence Federal
(without any penalty for early withdrawal).
Q. Will I receive interest on my subscription funds?
A. Yes. You will receive interest on your subscription funds at our passbook
rate from the time we receive your funds until completion or termination of
the conversion. If you authorize payment by withdrawal from an account at
Lawrence Federal, your funds will continue to earn interest at the account
rate until completion of the conversion.
Q. Can I subscribe for shares using funds in my individual retirement account
at Lawrence Federal?
A. Yes. However, you cannot purchase stock with your existing IRA at Lawrence
Federal. You must establish a self-directed IRA with an outside trustee to
subscribe for stock using your IRA funds. Please call our stock information
center at (740) __________ to get more information. The transfer of IRA
funds takes time, so please make arrangements at least one week before the
expiration of the subscription offering.
Q. Who is eligible to purchase stock in the subscription offering?
A. Certain past and present depositors and borrowers of Lawrence Federal,
along with Lawrence Federal's employee stock ownership plan, are eligible
to purchase stock in the subscription offering. Depositors with at least
$50 on deposit as of March 31, 1999 will have first priority in the
subscription offering.
Q. What happens if there are not enough shares of stock to fill all orders?
A. If there is an oversubscription, then you may not receive any or all of the
shares you want to purchase. We will allocate shares in the order of
priority established in our plan of conversion.
Q. Who can help answer any other questions I may have about the stock
offering?
A. For answers to other questions, we encourage you to read this prospectus.
Questions may also be directed to our stock information center at (740)
_________ during weekdays between the hours of 9:00 a.m. and 5:00 p.m,
Eastern time. You may also visit our stock information center, which is
located at Lawrence Federal's main office at 311 South Fifth Street,
Ironton, Ohio.
-ii-
Summary
You should read this entire document carefully before you decide to
invest. For assistance, please contact our stock information center at (740)
___-____.
THE COMPANIES
Lawrence Financial Holdings, Inc. Lawrence Federal formed Lawrence
311 South Fifth Street Financial to be its holding company. To
Ironton, Ohio 45638 date, Lawrence Financial has only
(740) 532-0263 conducted organizational activities.
After the conversion, Lawrence Financial
will own all of Lawrence Federal's
capital stock and will direct, plan and
coordinate Lawrence Federal's business
activities. In the future, Lawrence
Financial might become an operating
company or acquire or organize other
operating subsidiaries, including other
financial institutions or financial
services companies, although it
currently has no specific plans or
agreements to do so.
Lawrence Federal Savings Bank Lawrence Federal is a community-oriented
311 South Fifth Street financial institution dedicated to
Ironton, Ohio 45638 serving the financial service needs of
(740) 532-0263 consumers within its market area.
Lawrence Federal has extended its
lending activities outside of its market
area through programs for originating
mobile home and automobile loans through
a network of dealers. Lawrence Federal
currently operates out of its main
office in Ironton, Ohio and its four
branch offices in Chesapeake,
Proctorville, South Point and
Wheelersburg, Ohio. At June 30, 2000,
Lawrence Federal had total assets of
$113.9 million, deposits of $99.8
million and total equity of $8.1
million.
For a discussion of Lawrence Federal's
business strategy and recent results of
operations, see "Management's Discussion
and Analysis of Financial Condition and
Results of Operations." For a discussion
of Lawrence Federal's business
activities, see "Business of Lawrence
Federal Savings Bank."
THE CONVERSION
What is the Conversion? (page __) The conversion is a change in Lawrence
Federal's legal form of organization. As
a mutual savings bank, Lawrence Federal
currently has no stock or stockholders.
Instead, Lawrence Federal operates for
the mutual benefit of its depositors,
who elect directors and vote on other
important matters. Through the
conversion, Lawrence Federal will change
its corporate form to become a stock
savings bank and all of its shares will
be owned by Lawrence Financial. In other
words, Lawrence Federal will become a
wholly-owned subsidiary of Lawrence
Financial. Voting rights in Lawrence
Financial will belong to its
stockholders.
1
The normal business operations of
Lawrence Federal will continue without
interruption during the conversion and
the same officers and directors who
serve Lawrence Federal in its mutual
form will serve the new holding company
and Lawrence Federal in the stock form.
Lawrence Federal is conducting the
conversion under the terms of its plan
of conversion. The Office of Thrift
Supervision has approved the plan of
conversion with the condition that it be
approved by Lawrence Federal's members.
Lawrence Federal has called a special
meeting for ______________, 2000 to vote
on the plan of conversion.
Reasons for the Conversion The Board of Directors determined to
(page __) convert to a stock company to increase
Lawrence Federal's potential for
long-term growth and financial strength
in ways not available to it as a mutual
company. The conversion will be
important to Lawrence Federal's future
growth and performance because it will:
o increase Lawrence Federal's
capital, which will make
Lawrence Federal stronger.
o facilitate growth of Lawrence
Federal's assets and
liabilities;
o enhance its ability to attract
and retain qualified
management through stock-based
compensation plans;
o enhance its ability to expand
through the acquisition of
other financial institutions
or their assets; and
o enhance its ability to
diversify into other financial
services related activities.
Currently, Lawrence Federal does not
have any specific plans or arrangements
for diversification or expansion.
Benefits of the Conversion to Lawrence Financial and Lawrence Federal
Management (page __) intend to adopt the following benefit
plans and employment agreements:
o Employee Stock Ownership Plan.
This plan intends to purchase
8% of the shares issued in the
conversion. Lawrence Federal
will allocate these shares to
employees over a period of
years in proportion to their
compensation.
o Stock-Based Incentive Plan.
Under this plan, which will be
adopted after the conversion
and submitted to stockholders
for their approval, Lawrence
Financial may award stock
options and shares of
restricted stock to key
employees and directors of
Lawrence Financial and its
2
affiliates. The number of
options available under this
plan will be equal to 10% of
the number of shares issued in
the conversion. The number of
shares available for
restricted stock awards will
equal 4% of the number of
shares issued in the
conversion. Shares of
restricted stock will be
awarded at no cost to the
recipient.
o Employment Agreements.
Lawrence Financial and
Lawrence Federal intend to
enter into employment
agreements with Jack L. Blair,
President and Chief Executive
Officer of Lawrence Federal.
These agreements will provide
for severance benefits if Mr.
Blair is terminated following
a change in control of
Lawrence Financial or Lawrence
Federal.
o Employee Severance
Compensation Plan. This plan
will provide severance
benefits to eligible employees
if there is a change in
control of Lawrence Financial
or Lawrence Federal.
The following table summarizes the total
number and dollar value of the shares of
common stock that the employee stock
ownership plan expects to acquire and
the total value of all restricted stock
awards that are expected to be available
under the stock-based incentive plan,
based on the sale of 747,500 shares in
the conversion. The table assumes the
value of the shares is $10.00 per share.
The table does not include a value for
the options because their exercise price
would be equal to the fair market value
of the common stock on the day that the
options are granted. As a result,
financial gains can be realized on an
option only if the market price of the
common stock increases above the price
at which the option is granted.
Percentage
of Shares
Number Estimated Issued
of Value in the
Shares of Shares Conversion
------ --------- ----------
Employee stock ownership plan.. 59,800 $598,000 8.0%
Restricted stock awards........ 29,900 299,000 4.0
Stock options.................. 74,750 -- 10.0
------- -------- ----
Total................. 164,450 $897,000 22.0%
======= ======== ====
For a discussion of risks associated
with these plans and agreements, see
"Risk Factors--Implementation of new
benefit plans will increase Lawrence
Federal's future compensation expense,"
"Risk Factors--Issuance of shares for
benefit programs may reduce your
ownership interest" and "Risk
Factors--Various factors could make
takeover attempts that you want to occur
more difficult to achieve."
3
THE OFFERING
Persons Who Can Order Stock in Lawrence Financial is offering shares of
the Offering (page __) its common stock in a "subscription
offering" in the following order of
priority to:
Note: Subscription rights are not 1. Persons with $50 or more on deposit
transferable, and persons with at Lawrence Federal as of March 31,
subscription rights may not 1999.
subscribe for shares for the
benefit of any other person. If 2. The Lawrence Federal employee stock
you violate this prohibition, ownership plan, which provides
you may lose your rights to retirement benefits to Lawrence
purchase shares and may face Federal's employees.
criminal prosecution and/or other
sanctions. 3. Persons with $50 or more on deposit
at Lawrence Federal as of September
30, 2000.
4. Lawrence Federal's depositors as of
November 1, 2000 and borrowers of
Lawrence Federal as of March 23,
1993 whose loans continue to be
outstanding as of November 1, 2000.
If Lawrence Financial receives
subscriptions for more shares than are
to be sold in this offering, shares will
be allocated in order of the priorities
described above under a formula outlined
in the plan of conversion. If Lawrence
Financial increases the number of shares
to be sold above 747,500, Lawrence
Federal's employee stock ownership plan
will have the first priority right to
purchase any shares exceeding that
amount to the extent that its
subscription has not previously been
filled. Any shares remaining will be
allocated in the order of priorities
described above. See "The Conversion--
Subscription Offering and Subscription
Rights" for a description of the
allocation procedure.
Lawrence Financial may offer shares not
sold in the subscription offering to the
general public in a community offering.
People and trusts of people who are
residents of Lawrence and Scioto
Counties, Ohio, Greenup and Boyd
Counties, Kentucky and Cabell County,
West Virginia will have first preference
to purchase shares in a community
offering. The community offering, if
held, may begin at any time during the
subscription offering or immediately
after the end of the subscription
offering.
Deadline for Ordering Stock The subscription offering will end at
12:00 Noon, Eastern time, on _________
__, 2000. Lawrence Federal expects that
the community offering will terminate at
the same time, although it may continue
for up to 45 days after the end of the
subscription offering, or longer if
regulators approve a later date. All
extensions, in the aggregate, may not go
beyond ______________, 2002.
4
Purchase Price The purchase price is $10.00 per share.
The Boards of Directors of Lawrence
Financial and Lawrence Federal consulted
with Keefe, Bruyette & Woods in
determining this price. You will not pay
a commission to buy any shares in the
conversion.
Number of Shares to be Sold Lawrence Financial is offering for sale
between 552,500 and 747,500 shares of
its common stock in this offering. With
regulatory approval, Lawrence Financial
may increase the number of shares to be
sold to 859,625 shares without giving
you further notice or the opportunity to
change or cancel your order.
How the Offering Range was The offering range is based on an
Determined (page __) independent appraisal of Lawrence
Federal by Keller & Company, Inc., an
appraisal firm experienced in appraisals
of savings institutions. Keller &
Company has estimated that as of August
15, 2000, Lawrence Federal's market
value ranged between $5,525,000 and
$7,475,000, with a midpoint of
$6,500,000. This results in an offering
of between 552,500 and 747,500 shares of
stock at an offering price of $10.00 per
share. Keller & Company's appraisal was
based in part on Lawrence Federal's
financial condition and results of
operations and the effect on Lawrence
Federal of the additional capital raised
by the sale of common stock in this
offering. Keller & Company's independent
appraisal will be updated before the
conversion is completed.
The independent appraisal does not
indicate market value. Lawrence
Financial cannot guarantee that anyone
who purchases shares in the conversion
will be able to sell their shares at or
above the $10.00 purchase price.
Purchase Limitations (page __) Lawrence Federal's plan of conversion
establishes limitations on the purchase
of stock in the offering. These
limitations include the following:
o The minimum purchase is 25
shares.
o The maximum purchase in the
subscription offering by any
person, or group of persons
through a single deposit
account, is $75,000 of common
stock, which equals 7,500
shares.
o The maximum purchase by any
person in the community
offering is $75,000 of common
stock, which equals 7,500
shares.
o The maximum purchase in the
subscription offering and
community offering combined by
any person, related persons or
persons acting together is
$125,000 of common stock,
which equals 12,500 shares.
5
How to Purchase Common Stock If you want to place an order for shares
(page __) in the conversion, you must complete an
original stock order form and send it
together with full payment to Lawrence
Federal. You must sign the certification
that is on the reverse side of the stock
order form. Lawrence Federal must
receive your stock order form before the
end of the subscription offering or the
end of the community offering, as
appropriate. Once Lawrence Federal
receives your order, you cannot cancel
or change it without Lawrence Federal's
consent.
To ensure that Lawrence Federal properly
identifies your subscription rights, you
must list all of your deposit accounts
as of the eligibility dates on the stock
order form. If you fail to do so, your
subscription may be reduced or rejected
if the offering is oversubscribed.
Lawrence Financial and Lawrence Federal
may, in their sole discretion, reject
orders received in the community
offering either in whole or in part. If
your order is rejected in part, you
cannot cancel the remainder of your
order.
You may pay for shares in the
subscription offering or the community
offering in any of the following ways:
o By check or money order made
payable to Lawrence Financial
Holdings, Inc.
o By authorizing withdrawal from
an account at Lawrence
Federal. To use funds in an
Individual Retirement Account
at Lawrence Federal, you must
transfer your account to an
unaffiliated institution or
broker. Please contact the
stock information center at
least one week before the end
of the subscription offering
for assistance.
Lawrence Federal will pay interest on
your subscription funds at the rate it
pays on passbook accounts, which is
currently __%, from the date it receives
your funds until the conversion is
completed or terminated. All funds
authorized for withdrawal from deposit
accounts with Lawrence Federal will earn
interest at the applicable account rate
until the conversion is completed. There
will be no early withdrawal penalty for
withdrawals from certificates of deposit
used to pay for stock. If, as a result
of a withdrawal from a certificate of
deposit, the balance falls below the
minimum balance requirement, the
remaining funds will earn interest at
Lawrence Federal's passbook rate.
How Lawrence Financial and Lawrence Financial will use a portion of
Lawrence Federal Will Use the the net offering proceeds to buy all of
Proceeds of this Offering the common stock of Lawrence Federal.
(page __) The amount used to buy Lawrence
Federal's common stock, which will range
from 55% to 81% of the net proceeds,
will be the amount sufficient to
increase Lawrence Federal's tangible
capital to 10% of adjusted total assets.
Lawrence Federal will use the
6
funds it receives for general business
purposes, including originating loans
and purchasing securities.
Lawrence Financial also will loan an
amount equal to 8% of the gross proceeds
of the offering to the employee stock
ownership plan to fund its purchase of
common stock in the conversion, and will
keep the remainder of the net proceeds
for general business purposes. These
purposes may include, for example,
investment in securities, paying cash
dividends or buying back shares of
common stock.
Lawrence Financial and Lawrence Federal
may also use the proceeds of the
offering to expand and diversify their
businesses, although they have no
specific plans to do so at this time.
Purchases by Directors and Lawrence Federal's directors and
Executive Officers (page __) officers intend to subscribe for 66,500
shares, which equals 8.9% of the shares
that would be sold at the maximum of the
offering range. If fewer shares are sold
in the conversion, then directors and
executive officers may own a greater
percentage of Lawrence Financial.
Directors and executive officers will
pay the same $10.00 per share price as
everyone else who purchases shares in
the conversion.
Market for Lawrence Financial Lawrence Financial intends to have its
Common Stock (page __) common stock quoted on the OTC-Bulletin
Board. After shares of the common stock
begin trading, you may contact a stock
broker to buy or sell shares. Due to the
small size of this offering, it is
highly unlikely that there will be an
active trading market for the common
stock. See "Risk Factors -- Limited
market for Lawrence Financial's common
stock may negatively affect the market
price."
Lawrence Financial's Dividend Lawrence Financial intends to adopt a
Policy (page __) policy of paying regular cash dividends,
but has not yet decided on the amount or
frequency of payments or when payments
may begin.
7
Risk Factors
You should consider carefully the following risk factors and all other
information contained in this prospectus before purchasing Lawrence Financial
common stock.
Lawrence Federal expects that its return on equity will initially decline after
conversion
Return on equity, which equals net income divided by average equity, is
a ratio used by many investors to compare the performance of a particular
company with other companies. Lawrence Financial expects that its return on
average equity will initially decline after the offering as a result of the
additional capital that will be raised in this offering and the time needed to
effectively deploy the net proceeds to generate a market rate of return. Over
time, Lawrence Financial intends to use the net proceeds from this offering to
increase earnings per share and book value per share, without assuming undue
risk, with the goal of achieving a return on equity competitive with other
publicly traded financial institutions. This goal could take a number of years
to achieve, and Lawrence Financial cannot assure you that this goal will be
attained. Consequently, you should not expect a competitive return on equity in
the near future. Failure to achieve a competitive return on equity may make an
investment in Lawrence Financial common stock unattractive to some investors and
may cause Lawrence Financial common stock to trade at lower prices than
comparable companies with a higher return on equity. See "Pro Forma Data" for
an illustration of the financial effects of this offering.
Strong competition could hurt Lawrence Federal's profits and slow growth
Lawrence Federal faces intense competition both in making loans and
attracting deposits. This competition has made it more difficult for Lawrence
Federal to make new loans and at times has forced it to offer higher deposit
rates. Price competition for loans and deposits results in Lawrence Federal
earning less on its loans and paying more on its deposits, which reduces net
interest income. The competition for deposits, particularly from mutual funds
and other stock market investment vehicles, also has inhibited growth in
Lawrence Federal's deposit base in recent years. Lawrence Federal expects
competition to increase in the future as a result of legislative, regulatory and
technological changes and the continuing trend of consolidation in the financial
services industry. For more information about Lawrence Federal's market area and
the competition it faces, see "Business of Lawrence Federal Savings Bank--Market
Area" and "Business of Lawrence Federal Savings Bank--Competition."
A downturn in the local economy could hurt Lawrence Federal's profits
Nearly all of Lawrence Federal's real estate loans are made to
borrowers who live and work in the tri-state area of Ohio, Kentucky and West
Virginia. Real estate loans constituted 68.1% of Lawrence Federal's loan
portfolio at June 30, 2000. As a result of this concentration, a downturn in the
local economy could cause significant increases in nonperforming loans and
assets, which could hurt Lawrence Federal's profits. For a discussion of
Lawrence Federal's market area, see "Business of Lawrence Federal Savings
Bank--Market Area."
Automobile and mobile home loans increase the risk of Lawrence Federal's loan
portfolio
At June 30, 2000, mobile home loans constituted 15% of Lawrence
Federal's loan portfolio while automobile loans constituted 8% of total loans.
Mobile home and automobile loans are generally considered to be
8
riskier than residential mortgage loans because the collateral securing these
loans depreciates over time and often does not provide an adequate source of
repayment of the outstanding loan balance. In addition, repayment of mobile home
and automobile loans is dependent on the borrower's continuing financial
stability, and thus is more likely to be adversely affected by job loss,
divorce, illness or personal bankruptcy. Because of its recent increased
emphasis on automobile loans, Lawrence Federal may find it necessary to increase
its provision for loan losses, which would hurt Lawrence Federal's profits.
Lawrence Federal has an arrangement with the company through which its
mobile home loans are originated to handle all delinquencies and defaults at the
expense of the originator. This arrangement mitigates the risks normally
associated with mobile home lending. However, if Lawrence Federal were to stop
originating mobile home loans, it would stop funding the deposit account through
which losses have been absorbed. Once that deposit account is exhausted, all
future losses would have to be charged against Lawrence Federal's allowance for
loan losses. This may require Lawrence Federal to increase its allowance for
loan losses. Furthermore, Lawrence Federal is currently not equipped to service
its mobile home loan portfolio should the loan originator be unable to do so. If
the loan originator ceases doing business or terminates its arrangement with
Lawrence Federal, Lawrence Federal would likely need to hire additional staff in
order to service its mobile home loan portfolio.
Changing interest rates could hurt Lawrence Federal's profits
Like most financial institutions, Lawrence Federal's ability to make a
profit depends largely on its net interest income, which is the difference
between interest income it receives from its loans and securities and interest
it pays on deposits and borrowings. If interest rates increase, Lawrence Federal
anticipates that its net interest income might decline as interest paid on its
deposits would increase more quickly than the interest earned on its assets. If
interest rates decline, Lawrence Federal's loans may be refinanced at lower
rates or paid off and it may have to redeploy such loan proceeds into
lower-yielding assets which might reduce Lawrence Federal's income. For further
discussion of how changes in interest rates could impact Lawrence Federal, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Management of Interest Rate Risk and Market Risk Analysis."
Limited market for Lawrence Financial's common stock may negatively affect the
market price
Because of the small size of this offering and the small number of
shareholders expected, it is highly unlikely that an active trading market for
the common stock will develop. As a result, you may not be able to sell all of
your shares of Lawrence Financial common stock on short notice and the sale of a
large number of shares at one time could temporarily depress the market price.
There may also be a wide spread between the bid and asked price for the common
stock. You should consider the possibility that you may be unable to easily sell
the common stock. For further information about the trading market for the
common stock, see "Market for the Common Stock."
Implementation of new benefit plans will increase Lawrence Federal's future
compensation expense
Lawrence Federal will recognize additional material employee
compensation and benefit expenses stemming from the shares purchased or granted
to employees and executives under new benefit plans. Lawrence Federal cannot
predict the actual amount of these new expenses because applicable accounting
practices require that they be based on the fair market value of the shares of
common stock at specific points in the future. Lawrence Federal would recognize
expenses for its employee stock ownership plan when shares are committed to be
released to participants' accounts and would recognize expenses for restricted
stock awards over the vesting period of awards made to recipients. These
expenses have been estimated in the pro forma financial information under "Pro
Forma Data" assuming the $10.00 per share purchase price as fair market value.
Actual expenses, however, may be higher or lower, depending on the price of
Lawrence Financial's common stock. For further discussion of these plans, see
"Management of Lawrence Federal Savings Bank--Benefits."
9
Issuance of shares for benefit programs may reduce your ownership interest
If stockholders approve the new stock-based incentive plan, Lawrence
Financial intends to issue shares to its officers and directors through this
plan. If the restricted stock awards under the stock-based incentive plan are
funded from authorized but unissued stock, your ownership interest could be
reduced by up to approximately 3.85%. If the shares issued upon the exercise of
stock options under the stock-based incentive plan are issued from authorized
but unissued stock, your ownership interest could be reduced by up to
approximately 9.09%. See "Pro Forma Data" and "Management of Lawrence Federal
Savings Bank--Benefits."
Expected voting control by management and employees may prevent stockholders
from taking actions opposed by management
The shares of common stock that Lawrence Federal's directors and
executive officers intend to purchase in the conversion, when combined with the
shares that may be awarded to participants under Lawrence Federal's and Lawrence
Financial's benefit plans, could result in management and employees controlling
a significant percentage of Lawrence Financial's common stock. If these
individuals were to act together, they could have significant influence over the
outcome of any stockholder vote. In addition, the total voting power of
management and employees is likely to exceed 20% of Lawrence Financial's
outstanding stock. That level would enable management and employees as a group
to defeat any stockholder matter that requires an 80% vote. For information
about management's intended stock purchases and the number of shares that may be
awarded under new benefit plans, see "Management of Lawrence Federal Savings
Bank--Benefits," "Shares to Be Purchased by Management with Subscription Rights"
and "Restrictions on Acquisition of Lawrence Financial and Lawrence Federal."
Various factors could make takeover attempts more difficult to achieve
Provisions of Lawrence Financial's articles of incorporation and
bylaws, federal and state regulations and various other factors may make it more
difficult for companies or persons to acquire control of Lawrence Financial
without the consent of Lawrence Financial's Board of Directors. It is possible,
however, that you might like to see a takeover attempt succeed because, for
example, the potential acquiror could be offering a premium over the then
prevailing price of Lawrence Financial common stock. The factors that may
discourage takeover attempts or make them more difficult include:
o Anti-takeover provisions and statutory provisions. Provisions in
Lawrence Financial's articles of incorporation and bylaws, the
corporate law of the State of Maryland, and federal regulations may
make it difficult and expensive to pursue a takeover attempt that
management opposes. These provisions will also make the removal of the
current Board of Directors or management of Lawrence Financial, or the
appointment of new directors, more difficult. These provisions
include: limitations on voting rights of beneficial owners of more
than 10% of Lawrence Financial's common stock; supermajority voting
requirements for certain business combinations; and the election of
directors to staggered terms of three years. The bylaws of Lawrence
Financial also contain provisions regarding the timing and content of
stockholder proposals and nominations and qualification for service on
the Board of Directors. For further information about these
provisions, see "Restrictions on Acquisition of Lawrence Financial and
Lawrence Federal."
10
o Required change in control payments. If a change in control had
occurred at June 30, 2000 and all current executive officers and
employees of Lawrence Federal were terminated, the aggregate value of
the severance benefits required to be paid under employment agreements
with the chief executive officer and the employee severance plan,
based on 1999 compensation data, would have been approximately
$433,000. This estimate does not take into account future salary
adjustments or bonus payments or the value of the continuation of
other employee benefits. These payments may have the effect of
increasing the costs of acquiring Lawrence Financial, thereby
discouraging future attempts to take over Lawrence Financial. For
information about the proposed employment and severance agreements and
severance plan, see "Management of Lawrence Federal Savings
Bank--Executive Compensation."
Lawrence Financial's stock price may decline when trading commences
Lawrence Financial cannot guarantee that if you purchase shares in the
conversion that you will be able to sell them at or above the $10.00 purchase
price. In several recent cases, common stock issued by converted financial
institutions has commenced trading at a price that is below the price at which
these shares were sold in the initial offerings of those companies. After the
shares of Lawrence Financial begin trading, the trading price of the common
stock will be determined by the marketplace, and will be influenced by many
factors, including prevailing interest rates, investor perceptions and general
industry and economic conditions.
11
Selected Financial And Other Data
The summary financial information presented below is derived in part
from the financial statements of Lawrence Federal. The following is only a
summary and you should read it in conjunction with the financial statements and
notes beginning on page F-1. The operating data for the six months ended June
30, 2000 and 1999 was not audited, but, in the opinion of management, reflects
all adjustments necessary for a fair presentation. No adjustments were other
than normal recurring entries. The results of operations for the six months
ended June 30, 2000 are not necessarily indicative of the results of operations
that may be expected for the entire year.
At December 31,
At -----------------------------
June 30, 2000 1999 1998 1997
------------- ---- ---- ----
(In thousands)
Selected Consolidated Financial Data:
Total assets ..................... $113,865 $102,952 $ 96,430 $ 88,013
Cash and cash equivalents ........ 3,734 4,668 6,544 3,235
Loans, net ....................... 90,557 78,781 70,353 63,155
Securities available-for-sale .... 12,281 12,241 12,763 7,031
Deposits ......................... 99,846 90,299 88,492 80,758
FHLB advances .................... 4,000 4,500 -- --
Total equity ..................... 8,112 7,792 7,616 7,025
Six Months
Ended
June 30, Year Ended December 31,
--------------------- -------------------------------------
2000 1999 1999 1998 1997
---- ---- ---- ---- ----
(In thousands)
Selected Operating Data:
Total interest income............. $3,733 $3,393 $6,948 $6,350 $5,956
Total interest expense............ 2,181 2,034 4,058 3,782 3,528
------ ------ ------ ------ ------
Net interest income............ 1,552 1,359 2,890 2,568 2,428
Provision for loan losses......... 60 60 120 120 120
------ ------ ------ ------ ------
Net interest income after
provision for loan losses..... 1,492 1,299 2,770 2,448 2,308
Noninterest income ............... 233 208 426 401 256
Noninterest expense............... 1,294 1,131 2,403 2,035 1,717
------ ------ ------ ------ ------
Income before income taxes........ 431 376 793 814 847
Provision for income taxes........ 133 117 250 238 262
------ ------ ------ ------ ------
Net income..................... $ 298 $ 259 $ 543 $ 576 $ 585
====== ====== ====== ====== ======
(See footnotes on next page)
12
At or For the
Six Months Ended At or For the Year Ended
June 30, December 31,
-------------------- ----------------------------------
2000 1999 1999 1998 1997
---- ---- ---- ---- ----
Selected Operating Ratios and Other Data (1):
Performance Ratios:
Return on average assets .................................. 0.57% 0.52% 0.54% 0.63% 0.69%
Return on average equity .................................. 7.46 6.66 6.93 7.77 8.52
Average yield on interest-earning assets .................. 7.89 7.47 7.64 7.64 7.64
Average rate paid on interest-bearing liabilities ......... 4.57 4.47 4.44 4.62 4.53
Average interest rate spread (2) .......................... 3.32 3.00 3.20 3.02 3.11
Net interest margin (3) ................................... 3.26 2.99 3.18 3.09 3.11
Interest-earning assets as a percentage of
interest-bearing liabilities ............................ 99.58 99.66 99.31 101.74 100.17
Net interest income after provision for loan
losses to noninterest expense ........................... 1.15 1.15 1.15 1.20 1.34
Noninterest expense as a percent of
average assets .......................................... 2.46 2.25 2.38 2.24 2.02
Average equity as a percentage of average assets .......... 7.61 7.73 7.76 8.14 8.08
Regulatory Capital Ratios:
Tangible capital ratio .................................... 7.35 7.71 7.83 7.87 7.96
Core capital ratio ........................................ 7.35 7.71 7.83 7.87 7.96
Risk-based capital ratio .................................. 10.78 12.13 11.96 12.51 12.18
Asset Quality Ratios:
Nonperforming loans and troubled debt
restructurings as a percent of total loans (4) ......... 0.40 0.36 0.37 0.41 0.99
Nonperforming assets and troubled debt
restructurings as a percent of total assets (5) ......... 0.61 0.53 0.61 0.51 0.85
Allowance for loan losses as a percent
of total loans .......................................... 0.71 0.77 0.76 0.77 0.81
Allowance for loan losses as a percent of
non-performing loans and troubled debt
restructurings (4) ...................................... 175.84 217.38 205.94 188.07 80.94
Number at end of period:
Full service offices .................................... 5 5 5 5 4
Mortgage loans .......................................... 1,273 1,265 1,269 1,273 1,271
Deposit accounts ........................................ 13,940 13,073 13,052 12,461 11,910
- --------------
(1) Asset quality ratios and regulatory capital ratios are end of period
ratios. Performance ratios are based on average daily balances during the
indicated periods and are annualized where appropriate.
(2) Average interest rate spread represents the difference between the weighted
average yield on average interest-earning assets and the weighted average
cost of average interest-bearing liabilities.
(3) Net interest margin represents net interest income as a percent of average
interest-earning assets.
(4) Nonperforming loans consist of all nonaccrual loans and all other loans 90
days or more past due.
(5) Nonperforming assets consist of nonperforming loans, other repossessed
assets and real estate owned.
13
RECENT DEVELOPMENTS
The following tables contain certain information concerning the
financial position and results of operations of Lawrence Federal at the dates
and for the periods indicated. The data presented at September 30, 2000 and for
the three- and nine-month periods then ended are derived from unaudited
condensed consolidated financial statements but, in the opinion of management,
reflects all adjustments necessary to present fairly the results for these
interim periods. These adjustments consist only of normal recurring adjustments.
The results of operations for the periods ended September 30, 2000 are not
necessarily indicative of the results of operations that may be expected for the
year ending December 31, 2000.
At At
September 30, December 31,
2000 1999
--------------- --------------
(In thousands)
Selected Financial Data:
Total assets ............................... $118,813 $102,952
Cash and cash equivalents .................. 5,021 4,668
Loans, net ................................. 100,554 78,781
Securities available-for-sale .............. 6,311 12,241
Deposits ................................... 99,611 90,299
FHLB advances .............................. 8,000 4,500
Total equity ............................... 8,337 7,792
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------ -----------------------
2000 1999 2000 1999
----------- ----------- ------------ ---------
( In thousands)
Selected Operating Data:
Total interest income .............. $2,170 $1,719 $5,903 $5,111
Total interest expense ............. 1,319 1,002 3,500 3,036
----- ----- ----- -----
Net interest income ........... 851 717 2,403 2,075
Provision for loan losses .......... 110 30 170 90
----- ----- ----- -----
Net interest income after
provision for loan losses ....... 741 687 2,233 1,985
Noninterest income ................. (10) 116 223 324
Noninterest expense ................ 658 589 1,951 1,719
----- ----- ----- -----
Income before income taxes ......... 73 214 505 590
Provision for income taxes ......... 19 69 152 186
----- ----- ----- -----
Net income .................... $ 54 $ 145 $ 353 $ 404
===== ===== ===== =====
14
At or For the At or For the
Three Months Nine Months
Ended September 30, Ended September 30,
----------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Selected Financial Ratios and Other Data (1)
Performance Ratios:
Return on average assets ....................................... 0.19% 0.57% 0.43% 0.53%
Return on average equity ....................................... 2.55 7.34 5.75 6.89
Average yield on interest-earning assets ....................... 8.08 7.55 7.93 7.50
Average rate paid on interest-bearing liabilities .............. 4.97 4.36 4.71 4.43
Average interest rate spread (2) ............................... 3.11 3.18 3.22 3.07
Net interest margin (3) ........................................ 3.17 3.15 3.23 3.04
Interest-earning assets as a percent of interest-bearing
liabilities .................................................. 101.23 99.23 100.16 99.45
Net interest income after provision for loan losses to
noninterest expense .......................................... 112.80 116.63 114.44 115.46
Noninterest expense as a percent of average assets ............. 2.28 2.33 2.40 2.27
Average equity as a percent of average assets .................. 7.37 7.79 7.52 7.75
Regulatory Capital Ratios:
Tangible capital ratio ......................................... 7.11 7.87
Core capital ratio ............................................. 7.11 7.87
Risk-based capital ratio ....................................... 10.65 11.93
Asset Quality Ratios:
Nonperforming loans and troubled debt restructurings
as a percent of total loans(4) ............................... 0.42 0.63
Nonperforming assets and troubled debt restructurings
as a percent of total assets(5) .............................. 0.62 0.73
Allowance for loan losses as a percent of total loans .......... 0.71 0.74
Allowance for loan losses as a percent of nonperforming
loans and troubled debt restructurings(4) .................... 171.42 116.97
- -------
(1) Asset quality ratios and regulatory capital ratios are end of period
ratios. Performance ratios are based on average daily balance during the
indicated periods and are annualized where appropriate.
(2) Average interest rate spread represents the difference between weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(3) Net interest margin represents net interest income as a percent of average
interest-earning assets.
(4) Nonperforming loans consist of nonaccrual loans and all other loans 90 days
or more past due.
(5) Nonperforming assets consist of nonperforming loans, other repossessed
assets and real estate owned.
15
Comparison of Financial Condition at September 30, 2000 and December 31, 1999
Total assets increased $15.8 million, or 15%, to $118.8 million at
September 30, 2000 compared to $103.0 million at December 31, 1999. The increase
was primarily a result of loan originations due to continued market demand.
During the nine months ended September 30, 2000, the loan portfolio grew $21.8
million, or 28%, to $100.6 million from $78.8 million at December 31, 1999. The
growth in the loan portfolio was primarily a result of a $10.2 million increase
in indirect automobile loans, $3.0 million increase in mobile home loans, and
$3.3 million increase in mortgage loans. The loan growth was funded through an
increase in deposits of $9.3 million, a decrease in securities
available-for-sale of $5.9 million, and an increase in FHLB borrowings of $3.5
million.
Total equity at September 30, 2000 was $8.3 million compared to $7.8
million at December 31, 1999. The increase of $500,000, or 6%, was primarily a
result of net income for the period and, to a lesser degree, as a result of an
increase in accumulated other comprehensive income.
Comparison of Operating Results for the Three and Nine Months Ended
September 30, 2000 and 1999
General. Net income for the third quarter of 2000 was $54,000, compared
to $145,000 for the third quarter of 1999. Although, net interest income for the
third quarter of 2000 increased $134,000, or 19%, to $851,000, compared to the
third quarter of 1999, primarily two items negatively impacted net income during
the quarter. The first item was a $136,000 increase of realized net securities
losses. During the third quarter, Lawrence Federal sold securities at a loss to
fund loan growth. The second item that impacted third quarter results was an
$80,000 increase in the provision for loans losses. Net income for the first
nine months of 2000 was $353,000, compared to $404,000 for the first nine months
of 1999. Net interest income for the first nine months of 2000 increased
$328,000, or 16%, to $2.4 million.
Interest Income. Interest income for the third quarter of 2000
increased $451,000, or 26%, to $2.2 million compared to $1.7 million for the
third quarter of 1999. Similarly, interest income for the first nine months of
2000 increased $792,000, or 15%, to $5.9 million compared to $5.1 million for
the first nine months of 1999. The increases were primarily the results of an
increase in the average balance of interest-earnings assets combined with a
slight increase in interest rates. The average yield on interest-earning assets
increased to 8.08% for the three months ended September 30, 2000 from 7.55% for
the same period in 1999. The average yield on interest-earning assets increased
to 7.93% for the nine months ended September 30, 2000 from 7.50% for the same
period in 1999. Both the volume and rate increase were related to the loan
portfolio. Lawrence Federal has continued to experience loan demand and the
increased interest rate environment combined with the Lawrence Federal's
continued emphasis on automobile and mobile home lending has resulted in an
increase in the yield on the overall loan portfolio.
Interest Expense. Interest expense for the third quarter of 2000
increased $317,000, or 32%, to $1.3 million compared to $1.0 million for the
third quarter of 1999. Interest expense for the first nine months of 2000
increased $464,000, or 15%, to $3.5 million compared to $3.0 million for the
same period in 1999. The increase for both of the three- and nine-month periods
was due to an increase in volume of interest-bearing liabilities combined with a
slight increase in the average rate paid on deposits. There were no outstanding
FHLB borrowings during the nine months ended September 30, 1999 compared to an
average balance of $6.9 million and $3.7 million during the three and nine
months ended September 30, 2000, respectively. The average cost of funds
increased to 4.97% for the third quarter of 2000 from 4.36% for the third
quarter of 1999 and to 4.71% for the nine months ended September 30, 2000, from
4.43% for same period in 1999, as a result of an increasing interest rate
environment.
Provision for Loan Losses. Lawrence Federal's provision for loan losses
for the third quarter of 2000 was $110,000 compared with $30,000 in the third
quarter of 1999. For the first nine months of 2000, the provision for loan
losses was $170,000 compared with $90,000 for the first nine months of 1999. The
increase in the provision for loan losses was primarily a result of continued
loan growth and the expansion of loan products into indirect automobile lending,
which generally carry more credit risk than traditional one-to-four family
residential mortgage lending. The majority of the provision for loan losses for
the three and nine months ended September 30, 2000 was related to the growth in
the indirect automobile loan portfolio. Gross loans increased
16
$21.0 million from December 31, 1999 to $98.5 million at September 30, 2000. In
April 2000, Lawrence Federal commenced an indirect automobile lending program
that has originated $10.2 in new loans as of September 30, 2000. Management
increases the allowance for loan losses through a provision charged to expense
based on a percentage developed considering past loss experience, delinquency
trends and other factors such as portfolio composition. While management
believes the existing level of reserves is adequate, future adjustments to the
allowance may be necessary due to economic, operating, regulatory and other
conditions that may be beyond Lawrence Federal's control.
Noninterest Income. The following tables show the components of
noninterest income and the dollar and percentage change from the three months
and nine months ended September 30, 1999 to the three months and nine months
ended September 30, 2000.
For the Three Months Ended
September 30,
-------------------------------
Dollar Percentage
2000 1999 Change Change
--------------- ------------ ----------- ----------
(Dollars in thousands)
Loss on sales of securities ...... $(143) $ (7) $(136) (1,943)%
Service charges .................. 95 88 7 8
Other ............................ 38 35 3 9
---- ---- ----
Total ...................... $ (10) $ 116 $(126) (109)%
==== ==== ====
For the Nine Months Ended
September 30,
----------------------------
Dollar Percentage
2000 1999 Change Change
------------ ---------- ---------- -----------
(Dollars in thousands)
Loss on sales of securities ...... $(157) $ (6) $(151) (2,517)%
Service charges .................. 263 230 33 14
Other ............................ 117 100 17 17
---- ---- ----
Total ...................... $ 223 $ 324 $(101) (31)%
==== ==== ====
The loss on sale of securities was due to unrealized losses on
securities being realized upon sale to fund loan growth. Service charges on
deposit accounts increased as a result of the increased volume of deposits.
Noninterest Expense. The following tables show the components of
noninterest expense and the dollar and percentage change from the three months
and nine months ended September 30, 1999 to the three months and nine months
ended September 30, 2000.
17
For the Three Months Ended
September 30,
-----------------------
Dollar Percentage
2000 1999 Change Change
---- ---- ------ ------
(Dollars in thousands)
Salaries and benefits......... $284 $255 $29 11%
Deposit insurance premiums.... 13 20 (7) (35)
Occupancy and equipment....... 82 79 3 4
Data processing............... 109 91 18 20
Franchise tax................. 20 26 (6) (23)
Advertising expense........... 22 23 (1) (4)
Other......................... 128 95 33 35
--- -- --
Total................... $658 $589 $69 12%
==== ==== ===
For the Nine Months Ended
September 30,
---------------------------
Dollar Percentage
2000 1999 Change Change
---- ---- ------ ------
(Dollars in thousands)
Salaries and benefits......... $823 $750 $73 10%
Deposits insurance premiums... 37 60 (23) (38)
Occupancy and equipment....... 262 227 35 15
Data processing............... 313 246 67 27
Franchise tax................. 70 80 (10) (13)
Advertising expense........... 81 64 17 27
Other......................... 365 292 73 25
--- --- --
Total................... $1,951 $1,719 $232 13%
====== ====== ====
Salaries and benefits expense increased due to normal annual merit
increases in salaries and the addition of personnel to the indirect lending and
marketing areas. Deposit insurance premiums decreased as a result of changes in
the assessment rate. Data processing expense increased as a result of growth in
the number of loan and deposit accounts maintained and expansion of the branch
network.
Income Tax Expense. Lawrence Federal's the federal income tax expense
decreased in the three and nine months ended September 30, 2000 compared to the
same periods in 1999 as a result of a decrease in pretax income. Lawrence
Federal's effective tax rate was 26.0% and 32.2% for the three-month periods
ended September 30, 2000 and 1999, and 30.1% and 31.5% for the nine-month
periods ended September 30, 2000 and 1999.
18
Use of Proceeds
The following table shows how Lawrence Financial intends to use the net
proceeds of the offering. The actual net proceeds will depend on the number of
shares of common stock sold in the offering and the expenses incurred in
connection with the offering. See "Pro Forma Data" for the assumptions used to
arrive at these amounts.
552,500 747,500 859,625
Shares at Shares at Shares at
$10.00 $10.00 $10.00
Per Share Per Share Per Share
--------- ---------- ---------
(In thousands)
Offering proceeds .......................... $5,525 $7,475 $8,596
Less: estimated underwriting
commissions and other
offering expenses .................... 570 570 570
------ ------ ------
Net offering proceeds ...................... 4,955 6,905 8,026
Less:
Proceeds used to purchase
Lawrence Federal common stock .......... 4,032 4,267 4,410
Proceeds used for loan to
employee stock ownership plan .......... 442 598 688
------ ------ ------
Proceeds remaining for Lawrence
Financial ................................. $ 481 $2,040 $2,928
====== ====== ======
Lawrence Financial may use the proceeds it retains from the offering:
o to invest in securities;
o to pay dividends to stockholders;
o to repurchase shares of its common stock;
o to finance the possible acquisition of financial institutions or
other businesses that are related to banking; and
o for general corporate purposes.
Lawrence Federal may use the proceeds that it receives from the
offering, which is shown in the table above as the amount used to purchase
Lawrence Federal common stock:
o to fund new loans;
o to invest in securities;
o to finance the possible expansion of its business activities; and
o for general corporate purposes.
Lawrence Financial and Lawrence Federal may need regulatory approvals
to engage in some of the activities listed above. Neither Lawrence Financial nor
Lawrence Federal currently has any specific plans or agreements regarding any
expansion activities or acquisitions. See "Regulation and Supervision."
Except as described above, neither Lawrence Financial nor Lawrence
Federal has specific plans for the investment of the proceeds of this offering.
Although Lawrence Federal's capital currently exceeds regulatory
19
requirements, it is converting to stock form primarily to structure itself in
the form of organization used by commercial banks and most other financial
services companies. For a discussion of management's business reasons for
undertaking the conversion, see "The Conversion--Reasons for the Conversion."
Lawrence Financial's Dividend Policy
Lawrence Financial's Board of Directors intends to adopt a policy of
paying regular cash dividends after the conversion, but has not decided the
amount that may be paid or when the payments may begin. In addition, the Board
of Directors may declare and pay periodic special cash dividends in addition to,
or in lieu of, regular cash dividends. In determining whether to declare or pay
any dividends, whether regular or special, the Board of Directors will take into
account Lawrence Financial's financial condition and results of operations, tax
considerations, capital requirements, industry standards, and economic
conditions. The regulatory restrictions that affect the payment of dividends by
Lawrence Federal to Lawrence Financial discussed below will also be considered.
Lawrence Financial cannot guarantee that it will pay dividends or that, if paid,
that Lawrence Financial will not reduce or eliminate dividends in the future.
Lawrence Financial is subject to Maryland law, which generally permits
Lawrence Financial to pay dividends on its common stock if, after giving effect
to the distribution, it would be able to pay its indebtedness as the
indebtedness comes due in the usual course of business and its total assets
exceed the sum of its liabilities and the amount needed, if Lawrence Financial
were to be dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of any holders of capital stock who have a
preference in the event of dissolution.
Dividends from Lawrence Financial may depend, in part, upon receipt of
dividends from Lawrence Federal because Lawrence Financial initially will have
no source of income other than dividends from Lawrence Federal and earnings from
the investment of the net proceeds from the offering retained by Lawrence
Financial. Office of Thrift Supervision regulations limit distributions from
Lawrence Federal to Lawrence Financial. In addition, Lawrence Federal may not
declare or pay a cash dividend on its capital stock if its effect would be to
reduce the regulatory capital of Lawrence Federal below the amount required for
the liquidation account to be established as required by Lawrence Federal's plan
of conversion. See "Regulation and Supervision--Federal Savings Institution
Regulation--Limitations on Capital Distributions" and "The Conversion--Effects
of Conversion to Stock Form--Liquidation Account."
Any payment of dividends by Lawrence Federal to Lawrence Financial that
would be deemed to be drawn out of Lawrence Federal's bad debt reserves would
require the payment of federal income taxes by Lawrence Federal at the then
current income tax rate on the amount deemed distributed. Lawrence Financial
does not contemplate any distribution by Lawrence Federal that would result in
this type of tax liability. See "Federal and State Taxation--Federal Income
Taxation" and note 10 of the notes to financial statements included in this
prospectus.
Additionally, during the one-year period following the conversion,
Lawrence Financial will not take any action to declare an extraordinary dividend
to stockholders that would be treated by recipients as a tax-free return of
capital for federal income tax purposes.
20
Market for the Common Stock
Lawrence Financial has not previously issued common stock and there is
currently no established market for the common stock. Lawrence Financial intends
to have its common stock quoted on the OTC-Bulletin Board upon completion of
this offering.
Keefe, Bruyette & Woods has agreed to match willing buyers and sellers
of Lawrence Financial's common stock following consummation of the conversion,
although it has no obligation to do so. However, there can be no assurance that
quotations will be available. The development of a liquid public market depends
on the existence of willing buyers and sellers, the presence of which is not
within the control of Lawrence Financial or any market maker. Because of the
small size of the offering, it is highly unlikely that an active and liquid
market for the common stock will develop. The number of active buyers and
sellers of the common stock at any particular time may be limited. Under such
circumstances, you could have difficulty disposing of your shares on short
notice and should not view the common stock as a short-term investment.
Furthermore, there can be no assurance that you will be able to sell your shares
at or above the $10.00 purchase price.
21
Capitalization
The following table presents the historical capitalization of Lawrence
Federal at June 30, 2000, and the capitalization of Lawrence Financial
reflecting the conversion (referred to as "pro forma" information). The pro
forma capitalization gives effect to the assumptions listed under "Pro Forma
Data," based on the sale of the number of shares of common stock indicated in
the table. This table does not reflect the issuance of additional shares under
the proposed stock-based incentive plan. A change in the number of shares to be
issued in the conversion may materially affect pro forma capitalization.
Lawrence Financial Pro Forma
Capitalization Based Upon the Sale of
-------------------------------------------
Lawrence Federal 552,500 747,500 859,625
Capitalization Shares at Shares at Shares at
as of $10.00 $10.00 $10.00
June 30, 2000 Per Share Per Share Per Share
---------------- --------- --------- ---------
(In thousands)
Deposits (1) .................................... $ 99,846 $ 99,846 $ 99,846 $ 99,846
Advances from Federal Home Loan Bank ............ 4,000 4,000 4,000 4,000
--------- --------- --------- ---------
Total deposits and borrowed funds ............... $ 103,846 $ 103,846 $ 103,846 $ 103,846
========= ========= ========= =========
Stockholders' equity:
Preferred stock:
1,000,000 shares, $.01 par value per share,
authorized; none issued or outstanding . $ -- $ -- $ -- $ --
Common stock:
4,000,000, $.01 par value per share,
authorized; specified number of shares
assumed to be issued and outstanding ... -- 6 7 9
Additional paid-in capital ...................... -- 4,949 6,898 8,017
Retained earnings (2) ........................... 8,431 8,431 8,431 8,431
Accumulated other comprehensive income .......... (319) (319) (319) (319)
Less:
Common stock acquired by employee
stock ownership plan (3) .................. -- (442) (598) (688)
Common stock to be acquired by stock-based
incentive plan (4) ........................ -- (221) (299) (344)
--------- --------- --------- ---------
Total stockholders' equity ...................... $ 8,112 $ 12,404 $ 14,120 $ 15,106
========= ========= ========= =========
- ---------------
(1) Does not reflect withdrawals from deposit accounts for the purchase of
common stock in the offering. Withdrawals to purchase common stock will
reduce pro forma deposits by the amounts of the withdrawals.
(2) Retained earnings are restricted by applicable regulatory capital
requirements. Additionally, Lawrence Federal will be prohibited from paying
any dividend that would reduce its regulatory capital below the amount in
the liquidation account, which will be established for the benefit of
Lawrence Federal's eligible depositors as of March 31, 1999 and September
30, 2000 at the time of the conversion and decreased subsequently as these
account holders reduce their balances or cease to be depositors. See "The
Conversion--Effects of Conversion to Stock Form--Liquidation Account."
(3) Assumes that 8% of the common stock issued in the conversion will be
acquired by the employee stock ownership plan in the conversion with funds
borrowed from Lawrence Financial. Under generally accepted accounting
principles, the amount of common stock to be purchased by the employee
stock ownership plan represents unearned compensation and is, accordingly,
reflected as a reduction of capital. As shares are released to plan
participants' accounts, a corresponding reduction in the charge against
capital will occur. Since the funds are borrowed from Lawrence Financial,
the borrowing will be eliminated in consolidation and no liability or
interest expense will be reflected in the consolidated financial statements
of Lawrence Financial. See "Management of Lawrence Federal Savings
Bank--Benefits--Employee Stock Ownership Plan."
(4) Assumes the purchase in the open market at $10.00 per share, under the
proposed stock-based incentive plan, of a number of shares equal to 4% of
the shares of common stock issued in the conversion. The shares are
reflected as a reduction of stockholders' equity. The stock-based incentive
plan will be submitted to stockholders for approval at a meeting following
the conversion. See "Risk Factors--Issuance of shares for benefit programs
may reduce your ownership interest," "Pro Forma Data" and "Management of
Lawrence Federal Savings Bank--Benefits--Stock-Based Incentive Plan."
22
Regulatory Capital Compliance
At June 30, 2000, Lawrence Federal exceeded all regulatory capital
requirements. The following table presents Lawrence Federal's capital position
relative to its regulatory capital requirements at June 30, 2000, on a
historical and pro forma basis. The table reflects receipt by Lawrence Federal
of the amount sufficient to increase Lawrence Federal's tangible capital to 10%
of adjusted total assets. The remaining portion of the net proceeds will be
retained by Lawrence Financial. See the table under "Use of Proceeds" for an
illustration of the division of the net proceeds between Lawrence Federal and
Lawrence Financial. For purposes of the table, the amount expected to be
borrowed by the employee stock ownership plan and the cost of the shares
expected to be awarded under the stock-based incentive plan as restricted stock
are deducted from pro forma regulatory capital. For a discussion of the
assumptions underlying the pro forma capital calculations presented below, see
"Use of Proceeds," "Capitalization" and "Pro Forma Data." The definitions of the
terms used in the table are those provided in the capital regulations issued by
the Office of Thrift Supervision. For a discussion of the capital standards
applicable to Lawrence Federal, see "Regulation and Supervision--Federal Savings
Institution Regulation--Capital Requirements."
Pro Forma at June 30, 2000
-----------------------------------------------------------------------
15% Above
Minimum of Maximum of Maximum of
Offering Range Offering Range Offering Range
---------------------- --------------------- --------------------
Historical at 552,500 Shares 747,500 Shares 859,625 Shares
June 30, 2000 at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share
-------------------- ---------------------- --------------------- --------------------
Amount Percent(1) Amount Percent(1) Amount Percent(1) Amount Percent(1)
------ ---------- ------ ---------- ------ ---------- ------ ---------
(Dollars in thousands)
Generally accepted accounting
principles capital.............. $8,112 7.12% $11,481 9.79% $11,482 9.79% $11,490 9.80%
====== ==== ======= ==== ======= ==== ======= ====
Tangible Capital:
Capital level (2)............... $8,431 7.35% $11,800 10.00% $11,801 10.00% $11,810 10.00%
Requirement..................... 1,720 1.50 1,771 1.50 1,771 1.50 1,771 1.50
------ ---- ------- ----- ------- ----- ------- -----
Excess.......................... $6,711 5.85% $10,029 8.50% $10,030 8.50% $10,039 8.50%
====== ==== ======= ===== ======= ===== ======= =====
Core Capital:
Capital level (2)............... $8,431 7.35% $11,800 10.00% $11,801 10.00% $11,810 10.00%
Requirement..................... 4,587 4.00 4,722 4.00 4,722 4.00 4,722 4.00
------ ---- -------- ----- ------- ----- ------- -----
Excess.......................... $3,844 3.35% $ 7,078 6.00% $ 7,079 6.00% $ 7,088 6.00%
====== ==== ======== ===== ======= ===== ======= =====
Total Risk-Based Capital:
Total risk-based capital (3).... $9,057 10.78% $12,426 14.67% $12,427 14.67% $12,436 14.68%
Requirement..................... 6,722 8.00 6,776 8.00 6,776 8.00 6,777 8.00
------ ----- -------- ----- ------- ----- ------- -----
Excess.......................... $2,335 2.78% $ 5,650 6.67% $ 5,651 6.67% $ 5,659 6.68%
====== ===== ======== ===== ======= ===== ======= =====
- --------------
(1) Tangible capital and core capital levels are shown as a percentage of
adjusted total assets of $114.7 million. Risk-based capital levels are
shown as a percentage of risk-weighted assets of $84.0 million.
(2) A portion of the net unrealized losses on available-for-sale securities
account for the difference between generally accepted accounting principles
capital and each of tangible capital and core capital. See note 11 to the
notes to financial statements for additional information.
(3) Pro forma amounts and percentages assume net proceeds are invested in
assets that carry a 20% risk-weighting.
23
Pro Forma Data
The following table shows information about the net income and
stockholders' equity of Lawrence Financial reflecting the conversion. The
information provided illustrates the pro forma net income and stockholders'
equity of Lawrence Financial based on the sale of common stock at the minimum of
the offering range, the midpoint of the offering range, the maximum of the
offering range and 15% above the maximum of the offering range. The actual net
proceeds from the sale of the common stock cannot be determined until the
conversion is completed. Net proceeds indicated in the following tables are
based upon the assumption that conversion expenses, including the fee paid to
Keefe, Bruyette & Woods, will total approximately $570,000 regardless of the
number of shares sold in the conversion. Actual expenses may vary from this
estimate, and the fees paid will depend upon whether a syndicate of
broker-dealers or other means is necessary to sell the shares, and other
factors.
Pro forma net income for the six months ended June 30, 2000 and the
year ended December 31, 1999 has been calculated as if the conversion were
completed at the beginning of each period, and the net proceeds had been
invested at 6.20% at the beginning of each period, which represents the one-year
U.S. Treasury Bill yield as of June 30, 2000. In light of the changes in the
market interest rates in recent periods, Lawrence Federal believes that the U.S.
Treasury Bill yield represents a more realistic yield on the investment of the
offering proceeds, rather than the arithmetic average of the weighted average
yield earned by Lawrence Federal on its interest-earning assets and the rates
paid on its deposits as required by Office of Thrift Supervision regulation.
A pro forma after-tax return of 4.09% is used for both Lawrence
Financial and Lawrence Federal for both the six months ended June 30, 2000 and
the year ended December 31, 1999, after giving effect to a combined federal and
state income tax rate of 34%. Historical and pro forma per share amounts have
been calculated by dividing historical and pro forma amounts by the number of
shares of common stock indicated in the table.
When reviewing the following table you should consider the following:
o The final column gives effect to a 15% increase in the
offering range, which may occur without any further notice if
Keller & Company increases its appraisal to reflect the
results of this offering or changes in the financial condition
or results of operations of Lawrence Federal or changes in
market conditions after the offering begins. See "The
Conversion--Stock Pricing and Number of Shares to be Issued."
o Since funds on deposit at Lawrence Federal may be withdrawn to
purchase shares of common stock, the amount of funds available
to Lawrence Financial for investment will be reduced by the
amount of withdrawals for stock purchases. The pro forma
tables do not reflect withdrawals from deposit accounts.
o Historical per share amounts have been computed as if the
shares of common stock expected to be issued in the conversion
had been outstanding at the beginning of the period covered by
the table. However, neither historical nor pro forma
stockholders' equity has been adjusted to reflect the
investment of the estimated net proceeds from the sale of the
shares in the conversion, the additional employee stock
ownership plan expense or the proposed stock-based incentive
plan.
o Pro forma stockholders' equity ("book value") represents the
difference between the stated amounts of Lawrence Federal's
assets and liabilities. The amounts shown for book value do
not represent fair market values or amounts available for
distribution to stockholders in the unlikely event of
liquidation. The amounts shown do not reflect the liquidation
account, which will be established for the benefit of eligible
depositors as of March 31, 1999 and September 30, 2000, or the
federal income tax consequences of the restoration to income
of Lawrence Federal's special bad debt reserves for income tax
purposes, which would be required in the unlikely event of
24
liquidation. See "Federal and State Taxation" and "The
Conversion--Effects of Conversion to Stock Form.".
o The amounts shown as pro forma stockholders' equity per share
do not represent possible future price appreciation of
Lawrence Financial's common stock.
o The amounts shown do not account for the shares to be reserved
for issuance under the stock- based incentive plan, which
requires stockholder approval at a meeting following the
conversion.
The following pro forma data, which are based on Lawrence Federal's
equity at June 30, 2000, and net income for the six months ended June 30, 2000
and the year ended December 31, 1999, may not represent the actual financial
effects of the conversion or the operating results of Lawrence Financial after
the conversion. The pro forma data rely exclusively on the assumptions outlined
above and in the notes to the pro forma table. The pro forma data do not
represent the fair market value of Lawrence Financial's common stock, the
current fair market value of Lawrence Federal's or Lawrence Financial's assets
or liabilities, or the amount of money that would be available for distribution
to stockholders if Lawrence Financial is liquidated after the conversion.
25
Six Months Ended June 30, 2000
---------------------------------------------------------
15% Above
Minimum of Midpoint of Maximum of Maximum of
Offering Offering Offering Offering
Range Range Range Range
----- ----- ----- -----
552,500 650,000 747,500 859,625
Shares Shares Shares Shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------
(Dollars in thousands, except per share amounts)
Gross proceeds ..................................................... $ 5,525 $ 6,500 $ 7,475 $ 8,596
Less: estimated expenses .......................................... (570) (570) (570) (570)
--------- --------- --------- ---------
Estimated net proceeds ............................................. 4,955 5,930 6,905 8,026
Less: common stock acquired by employee stock ownership
plan(1) .................................................... (442) (520) (598) (688)
Less: common stock to be acquired by stock-based incentive
plan ...................................................... (221) (260) (299) (344)
--------- --------- --------- ---------
Net investable proceeds ......................................... $ 4,292 $ 5,150 $ 6,008 $ 6,994
========= ========= ========= =========
Pro Forma Net Income:
Pro forma net income:
Historical ...................................................... $ 298 $ 298 $ 298 $ 298
Pro forma income on net investable proceeds ..................... 88 105 123 143
Less: pro forma employee stock ownership plan
adjustments(1) .......................................... (15) (17) (20) (23)
Less: pro forma stock-based incentive plan
adjustments(2) .......................................... (15) (17) (20) (23)
--------- --------- --------- ---------
Pro forma net income ......................................... $ 356 $ 369 $ 381 $ 395
========= ========= ========= =========
Pro forma net income per share:
Historical ...................................................... $ 0.58 $ 0.50 $ 0.43 $ 0.38
Pro forma income on net investable proceeds ..................... 0.17 0.17 0.18 0.18
Less: pro forma employee stock ownership plan
adjustments(1) .......................................... (0.03) (0.03) (0.03) (0.03)
Less: pro forma stock-based incentive plan
adjustments(2) .......................................... (0.03) (0.03) (0.03) (0.03)
--------- --------- --------- ---------
Pro forma net income per share ............................... $ 0.69 $ 0.61 $ 0.55 $ 0.50
========= ========= ========= =========
Number of shares used to calculate pro forma net income
per share(3) ...................................................... 510,510 600,600 690,690 794,294
Purchase price as a multiple of pro forma net income
per share ......................................................... 7.25x 8.20x 9.09x 10.00x
Pro Forma Stockholders' Equity:
Pro forma stockholders' equity (book value):
Historical ...................................................... $ 8,112 $ 8,112 $ 8,112 $ 8,112
Estimated net proceeds .......................................... 4,955 5,930 6,905 8,026
Less: common stock acquired by employee stock ownership
plan(1) ................................................. (442) (520) (598) (688)
Less: common stock to be acquired by stock-based
incentive plan(2) ....................................... (221) (260) (299) (344)
--------- --------- --------- ---------
Pro forma stockholders' equity ............................... $ 12,404 $ 13,262 $ 14,120 $ 15,106
========= ========= ========= =========
Pro forma stockholders' equity per share:
Historical ...................................................... $ 14.68 $ 12.48 $ 10.85 $ 9.44
Estimated net proceeds .......................................... 8.97 9.12 9.24 9.34
Less: common stock acquired by employee stock ownership
plan(1) ................................................. (0.80) (0.80) (0.80) (0.80)
Less: common stock to be acquired by stock-based
incentive plan(2) ....................................... (0.40) (0.40) (0.40) (0.40)
--------- --------- --------- ---------
Pro forma stockholders' equity per share ..................... $ 22.45 $ 20.40 $ 18.89 $ 17.58
========= ========= ========= =========
Number of shares used to calculate pro forma
stockholders' equity per share .................................... 552,500 650,000 747,500 859,625
Purchase price as a percentage of pro forma stockholders'
equity per share .................................................. 44.54% 49.02% 52.94% 56.88%
26
Year Ended December 31, 1999
----------------------------------------------------------
15% Above
Minimum of Midpoint of Maximum of Maximum of
Offering Offering Offering Offering
Range Range Range Range
----- ----- ----- -----
552,500 650,000 747,500 859,625
Shares Shares Shares Shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------
(Dollars in thousands, except per share amounts)
Gross proceeds ..................................................... $ 5,525 $ 6,500 $ 7,475 $ 8,596
Less: estimated expenses .......................................... (570) (570) (570) (570)
--------- --------- --------- ---------
Estimated net proceeds ............................................. 4,955 5,930 6,905 8,026
Less: common stock acquired by employee stock
ownership plan(1) .......................................... (442) (520) (598) (688)
Less: common stock to be acquired by stock-based
incentive plan ............................................. (221) (260) (299) (344)
--------- --------- --------- ---------
Net investable proceeds ......................................... $ 4,292 $ 5,150 $ 6,008 $ 6,994
========= ========= ========= =========
Pro Forma Net Income:
Pro forma net income:
Historical ...................................................... $ 543 $ 543 $ 543 $ 543
Pro forma income on net investable proceeds ..................... 176 211 246 286
Less: pro forma employee stock ownership plan
adjustments(1) .......................................... (29) (34) (39) (45)
Less: pro forma stock-based incentive plan
adjustments(2) .......................................... (29) (34) (39) (45)
--------- --------- --------- ---------
Pro forma net income ......................................... $ 661 $ 686 $ 711 $ 739
========= ========= ========= =========
Pro forma net income per share:
Historical ...................................................... $1.06 $ 0.90 $ 0.78 $ 0.68
Pro forma income on net investable proceeds ..................... 0.34 0.35 0.35 0.36
Less: pro forma employee stock ownership plan
adjustments(1) .......................................... (0.06) (0.06) (0.06) (0.06)
Less: pro forma stock-based incentive plan
adjustments(2) .......................................... (0.06) (0.06) (0.06) (0.06)
--------- --------- --------- ---------
Pro forma net income per share ............................... $ 1.28 $ 1.13 $ 1.01 $ 0.92
========= ========= ========= =========
Number of shares used to calculate pro forma net income
per share(3) ...................................................... 512,720 603,200 693,680 797,732
Purchase price as a multiple of pro forma net income
per share ......................................................... 7.81x 8.85x 9.90x 10.87x
Pro Forma Stockholders' Equity:
Pro forma stockholders' equity (book value):
Historical ...................................................... $ 7,792 $ 7,792 $ 7,792 $ 7,792
Estimated net proceeds .......................................... 4,955 5,930 6,905 8,026
Less: common stock acquired by employee stock
ownership plan(1) ....................................... (442) (520) (598) (688)
Less: common stock to be acquired by stock-based
incentive plan(2) ....................................... (221) (260) (299) (344)
--------- --------- --------- ---------
Pro forma stockholders' equity ............................... $ 12,084 $ 12,942 $ 13,800 $ 14,786
========= ========= ========= =========
Pro forma stockholders' equity per share:
Historical ...................................................... $ 14.10 $ 11.99 $ 10.42 $ 9.06
Estimated net proceeds .......................................... 8.97 9.12 9.24 9.34
Less: common stock acquired by employee stock
ownership plan(1) ....................................... (0.80) (0.80) (0.80) (0.80)
Less: common stock to be acquired by stock-based
incentive plan(2) ....................................... (0.40) (0.40) (0.40) (0.40)
--------- --------- --------- ---------
Pro forma stockholders' equity per share ..................... $ 21.87 $ 19.91 $ 18.46 $ 17.20
========= ========= ========= =========
Number of shares used to calculate pro forma stockholders'
equity per share .................................................. 552,500 650,000 747,500 859,625
Purchase price as a percentage of pro forma stockholders'
equity per share .................................................. 45.72% 50.23% 54.17% 58.14%
- ----------------
(1) Assumes that the employee stock ownership plan will acquire an amount of
stock equal to 8% of the shares of common stock offered in the conversion.
The employee stock ownership plan will borrow the funds used to acquire
these shares from the net proceeds from the conversion retained by Lawrence
Financial. The amount of this borrowing has been reflected as a reduction
from gross proceeds to determine estimated net investable proceeds. This
borrowing will have an interest rate equal to the prime rate as published
in The Wall Street Journal, which is currently 9.50%. Lawrence Federal
intends to make contributions to the employee stock ownership plan in
amounts at least equal to the principal and interest requirement of the
debt. As the debt is paid down, stockholders' equity will be increased.
Lawrence Federal's payment of the employee stock ownership plan debt is
based upon equal installments of principal over a 10-year period, assuming
a combined federal and state income tax rate of 34%. Interest income earned
by Lawrence Financial on the loan to the employee stock ownership plan
offsets the interest paid on the loan by Lawrence Federal. No reinvestment
is assumed on
27
proceeds contributed to fund the employee stock ownership plan. Applicable
accounting principles require that compensation expense for the employee
stock ownership plan be based upon shares committed to be released and that
unallocated shares be excluded from earnings per share computations. The
valuation of shares committed to be released would be based upon the
average market value of the shares during the year, which, for purposes of
this calculation, was assumed to be equal to the $10.00 per share purchase
price. See "Management of Lawrence Federal Savings Bank--Benefits--Employee
Stock Ownership Plan."
(2) In calculating the pro forma effect of the restricted stock awards, it is
assumed that the required stockholder approval has been received, that the
shares used to fund the awards were acquired at the beginning of the
respective period in open market purchases at the $10.00 per share purchase
price, that 20% of the amount contributed was an amortized expense during
the period, and that the combined federal and state income tax rate is 34%.
The issuance of authorized but unissued shares of the common stock instead
of open market purchases would dilute the voting interests of existing
stockholders by approximately 3.85%.
For purposes of the pro forma tables, shares of restricted stock issued
under the stock-based incentive plan vest 20% per year and compensation
expense is recognized on a straight-line basis over each vesting period. If
the fair market value per share is greater than $10.00 per share on the
date shares are awarded under the stock-based incentive plan, total
stock-based incentive plan expense would be greater. The total estimated
expense was multiplied by 20%, which is the total percent of shares for
which expense is recognized in the first year.
The following table shows the estimated pro forma net income and
stockholders' equity per share if restricted shares awarded under the
stock-based incentive plan were authorized but unissued shares instead of
repurchased shares. The table also shows the estimated pre-tax stock-based
incentive plan expense. The number of shares used to calculate pro forma
net income per share in the following table is the total number of shares
issued at the indicated point in the offering range, minus the number of
shares sold to the employee stock ownership plan assumed not to be
committed to be released within six months or one year following the
conversion and plus the number of shares that may be awarded as restricted
stock under the planned stock-based benefit plan. The number of shares used
to calculate pro forma stockholders' equity per share in the following
table is the total number of shares issued at the indicated point in the
offering range, plus the number of shares that may be awarded as restricted
stock under the planned stock-based benefit plan.
15% Above
Minimum Midpoint Maximum Maximum
of Offering of Offering of Offering of Offering
Range Range Range Range
----- ----- ----- -----
(Dollars in thousands, except per share data)
Pro forma net income per share:
Six months ended June 30, 2000............. $0.67 $0.59 $0.53 $0.48
Year ended December 31, 1999............... 1.24 1.09 0.98 0.89
Number of shares used to calculate pro forma
net income per share:
Six months ended June 30, 2000............. 532,610 626,600 720,590 828,679
Year ended December 31, 1999............... 534,820 629,200 723,580 832,117
Pro forma stockholders' equity per share:
At June 30, 2000........................... $21.59 $19.62 $18.16 $16.90
At December 31, 1999....................... 21.03 19.14 17.75 16.54
Number of shares used to calculate pro forma
stockholders' equity per share............. 574,600 676,000 777,400 894,010
Pre-tax stock-based incentive plan expense:
Six months ended June 30, 2000............. $23 $26 $30 $35
Year ended December 31, 1999............... 44 52 59 68
(3) Number of shares used to calculate pro forma net income per share is the
total number of shares issued at the indicated point in the offering range,
minus the number of shares sold to the employee stock ownership plan
assumed not to be committed to be released within the first six months
following conversion for pro forma net income for the six months ended June
30, 2000 and within the first year following the conversion for pro forma
net income for the year ended December 31, 1999.
28
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The objective of this section is to help potential investors understand
management's views on Lawrence Federal's financial condition and results of
operations. You should read this discussion in conjunction with the financial
statements and the notes to the financial statements that appear at the end of
this prospectus.
General
Lawrence Federal's results of operations depend primarily on net
interest income, which is the difference between the interest income earned on
Lawrence Federal's interest-earning assets, such as loans and securities, and
the interest expense on its interest-bearing liabilities, such as deposits and
borrowings. Lawrence Federal also generates noninterest income primarily from
loan fees and service charges. Lawrence Federal's noninterest expenses primarily
consist of employee compensation and benefits, occupancy expense, data
processing costs, and other operating expenses. Lawrence Federal's results of
operations are also affected by general economic and competitive conditions,
notably changes in market interest rates, government policies and regulations.
Forward Looking Statements
This prospectus contains forward-looking statements that are based on
assumptions and describe future plans, strategies, and expectations of Lawrence
Federal and Lawrence Financial. These forward-looking statements are generally
identified by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project," or similar expressions. Lawrence Federal's and Lawrence
Financial's ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors that could have a material adverse
effect on the operations of Lawrence Federal and Lawrence Financial include, but
are not limited to, changes in interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the Department of Treasury and the Federal
Reserve Board, the quality and composition of the loan or investment portfolios,
demand for loan products, deposit flows, competition, demand for financial
services in Lawrence Federal's and Lawrence Financial's market area and
accounting principles. You should consider these risks and uncertainties in
evaluating forward-looking statements and not rely heavily on such statements.
Operating Strategy
Lawrence Federal operates as a community-oriented financial institution
focused on meeting the financial service needs of consumers in its market area.
To accomplish this objective, Lawrence Federal offers a variety of mortgage and
consumer loans and retail deposit products. Lawrence Federal has extended its
lending activities outside of its market area through programs for originating
mobile home and automobile loans through a network of dealers. These indirect
lending programs help Lawrence Federal originate a larger amount of consumer
loans, which typically have shorter terms and higher yields than mortgage loans,
than Lawrence Federal would otherwise be able to originate. In addition, the
origination of shorter term consumer loans helps Lawrence Federal manage its
interest rate risk. Lawrence Federal intends to continue to focus on further
expansion of its non-mortgage lending.
Changes in Financial Condition During 1999 and the First Half of 2000
During the first half of 2000, total assets increased $10.9 million, or
11%, to $113.9 million at June 30, 2000. The increase in assets in 2000
primarily reflects growth in the loan portfolio. During the first six months of
2000, loans receivable grew $11.8 million, or 15%. Automobile loans grew $5.2
million, or 229%, real estate loans grew $2.4 million, or 4%, and mobile home
loans grew $1.6 million, or 13%. Automobile loans increased as a result of
Lawrence Federal's indirect automobile lending program, which began in April
2000, while real estate loans increased as a result of market demand and
increased marketing by Lawrence Federal. Mobile home loans
29
increased as a result of increased originations efforts by the third party
through which Lawrence Federal originates most of its mobile home loans.
Securities remained essentially unchanged and cash and cash equivalents
decreased 20% to $3.7 million at June 30, 2000 as Lawrence Federal used excess
liquidity to help fund loan growth.
During 1999, total assets increased $6.5 million, or 7%, to $103.0
million at December 31, 1999. The increase in assets in 1999 primarily reflects
growth in the loan portfolio. During 1999, loans receivable grew $8.4 million,
or 12%, to $78.8 million, with growth in all areas of the loan portfolio. Real
estate loans grew $5.5 million, or 11%, mobile home loans grew $1.4 million, or
14%, and consumer loans grew $1.1 million, or 17%. The loan portfolio grew as a
result of market demand and increased marketing of existing products. Securities
decreased 4% to $12.2 million and cash and cash equivalents decreased 29% to
$4.7 million at December 31, 1999 as Lawrence Federal decreased liquidity to
help fund loan growth.
During the first half of 2000, total deposits and borrowings increased
$9.0 million, or 10%, to $103.8 million at June 30, 2000. During the first six
months of 2000, deposits increased $9.5 million, or 11%, and Federal Home Loan
Bank advances decreased $500,000 as Lawrence Federal relied on deposits to fund
loan growth. Deposits grew during this period as a result of marketing efforts
and aggressively priced products.
During 1999, total deposits and borrowings increased $6.3 million, or
7%, to $94.8 million at December 31, 1999. During 1999 deposits increased $1.8
million, or 2%, and Federal Home Loan Bank advances increased from nothing at
the end of 1998 to $4.5 million at the end of 1999. During 1999, Lawrence
Federal used Federal Home Loan Bank advances to help fund loan growth.
Equity increased $321,000, or 4% during the first half of 2000 to $8.1
million at June 30, 2000. During the first six months of 2000, retained earnings
increased $298,000 as a result of net income for the period, while accumulated
other comprehensive income improved from an unrealized loss of $341,000 to an
unrealized loss of $319,000, primarily as a result of changes to the securities
available-for-sale portfolio arising during the period.
During 1999, equity increased $175,000, or 2%, to $7.8 million at
December 31, 1999. During 1999, retained earnings increased $543,000 as a result
of net income for the year, while accumulated other comprehensive income
decreased $368,000 to an unrealized loss of $341,000. The change in other
comprehensive income during 1999 reflected after-tax unrealized losses on
securities, which arose during the period as an increase in market interest
rates caused a decline in the market value of Lawrence Federal's debt
securities. The increase in net interest income was primarily the result of the
increase in the size of the loan portfolio and, secondarily, the result of an
increased yield in interest-earning assets, which was partially offset by an
increase in cost of funds.
First Half of 2000 Compared With First Half of 1999
General. Net income increased 15% to $298,000 for the first half of
2000 from $259,000 for the first half of 1999. Return on average assets was .57%
in 2000 and .52% in 1999, and return on average equity was 7.46% in 2000 and
6.66% in 1999. Net interest income increased $193,000, or 14%, while noninterest
income increased $25,000, or 12%, primarily as a result of increased service
charges. The increase in net interest income was primarily the result of the
increase in the size of the loan portfolio and, secondarily, the result of an
increased yield on interest-earning assets, which was partially offset by an
increased cost of funds. Offsetting the increases in net interest and
noninterest income was an 14% increase in noninterest expense, which was
primarily the result of overall growth of Lawrence Federal, including increased
salaries and benefits, occupancy and data processing expenses.
Interest Income. Interest income increased $340,000, or 10%, in the
first half of 2000 compared to the first half of 1999. Interest income on loans
increased $426,000, or 15%, primarily as a result of growth of the loan
30
portfolio and, to a lesser extent, as a result of the increase in the yield on
the portfolio. Interest income on overnight deposits decreased $77,000, or 67%,
primarily as a result of a smaller average balance in 2000 as Lawrence Federal
used liquid assets to fund loan originations. The average yield on
interest-earning assets improved to 7.89% in 2000 from 7.47% in 1999, as loans
became a higher percentage of interest-earning assets and market interest rates
rose.
Interest Expense. Interest expense increased $147,000, or 7%, in the
first half of 2000 compared to the first half of 1999. Interest paid on deposits
increased $78,000, or 4%, as a result of growth in deposit accounts and the
increase in rates paid on deposits. Interest paid on Federal Home Loan Bank
advances was $68,000 with no comparable expense in 1999. The average cost of
interest-bearing liabilities rose to 4.57% in 2000 from 4.47% in 1999, primarily
as a result of higher market rates on certificates of deposit and the addition
of higher costing Federal Home Loan Bank advances.
Provision for Loan Losses. Management increases the allowance for loan
losses through a provision charged to expense based on a statistical percentage
developed considering past loss experiences, delinquency trends and other
factors such as portfolio composition. While management believes the existing
level of reserves is adequate, future adjustments to the allowance may be
necessary due to economic, operating, regulatory, and other conditions that may
be beyond Lawrence Federal's control. The provision for loan losses was $60,000
for both the first half of 2000 and the first half of 1999. The provision for
2000 and 1999 reflected changes in the assessment of probable losses for
individual loans and various loan types, loan growth and changes in the
composition of the loan portfolio, particularly the growth of indirect
automobile and multi-family and commercial real estate. Lawrence Federal
formally evaluates the provision for loan losses quarterly using a methodology
based on historical loss rates and loan risk grades. During the past two years,
the loan portfolio has grown consistently without a significant change to the
historical loss rates or other measures of probable and estimable losses. The
provision for loan losses reflects this consistency.
Noninterest Income. The following table shows the components of
noninterest income and the dollar and percentage change from 1999 to 2000.
Dollar Percentage
2000 1999 Change Change
---- ---- ------ ------
Net securities gains (losses).. $(13,739) $1,687 $(15,426) (914)%
Service charges................ 167,714 141,479 26,235 19
Other.......................... 79,429 65,110 14,319 22
-------- -------- --------
Total.................... $233,404 $208,276 $25,128 12
======== ======== =======
Net securities gains decreased in 2000 as Lawrence Federal sold some
securities at a loss in order to increase the overall yield on the securities
portfolio by replacing lower yielding securities with higher yielding
securities. Service charges increased in 2000 as a result of growth in the
number of deposit accounts. Other income consists of increases in the cash
surrender value of life insurance policies and other miscellaneous items.
31
Noninterest Expense. The following table shows the components of
noninterest expense and the dollar and percentage change from 1999 to 2000.
Dollar Percentage
2000 1999 Change Change
---- ---- ------ ------
Salaries and benefits....... $ 538,872 $ 495,148 $ 43,724 9%
Deposit insurance premiums.. 24,586 39,726 (15,140) (38)
Occupancy and equipment..... 179,775 148,327 31,448 21
Data processing............. 204,505 155,269 49,236 32
Franchise tax............... 50,535 54,302 (3,767) (7)
Advertising expense......... 58,883 40,669 18,214 4
Other....................... 236,964 197,095 39,869 20
---------- ---------- --------
Total................. $1,294,120 $1,130,536 $163,584 14
========== ========== ========
Salaries and benefits increased as a result of normal annual merit
increases in salaries and the addition of personnel to the indirect lending and
marketing areas. Deposit insurance premiums decreased as a result of changes in
the assessment rates. Occupancy and equipment increased as a result of increased
depreciation and related expenses associated with growth of Lawrence Federal's
branch network. Data processing increased as a result of growth in the number of
loan and deposit accounts maintained and expansion of the branch network.
Advertising expense increased as a result of new and additional marketing
efforts and as Lawrence Federal ceased outsourcing its advertising. Other
expenses, which consist of office supplies, postage, telephone, and other
miscellaneous items, increased as a result of growth of Lawrence Federal.
Income Tax Expense. The provision for income tax was $133,000 in the
first half of 2000 compared to $117,000 in the first half of 1999. The provision
increased as a result of greater taxable income. The effective tax rate for 2000
was 30.8% compared with 31.1% for 1999.
1999 Compared With 1998
General. Net income declined 6% to $543,000 for 1999 from $575,000 for
1998. Return on average assets was .54% in 1999 and .63% in 1998, and return on
average equity was 6.93% in 1999 and 7.77% in 1998. Net interest income
increased 13% to $2.9 million in 1999. The increase in net interest income was
primarily the result of growth of the loan portfolio and, to a lesser degree, to
a lower cost of funds. Offsetting the increase in net interest income was an 18%
increase in noninterest expense, which was primarily the result of the opening
of Lawrence Federal's fifth office. Results for 1998 included net gains on
securities sales of $48,000 while there were only $2,000 of such gains in 1999.
Interest Income. Interest income increased $598,000, or 9%, from 1998
to 1999. Interest income on loans increased $591,000, or 11%, primarily as a
result of growth in the loan portfolio and, to a lesser extent, as a result of
the increase in the yield on the loan portfolio. Interest income on securities
decreased $40,000, or 5%, as a result of a smaller portfolio and a decline on
the average rate earned in 1999. Interest income on overnight deposits increased
$47,000, or 50%, as a result of a larger average balance in 1999. The average
yield on interest-earning assets was 7.64% in 1999 and 1998.
Interest Expense. Interest expense increased $276,000, or 7%, from 1998
to 1999. This increase reflected a $300,000, or 8%, increase in interest paid on
deposits and a $24,000, or 40%, decrease in interest paid on Federal Home Loan
Bank advances. Interest paid on deposits increased as a result of growth in
deposit accounts. Interest paid on Federal Home Loan Bank advances decreased
primarily because of a decrease in advances from the Federal Home Loan Bank.
32
Provision for Loan Losses. The provision for loan losses was $120,000
in both 1999 and 1998. The provision in 1999 and 1998 reflected changes in the
assessment of probable losses for individual loans and various loan types, loan
growth and changes in the composition of the loan portfolio, particularly the
growth in multi-family and commercial real estate loans.
Noninterest Income. The following table shows the components of
noninterest income and the dollar and percentage change from 1998 to 1999.
Dollar Percentage
1999 1998 Change Change
-------- -------- -------- ----------
Net securities gains ......... $ 1,735 $ 48,468 $(46,733) 96%
Service charges .............. 287,612 231,175 56,437 24
Other ........................ 136,528 120,970 15,558 13
-------- -------- --------
Total .................. $425,875 $400,613 $ 25,262 6
======== ======== ========
Net securities gains decreased in 1999 as a result of fewer sales of
securities. In 1998, Lawrence Federal sold certain securities in order to
increase the overall yield on the securities portfolio by replacing lower
yielding securities with higher yielding securities. Service charges increased
in 1999 due to growth in the number of deposit accounts. Other noninterest
income consists of increases in the cash surrender value of life insurance and
other miscellaneous items.
Noninterest Expense. The following table shows the components of
noninterest expense and the dollar and percentage change from 1998 to 1999.
Dollar Percentage
1999 1998 Change Change
---- ---- ------ ------
Salaries and benefits ...... $1,021,321 $ 857,126 $ 164,195 19%
Deposit insurance premiums . 52,248 48,181 4,067 8
Occupancy and equipment .... 313,086 274,589 38,497 14
Data processing ............ 358,085 256,043 102,042 40
Franchise tax .............. 106,206 105,128 1,078 1
Loss on disposal of premises
and equipment ............. 7,336 -- 7,336 --
Advertising expense ........ 96,810 83,331 13,479 16
Other ...................... 447,384 410,233 37,151 9
---------- ---------- ----------
Total ................ $2,402,476 $2,034,631 $ 367,845 18
========== ========== ==========
Salaries and benefits increased as a result of the additional personnel
needed to staff the Wheelersburg branch, which opened in late 1998. Occupancy
and equipment expense also increased primarily as a result of the opening of the
Wheelersburg branch. Data processing expense increased due to growth in the
number of loan and deposit accounts maintained. Other expense, which consists of
office supplies, postage, telephone and other miscellaneous items, increased
primarily as a result of the growth of Lawrence Federal.
Income Tax Expense. The provision for income tax was $250,000 in 1999
compared to $238,000 in 1998. The provision increased as a result of the
increase in net income before income tax expense. The effective tax rate for
1999 was 31.5% compared with 29.3% for 1998.
33
Average Balances, Interest and Average Yields/Cost
The following table presents certain information regarding average
balances of assets and liabilities, as well as the total dollar amounts of
interest income from average interest-earning assets and interest expense on
average interest-bearing liabilities and the resulting average yields and costs.
The yields and costs for the periods indicated are derived by dividing income or
expense by the average balances of assets or liabilities, respectively, for the
periods presented. Average balances were derived from daily balances.
Six Months Ended June 30,
-----------------------------------------------------------------
At June 30, 2000 2000 1999
----------------- ----------------------------- -------------------------------
Average Average
Yield/ Average Yield/ Average Yield/
Balance Rate Balance Interest Rate Balance Interest Rate
------- ---- ------- -------- ---- ------- -------- ----
(Dollars in thousands)
Interest-earning assets:
Loans (1).......................... $ 90,557 8.24% $ 80,726 $3,292 8.16% $ 71,434 $2,867 8.03%
Securities (2)..................... 13,175 6.04 13,149 403 5.88 14,918 412 5.50
Interest-bearing deposits.......... -- -- 1,305 38 5.78 4,489 114 5.10
-------- -------- ------ -------- -------
Total interest-earning assets.. 103,732 7.96 95,180 3,733 7.89 90,841 3,393 7.47
Non-interest-earning assets........... 10,133 9,991 9,695
-------- -------- --------
Total assets................... $113,865 $105,171 $100,536
======== ======== ========
Interest-bearing liabilities:
Deposits:
Passbook accounts............... $ 18,733 2.92 $ 18,388 269 2.92 $ 17,890 255 2.85
Money market accounts........... 767 2.98 845 12 2.91 699 10 2.88
NOW accounts.................... 11,129 2.15 10,874 115 2.12 10,471 116 2.22
Certificates of deposit......... 67,827 5.49 63,309 1,717 5.42 62,087 1,653 5.33
-------- -------- ------ -------- -----
Total deposits............... 98,456 4.60 93,416 2,113 4.53 91,147 2,034 4.47
FHLB advances...................... 4,000 6.78 2,169 68 6.28 -- -- --
-------- -------- ------ -------- -----
Total interest-bearing
liabilities................. 102,456 4.69 95,585 2,181 4.57 91,147 2,034 4.47
------ -----
Non-interest-bearing liabilities...... 3,297 1,585 1,613
-------- -------- -------
Total liabilities............ 105,753 97,170 92,760
Total retained earnings............... 8,112 8,001 7,776
-------- -------- -------
Total liabilities and
earnings.................... $113,865 $105,171 $100,536
======== ======== ========
Net interest-earning assets........ $ 746 $ (405) $ (306)
======== ======= ========
Net interest income/interest
rate spread (3)................... 3.27% $1,552 3.32% $1,359 3.00%
==== ====== ==== ====== ====
Net interest margin (4)............ 3.26% 2.99%
==== ====
Ratio of interest-earning assets
to interest-bearing liabilities... 100.73% 99.58% 99.66%
====== ===== =====
- --------------
(1) Balances are net of deferred loan origination costs, undisbursed proceeds
of construction loans in process, and include non-accrual loans.
(2) Includes investment securities available-for-sale, stock in the Federal
Home Loan Bank of Cincinnati and mutual funds.
(3) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(4) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
34
Year Ended December 31,
--------------------------------------------------------------------
1999 1998
---------------------------------- -------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
--------- -------- ---- ------- -------- ----
Interest-earning assets:
Loans (1)............................. $73,664 $6,003 8.15% $66,760 $5,412 8.11%
Securities (2)........................ 14,463 802 5.49 14,806 843 5.71
Interest-bearing deposits............. 2,726 143 5.24 1,665 95 5.73
-------- ------ ------- ------
Total interest-earning assets.... 90,853 6,948 7.64 83,231 6,350 7.64
Non-interest-earning assets.............. 10,199 7,677
-------- -------
Total assets..................... $101,052 $90,908
======== =======
Interest-bearing liabilities:
Deposits:
Passbook accounts.................. $18,353 534 2.91 $16,808 489 2.91
Money market accounts.............. 752 21 2.85 807 24 2.96
NOW accounts....................... 10,501 233 2.22 8,858 196 2.22
Certificates of deposit............ 61,241 3,234 5.28 54,337 3,013 5.55
-------- ------ ------- ------
Total deposits................... 90,847 4,022 4.43 80,810 3,722 4.61
FHLB advances......................... 633 36 5.64 999 60 5.98
-------- ------ ------- ------
Total interest-bearing liabilities 91,480 4,058 4.44 81,809 3,782 4.62
------ ------
Non-interest-bearing liabilities......... 1,727 1,697
-------- -------
Total liabilities................ 93,207 83,506
Total retained earnings.................. 7,845 7,402
-------- -------
Total liabilities and retained
earnings....................... $101,052 $90,908
======== =======
Net interest-earning assets........... $(627) $1,422
===== ======
Net interest income/interest
rate spread (3)...................... $2,890 3.20% $2,568 3.02%
====== ==== ====== ====
Net interest margin (4)............... 3.18% 3.09%
==== ====
Ratio of interest-earning assets
to interest-bearing liabilities...... 99.31% 101.74%
===== ======
- ---------------
(1) Balances are net of deferred loan origination costs, undisbursed proceeds
of construction loans in process, and include non-accrual loans.
(2) Includes investment securities available-for-sale, stock in the Federal
Home Loan Bank of Cincinnati and mutual funds.
(3) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(4) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
35
Rate/Volume Analysis
The following table presents the effects of changing rates and volumes
on the interest income and interest expense of Lawrence Federal. The rate column
shows the effects attributable to changes in rate (changes in rate multiplied by
prior volume). The volume column shows the effects attributable to changes in
volume (changes in volume multiplied by prior rate). The net column represents
the sum of the prior columns. For purposes of this table, changes attributable
to changes in both rate and volume, which cannot be segregated, have been
allocated proportionately based on the absolute value of the change due to rate
and the change due to volume.
Six Months Ended
June 30, 2000
Compared to Year Ended December 31, 1999
Six Months Ended Compared to
June 30, 1999 Year Ended December 31, 1998
------------------------- ----------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
---------------- --------------
Rate Volume Net Rate Volume Net
---- ------ --- ---- ------ ---
(Dollars in thousands)
Interest-earning assets:
Loans ................................... $ 47 $ 379 $ 426 $ 28 $ 563 $ 591
Securities .............................. 27 (36) (9) (32) (8) (40)
Interest-earning deposits ............... 14 (91) (77) (8) 55 47
----- ----- ----- ----- ----- -----
Total interest-earning assets ..... 88 252 340 (12) 610 598
Interest-bearing liabilities:
Deposits:
Passbook accounts .................... 7 7 14 1 44 45
Money market accounts ................ -- 2 2 (1) (2) (3)
NOW accounts ......................... (5) 4 (1) -- 37 37
Certificates of deposit .............. 31 33 64 (149) 370 221
FHLB advances ............................ -- 68 68 (3) (21) (24)
----- ----- ----- ----- ----- -----
Total interest-bearing liabilities 33 114 147 (152) 428 276
----- ----- ----- ----- ----- -----
Increase (decrease) in net interest income $ 71 $ 122 $ 193 $ 151 $ 171 $ 322
===== ===== ===== ===== ===== =====
Management of Interest Rate Risk and Market Risk Analysis
Qualitative Aspects of Market Risk. Lawrence Federal's most significant
form of market risk is interest rate risk. The principal objectives of Lawrence
Federal's interest rate risk management are to evaluate the interest rate risk
inherent in certain balance sheet accounts, determine the level of risk
appropriate given Lawrence Federal's business strategy, operating environment,
capital and liquidity requirements and performance objectives, and manage the
risk consistent with the Board of Director's approved guidelines. Lawrence
Federal has an Asset/Liability Committee, responsible for reviewing its
asset/liability policies and interest rate risk position, which meets monthly
and reports trends and interest rate risk position to the Board of Directors
quarterly. The extent of the movement of interest rates is an uncertainty that
could have a negative impact on the earnings of Lawrence Federal.
Lawrence Federal's assets include a high percentage of fixed-rate
mortgage loans. This exposes Lawrence Federal to the risk that during periods of
rising interest rates, Lawrence Federal's interest expense will increase faster
than its interest income. In recent years, Lawrence Federal has used the
following strategies to manage interest rate risk: (1) emphasizing shorter term
consumer loans; (2) maintaining a high quality portfolio of short to
intermediate term securities; (3) maintaining high levels of liquidity; and (4)
emphasizing longer-term certificates of deposit to better structure maturities
of its interest rate sensitive liabilities. Lawrence Federal intends to increase
its
36
emphasis on adjustable-rate loans and to sell the fixed-rate loans that it
originates in order to help reduce its interest rate risk. Lawrence Federal
currently does not participate in hedging programs, interest rate swaps or other
activities involving the use of off-balance sheet derivative financial
instruments. More recently, Lawrence Federal has used some of its excess
liquidity to increase its loan portfolio. As liquidity is reduced, Lawrence
Federal's sensitivity to interest rate movements is expected to increase.
Quantitative Aspects of Market Risk. Lawrence Federal primarily
utilizes an interest sensitivity analysis prepared by the Office of Thrift
Supervision to review the level of interest rate risk. This analysis measures
interest rate risk by computing changes in the net portfolio value of Lawrence
Federal's cash flows from assets, liabilities and off-balance sheet items in the
event of a range of assumed changes in market interest rates. Net portfolio
value represents the market value of portfolio equity and is equal to the market
value of assets minus the market value of liabilities, with adjustments made for
off-balance sheet items. This analysis assesses the risk of loss in market risk
sensitive instruments in the event of a sudden and sustained 100 to 300 basis
point increase or decrease in market interest rates with no effect given to any
steps that management might take to counter the effect of that interest rate
movement. The following table, which is based on information provided to
Lawrence Federal by the Office of Thrift Supervision, presents the change in
Lawrence Federal's net portfolio value at June 30, 2000, that would occur upon
an immediate change in interest rates based on Office of Thrift Supervision
assumptions, but without giving effect to any steps that management might take
to counteract that change.
NPV as % of Portfolio
Change in Value of Assets
Interest Rates Net Portfolio Value --------------------
In Basis Points ----------------------------------- NPV
(Rate Shock) Amount $ Change % Change Ratio Change(1)
------------ ------ -------- -------- ----- ---------
(Dollars in thousands)
300 $ 954 $(5,322) (85)% 0.90% (469)bp
200 2,732 (3,544) (56) 2.53 (306)
100 4,531 (1,745) (28) 4.12 (147)
Static 6,276 -- -- 5.59 --
(100) 7,811 1,535 24 6.84 125
(200) 9,029 2,753 44 7.79 220
(300) 10,709 4,433 71 9.07 348
- ----------------
(1) Expressed in basis points.
The Office of Thrift Supervision uses certain assumptions in assessing
the interest rate risk of savings associations. These assumptions relate to
interest rates, loan prepayment rates, deposit decay rates, and the market
values of certain assets under differing interest rate scenarios, among others.
As with any method of measuring interest rate risk, certain
shortcomings are inherent in the method of analysis presented in the foregoing
table. For example, although certain assets and liabilities may have similar
maturities or periods to repricing, they may react in different degrees to
changes in market interest rates. Also, the interest rates on certain types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as adjustable rate mortgage loans,
have features which restrict changes in interest rates on a short-term basis and
over the life of the asset. Further, if interest rates change, expected rates of
prepayments on loans and early withdrawals from certificates of deposit could
deviate significantly from those assumed in calculating the table.
37
Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial
obligations of a short-term nature. Lawrence Federal further defines liquidity
as the ability to respond to the needs of depositors and borrowers as well as
maintaining the flexibility to take advantage of investment opportunities.
Lawrence Federal's primary sources of funds consist of deposit inflows, loan
repayments, maturities and sales of investment securities and borrowings from
the Federal Home Loan Bank. While maturities and scheduled amortization of loans
and securities are predictable sources of funds, deposit flows and mortgage
prepayments are greatly influenced by general interest rates, economic
conditions and competition.
Liquidity management is both a daily and long-term responsibility of
management. Lawrence Federal adjusts its investments in liquid assets based upon
management's assessment of (1) expected loan demand, (2) expected deposit flows,
(3) yields available on interest-earning deposits and securities, and (4) the
objectives of its asset/liability management program. Excess liquid assets are
invested generally in interest-earning overnight deposits and short- and
intermediate-term U.S. Government and agency obligations.
Federal regulations require Lawrence Federal to maintain minimum levels
of liquid assets. The required percentage has varied from time to time based
upon economic conditions and savings flows and is currently 4.0% of net
withdrawable savings deposits and borrowings payable on demand or in one year or
less during the preceding calendar month. Liquid assets for purposes of this
ratio include cash, certain time deposits, U.S. Government, government agency
and corporate securities and other obligations generally having remaining
maturities of less than five years. Lawrence Federal has historically maintained
its liquidity ratio for regulatory purposes at levels in excess of those
required. At June 30, 2000, Lawrence Federal's liquidity ratio for regulatory
purposes was 18.28%.
Lawrence Federal's most liquid assets are cash and short-term
investments (securities maturing in one year or less). The levels of these
assets are dependent on Lawrence Federal's operating, financing, lending and
investing activities during any given period. At June 30, 2000, cash and
short-term investments totaled $3.7 million. Securities classified as
available-for-sale totaled $12.3 million at June 30, 2000. In addition, at June
30, 2000, Lawrence Federal had arranged the ability to borrow a total of
approximately $10.6 million from the Federal Home Loan Bank of Cincinnati. On
that date, Lawrence Federal had advances outstanding of $4.0 million.
The primary investing activities of Lawrence Federal are the
origination of loans and the purchase of securities. In the first half of 2000,
Lawrence Federal originated $21.3 million of loans and purchased $2.1 million of
securities. In 1999, Lawrence Federal originated $29.2 million of loans and
purchased $2.2 million of securities. In 1998, Lawrence Federal originated $29.2
million of loans and purchased $16.8 million of securities.
Financing activities consist primarily of activity in deposit accounts
and Federal Home Loan Bank advances. Lawrence Federal experienced a net increase
in total deposits of $9.5 million, $1.8 million and $7.7 million for the first
half of 2000, and 1999 and 1998, respectively. Deposit flows are affected by the
overall level of interest rates, the interest rates and products offered by
Lawrence Federal and its local competitors and other factors. Lawrence Federal
generally manages the pricing of its deposits to be competitive and to increase
core deposit relationships. Occasionally, Lawrence Federal offers promotional
rates on certain deposit products in order to attract deposits. In the first
half of 2000, Federal Home Loan Bank advances decreased $500,000. During 1999,
Federal Home Loan Bank advances increased $4.5 million and in 1998, Lawrence
Federal began and ended the year with no advances outstanding.
At June 30, 2000, Lawrence Federal had outstanding commitments to
originate loans of $1.3 million, $1.2 million of which had fixed interest rates.
These loans are to be secured by properties located in its market area. Lawrence
Federal anticipates that it will have sufficient funds available to meet its
current loan commitments. Loan commitments have, in recent periods, been funded
through liquidity or through Federal Home Loan Bank borrowings. Certificates of
deposit that are scheduled to mature in one year or less from June 30, 2000
totaled $53.8 million. Management believes, based on past experience, that a
significant portion of those deposits will remain with Lawrence Federal. Based
on the foregoing, Lawrence Federal considers its liquidity and capital resources
sufficient to meet its outstanding short-term and long-term needs.
38
Lawrence Federal is subject to various regulatory capital requirements
administered by the Office of Thrift Supervision including a risk-based capital
measure. The risk-based capital guidelines include both a definition of capital
and a framework for calculating risk-weighted assets by assigning balance sheet
assets and off-balance sheet items to broad risk categories. At June 30, 2000,
Lawrence Federal exceeded all of its regulatory capital requirements. Lawrence
Federal is considered "well capitalized" under regulatory guidelines. See
"Regulation and Supervision--Federal Savings Institution Regulation--Capital
Requirements" and "Regulatory Capital Compliance" and note 11 of the notes to
the financial statements.
The capital from the conversion will significantly increase liquidity
and capital resources. Over time, the initial level of liquidity will be reduced
as net proceeds from the stock offering are used for general corporate purposes,
including the funding of lending activities. Lawrence Federal's financial
condition and results of operations will be enhanced by the capital from the
conversion, resulting in increased net interest-earning assets and net income.
However, due to the large increase in equity resulting from the capital
injection, return on equity will be adversely impacted following the conversion.
Impact of Accounting Pronouncements
Accounting for Derivative Instruments and Hedging Activities. Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," issued in June 1998 (as amended by SFAS No.
137), standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts. The Statement requires
entities to carry all derivative instruments in the statement of financial
position at fair value. The accounting for changes in the fair value, gains and
losses, of a derivative instrument depends on whether it has been designated and
qualifies as part of a hedging relationship and, if so, on the reasons for
holding it. If certain conditions are met, entities may elect to designate a
derivative instrument as a hedge of exposures to changes in fair value, cash
flows or foreign currencies. The statement is effective for fiscal years
beginning after June 15, 2000. The statement is not expected to affect Lawrence
Federal because Lawrence Federal does not currently purchase derivative
instruments or enter into hedging activities.
Effect of Inflation and Changing Prices
The consolidated financial statements and related financial data
presented in this prospectus have been prepared following generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering the change
in the relative purchasing power of money over time due to inflation. The
primary impact of inflation is reflected in the increased cost of Lawrence
Federal's operations. Unlike most industrial companies, virtually all the assets
and liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institution's performance than do general levels of inflation. Interest rates do
not necessarily move in the same direction or to the same extent as the prices
of goods and services.
39
Business of Lawrence Financial Holdings, Inc.
General
Lawrence Financial was organized as a Maryland business corporation at
the direction of Lawrence Federal in August 2000 to become the holding company
for Lawrence Federal upon completion of the conversion. As a result of the
conversion, Lawrence Federal will be a wholly owned subsidiary of Lawrence
Financial and all of the issued and outstanding capital stock of Lawrence
Federal will be owned by Lawrence Financial.
Business
Before the completion of the conversion, Lawrence Financial will not
engage in any significant activities other than those of an organizational
nature. Following completion of the conversion, Lawrence Financial's business
activity will be the ownership of the outstanding capital stock of Lawrence
Federal and management of the investment of proceeds retained from the
conversion. In the future, Lawrence Financial may acquire or organize other
operating subsidiaries. There are no current plans, arrangements, agreements or
understandings, written or oral, to do so.
Initially, Lawrence Financial will neither own nor lease any property
but will instead use the premises, equipment and furniture of Lawrence Federal
with the payment of appropriate rental fees, as required by applicable law and
regulations.
Since Lawrence Financial will hold the outstanding capital stock of
Lawrence Federal after the conversion, the competitive conditions applicable to
Lawrence Financial will be the same as those confronting Lawrence Federal. See
"Business of Lawrence Federal Savings Bank--Competition."
40
Business of Lawrence Federal Savings Bank
General
Lawrence Federal was founded in 1919 as a state-chartered mutual
savings association under the name "Lawrence County Savings and Loan
Association." In 1935, Lawrence Federal converted to a federal charter with the
name "Lawrence Federal Savings and Loan Association." Lawrence Federal changed
its name to "Lawrence Federal Savings Bank" in 1993. Lawrence Federal is
regulated by the Office of Thrift Supervision and the Federal Deposit Insurance
Corporation. Lawrence Federal's deposits are insured to the maximum allowable
amount by the Savings Association Insurance Fund of the Federal Deposit
Insurance Corporation. Lawrence Federal has been a member of the Federal Home
Loan Bank System since 1935.
Lawrence Federal operates as a community-oriented financial
institution, specializing in the acceptance of retail deposits from the general
public in the areas surrounding its five full-service banking offices and using
those funds, together with funds generated from operations and borrowings, to
originate loans. The principal lending activity of Lawrence Federal is the
origination of mortgage loans for the purpose of purchasing or refinancing one-
to four-family residential property. Lawrence Federal also originates mobile
home loans, a variety of consumer loans and multi-family and commercial real
estate loans. Lawrence Federal originates loans primarily for long-term
investment purposes. See "--Lending Activities." Lawrence Federal's revenues are
derived principally from the generation of interest and fees on loans originated
and, to a lesser extent, interest and dividends on investments. Lawrence
Federal's primary sources of funds are deposits, principal and interest payments
on loans and investments and advances from the Federal Home Loan Bank of
Cincinnati.
Market Area
Lawrence Federal conducts business in southern Ohio from five
full-service offices. Lawrence Federal's main office is in Ironton, Ohio.
Ironton is in Lawrence County, which is the southernmost county in Ohio. Located
on the Ohio River in the heart of the tri-state area of Ohio, Kentucky and West
Virginia, Ironton is the county seat of Lawrence County. Three of Lawrence
Federal's branch offices are also in Lawrence County and the fourth is in
adjacent Scioto County. Lawrence and Scioto Counties, Ohio constitute Lawrence
Federal's primary market area. Lawrence Federal also serves depositors and
borrowers in Greenup and Boyd Counties, Kentucky and Cabell County, West
Virginia.
Lawrence Federal's market area is predominantly rural. As of 1999,
Lawrence County had a population of approximately 65,000, while the five
counties that constitute the metropolitan statistical area that includes
Lawrence County had a population of approximately 326,000. The largest
employment sectors in this area are services, wholesale retail sales and
manufacturing. Lawrence Federal's market area has a lower per capita median
household income when compared to Ohio and the United States. While the economy
in Lawrence County has generally been good in recent years, recent plant
closings have resulted in job losses. Over the past several years, unemployment
in Lawrence County has been greater than the state and national rate.
Competition
Lawrence Federal faces intense competition for the attraction of
deposits and origination of loans in its market area. Its most direct
competition for deposits has historically come from the several financial
institutions operating in Lawrence Federal's market area and, to a lesser
extent, from other financial service companies, such as brokerage firms, credit
unions and insurance companies. Lawrence Federal's competition for loans comes
primarily from financial institutions in its market area, and to a lesser extent
from other financial service providers, such as mortgage companies and mortgage
brokers. Additionally, competition for loans may increase due to the increasing
number of non-depository financial service companies entering the mortgage
market, such as insurance companies, securities companies and specialty finance
companies. Lawrence Federal expects competition to increase in the future as a
result of legislative, regulatory and technological changes and the continuing
trend of consolidation in the financial services industry. Technological
advances, for example, have lowered barriers to entry, allowed banks
41
to expand their geographic reach by providing services over the Internet and
made it possible for non-depository institutions to offer products and services
that traditionally have been provided by banks. The Gramm-Leach-Bliley Act,
which permits affiliation among banks, securities firms and insurance companies,
also will change the competitive environment in which Lawrence Federal conducts
business. Some of the institutions with which Lawrence Federal competes are
significantly larger than Lawrence Federal and, therefore, have significantly
greater resources. Due to its relatively small size, Lawrence Federal has fewer
resources to devote to marketing and is less able to take advantage of
technological advancements. Competition for deposits and the origination of
loans could limit Lawrence Federal's growth in the future. See "Risk
Factors--Strong competition could hurt Lawrence Federal's profits."
Lending Activities
General. Lawrence Federal's loan portfolio primarily consists of one-
to four-family mortgage loans and mobile home loans. To a lesser degree,
Lawrence Federal's loan portfolio also includes multi-family and commercial real
estate loans and a variety of consumer loans.
Lawrence Federal's loans are subject to federal laws and regulations.
Interest rates charged by Lawrence Federal on loans are affected principally by
Lawrence Federal's current asset/liability strategy, the demand for various
types of loans, the supply of money available for lending purposes and the rates
offered by competitors. These factors are, in turn, affected by general and
economic conditions, monetary policies of the federal government, including the
Federal Reserve Board, legislative tax policies and governmental budgetary
matters.
Loan Portfolio Analysis. The following table presents the composition
of Lawrence Federal's loan portfolio at the dates indicated. Lawrence Federal
had no concentration of loans exceeding 10% of total loans receivable other than
as disclosed below.
At December 31,
-----------------------------------------
At June 30, 2000 1999 1998
-------------------- ------------------ ------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
(Dollars in thousands)
Real estate loans:
One- to four-family................... $52,392 59.0% $51,606 66.6% $48,385 69.7%
Multi-family and commercial........... 7,649 8.6 5,962 7.7 3,648 5.3
Other................................. 398 0.5 471 0.6 464 0.7
---------- ------- ---------- ------- ---------- -------
Total real estate loans............ 60,439 68.1 58,039 74.9 $52,497 75.7
Consumer loans:
Automobile............................ 7,468 8.4 2,268 2.9 1,751 2.5
Other................................. 7,547 8.5 5,406 7.0 4,804 6.9
--------- ------- --------- ------- --------- -------
Total consumer loans .............. 15,015 16.9 7,674 9.9 6,555 9.4
-------- ------ --------- ------- --------- -------
Mobile home loans........................ 13,336 15.0 11,759 15.2 10,358 14.9
-------- ------ -------- ------ -------- ------
Total loans........................ 88,790 100.0% 77,472 100.0% 69,410 100.0%
===== ===== =====
Less:
Net deferred loan origination costs... 2,393 1,898 1,479
Allowance for loan losses............. (626) (589) (536)
---------- ---------- ----------
Total loans, net...................... $90,557 $78,781 $70,353
======= ======= =======
42
The following table presents certain information at June 30, 2000
regarding the dollar amount of loans maturing in Lawrence Federal's portfolio
based on their contractual terms to maturity or scheduled amortization, but does
not include potential prepayments. Demand loans, loans having no stated schedule
of repayments and no stated maturity, and overdrafts are reported as becoming
due in one year or less. Loan balances do not include undisbursed loan proceeds,
net deferred loan origination costs and allowance for loan losses.
At June 30, 2000
----------------------------------------------------------------------
Multi-
One-to Family and
Four- Commercial Other Mobile Total
Family Real Estate Real Estate Consumer Home Loans
------ ----------- ----------- -------- ---- -----
(In thousands)
Amounts due in:
One year or less .................. $ 696 $ 851 $ -- $ 2,125 $ 26 $ 3,698
After one year:
More than one year to three years . 311 27 -- 2,134 1,023 3,495
More than three years to five years 1,162 7 -- 2,338 3,663 7,170
More than five years to 10 years .. 8,378 2,372 398 1,482 4,539 17,169
More than 10 years to 15 years .... 17,630 1,801 -- 1,433 2,895 23,759
More than 15 years ................ 24,215 2,591 -- 5,503 1,190 33,499
------- ------- ------- ------- ------- -------
Total amount due ............... $52,392 $ 7,649 $ 398 $15,015 $13,336 $88,790
======= ======= ======= ======= ======= =======
Scheduled contractual principal repayments of loans do not reflect the
actual life of the loans. The average life of a loan is substantially less than
its contractual term because of prepayments. In addition, due-on-sale clauses on
loans generally give Lawrence Federal the right to declare loans immediately due
and payable if, among other things, the borrower sells the real property with
the mortgage and the loan is not repaid. The average life of a mortgage loan
tends to increase, however, when current mortgage loan market rates are
substantially higher than rates on existing mortgage loans and, conversely,
tends to decrease when rates on existing mortgage loans are substantially higher
than current mortgage loan market rates.
The following table sets forth, at June 30, 2000, the dollar amount of
loans contractually due after June 30, 2001, and whether such loans have fixed
interest rates or adjustable interest rates.
Due After June 30, 2001
---------------------------------
Fixed Adjustable Total
----- ---------- -----
(In thousands)
Real estate loans:
One- to four-family .................. $39,311 $12,385 $51,696
Multi-family and commercial .......... 6,405 393 6,798
Other ................................ 398 -- 398
Total real estate loans ........... 46,114 12,778 58,892
Consumer loans .......................... 10,077 2,813 12,890
Mobile home loans ....................... 12,482 828 13,310
------- ------- -------
Total loans ....................... $68,673 $16,419 $85,092
======= ======= =======
One- to Four-Family Real Estate Loans. Lawrence Federal's primary
lending activity is the origination of loans secured by one- to four-family
residences located in its market area. Lawrence Federal offers one-year
adjustable-rate mortgage loans and fixed-rate mortgage loans. Historically,
Lawrence Federal has found that borrowers in its market area have a preference
for fixed-rate mortgage loans. At June 30, 2000, 76% of Lawrence Federal's
residential mortgage loans had fixed interest rates and 24% had adjustable
interest rates.
43
Lawrence Federal offers fixed-rate loans with terms up to 30 years,
although most loans have terms of 20 years or less. Lawrence Federal's
adjustable-rate mortgage loans are based on an amortization schedule of 30
years. The loan fees charged, interest rates and other provisions of Lawrence
Federal's mortgage loans are determined by Lawrence Federal on the basis of its
own pricing criteria and market conditions. Interest rates and payments on
Lawrence Federal's adjustable-rate mortgage loans are adjusted annually based on
the Federal Housing Finance Board's national average mortgage contract rate for
major lenders on the purchase of previously occupied homes. The maximum amount
by which the interest rate may be increased or decreased on Lawrence Federal's
adjustable- rate mortgage loans is generally 1% per year and the lifetime
interest rate cap is generally 5% over the initial interest rate of the loan.
Lawrence Federal qualifies the borrower based on the borrower's ability to repay
the loan based on the current index rate plus the applicable margin. Lawrence
Federal's adjustable-rate mortgage loans typically include a prepayment penalty
if the loan is paid off within three years. The terms and conditions of the
adjustable- rate mortgage loans offered by Lawrence Federal, including the index
for interest rates, may vary from time to time.
Lawrence Federal occasionally makes loans to individuals for the
construction of their principal residence. These loans are structured as
permanent mortgage loans. Upon the closing of the loan, the proceeds are
disbursed into an escrow account at Lawrence Federal. Funds are disbursed from
the escrow as the house is built following review of the construction project by
an independent inspector.
Adjustable-rate mortgage loans help reduce Lawrence Federal's exposure
to changes in interest rates. There are, however, unquantifiable credit risks
resulting from the potential of increased costs due to changed rates to be paid
by the borrower. During periods of rising interest rates the risk of default on
adjustable-rate mortgage loans may increase as a result of repricing and the
increased payments required by the borrower. In addition, although
adjustable-rate mortgage loans help make Lawrence Federal's asset base more
responsive to changes in interest rates, the extent of this interest sensitivity
is limited by the annual and lifetime interest rate adjustment limits. Because
of these considerations, yields on adjustable-rate mortgage loans may not be
sufficient to offset increases in Lawrence Federal's cost of funds during
periods of rising interest rates.
Most loans originated by Lawrence Federal conform to Fannie Mae and
Freddie Mac underwriting standards, although Lawrence Federal has not sold any
loans in recent years. Lawrence Federal's residential mortgage loans typically
do not exceed 80% of the appraised value of the property. Although Lawrence
Federal's lending policies permit Lawrence Federal to lend up to 97% of the
appraised value of the property, Lawrence Federal generally does not make loans
where the loan-to-value ratio is over 90%. When the loan-to-value ratio exceeds
80%, Lawrence Federal usually imposes a higher interest rate, but does not
require private mortgage insurance. Lawrence Federal requires all properties
securing its mortgage loans to be appraised by an approved independent
state-certified appraiser. Lawrence Federal generally requires an acceptable
attorney's opinion on the status of its lien on all loans where real estate is
the primary collateral. Lawrence Federal also requires that fire, casualty,
hazard insurance and, if appropriate, flood insurance be maintained on most
properties securing real estate loans made by Lawrence Federal.
Multi-family and Commercial Real Estate Loans. Lawrence Federal
originates both fixed- and adjustable-rate mortgage loans for the acquisition
and refinancing of multi-family and commercial real estate properties. In
addition, Lawrence Federal occasionally participates in commercial real estate
loans with other financial institutions in its market area. Nearly all of the
properties securing Lawrence Federal's multi-family and commercial real estate
loans are located in Lawrence Federal's market area.
Most of the multi-family loans and commercial real estate loans
originated by Lawrence Federal are fully amortizing loans with a term of ten
years. Generally, the maximum loan-to-value ratio for a multi-family or
commercial real estate loan is 70%. Lawrence Federal requires written appraisals
prepared by an approved independent appraiser of all properties securing
multi-family or commercial real estate loans.
At June 30, 2000, Lawrence Federal's commercial real estate loans were
secured by a variety of properties, including retail and small office
properties, hotels and churches. At June 30, 2000, Lawrence Federal's largest
commercial real estate loan had an outstanding balance of $499,000. The loan is
secured by a hotel, furnishings, equipment and personal guarantees. At June 30,
2000, this loan was performing according to its original terms.
44
Multi-family and commercial real estate lending affords Lawrence
Federal an opportunity to receive interest at rates higher than those generally
available from one- to four-family residential lending. However, loans secured
by these properties usually are greater in amount and are more difficult to
evaluate and monitor and, therefore, involve a greater degree of risk than one-
to four-family residential mortgage loans. Because payments on loans secured by
income producing properties are often dependent on the successful operation and
management of the properties, repayment of these loans may be affected by
adverse conditions in the real estate market or the economy. Lawrence Federal
seeks to minimize these risks by generally limiting the maximum loan-to-value
ratio to 70% for multi-family and commercial real estate loans and by strictly
scrutinizing the financial condition of the borrower, the cash flow of the
project, the quality of the collateral and the management of the property
securing the loan. Lawrence Federal also attempts to minimize credit risk by
lending almost solely on local properties to businesses with which Lawrence
Federal is familiar. Lawrence Federal also generally obtains personal loan
guarantees from financially capable parties.
Other Real Estate Loans. Lawrence Federal's other real estate loans
consist primarily of loans secured by unimproved land. These loans generally
have a term of ten years or less. Lawrence Federal limits the maximum
loan-to-value ratio for land loans to 70%.
Mobile Home Loans. Since 1976, Lawrence Federal has originated mobile
home loans through Lanco Services, Inc., a company that specializes in mobile
home lending. Lawrence Federal's mobile home loans, which are made to borrowers
in Kentucky, Ohio and Indiana, have terms ranging from five to 20 years and have
either fixed or adjustable interest rates. At June 30, 2000, Lawrence Federal
had 701 mobile homes loans, the average size of which was $19,000.
Lanco Services assembles the required loan documents and provides them
to Lawrence Federal for review. Lawrence Federal has the opportunity to accept
or reject each loan. Lawrence Federal generally will finance up to a maximum of
95% of the purchase price of new mobile home units and up to a maximum of 80% of
the market value of used mobile home units. Lawrence Federal requires that the
borrower surrender the title to the mobile home unit during the term of the loan
and also requires homeowner's insurance on the unit at least equal to the amount
financed.
Lawrence Federal has an arrangement with Lanco Services under which
Lanco Services handles all delinquencies and defaults at its expense. Lawrence
Federal pays Lanco Services a percentage of each loan, a portion of which is
placed in a deposit account at Lawrence Federal. This deposit account is used to
fund losses related to repossessions of mobile home units and to fund the return
of origination fees in the event of prepayment of mobile home loans. Losses on
repossessions charged to this deposit account, and therefore absorbed by Lanco
Services, totaled $117,000 and $57,000 during the six months ended June 30, 2000
and 1999, respectively, and $96,000 and $60,000 for the years ended December 31,
1999 and 1998, respectively. In addition, in many instances, Lawrence Federal
has recourse to the mobile home dealer if the borrower defaults during a
specified period ranging from 12 months to the term of loan.
Mobile home lending generally entails greater risk than traditional
residential mortgage lending. Loans secured by mobile homes involve more credit
risk than mortgage loans because of the type and nature of the collateral, which
depreciates over time, and because mobile home borrowers tend to have lower
incomes than Lawrence Federal's residential mortgage borrowers. In many cases,
any repossessed collateral for a defaulted mobile home loan will not provide an
adequate source of repayment of the outstanding loan balance because of
depreciation or improper repair and maintenance of the underlying security.
Lawrence Federal's arrangement with Lanco Services substantially mitigates the
risks normally associated with mobile home lending. However, if Lawrence Federal
were to stop originating mobile home loans, it would stop funding the deposit
account through which losses have been absorbed. Once that deposit account is
exhausted, all future losses would have to be charged against Lawrence Federal's
allowance for loan losses. This may require Lawrence Federal to increase its
allowance for loan losses. Furthermore, Lawrence Federal is currently not
equipped to service its mobile home loan portfolio should Lanco Services be
unable to do so. If Lanco Services ceases doing business or terminates its
arrangement with Lawrence Federal, Lawrence Federal would likely need to hire
additional staff in order to service the mobile home loan portfolio.
45
Consumer Loans. Lawrence Federal offers a variety of consumer loans,
including automobile loans, other secured loans, home equity credit lines,
second mortgage loans, credit cards and unsecured personal loans.
Lawrence Federal offers fixed-rate automobile loans with terms of up to
66 months. Loan-to-value ratios and maximum loan terms vary depending on the age
of the vehicle. In April 2000, Lawrence Federal commenced an indirect automobile
lending program, which is managed by an experienced consumer loan officer.
Lawrence Federal originates automobile loans through approximately 17 automobile
dealers in southern Ohio, western West Virginia and northeastern Kentucky. These
dealers provide Lawrence Federal applications to finance new and used vehicles
sold by their dealerships. Lawrence Federal has the opportunity to accept or
reject each loan. Generally, Lawrence Federal makes automobile loans only to
borrowers who have higher credit ratings. Lawrence Federal does not make
automobile loans that would be considered "sub-prime." Lawrence Federal pays a
fee to the automobile dealer based on the interest rate on the loan. This fee,
or dealer reserve, is deposited into an account at Lawrence Federal and paid to
the dealer monthly. If a loan is paid off or charged off within a specified time
period, Lawrence Federal is credited with a portion of the dealer reserve, which
it may withhold from the dealer's account or credit against future payments to
the dealer. Lawrence Federal anticipates that it will be able to significantly
increase the size of its automobile loan portfolio through its indirect lending
program. At June 30, 2000, Lawrence Federal held $4.5 million of indirect auto
loans.
Lawrence Federal also originates consumer loans secured by boats,
motorcycles, campers, motor homes and other recreational vehicles. These loans
have fixed interest rates and terms of up to five years. At June 30, 2000,
Lawrence Federal had $3.5 million of such loans.
Lawrence Federal offers home equity lines of credit and second mortgage
loans. At June 30, 2000, these loans totaled $537,000. The underwriting
standards applicable to these loans generally are the same as for one- to
four-family first mortgage loans, except that the combined loan-to-value ratio,
including the balance of the first mortgage, cannot exceed 90% of the appraised
value of the property.
Lawrence Federal offers proprietary credit cards. At June 30, 2000,
Lawrence Federal had approximately 900 credit card accounts with a total balance
of $828,000. The card program generally provides an individual credit limit of
$5,000 or less, however some credit limits may be higher, and currently provides
for a fixed interest rate of 13.80%. The terms of this program may vary from
time to time.
Lawrence Federal makes unsecured personal loans in amounts generally
not in excess of $10,000. Lawrence Federal also provides overdraft protection on
checking accounts. At June 30, 2000, unsecured loans totaled $1.8 million.
Lawrence Federal believes that it will benefit from the higher yields
earned on consumer loans and that the shorter duration of consumer loans will
improve Lawrence Federal's interest rate risk position. However, consumer loans
entail greater risk than do residential mortgage loans, particularly in the case
of loans that are unsecured or secured by rapidly depreciating assets such as
automobiles. In these cases, any repossessed collateral for a defaulted consumer
loan may not provide an adequate source of repayment of the outstanding loan
balance as a result of the greater likelihood of damage, loss or depreciation.
The remaining deficiency often does not warrant further substantial collection
efforts against the borrower beyond obtaining a deficiency judgment. In
addition, consumer loan collections are dependent on the borrower's continuing
financial stability, and thus are more likely to be adversely affected by job
loss, divorce, illness or personal bankruptcy. Lawrence Federal expects that it
will increase its allowance for loan losses as its consumer loan portfolio grows
by charging a provision for loan losses against income.
Loans to One Borrower. The maximum amount that Lawrence Federal may
lend to one borrower is limited by regulation. At June 30, 2000, Lawrence
Federal's regulatory limit on loans to one borrower was $1.2 million. At that
date, Lawrence Federal's largest amount of loans to one borrower, including the
borrower's related interests, was approximately $1.1 million and consisted of
commercial and residential real estate loans. These loans were performing
according to their original terms at June 30, 2000.
46
Loan Approval Procedures and Authority. Lawrence Federal's lending
activities follow written, non-discriminatory, underwriting standards and loan
origination procedures established by Lawrence Federal's Board of Directors and
management. Generally, all mortgage loans require prior approval of Lawrence
Federal's Board of Directors. Various bank personnel have been delegated
authority to approve mobile home loans and consumer loans, including automobile
loans. Two employees may combine their authority to jointly approve a loan that
exceeds their individual lending authority.
Loan Originations, Purchases and Sales. Lawrence Federal's lending
activities are conducted by its employees operating through Lawrence Federal's
offices. Except in connection with its mobile home and indirect automobile
lending, Lawrence Federal relies on advertising, referrals from realtors and
customers, and personal contact by Lawrence Federal's staff to generate loan
originations. Lawrence Federal does not use loan correspondents or other
third-parties to originate loans. Lawrence Federal occasionally purchases
participation interests in commercial mortgage loans through other financial
institutions in its market area. In the past, Lawrence Federal generally has
retained for its portfolio all of the loans that it originated. Going forward,
Lawrence Federal intends to sell substantially all of the fixed-rate mortgage
loans it originates. Lawrence Federal's ability to originate adjustable-rate and
fixed-rate loans is dependent upon the relative customer demand for such loans,
which is affected by the current and expected future level of interest rates. As
a result of the low interest rate environment in recent years, Lawrence Federal
has experienced strong loan demand as customers have preferred fixed-rate, fully
amortized loans.
The following table presents activity in the loan portfolio during the
periods indicated.
Six Months Ended Year Ended
June 30, December 31,
----------------- ----------------
2000 1999 1999 1998
------ ------ ------ ------
(In thousands)
Loans at beginning of period ........... $77,472 $69,410 $69,410 $61,983
Originations:
Real estate loans:
One- to four-family .............. 5,554 8,859 15,446 16,136
Multi-family and commercial ...... -- 75 75 13
Other ............................ -- -- 25 150
------- ------- ------- -------
Total real estate loans ...... 5,554 8,934 15,546 16,299
Consumer:
Automobile ...................... 6,126 965 1,962 1,536
Other ........................... 6,693 4,014 7,677 7,927
Mobile home ........................ 3,020 2,021 4,016 3,451
------- ------- ------- -------
Total loans originated ....... 21,393 15,934 29,201 29,213
Participation loans purchased .......... -- -- -- 500
Deduct:
Principal loan repayments
and prepayments .................. 10,075 11,240 21,139 22,286
Loan sales ........................ -- -- -- --
Transfers to REO .................. -- -- -- --
------- ------- ------- -------
Sub-total ................... 10,075 11,240 21,139 22,286
------- ------- ------- -------
Net loan activity ...................... 11,318 4,694 8,062 7,427
------- ------- ------- -------
Loans at end of period ............ $88,790 $74,104 $77,472 $69,410
======= ======= ======= =======
Loan Commitments. Lawrence Federal issues loan commitments to its
prospective borrowers conditioned on the occurrence of certain events.
Commitments are made in writing on specified terms and conditions and are
honored for up to 90 days from approval. At June 30, 2000, Lawrence Federal had
loan commitments totaling $1.3 million. See note 8 of the notes to financial
statements included in this prospectus.
47
Loan Fees. In addition to interest earned on loans, Lawrence Federal
receives income from fees in connection with loan originations, loan
modifications, late payments and for miscellaneous services related to its
loans. Income from these activities varies from period to period depending upon
the volume and type of loans made and competitive conditions.
Lawrence Federal charges loan origination fees, which are calculated as
a percentage of the amount borrowed, subject to a minimum amount. As required by
applicable accounting principles, loan origination fees, discount points and
certain loan origination costs are deferred and recognized over the contractual
remaining lives of the related loans on a level yield basis. At June 30, 2000,
Lawrence Federal had $2.4 million of net deferred loan costs.
Nonperforming Assets and Delinquencies. All loan payments are due on
the first day of each month. When a borrower on a residential mortgage loan
fails to make a required loan payment, Lawrence Federal attempts to cure the
deficiency by contacting the borrower and seeking the payment. A late notice is
mailed after 15 days of delinquency. In most cases, deficiencies are cured
promptly. Additional notices are mailed after 30 and 60 days of delinquency and
Lawrence Federal attempts to contact the borrower by either telephone, letter or
in person in order to determine the cause of the delinquency and to arrange for
curing the default. In most cases, after the 90th day of delinquency, Lawrence
Federal commences foreclosure proceedings under the terms of the security
instrument and applicable law.
When a borrower on a consumer loan fails to make a required loan
payment, a late notice is mailed after 10 days of delinquency and Lawrence
Federal follows up with a letter and a phone call to the borrower. Depending on
the type of collateral, Lawrence Federal may take action to repossess the
property securing the loan. Delinquent mobile home loans are handled by the
company through which Lawrence Federal originates the loans.
Management informs the Board of Directors monthly of the amount of
loans delinquent more than 30 days, all loans in foreclosure, and all foreclosed
and repossessed property that Lawrence Federal owns.
Lawrence Federal ceases accruing interest on loans when principal or
interest payments are delinquent 90 days or more unless the loan is adequately
collateralized and in the process of collection. Once the accrual of interest on
a loan is discontinued, all interest previously accrued is reversed against
current period interest income once management determines that interest is
uncollectible.
48
The following table presents information with respect to Lawrence
Federal's nonperforming assets at the dates indicated.
At December 31,
At ------------------
June 30, 2000 1999 1998
------------- ---- ----
(Dollars in thousands)
Accruing loans past due 90 days or more:
One- to four-family real estate........... $ 42 $ 45 $ 40
Multi-family and commercial real estate... -- -- --
Other real estate......................... -- -- --
Automobile................................ 4 5 2
Other consumer ........................... 26 27 11
Mobile home .............................. 147 209 232
----- ----- -----
Total............................... 219 286 285
Non-accruing loans:
One- to four-family real estate........... 137 -- --
Multi-family and commercial real estate... -- -- --
Other real estate......................... -- -- --
Automobile................................ -- -- --
Other consumer............................ -- -- --
Mobile home............................... -- -- --
------ ------ ------
Total............................... 137 -- --
Real estate owned (REO)...................... -- -- --
Other repossessed assets..................... 334 342 203
----- ----- -----
Total nonperforming assets.......... 690 628 488
Troubled debt restructurings................. -- -- --
------ ------ ------
Troubled debt restructurings and
total nonperforming assets................ $690 $628 $488
==== ==== ====
Total nonperforming loans and
troubled debt restructurings as a
percentage of total loans................. 0.40% 0.37% 0.41%
Total nonperforming assets and
troubled debt restructurings as a
percentage of total assets................ 0.61% 0.61% 0.51%
Interest income that would have been recorded for the six months ended
June 30, 2000 and the year ended December 31, 1999 had nonaccruing loans been
current according to their original terms amounted to approximately $5,000 and
$3,000, respectively. No interest related to these loans was included in
interest income for the six months ended June 30, 2000 or the year ended
December 31, 1999.
49
The following table sets forth the delinquencies in the Bank's loan
portfolio as of the dates indicated.
At June 30, 2000
------------------------------------------
60-89 Days 90 Days or More
------------------- -------------------
Number Principal Number Principal
of Balance of of Balance of
Loans Loans Loans Loans
----- ----- ----- -----
(Dollars in thousands)
Real estate loans:
One- to four-family ........... -- $ -- 4 $179
Multi-family and
commercial ................. -- -- -- --
Other ......................... -- -- -- --
Consumer loans:
Automobile .................... 2 16 1 4
Other ......................... 9 23 13 26
Mobile home loans ................ 9 187 13 147
---- ---- ---- ----
Total ...................... 20 $226 31 $356
==== ==== ==== ====
Delinquent loans to
total gross loans ............. 0.25% 0.40%
At December 31,
----------------------------------------------------------------------------------------
1999 1998
------------------------------------------ ----------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
------------------- -------------------- ------------------- ------------------
Number Principal Number Principal Number Principal Number Principal
of Balance of of Balance of of Balance of of Balance of
Loans Loans Loans Loans Loans Loans Loans Loans
----- ----- ----- ----- ----- ----- ----- -----
(Dollars in thousands)
Real estate loans:
One- to four-family .............. 3 $121 2 $ 45 3 $100 2 $ 40
Multi-family and
commercial .................... -- -- -- -- -- -- -- --
Other ............................ -- -- -- -- -- -- -- --
Consumer loans:
Automobile ....................... 3 21 2 5 1 5 1 2
Other ............................ 16 29 16 27 14 25 15 11
Mobile home loans ................... 11 179 14 209 21 405 18 232
---- ---- ---- ---- ---- ---- ---- ----
Total ......................... 33 $350 34 $286 39 $535 36 $285
==== ==== ==== ==== ==== ==== ==== ====
Delinquent loans to
total gross loans ................ 0.45% 0.37% 0.77% 0.41%
Real Estate Owned. Real estate acquired by Lawrence Federal as a result
of foreclosure or by deed-in- lieu of foreclosure is classified as real estate
owned until sold. When property is acquired it is recorded at the lower of its
cost, which is the unpaid principal balance of the loan plus foreclosure costs,
or fair market value at the date of foreclosure, establishing a new cost basis.
Holding costs and declines in fair value after acquisition of the property
result in charges against income. At June 30, 2000, Lawrence Federal had no real
estate owned.
Asset Classification. Federal banking regulators have adopted various
regulations and practices regarding problem assets of savings institutions.
Under such regulations, examiners have authority to identify problem assets
during examinations and, if appropriate, require them to be classified.
There are three classifications for problem assets: substandard,
doubtful and loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets
50
with the additional characteristic that the weaknesses make collection or
liquidation in full on the basis of currently existing facts, conditions and
values questionable, and there is a high possibility of loss. An asset
classified as loss is considered uncollectible and of such little value that
continuance as an asset of the institution is not warranted. If an asset or
portion thereof is classified as loss, the insured institution establishes
specific allowances for loan losses for the full amount of the portion of the
asset classified as loss. All or a portion of general loan loss allowances
established to cover probable losses related to assets classified substandard or
doubtful can be included in determining an institution's regulatory capital,
while specific valuation allowances for loan losses generally do not qualify as
regulatory capital. Assets that do not currently expose the insured institution
to sufficient risk to warrant classification in one of the aforementioned
categories but possess weaknesses are designated "special mention." Lawrence
Federal monitors "special mention" assets.
The following table presents classified and special mention assets at
June 30, 2000.
Loss Doubtful Substandard Special Mention
-------------------- ---------------------- ---------------------- ---------------------
Principal Number of Principal Number of Principal Number of Principal Number of
Balance Loans Balance Loans Balance Loans Balance Loans
------- ----- ------- ----- ------- ----- ------- -----
(Dollars in thousands)
Real estate loans:
One- to four-family ........ $ -- -- $ -- -- $198 4 $ -- --
Multi-family and
commercial .............. -- -- -- -- -- -- -- --
Other ...................... -- -- -- -- -- -- -- --
Consumer loans:
Automobile ................. -- -- -- -- 4 1 -- --
Other ...................... -- -- 8 12 18 1 -- --
Mobile home loans ............. -- -- -- -- 481 43 -- --
----- ---- ---- ---- ---- ---- ------ ----
Total ................... $ -- -- $ 8 12 $701 49 $ -- --
===== ==== ==== ==== ==== ==== ====== ====
Allowance for Loan Losses. In originating loans, Lawrence Federal
recognizes that losses will be experienced on loans and that the risk of loss
will vary with, among other things, the type of loan being made, the
creditworthiness of the borrower over the term of the loan, general economic
conditions and, in the case of a secured loan, the quality of the security for
the loan. Lawrence Federal maintains an allowance for loan losses to absorb
losses inherent in the loan portfolio. The allowance for loan losses represents
management's estimate of probable losses based on information available as of
the date of the financial statements. The allowance for loan losses is based on
management's evaluation of the collectibility of the loan portfolio, including
past loan loss experience, known risks in the portfolio, information about
specific borrower situations and estimated collateral values, economic
conditions and other factors. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--1999 Compared with
1998--Provision for Loan Losses."
The loan portfolio and other credit exposures are regularly reviewed by
management to evaluate the adequacy of the allowance for loan losses. The
methodology for assessing the appropriateness of the allowance includes
comparison to actual losses, peer group comparisons, industry data and economic
conditions. In addition, the regulatory agencies, as an integral part of their
examination process, periodically review Lawrence Federal's allowance for loan
losses. Such agencies may require Lawrence Federal to make additional provisions
for estimated losses based upon judgments different from those of management.
In connection with assessing the allowance, loss factors are applied to
various pools of outstanding loans. Lawrence Federal segregates the loan
portfolio according to risk characteristics (i.e., mortgage loans, consumer).
Loss factors are derived using Lawrence Federal's historical loss experience and
may be adjusted for significant factors that, in management's judgment, affect
the collectibility of the portfolio as of the evaluation date.
In addition, management assesses the allowance using factors that
cannot be associated with specific credit or loan categories. These factors
include management's subjective evaluation of local and national economic and
business conditions, portfolio concentration and changes in the character and
size of the loan portfolio. The allowance methodology reflects management's
objective that the overall allowance appropriately reflects a margin for the
imprecision necessarily inherent in estimates of expected credit losses.
51
At June 30, 2000, Lawrence Federal's allowance for loan losses
represented 0.70% of total gross loans and 176% of nonperforming loans. Although
management believes that it uses the best information available to establish the
allowance for loan losses, future adjustments to the allowance for loan losses
may be necessary and results of operations could be adversely affected if
circumstances differ substantially from the assumptions used in making the
determinations. Furthermore, while Lawrence Federal believes it has established
its existing allowance for loan losses in conformity with generally accepted
accounting principles, there can be no assurance that regulators, in reviewing
Lawrence Federal's loan portfolio, will not request Lawrence Federal to increase
its allowance for loan losses. In addition, because future events affecting
borrowers and collateral cannot be predicted with certainty, there can be no
assurance that the existing allowance for loan losses is adequate or that
increases will not be necessary should the quality of any loans deteriorate as a
result of the factors discussed above. Any material increase in the allowance
for loan losses may adversely affect Lawrence Federal's financial condition and
results of operations.
The following table presents an analysis of Lawrence Federal's
allowance for loan losses.
Six Months
Ended Year Ended December
June 30, 31,
--------------- -----------------
2000 1999 1999 1998
------ ------ ------ ------
(Dollars in thousands)
Allowance for loan losses,
beginning of year ..................... $ 589 $ 536 $ 536 $ 501
Charged-off loans:
Real estate ......................... -- -- -- --
Consumer ............................ (52) (70) (137) (99)
Mobile home ......................... -- -- -- --
----- ----- ----- -----
Total charged-off loans .......... (52) (70) (137) (99)
Recoveries on loans previously
charged off:
Real estate ......................... -- -- -- --
Consumer ............................ 29 59 70 14
Mobile home ......................... -- -- -- --
----- ----- ----- -----
Total recoveries ................. 29 59 70 14
----- ----- ----- -----
Net loans charged-off .................. (23) (11) (67) (85)
Provision for loan losses .............. 60 60 120 120
----- ----- ----- -----
Allowance for loan losses, end
of period ............................. $ 626 $ 585 $ 589 $ 536
===== ===== ===== =====
Net loans charged-off to average
interest-earning loans ................ 0.06% 0.03% 0.09% 0.13%
Allowance for loan losses to total
loans ................................. 0.70% 0.77% 0.76% 0.77%
Allowance for loan losses to
nonperforming loans and troubled
debt restructuring .................... 175.84% 217.38% 205.94% 188.07%
52
The following table presents the approximate allocation of the
allowance for loan losses by loan category at the dates indicated. Management
believes that the allowance can be allocated by category only on an approximate
basis. The allocation of the allowance to each category is not indicative of
future losses and does not restrict the use of any of the allowance to absorb
losses in any category.
At December 31,
At June 30, --------------------------------------------------------------
2000 1999 1998
------------------------------- ------------------------------- -----------------------------
% of Percent % of Percent % of Percent
Allowance of Loans Allowance of Loans Allowance of Loans
in Each in Each in Each in Each in Each in Each
Category Category Category Category Category Category
to Total to Total to Total to Total to Total to Total
Amount Allowance Loans Amount Allowance Loans Amount Allowance Loans
------ --------- ----- ------ --------- ----- ------ --------- -----
(Dollars in thousands)
Real estate........ $165 26.3% 68.1% $155 26.3% 74.9% $139 25.9% 75.7%
Consumer........... 197 31.5 16.9 176 30.0 9.9 141 26.3 9.4
Mobile home........ 208 33.2 15.0 208 35.3 15.2 201 37.5 14.9
Unallocated........ 56 9.0 N/A 50 8.4 N/A 55 10.3 N/A
---- ----- ---- ----- ---- -----
Total allowance
for loan losses $626 100.0% $589 100.0% $536 100.0%
==== ===== ==== ===== ==== =====
Investment Activities
Under federal law, Lawrence Federal has authority to invest in various
types of liquid assets, including U.S. Government obligations, securities of
various federal agencies and of state and municipal governments, deposits at the
Federal Home Loan Bank of Cincinnati and certificates of deposit of federally
insured institutions. Within certain regulatory limits, Lawrence Federal may
also invest a portion of its assets in corporate securities, including
non-mortgage, asset-backed instruments. Savings institutions like Lawrence
Federal are also required to maintain an investment in Federal Home Loan Bank of
Cincinnati stock. Lawrence Federal is required under federal regulations to
maintain a minimum amount of liquid assets. See "Regulation and Supervision" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Lawrence Federal's Investment Committee, which consists of the
President and two members of the Board of Directors, has the overall
responsibility for Lawrence Federal's investment portfolio. The Board of
Directors also receives a monthly portfolio report. Lawrence Federal's President
is authorized to make investment decisions consistent with Lawrence Federal's
investment policy and the recommendations of Lawrence Federal's Investment
Committee and is primarily responsible for daily investment activities.
The primary objectives of Lawrence Federal's investment portfolio are
to provide a source of liquidity sufficient to meet regulatory and operating
requirements, provide an alternative source of income through interest and
dividends, improve Lawrence Federal's interest rate risk position, diversify
Lawrence Federal's assets and provide collateral for pledging. Investment
decisions are made in accordance with Lawrence Federal's investment policy and
are based upon the quality of a particular investment, its inherent risks, the
composition of the balance sheet, market expectations, Lawrence Federal's
liquidity, income and collateral needs and how the investment fits within
Lawrence Federal's interest rate risk strategy.
The investment portfolio consists primarily of debt issues. It is the
current practice of Lawrence Federal to invest in debt securities with
maturities of five years or less issued only by the United States Treasury or
United States government agencies. The other securities in Lawrence Federal's
investment portfolio consist of trust preferred securities. All of the
securities in the portfolio carry market risk, insofar as increases in market
interest rates may cause a decrease in market value. In addition, trust
preferred securities carry credit risk, insofar as the payment of dividends
depends on the successful operation of the companies that sponsored them. All of
the trust
53
preferred securities purchased by Lawrence Federal have received one of the two
highest ratings by a nationally recognized rating agency such as Standard &
Poor's or Moody's.
Generally accepted accounting principles require that securities be
categorized as either "held-to-maturity," "trading securities" or
"available-for-sale," based on management's intent as to the ultimate
disposition of each security. Debt securities may be classified as "held-to-
maturity" and reported in financial statements at amortized cost only if the
reporting entity has the positive intent and ability to hold those securities to
maturity. Securities that might be sold in response to changes in market
interest rates, changes in the security's prepayment risk, increases in loan
demand, or other similar factors cannot be classified as "held-to-maturity."
Debt and equity securities held for current resale are classified as "trading
securities." These securities are reported at fair value, and unrealized gains
and losses on the securities would be included in earnings. Lawrence Federal
does not currently use or maintain a trading account. Debt and equity securities
not classified as either "held-to-maturity" or "trading securities" are
classified as "available-for-sale." These securities are reported at fair value,
and unrealized gains and losses on the securities are excluded from earnings and
reported, net of deferred taxes, as a separate component of equity. Lawrence
Federal currently classifies all of its securities as available-for-sale.
At June 30, 2000, Lawrence Federal did not own any securities, other
than U.S. Government and agency securities, that had an aggregate book value in
excess of 10% of Lawrence Federal's retained earnings at that date.
The following table presents the amortized cost and fair value of
Lawrence Federal's securities at the dates indicated.
At December 31,
-----------------------------------------------
At June 30, 2000 1999 1998
--------------------- -------------------- ---------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- -----
(In thousands)
U.S. Treasury securities ..................... $ 679 $ 670 $ 682 $ 669 $ 2,062 $ 2,071
Obligations of U.S. government agencies ...... 11,056 10,738 11,057 10,756 10,145 10,182
Other securities ............................. 1,029 873 1,019 816 516 510
------- ------- ------- ------- ------- -------
Total .................................... $12,764 $12,281 $12,758 $12,241 $12,723 $12,763
======= ======= ======= ======= ======= =======
The following presents the activity in the securities portfolio for the
periods indicated.
Six Months Ended Year Ended
June 30, December 31,
------------------- ----------------------
2000 1999 1999 1998
---- ---- ---- ----
(In thousands)
Investment securities,
beginning of period ........... $ 12,241 $ 12,763 $ 12,763 $ 7,031
Purchases:
Investment securities -
available-for-sale ......... 2,050 2,183 2,183 16,823
Sales:
Investment securities -
available-for-sale ......... (2,118) (1,181) (1,123) (5,864)
Calls and maturities:
Investment securities -
available-for-sale ......... -- (500) (1,002) (5,322)
(Amortization) accretion of
premium/discount .............. 74 54 (23) 71
Increase (decrease) in
unrealized appreciation/
depreciation .................. 34 (251) (557) 24
-------- -------- -------- --------
Net increase (decrease)
in investment securities . 40 305 (522) 5,732
-------- -------- -------- --------
Investment securities, end
of period ..................... $ 12,281 $ 13,068 $ 12,241 $ 12,763
======== ======== ======== ========
54
The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of Lawrence Federal's
debt securities as of June 30, 2000.
At June 30, 2000
-----------------------------------------------------------------------------------------------------
More than One Year More than Five Years
One Year or Less to Five Years to Ten Years More than Ten Years Total
----------------- ------------------ ------------------ ------------------ -------------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars in thousands)
U.S. Treasury Securities .. $670 4.48% $ -- --% $ -- --% $ -- --% $ 670 4.48%
Obligations of U.S.
Government agencies ...... 737 5.74 10,001 6.09 -- -- -- -- 10,738 6.07
Other securities ......... -- -- -- -- -- -- 873 6.95 873 6.95
------ ----- ------- ---- ------ ---- ---- -------
Total debt securities
at fair value ........... $1,407 5.14% $10,001 6.09% $ -- --% $873 6.95% $12,281 6.04%
====== ======= ====== ==== =======
Deposit Activities and Other Sources of Funds
General. Deposits are the major external source of funds for Lawrence
Federal's lending and other investment activities. In addition, Lawrence Federal
also generates funds internally from loan principal repayments and prepayments
and maturing securities. Scheduled loan repayments are a relatively stable
source of funds, while deposit inflows and outflows and loan prepayments are
influenced significantly by general interest rates and money market conditions.
Lawrence Federal may use borrowings from the Federal Home Loan Bank of
Cincinnati to compensate for reductions in the availability of funds from other
sources. Presently, Lawrence Federal has no other borrowing arrangements aside
from the Federal Home Loan Bank. Until recent years, Lawrence Federal relied
almost exclusively on deposits and internally generated funds as its source of
funds. In 1997, Lawrence Federal began utilizing advances from the Federal Home
Loan Bank. Lawrence Federal anticipates that it will increase its use of
borrowed funds in the future, depending on market conditions and its need for
funds.
Deposit Accounts. Nearly all of Lawrence Federal's depositors reside in
Ohio, Kentucky or West Virginia. Lawrence Federal offers a wide variety of
deposit accounts with a range of interest rates and terms. Lawrence Federal's
deposit accounts consist of a variety of savings accounts, checking and NOW
accounts, certificates of deposit, individual retirement accounts and money
market accounts. The maturities of Lawrence Federal's certificate of deposit
accounts range from 91 days to five years. Deposit account terms vary with the
principal differences being the minimum balance deposit, early withdrawal
penalties, limits on the number of transactions and the interest rate. Lawrence
Federal reviews its deposit mix and pricing biweekly.
Lawrence Federal believes it is competitive in the interest rates it
offers on its deposit products. Lawrence Federal determines the rates paid based
on a number of factors, including rates paid by competitors, Lawrence Federal's
need for funds and cost of funds, borrowing costs and movements of market
interest rates. Lawrence Federal does not utilize brokers to obtain deposits and
at June 30, 2000 had no brokered deposits.
In the unlikely event Lawrence Federal is liquidated after the
conversion, depositors will be entitled to full payment of their deposit
accounts before any payment is made to Lawrence Financial as the sole
stockholder of Lawrence Federal.
55
The following table shows the composition of Lawrence Federal's deposit
accounts at the dates indicated.
At June 30, At December 31
2000 1999 1998
---------- ------------ ---------
(In thousands)
Noninterest-bearing accounts.. $ 1,390 $ 1,309 $ 1,337
Passbook accounts............. 18,733 17,835 16,564
Money market accounts......... 767 790 707
NOW accounts.................. 11,129 10,257 10,553
Certificates of deposit....... 67,827 60,108 59,331
------- ------- -------
Total deposits........... $99,846 $90,299 $88,492
======= ======= =======
The following table presents the deposit activity of Lawrence Federal
for the periods indicated:
Six Months Ended Year Ended
June 30, December 31,
-------------------- ---------------------
2000 1999 1999 1998
-------- ---------- --------- ----------
(In thousands)
Beginning balance............. $90,299 $88,492 $88,492 $80,758
Increase (decrease) before
interest credited........... 7,434 2,924 (2,215) 3,952
Interest credited............. 2,113 2,034 4,022 3,782
-------- -------- --------- --------
Net increase.................. 9,547 4,958 1,807 7,734
-------- -------- --------- --------
Ending balance........... $99,846 $93,450 $90,299 $88,492
======= ======= ======= =======
At June 30, 2000, the Bank had $12.6 million in certificates of deposit
with principal balances of $100,000 or more maturing as follows:
Weighted
Average
Maturity Period Amount Rate
- ------------------------------------------------ -------- -----------
(Dollars in thousands)
Three months or less............................ $ 2,453 5.55%%
Over 3 through 6 months......................... 1,231 5.80
Over 6 through 12 months........................ 3,393 6.46
Over 12 months.................................. 5,559 5.32
-------
Total.................................. $12,636 5.72
=======
56
The following table presents by various rate categories, the amount of
certificates of deposit outstanding at the dates indicated and the periods to
maturity of the certificates of deposit outstanding at June 30, 2000.
Period to Maturity from June 30, 2000
-----------------------------------------
Less One Two
than to to Over Total at Total at Total at
One Two Three Three June 30, December 31, December 31,
Year Years Years Years 2000 1999 1998
--------- ------- -------- -------- --------- ------------ -----------
(Dollars in thousands)
Certificates of deposit:
3.01 to 4.00%......... $ 76 $ 216 $ 4 $2,093 $ 2,389 $ 2,403 $ 2,790
4.01 to 5.00%......... 2,558 189 1,660 1,292 5,699 9,461 6,841
5.01 to 6.00%......... 18,614 2,934 803 1,167 23,518 36,636 42,335
6.01 to 7.00%......... 32,503 1,549 862 813 35,727 11,395 7,153
7.01 to 8.00%......... 41 -- 177 275 494 213 212
------- ------ ------ ------ ------- -------- -------
Total certificates of
deposit............. $53,792 $4,888 $3,506 $5,640 $67,827 $ 60,108 $59,331
======= ====== ====== ====== ======= ======== =======
Borrowings. Lawrence Federal has the ability to use advances from the
Federal Home Loan Bank of Cincinnati to supplement its supply of lendable funds
and to meet deposit withdrawal requirements. The Federal Home Loan Bank of
Cincinnati functions as a central reserve bank providing credit for savings
banks and certain other member financial institutions. As a member of the
Federal Home Loan Bank of Cincinnati, Lawrence Federal is required to own
capital stock in the Federal Home Loan Bank of Cincinnati and is authorized to
apply for advances on the security of the capital stock and certain of its
mortgage loans and other assets, principally securities that are obligations of,
or guaranteed by, the U.S. Government or its agencies, provided certain
creditworthiness standards have been met. Advances are made under several
different credit programs. Each credit program has its own interest rate and
range of maturities. Depending on the program, limitations on the amount of
advances are based on the financial condition of the member institution and the
adequacy of collateral pledged to secure the credit. At June 30, 2000, Lawrence
Federal had arranged the ability to borrow a total of approximately $10.6
million from the Federal Home Loan Bank of Cincinnati.
The following table presents certain information regarding Lawrence
Federal's borrowed funds at or for the periods ended on the dates indicated:
Six Months Ended
June 30, Year Ended December 31,
------------------ -----------------------
2000 1999 1999 1998
------ ------ ------ ------
(Dollars in thousands)
FHLB advances:
Average balance outstanding........................ $2,169 -- $ 633 $ 999
Maximum amount outstanding at any month-end
during the period............................... 4,000 -- 4,500 3,250
Balance outstanding at end of period............... 4,000 -- 4,500 --
Weighted average interest rate during the period... 6.28% -- 5.64% 5.98%
Weighted average interest rate at end of period.... 6.78 -- 5.64 --
57
Properties
Lawrence Federal currently conducts its business through its main
office located in Ironton, Ohio, and four other full-service banking offices,
all of which it owns.
Net Book Value
of Property
Original or Leasehold
Year Improvements at
Location Acquired June 30, 2000
- ---------- ---------- ---------------
Main/Executive Office: (In thousands)
311 South 5th Street
Ironton, Ohio 45638 1976 $743
Drive Through Facility:
511 Vernon Street
Ironton, Ohio 45638 1997 197
Branch Offices:
401 2nd Avenue
Chesapeake, Ohio 45619 1960 71
7510 State Route 7
Proctorville, Ohio 45669 1993 155
404 Solida Road
South Point, Ohio 45680 1975 164
9000 Ohio River Road
Wheelersburg, Ohio 45694 1998 679
------
Total $2,009
======
Personnel
As of June 30, 2000, Lawrence Federal had 38 full-time employees and
two part-time employees, none of whom is represented by a collective bargaining
unit. Lawrence Federal believes its relationship with its employees is good.
Legal Proceedings
Periodically, there have been various claims and lawsuits involving
Lawrence Federal, such as claims to enforce liens, condemnation proceedings on
properties in which Lawrence Federal holds security interests, claims involving
the making and servicing of real property loans and other issues incident to
Lawrence Federal's business. Lawrence Federal is not a party to any pending
legal proceedings that it believes would have a material adverse effect on the
financial condition or operations of Lawrence Federal.
Subsidiaries
Lawrence Federal has one subsidiary, Lawrence Financial Services Corp.
Federal savings associations generally may invest up to 3% of their assets in
service corporations, provided that any amount in excess of 2% is used primarily
for community, inner-city and community development projects. At June 30, 2000,
Lawrence Federal's equity investment in its subsidiary was $189,000, or 0.17% of
total assets. Lawrence Financial Services Corp. holds real property for
investment purposes.
58
Management of Lawrence Financial Holdings, Inc.
Lawrence Financial's Board of Directors consists of six persons divided
into three classes, each of which contains approximately one third of the Board.
The following persons are the current directors of Lawrence Financial:
Name Term Expires
- ------- -------------
Tracy E. Brammer, Jr. 2001
Jack L. Blair 2001
Charles E. Austin, II 2002
Phillip O. McMahon 2002
Herbert J. Karlet 2003
Robert N. Taylor 2003
Mr. Brammer serves as Chairman of the Board of Directors and Mr.
McMahon serves as Vice Chairman of the Board of Directors. The Board of
Directors has designated a Compensation Committee consisting of Messrs. Austin,
Karlet and Taylor.
Beginning in 2001, members of the Board of Directors of Lawrence
Financial will receive an annual retainer of $7,200.
The executive officers of Lawrence Financial are elected annually and
hold office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors. The executive
officers of Lawrence Financial are:
Name Position
- ------- --------
Jack L. Blair President and Chief Executive Officer
Mary C. Kratzenberg Secretary and Treasurer
Since the formation of Lawrence Financial, none of the executive
officers, directors or other personnel has received remuneration from Lawrence
Financial. For information concerning the principal occupations, employment and
compensation of the directors and executive officers of Lawrence Financial
during the past five years, see "Management of Lawrence Federal Savings Bank."
59
Management of Lawrence Federal Savings Bank
Directors
The Board of Directors of Lawrence Federal presently is composed of six
members who are elected for terms of three years, approximately one third of
whom are elected annually as required by the Bylaws of Lawrence Federal. All of
the directors of Lawrence Federal are independent of management, except for Mr.
Blair. Information regarding the directors is provided below. Unless otherwise
stated, each person has held his current occupation for the last five years.
Ages presented are as of June 30, 2000.
The following directors have terms ending in 2001:
Tracy E. Brammer. Jr. is a Vice President, General Manager and Funeral
Director of Tracy Brammer Funeral Home, Inc. Age 55. Director since 1984.
Jack L. Blair joined Lawrence Federal in 1994 as Executive Vice
President and Chief Executive Officer. Since 1996, he has served as President
and Chief Executive Officer. Age 53. Director since 2000.
The following directors have terms ending in 2002:
Charles E. Austin, II is a Vice President and General Manager of C.J.
Hughes Construction Co., Inc. of Huntington, Virginia. Age 41. Director since
1996.
Phillip O. McMahon is a general dentist in private practice. Age 48.
Director since 1993.
The following directors have terms ending in 2003:
Herbert J. Karlet is the Senior Vice President for Finance at Marshall
University, which is located in Huntington, West Virginia. Age 50. Director
since 1991.
Robert N. Taylor is the owner and President of Ohio Big Birds, Inc.
which raises and processes ostrich meat and leather products, and the owner and
operator of Taylor Farm, a grain and cattle farm. Age 56. Director since 1995.
Executive Officers
The executive officers of Lawrence Federal are elected annually by the
Board of Directors and serve at the Board's discretion. Below is information
regarding the executive officers of Lawrence Federal who are not also directors.
Unless otherwise stated, each executive officer has held his or her current
position for at least the last five years. Ages presented are as of June 30,
2000.
Mary C. Kratzenberg has served as Vice President and
Secretary-Treasurer of Lawrence Federal since 1996 and has been employed by
Lawrence Federal since 1977. Age 45.
Mark R. Potter has served as Vice President of Lawrence Federal since
1990. Prior to that time Mr. Potter served as Compliance Officer of Lawrence
Federal. Age 39.
Carey B. Dunfee has served as Controller of Lawrence Federal since
joining Lawrence Federal in 1994. Age 32.
60
Meetings of the Board of Directors
The Board of Directors held 23 regular meetings and two special
meetings during the year ended December 31, 1999. The Board of Directors has not
designated any standing committees.
Directors' Compensation
Directors receive a fee of $1,200 per month for service on the Board of
Directors of Lawrence Federal. Directors also receive an annual retainer of
$1,400 for serving on the Board of Directors of Lawrence Financial Services
Corp.
Lawrence Federal maintains a deferred compensation arrangement for
directors under which each director may elect on an annual basis to defer up to
100% of his monthly Board remuneration. Upon the director's attainment of age
68, Lawrence Federal will pay the balance of the director's deferral account
either in a lump sum or in monthly installments over a period of 240 months.
Over the deferral period, a director's account is credited with interest with
monthly compounding. In the event of a change in control of Lawrence Financial
(as defined in the program) followed by a director's termination of service,
each director will be entitled to begin to receive his deferral account and the
interest rate will become fixed at the time of the change in control. The
arrangement with the directors also provides each director with a death benefit.
If a director dies while in active service with Lawrence Federal, the director's
beneficiary will receive an annual payment in an amount specified in the
director's individual agreement for a period of 20 years. Lawrence Financial has
acquired life insurance on members of the Board to provide informal funding for
its obligations under the program. During the fiscal year ended December 31,
1999, all directors participated in the director deferral program.
Lawrence Federal also maintains a director emeritus program for its
non-employee directors to encourage them to remain as directors. Upon the
director's attainment of age 68 and completion of 15 years of service as a
director, Lawrence Federal will pay the director $500 annually for each year of
service, up to 50% the Board of fees at the retirement date, for a period of 15
years. Each director's agreement also provides for a reduced benefit upon an
early retirement after the attainment of age 65, but before the attainment of
age 68, and completion of 15 years of service. Upon a director's death while in
active service or in the event of a change in control of Lawrence Federal or
Lawrence Financial (as defined in the program), each director will be entitled
to receive a payment equivalent to what he would have received had his normal
retirement date coincided with the date of the change in control or date of
death, as the case may be. Lawrence Federal has acquired life insurance on
members of the Board of Directors to provide informal funding for its
obligations under the program.
61
Executive Compensation
Summary Compensation Table. The following information is furnished for
Mr. Blair for the fiscal year ended December 31, 1999. No other executive
officer of Lawrence Federal received salary and bonus of $100,000 or more during
1999.
Annual Compensation (1)
---------------------------------------------
Name and Fiscal Other Annual All Other
Position Year Salary Bonus Compensation(2) Compensation
- ---------- ------ -------- ------- ---------------- ------------
Jack L. Blair 1999 $86,100 -- -- 3,650(3)
(1) Compensation information for the fiscal years ended December 31, 1998 and
1997 has been omitted as Lawrence Federal was neither a public company nor
a subsidiary of a public company at that time.
(2) Does not include the aggregate amount of perquisites and other personal
benefits, which was less than $50,000 or 10% of the total annual salary and
bonus reported.
(3) Consists of employer contributions to the 401(k) plan.
Employment Agreements. Upon the completion of the conversion, Lawrence
Federal and Lawrence Financial each intend to enter into employment agreements
with Mr. Blair. The employment agreements are intended to ensure that Lawrence
Federal and Lawrence Financial will be able to retain the services of Mr. Blair
after the conversion. The continued success of Lawrence Federal and Lawrence
Financial depends to a significant degree on the skills and competence of Mr.
Blair.
The employment agreements will provide for a three-year term. The term
of the Lawrence Financial employment agreement will extend on a daily basis
until written notice of non-renewal is given by the Board of Directors or Mr.
Blair. The term of the Lawrence Federal employment agreement will be renewable
on an annual basis. The employment agreements provide that Mr. Blair's base
salary will be reviewed annually. The initial base salary under the employment
agreements for Mr. Blair will be $98,400. In addition to the base salary, the
employment agreements provide for, among other things, participation in employee
benefits plans and other fringe benefits applicable to executive personnel. The
employment agreements provide for termination by Lawrence Federal or Lawrence
Financial for cause, as defined in the employment agreements, at any time. If
Lawrence Federal or Lawrence Financial chooses to terminate Mr. Blair's
employment for reasons other than for cause, or if Mr. Blair resigns from
Lawrence Federal or Lawrence Financial after specified circumstances that would
constitute constructive termination, Mr. Blair or, if Mr. Blair dies, his
beneficiary, would be entitled to receive an amount equal to the base salary,
bonuses and benefits that would have been paid or provided to Mr. Blair for the
remaining term of the employment agreement. Upon termination of Mr. Blair for
reasons other than cause or a change in control, Mr. Blair must adhere to a
one-year non-competition agreement.
Under the employment agreements, if, following a change in control of
Lawrence Federal or Lawrence Financial, Mr. Blair's employment is involuntarily
terminated or if Mr. Blair voluntarily terminates his employment in connection
with circumstances specified in the agreement, then Mr. Blair or, if Mr. Blair
dies, his beneficiary, would be entitled to a severance payment equal to the
greater of the payments and benefits that would have been paid for the remaining
term of the agreement or three times the average of Mr. Blair's five preceding
taxable years' annual compensation. Lawrence Federal and Lawrence Financial
would also continue Mr. Blair's health and welfare benefits coverage for
thirty-six months. Even though both employment agreements provide for a
severance payment if a change in control occurs, Mr. Blair would not receive
duplicate payments or benefits under the agreements. Under applicable law, an
excise tax would be triggered by change in control-related payments that equal
or exceed three times Mr. Blair's average annual compensation over the five
years preceding the change in control. The excise tax would equal 20% of the
amount of the payment in excess of one times Mr. Blair's average compensation
over the preceding five-year period. In the event that payments related to a
change in control of Lawrence Financial are subject to this excise tax, Lawrence
Financial will provide Mr. Blair with an additional amount sufficient to enable
Mr. Blair to retain the full value of his change in control benefits as if the
excise tax had not applied. If a change in control of Lawrence Federal and
Lawrence Financial occurred, the total amount of payments due under the
employment agreements, based solely on Mr. Blair's cash compensation received in
the
62
fiscal year ending December 31, 1999 (and without regard to future base salary
adjustments or bonuses and excluding any benefits under any employee benefit
plan which may be payable), would be approximately $258,300.
Lawrence Financial will guarantee the payments to Mr. Blair under
Lawrence Federal's employment agreement if they are not paid by Lawrence
Federal. Lawrence Financial will also make all payments due under the Lawrence
Financial's employment agreement. Lawrence Federal or Lawrence Financial will
pay or reimburse all reasonable costs and legal fees incurred by Mr. Blair under
any dispute or question of interpretation relating to the employment agreements,
if Mr. Blair is successful on the merits in a legal judgment, arbitration or
settlement. The employment agreements also provide that Lawrence Federal and
Lawrence Financial will indemnify Mr. Blair to the fullest extent legally
allowable for all expenses and liabilities he may incur in connection with any
suit or proceeding in which he may be involved by reason of his having been a
director or officer of Lawrence Financial or Lawrence Federal.
Deferred Compensation Agreement. Lawrence Federal has entered into a
deferred compensation agreement with Mr. Blair under which he may elect on an
annual basis to defer a portion of his salary. Upon termination of service,
Lawrence Federal will pay the balance of Mr. Blair's deferral account in a lump
sum. Over the deferral period, Mr. Blair's account is credited with annual
interest with monthly compounding. In the event of a change in control of
Lawrence Federal (as defined in the program) followed by Mr. Blair's termination
of service, he will be entitled to receive the balance of his deferral account
in a lump sum. If Mr. Blair dies while in active service with Lawrence Federal,
his beneficiary will receive $21,862 annually in monthly installments for 20
years. Lawrence Federal has acquired life insurance on Mr. Blair to provide
informal funding for its obligations under the agreement.
Employee Severance Compensation Plan. Lawrence Federal's Board of
Directors intends to adopt an employee severance compensation plan in connection
with the conversion. The severance plan will provide benefits to eligible
employees upon a change in control of Lawrence Financial or Lawrence Federal.
Lawrence Federal expects eligible employees to include those employees who have
completed a minimum of one year of service with Lawrence Federal. Eligible
employees will not include any individual who enters into an employment
agreement with Lawrence Federal or Lawrence Financial. Under the severance plan,
if a change in control of Lawrence Financial or Lawrence Federal occurs,
eligible employees whose employment is terminated or who terminate employment
upon the occurrence of events specified in the severance plan, within 12 months
of the effective date of a change in control will be entitled to a severance
payment based on the individual's compensation and years of service. Generally,
the severance benefit equals two weeks compensation for each year of service, up
to a maximum of 12 months compensation. Assuming that a change in control had
occurred at June 30, 2000, and resulted in the termination of all eligible
employees, the maximum aggregate payment due under the severance plan would be
approximately $175,000.
401(k) Plan. Lawrence Federal maintains the Lawrence Federal Savings
Bank Employees' Savings & Profit Sharing Plan and Trust for the benefit of
eligible employees of Lawrence Federal. The Savings Plan is intended to be a
tax-qualified plan under Sections 401(a) and 401(k) of the Internal Revenue
Code. Employees of Lawrence Federal who have completed 500 hours of service
during a continuous six month period of service are eligible to participate in
the Savings Plan beginning on the first day of the calendar quarter next
following the date such requirements are satisfied. Participants may contribute
up to 10% of their monthly salary up to the applicable limits ($10,500 in 2000)
to the Savings Plan through a salary reduction election. Lawrence Federal
currently matches participant contributions at the rate of 100% up to 5% of the
participant's annual compensation.
In addition to employer matching contributions, Lawrence Federal may
contribute a discretionary amount to the Savings Plan in any plan year which is
allocated to individual participants in the proportion that their annual
compensation bears to the total compensation of all participants during the plan
year. Participants are at all times 100% vested in all salary reduction
contributions. Employer matching and profit-sharing contributions vest upon the
completion of three years of service. For the year ended December 31, 1999,
Lawrence Federal incurred total contribution-related expenses of $25,000 in
connection with the Savings Plan.
63
Generally, the investment of Savings Plan assets is directed by plan
participants. In connection with the conversion, the investment options
available to participants will be expanded to include the opportunity to direct
the investment of up to 100% of their Savings Plan account balance to purchase
shares of Lawrence Financial's common stock. A participant in the Savings Plan
who elects to purchase common stock in the conversion through the Savings Plan
will receive the same subscription priority and be subject to the same
individual purchase limitations as if the participant had elected to make such
purchase using other funds. See "The Conversion--Limitations on Purchases of
Shares."
Benefits
Employee Stock Ownership Plan. In connection with the conversion,
Lawrence Federal's Board of Directors has authorized the adoption of an employee
stock ownership plan for employees of Lawrence Federal. Generally, employees of
Lawrence Federal will become eligible to participate in the employee stock
ownership plan upon the completion of six months of continuous service with
Lawrence Federal in which an employee completes 500 hours of service (as
described in the plan); provided, however, that all eligible employees who are
employed as of the date of the conversion will immediately become participants
in the plan.
It is anticipated that Lawrence Federal will engage an independent
third party trustee to purchase 8% of the shares issued in the conversion on
behalf of the employee stock ownership plan. This would range between 44,200
shares, assuming 552,500 shares are issued in the conversion, and 59,800 shares
assuming 747,500 shares are issued in the conversion. If 859,625 shares are
issued in the conversion, the employee stock ownership plan will purchase 68,770
shares. It is anticipated that the employee stock ownership plan will fund its
purchase in the conversion through a loan from Lawrence Financial. The loan will
equal 100% of the aggregate purchase price of the common stock. The loan to the
employee stock ownership plan will be repaid principally from Lawrence Federal's
contributions to the employee stock ownership plan and dividends payable on
common stock held by the employee stock ownership plan over the anticipated
10-year term of the loan. The interest rate for the employee stock ownership
plan loan is expected to be the prime rate as published in The Wall Street
Journal on the closing date of the conversion. See "Pro Forma Data." If the
employee stock ownership plan is unable to acquire 8% of the common stock sold
in the offering, it is anticipated that additional shares may be acquired
following the conversion through open market purchases, subject to approval by
the Office of Thrift Supervision.
In any plan year, Lawrence Federal may make additional discretionary
contributions (beyond those necessary to satisfy the loan obligation) to the
employee stock ownership plan for the benefit of plan participants in either
cash or shares of common stock, which may be acquired through the purchase of
outstanding shares in the market or from individual stockholders or which
constitute authorized but unissued shares or shares held in treasury by Lawrence
Financial. The timing, amount, and manner of discretionary contributions will be
affected by several factors, including applicable regulatory policies, the
requirements of applicable laws and regulations, and market conditions. Lawrence
Federal's contributions to the employee stock ownership plan are not fixed, so
benefits payable under the employee stock ownership plan cannot be estimated.
Shares purchased by the employee stock ownership plan with the proceeds
of the loan from Lawrence Financial will be held in a suspense account and
released on a pro rata basis as the loan is repaid. Discretionary contributions
to the employee stock ownership plan and shares released from the suspense
account will be allocated among participants on the basis of each participant's
proportional share of compensation.
Participants will vest in their accrued benefits under the employee
stock ownership plan after three years of service with Lawrence Federal. A
participant will become fully vested at retirement, upon death or disability, a
change in control or upon termination of the employee stock ownership plan.
Benefits are generally distributable upon a participant's separation from
service. Any unvested shares that are forfeited upon a participant's termination
of employment will be reallocated among the remaining plan participants.
Plan participants will be entitled to direct the plan trustee on how to
vote common stock credited to their accounts. The trustee will vote all
allocated shares held in the employee stock ownership plan as instructed by the
plan participants and unallocated shares and allocated shares for which no
instructions are received will be voted in
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the same ratio on any matter as those shares for which instructions are given,
subject to the fiduciary responsibilities of the trustee.
Under applicable accounting requirements, compensation expense for a
leveraged employee stock ownership plan is recorded at the fair market value of
the employee stock ownership plan shares when committed to be released to
participants' accounts. See "Pro Forma Data."
The employee stock ownership plan must meet certain requirements of the
Internal Revenue Code and the Employee Retirement Income Security Act. Lawrence
Federal intends to request a determination letter from the Internal Revenue
Service regarding the tax-qualified status of the employee stock ownership plan.
Lawrence Federal expects to receive a favorable determination letter, but cannot
guarantee that it will.
Supplemental Executive Retirement Plan. Following the conversion,
Lawrence Federal intends to implement a supplemental executive retirement plan
to provide for supplemental retirement benefits with respect to the employee
stock ownership plan. The plan will provide participating executives with
benefits otherwise limited by other provisions of the Internal Revenue Code or
the terms of the employee stock ownership plan loan. Specifically, the plan will
provide benefits to eligible individuals (those designated by the Board of
Directors of Lawrence Federal or its affiliates) that cannot be provided under
the employee stock ownership plan as a result of the limitations imposed by the
Internal Revenue Code, but that would have been provided under the employee
stock ownership plan but for such limitations. In addition to providing for
benefits lost under tax-qualified plans as a result of limitations imposed by
the Internal Revenue Code, the new plan will also provide supplemental benefits
to designated individuals upon a change of control before the complete scheduled
repayment of the employee stock ownership plan loan. Generally, upon such an
event, the supplemental executive retirement plan will provide the individual
with a benefit equal to what the individual would have received under the
employee stock ownership plan had he or she remained employed throughout the
term of the employee stock ownership plan loan less the benefits actually
provided under the employee stock ownership plan on behalf of such individual.
An individual's benefits under the supplemental executive retirement plan will
generally become payable upon the change in control of Lawrence Federal or
Lawrence Financial. The Board of Directors intends to designate Mr. Blair as a
participant in the supplemental executive retirement plan.
Lawrence Federal may utilize a grantor trust in connection with the
supplemental executive retirement plan in order to set funds aside with which to
ultimately pay benefits under the plan. The assets of the grantor trust would be
subject to the claims of Lawrence Federal's general creditors in the event of
Lawrence Federal's insolvency until paid to the individual according to the
terms of the supplemental executive retirement plan.
Stock-Based Incentive Plan. Following the conversion, the Board of
Directors of Lawrence Financial intends to adopt a stock-based incentive plan
that will provide for the granting of options to purchase common stock and
awards of restricted stock to eligible officers, employees, and directors of
Lawrence Financial and Lawrence Federal. As required by the Office of Thrift
Supervision, the stock-based incentive plan will not be implemented until at
least six months after the completion of the conversion. Lawrence Financial will
submit the stock-based incentive plan to stockholders for their approval at
which time stockholders will be provided with detailed information about the
plan.
Under the stock-based incentive plan, Lawrence Financial intends to
reserve shares for the grant of stock options in an amount equal to 10% of the
shares of common stock issued in the conversion. The amount reserved would range
from 55,250 shares, assuming 552,500 shares are issued in the conversion to
74,750 shares, assuming 747,500 shares are issued in the conversion. If 859,625
shares are issued in the conversion, 85,962 shares will be reserved for grants
of stock options. Additionally, Lawrence Financial intends to reserve shares for
the grant of stock awards in an amount equal to 4% of the shares of common stock
issued in the conversion. The amount reserved would range from 22,100 shares,
assuming 552,500 shares are issued in the conversion to 29,900 shares, assuming
747,500 shares are issued in the conversion. If 859,625 shares are issued in the
conversion, 34,385 shares would be reserved for stock awards. Any common stock
awarded under the Stock-Based Incentive Plan will be awarded at no cost to the
recipients. The plan may be funded through the purchase of common stock by a
trust established in connection with the stock-based incentive plan or from
authorized but unissued shares. If additional
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authorized but unissued shares are acquired by the stock-based incentive plan
after the conversion, the interests of existing shareholders would be diluted.
See "Pro Forma Data."
Transactions with Lawrence Federal
Federal regulations require that all loans or extensions of credit to
executive officers and directors must generally be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons, must not involve more than
the normal risk of repayment or present other unfavorable features.
Notwithstanding this rule, federal regulations permit Lawrence Federal to make
loans to executive officers and directors at reduced interest rates if the loan
is made under a benefit program generally available to all other employees and
does not give preference to any executive officer or director over any other
employee. Lawrence Federal has adopted a policy of offering employees
residential mortgage loans and personal consumer loans with interest rates equal
to Lawrence Federal's cost of funds plus 1%, adjusted upwards to the nearest
one-quarter of 1%. Lawrence Federal also offers employees credit cards with
interest rates equal to the prime rate.
In addition, loans made to a director or executive officer in an amount
that, when aggregated with the amount of all other loans to the person and his
or her related interests, are in excess of the greater of $25,000 or 5% of
Lawrence Federal's capital and surplus, up to a maximum of $500,000, must be
approved in advance by a majority of the disinterested members of the Board of
Directors. See "Regulation and Supervision--Federal Savings Institution
Regulation--Transactions with Related Parties."
The aggregate amount of loans by Lawrence Federal to its executive
officers and directors was $726,000 at June 30, 2000, or approximately 5% of pro
forma stockholders' equity assuming that 747,500 shares are issued in the
conversion. These loans were performing according to their original terms at
June 30, 2000.
Indemnification for Directors and Officers
Lawrence Financial's articles of incorporation contain provisions that
limit the liability of and provide indemnification for its directors and
officers. These provisions provide that a director or officer will be
indemnified and held harmless by Lawrence Financial when that individual is made
a party to civil, criminal, administrative and investigative proceedings.
Directors and officers will be indemnified to the fullest extent authorized by
the Maryland General Corporation Law against all expense, liability and loss
reasonably incurred. Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of Lawrence Financial pursuant to its articles of
incorporation or otherwise, Lawrence Financial has been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
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Regulation and Supervision
General
As a savings and loan holding company, Lawrence Financial will be
required by federal law to file reports with, and otherwise comply with, the
rules and regulations of the Office of Thrift Supervision. Lawrence Federal is
subject to extensive regulation, examination and supervision by the Office of
Thrift Supervision, as its primary federal regulator, and the Federal Deposit
Insurance Corporation, as the deposit insurer. Lawrence Federal is a member of
the Federal Home Loan Bank System and, with respect to deposit insurance, of the
Savings Association Insurance Fund managed by the Federal Deposit Insurance
Corporation. Lawrence Federal must file reports with the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation concerning its
activities and financial condition in addition to obtaining regulatory approvals
prior to entering into certain transactions such as mergers with, or
acquisitions of, other savings institutions. The Office of Thrift Supervision
and/or the Federal Deposit Insurance Corporation conduct periodic examinations
to test Lawrence Federal's safety and soundness and compliance with various
regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such regulatory requirements and policies, whether by the Office of
Thrift Supervision, the Federal Deposit Insurance Corporation or the U.S.
Congress, could have a material adverse impact on Lawrence Financial, Lawrence
Federal and their operations. Certain of the regulatory requirements applicable
to Lawrence Federal and to Lawrence Financial are referred to below or elsewhere
in this prospectus. The description of statutory provisions and regulations
applicable to savings institutions and their holding companies included in this
prospectus does not purport to be a complete description of such statutes and
regulations and their effects on Lawrence Federal and Lawrence Financial.
Holding Company Regulation
Lawrence Financial will be a nondiversified unitary savings and loan
holding company within the meaning of federal law. Under prior law, a unitary
savings and loan holding company, such as Lawrence Financial, was not generally
restricted as to the types of business activities in which it may engage,
provided that Lawrence Federal continued to be a qualified thrift lender. See
"--Federal Savings Institution Regulation--QTL Test." The Gramm- Leach-Bliley
Act of 1999, however, restricts unitary savings and loan holding companies not
existing or applied for before May 4, 1999 to activities permissible for
financial holding companies under the law or for multiple savings and loan
holding companies. Lawrence Financial will not qualify to be grandfathered and
will be limited to the activities permissible for financial holding companies or
multiple savings and loan holding companies. A financial holding company may
engage in activities that are financial in nature, incidental to financial
activities or complementary to a financial activity. A multiple savings and loan
holding company is generally limited to activities permissible for bank holding
companies under Section 4(c)(8) of the Bank Holding Company Act, subject to the
prior approval of the Office of Thrift Supervision, and certain additional
activities authorized by Office of Thrift Supervision regulation.
A savings and loan holding company is prohibited from, directly or
indirectly, acquiring more than 5% of the voting stock of another savings
institution or savings and loan holding company without prior written approval
of the Office of Thrift Supervision and from acquiring or retaining control of a
depository institution that is not insured by the Federal Deposit Insurance
Corporation. In evaluating applications by holding companies to acquire savings
institutions, the Office of Thrift Supervision considers the financial and
managerial resources and future prospects of the holding company and institution
involved, the effect of the acquisition on the risk to the deposit insurance
funds, the convenience and needs of the community and competitive factors.
The Office of Thrift Supervision may not approve any acquisition that
would result in a multiple savings and loan holding company controlling savings
institutions in more than one state, subject to two exceptions: (1) the
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approval of interstate supervisory acquisitions by savings and loan holding
companies and (2) the acquisition of a savings institution in another state if
the laws of the state of the target savings institution specifically permit such
acquisitions. The states vary in the extent to which they permit interstate
savings and loan holding company acquisitions.
Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, federal regulations do prescribe such restrictions
on subsidiary savings institutions as described below. Lawrence Federal must
notify the Office of Thrift Supervision 30 days before declaring any dividend to
Lawrence Financial. In addition, the financial impact of a holding company on
its subsidiary institution is a matter that is evaluated by the Office of Thrift
Supervision and the agency has authority to order cessation of activities or
divestiture of subsidiaries deemed to pose a threat to the safety and soundness
of the institution.
Federal Savings Institution Regulation
Business Activities. The activities of federal savings institutions are
governed by federal law and regulations. These laws and regulations delineate
the nature and extent of the activities in which federal associations may
engage. In particular, many types of lending authority for federal associations,
e.g., commercial, non-residential real property loans and consumer loans, are
limited to a specified percentage of the institution's capital or assets.
Capital Requirements. The Office of Thrift Supervision capital
regulations require savings institutions to meet three minimum capital
standards: a 1.5% tangible capital ratio, a 4% leverage ratio (3% for
institutions receiving the highest rating on the CAMELS rating system) and an 8%
risk-based capital ratio. In addition, the prompt corrective action standards
discussed below also establish, in effect, a minimum 2% tangible capital
standard, a 4% leverage ratio (3% for institutions receiving the highest rating
on the CAMELS financial institution rating system), and, together with the
risk-based capital standard itself, a 4% Tier 1 risk-based capital standard. The
Office of Thrift Supervision regulations also require that, in meeting the
tangible, leverage and risk-based capital standards, institutions must generally
deduct investments in and loans to subsidiaries engaged in activities as
principal that are not permissible for a national bank.
The risk-based capital standard for savings institutions requires the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight
factor of 0% to 100%, assigned by the Office of Thrift Supervision capital
regulation based on the risks believed inherent in the type of asset. Core (Tier
1) capital is defined as common stockholders' equity (including retained
earnings), certain noncumulative perpetual preferred stock and related surplus
and minority interests in equity accounts of consolidated subsidiaries less
intangibles other than certain mortgage servicing rights and credit card
relationships. The components of supplementary capital currently include
cumulative preferred stock, long-term perpetual preferred stock, mandatory
convertible securities, subordinated debt and intermediate preferred stock, the
allowance for loan and lease losses limited to a maximum of 1.25% of risk-
weighted assets and up to 45% of unrealized gains on available-for-sale equity
securities with readily determinable fair market values. Overall, the amount of
supplementary capital included as part of total capital cannot exceed 100% of
core capital.
The capital regulations also incorporate an interest rate risk
component. Savings institutions with "above normal" interest rate risk exposure
are subject to a deduction from total capital for purposes of calculating their
risk- based capital requirements. For the present time, the Office of Thrift
Supervision has deferred implementation of the interest rate risk capital
charge. At June 30, 2000, Lawrence Federal met each of its capital requirements.
Prompt Corrective Regulatory Action. The Office of Thrift Supervision
is required to take certain supervisory actions against undercapitalized
institutions, the severity of which depends upon the institution's degree of
undercapitalization. Generally, a savings institution that has a ratio of total
capital to risk weighted assets of less than 8%, a ratio of Tier 1 (core)
capital to risk-weighted assets of less than 4% or a ratio of core capital to
total
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assets of less than 4% (3% or less for institutions with the highest examination
rating) is considered to be "undercapitalized." A savings institution that has a
total risk-based capital ratio less than 6%, a Tier 1 capital ratio of less than
3% or a leverage ratio that is less than 3% is considered to be "significantly
undercapitalized" and a savings institution that has a tangible capital to
assets ratio equal to or less than 2% is deemed to be "critically
undercapitalized." Subject to a narrow exception, the Office of Thrift
Supervision is required to appoint a receiver or conservator for an institution
that is "critically undercapitalized." The regulation also provides that a
capital restoration plan must be filed with the Office of Thrift Supervision
within 45 days of the date a savings institution receives notice that it is
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Compliance with the plan must be guaranteed by any parent
holding company. In addition, numerous mandatory supervisory actions become
immediately applicable to an undercapitalized institution, including, but not
limited to, increased monitoring by regulators and restrictions on growth,
capital distributions and expansion. The Office of Thrift Supervision could also
take any one of a number of discretionary supervisory actions, including the
issuance of a capital directive and the replacement of senior executive officers
and directors.
Insurance of Deposit Accounts. Lawrence Federal is a member of the
Savings Association Insurance Fund. The Federal Deposit Insurance Corporation
maintains a risk-based assessment system by which institutions are assigned to
one of three categories based on their capitalization and one of three
subcategories based on examination ratings and other supervisory information. An
institution's assessment rate depends upon the categories to which it is
assigned. Assessment rates for insured institutions are determined semiannually
by the Federal Deposit Insurance Corporation and currently range from zero basis
points for the healthiest institutions to 27 basis points for the riskiest.
In addition to the assessment for deposit insurance, institutions are
required to make payments on bonds issued in the late 1980s by the Financing
Corporation to recapitalize the predecessor to the Savings Association Insurance
Fund. During 1999, payments for Savings Association Insurance Fund members
approximated 6.1 basis points, while Bank Insurance Fund members paid 1.2 basis
points. Since January 1, 2000, there has been equal sharing of Financing
Corporation payments between members of both insurance funds.
The Federal Deposit Insurance Corporation has authority to increase
insurance assessments. A significant increase in Savings Association Insurance
Fund insurance premiums would likely have an adverse effect on the operating
expenses and results of operations of Lawrence Federal. Management cannot
predict what insurance assessment rates will be in the future.
Insurance of deposits may be terminated by the Federal Deposit
Insurance Corporation upon a finding that the 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 Federal Deposit Insurance Corporation or the Office of
Thrift Supervision. The management of Lawrence Federal does not know of any
practice, condition or violation that might lead to termination of deposit
insurance.
Loans to One Borrower. Federal law provides that savings institutions
are generally subject to the limits on loans to one borrower applicable to
national banks. A savings institution may not make a loan or extend credit to a
single or related group of borrowers in excess of 15% of its unimpaired capital
and surplus. An additional amount may be lent, equal to 10% of unimpaired
capital and surplus, if secured by specified readily-marketable collateral.
QTL Test. The HOLA requires savings institutions to meet a qualified
thrift lender test. Under the test, a savings association is required to either
qualify as a "domestic building and loan association" under the Internal Revenue
Code or maintain at least 65% of its "portfolio assets" (total assets less: (1)
specified liquid assets up to 20% of total assets; (2) intangibles, including
goodwill; and (3) the value of property used to conduct business) in certain
"qualified thrift investments" (primarily residential mortgages and related
investments, including certain mortgage-backed securities) in at least 9 months
out of each 12 month period.
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A savings institution that fails the qualified thrift lender test is
subject to certain operating restrictions and may be required to convert to a
bank charter. As of June 30, 2000, Lawrence Federal met the qualified thrift
lender test. Recent legislation has expanded the extent to which education
loans, credit card loans and small business loans may be considered "qualified
thrift investments."
Limitations on Capital Distributions. Office of Thrift Supervision
regulations impose limitations upon all capital distributions by a savings
institution, including cash dividends, payments to repurchase its shares and
payments to shareholders of another institution in a cash-out merger. Under
current regulations, an application to and the prior approval of the Office of
Thrift Supervision is required prior to any capital distribution if the
institution does not meet the criteria for "expedited treatment" of applications
under Office of Thrift Supervision regulations (i.e., generally, examination
ratings in the two top categories), the total capital distributions for the
calendar year exceed net income for that year plus the amount of retained net
income for the preceding two years, the institution would be undercapitalized
following the distribution or the distribution would otherwise be contrary to a
statute, regulation or agreement with Office of Thrift Supervision. If an
application is not required, the institution must still provide prior notice to
Office of Thrift Supervision of the capital distribution if, like Lawrence
Federal, it is a subsidiary of a holding company. In the event Lawrence
Federal's capital fell below its regulatory requirements or the Office of Thrift
Supervision notified it that it was in need of more than normal supervision,
Lawrence Federal's ability to make capital distributions could be restricted. In
addition, the Office of Thrift Supervision could prohibit a proposed capital
distribution by any institution, which would otherwise be permitted by the
regulation, if the Office of Thrift Supervision determines that such
distribution would constitute an unsafe or unsound practice.
Liquidity. Lawrence Federal is required to maintain an average daily
balance of specified liquid assets equal to a monthly average of not less than a
specified percentage of its net withdrawable deposit accounts plus short-term
borrowings. This liquidity requirement is currently 4%, but may be changed from
time to time by the Office of Thrift Supervision to any amount within the range
of 4% to 10%. Monetary penalties may be imposed for failure to meet these
liquidity requirements. Lawrence Federal has never been subject to monetary
penalties for failure to meet its liquidity requirements.
Assessments. Savings institutions are required to pay assessments to
the Office of Thrift Supervision to fund the agency's operations. The general
assessments, paid on a semi-annual basis, are computed upon the savings
institution's total assets, including consolidated subsidiaries, as reported in
Lawrence Federal's latest quarterly thrift financial report.
Transactions with Related Parties. Lawrence Federal's authority to
engage in transactions with "affiliates" (e.g., any company that controls or is
under common control with an institution, including Lawrence Financial and its
non-savings institution subsidiaries) is limited by federal law. The aggregate
amount of covered transactions with any individual affiliate is limited to 10%
of the capital and surplus of the savings institution. The aggregate amount of
covered transactions with all affiliates is limited to 20% of the savings
institution's capital and surplus. Certain transactions with affiliates are
required to be secured by collateral in an amount and of a type described in
federal law. The purchase of low quality assets from affiliates is generally
prohibited. The transactions with affiliates must be on terms and under
circumstances that are at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies. In addition, savings institutions are prohibited from lending to any
affiliate that is engaged in activities that are not permissible for bank
holding companies and no savings institution may purchase the securities of any
affiliate other than a subsidiary.
Lawrence Federal's authority to extend credit to executive officers,
directors and 10% shareholders ("insiders"), as well as entities such persons
control, is also governed by federal law. Such loans are required to be made on
terms substantially the same as those offered to unaffiliated individuals and
not involve more than the normal risk of repayment. An exception exists for
loans made pursuant to a benefit or compensation program that is widely
available to all employees of the institution and does not give preference to
insiders over other employees. The law limits both the individual and aggregate
amount of loans Lawrence Federal may make to insiders based, in
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part, on Lawrence Federal's capital position and requires certain board approval
procedures to be followed. Loans to executive officers are subject to additional
restrictions.
Enforcement. The Office of Thrift Supervision has primary enforcement
responsibility over savings institutions and has the authority to bring actions
against the institution and all institution-affiliated parties, including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors to institution of receivership, conservatorship or termination of
deposit insurance. Civil penalties cover a wide range of violations and can
amount to $25,000 per day, or even $1 million per day in especially egregious
cases. The Federal Deposit Insurance Corporation has the authority to recommend
to the Director of the Office of Thrift Supervision that enforcement action to
be taken with respect to a particular savings institution. If action is not
taken by the Director, the Federal Deposit Insurance Corporation has authority
to take such action under certain circumstances. Federal law also establishes
criminal penalties for certain violations.
Standards for Safety and Soundness. The federal banking agencies have
adopted Interagency Guidelines prescribing Standards for Safety and Soundness.
The guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. If the Office of Thrift
Supervision determines that a savings institution fails to meet any standard
prescribed by the guidelines, the Office of Thrift Supervision may require the
institution to submit an acceptable plan to achieve compliance with the
standard.
Federal Home Loan Bank System
Lawrence Federal is a member of the Federal Home Loan Bank System,
which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan
Bank provides a central credit facility primarily for member institutions.
Lawrence Federal, as a member of the Federal Home Loan Bank, is required to
acquire and hold shares of capital stock in that Federal Home Loan Bank in an
amount at least equal to 1.0% of the aggregate principal amount of its unpaid
residential mortgage loans and similar obligations at the beginning of each
year, or 1/20 of its advances (borrowings) from the Federal Home Loan Bank,
whichever is greater. Lawrence Federal was in compliance with this requirement
with an investment in Federal Home Loan Bank stock at June 30, 2000 of $529,000.
Federal Reserve System
The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The regulations generally provide
that reserves be maintained against aggregate transaction accounts as follows:
for accounts aggregating $44.3 million or less (subject to adjustment by the
Federal Reserve Board) the reserve requirement is 3%; and for accounts
aggregating greater than $44.3 million, the reserve requirement is $1.329
million plus 10% (subject to adjustment by the Federal Reserve Board between 8%
and 14%) against that portion of total transaction accounts in excess of $44.3
million. The first $5.0 million of otherwise reservable balances (subject to
adjustments by the Federal Reserve Board) are exempted from the reserve
requirements. Lawrence Federal complies with the foregoing requirements.
Prospective Legislation
Lawrence Federal is, and Lawrence Financial, as a savings and loan
holding company, will be extensively regulated and supervised. Regulations,
which affect Lawrence Federal on a daily basis, may be changed at any time, and
the interpretation of the relevant law and regulations may also change because
of new interpretations by the authorities who interpret those laws and
regulations. Any change in the regulatory structure or the applicable statutes
or regulations, whether by the Office of Thrift Supervision, the Federal Deposit
Insurance Corporation or
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the U.S. Congress, could have a material impact on Lawrence Financial, Lawrence
Federal, its operations or the conversion.
Legislation enacted several years ago provided that the Bank Insurance
Fund and the Savings Association Insurance Fund would have merged on January 1,
1999 if there had been no more savings associations as of that date. Congress
did not enact legislation eliminating the savings association charter by that
date. Lawrence Federal is unable to predict whether the Savings Association
Insurance Fund and Bank Insurance Fund will eventually be merged and what
effect, if any, that may have on its business.
Federal Securities Laws
Lawrence Financial has filed with the Securities and Exchange
Commission a registration statement under the Securities Act for the
registration of the common stock to be issued in the conversion. Upon completion
of the conversion, Lawrence Financial's common stock will be registered with the
Securities and Exchange Commission under the Securities Exchange Act. Lawrence
Financial will then have to observe the information, proxy solicitation, insider
trading restrictions and other requirements under the Securities Exchange Act.
The registration under the Securities Act of shares of the common stock
to be issued in the conversion does not cover the resale of those shares. Shares
of the common stock purchased by persons who are not affiliates of Lawrence
Financial may be resold without registration. The resale restrictions of Rule
144 under the Securities Act govern shares purchased by an affiliate of Lawrence
Financial. As defined under Rule 144, an affiliate of Lawrence Financial is a
person that directly or indirectly controls, is controlled by, or is under
common control with Lawrence Financial. Generally, executive officers and
directors will be considered affiliates of Lawrence Financial. If Lawrence
Financial meets the current public information requirements of Rule 144 under
the Securities Act, each affiliate of Lawrence Financial who complies with the
other conditions of Rule 144 (including those that require the affiliate's sale
to be aggregated with those of other persons) would be able to sell in the
public market, without registration, a number of shares not to exceed, in any
three-month period, the greater of (1) 1% of the outstanding shares of Lawrence
Financial or (2) the average weekly volume of trading in such shares during the
preceding four calendar weeks. Provision may be made in the future by Lawrence
Financial to permit affiliates to have their shares registered for sale under
the Securities Act under specific circumstances.
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Federal and State Taxation
Federal Income Taxation
General. Lawrence Financial and Lawrence Federal intend to report their
income on a calendar year basis using the accrual method of accounting. The
federal income tax laws apply to Lawrence Financial and Lawrence Federal in the
same manner as to other corporations with some exceptions, including
particularly Lawrence Federal's reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to
Lawrence Federal or Lawrence Financial. Lawrence Federal's federal income tax
returns have been either audited or closed under the statute of limitations
through tax year 1995. For its 1999 tax year, Lawrence Federal's maximum federal
income tax rate was 34%.
Bad Debt Reserves. For fiscal years beginning before December 31, 1996,
thrift institutions that qualified under certain definitional tests and other
conditions of the Internal Revenue Code were permitted to use certain favorable
provisions to calculate their deductions from taxable income for annual
additions to their bad debt reserve. A reserve could be established for bad
debts on qualifying real property loans, generally secured by interests in real
property improved or to be improved, under the percentage of taxable income
method or the experience method. The reserve for nonqualifying loans was
computed using the experience method.
Federal legislation enacted in 1996 repealed the reserve method of
accounting for bad debts and the percentage of taxable income method for tax
years beginning after 1995 and require savings institutions to recapture or take
into income certain portions of their accumulated bad debt reserves.
Approximately $1.5 million of Lawrence Federal accumulated bad debt reserves
would not be recaptured into taxable income unless Lawrence Federal makes a
"non-dividend distribution" to Lawrence Financial as described below.
Distributions. If Lawrence Federal makes "non-dividend distributions"
to Lawrence Financial, the distributions will be considered to have been made
from Lawrence Federal's unrecaptured tax bad debt reserves, including the
balance of its reserves as of December 31, 1988, to the extent of the
"non-dividend distributions," and then from Lawrence Federal's supplemental
reserve for losses on loans, to the extent of those reserves, and an amount
based on the amount distributed, but not more than the amount of those reserves,
will be included in Lawrence Federal's taxable income. Non-dividend
distributions include distributions in excess of Lawrence Federal's current and
accumulated earnings and profits, as calculated for federal income tax purposes,
distributions in redemption of stock, and distributions in partial or complete
liquidation. Dividends paid out of Lawrence Federal's current or accumulated
earnings and profits will not be so included in Lawrence Federal's taxable
income.
The amount of additional taxable income triggered by a non-dividend is
an amount that, when reduced by the tax attributable to the income, is equal to
the amount of the distribution. Therefore, if Lawrence Federal makes a
non-dividend distribution to Lawrence Financial, approximately one and one-half
times the amount of the distribution not in excess of the amount of the reserves
would be includable in income for federal income tax purposes, assuming a 35%
federal corporate income tax rate. Lawrence Federal does not intend to pay
dividends that would result in a recapture of any portion of its bad debt
reserves.
State Taxation
Ohio State Taxation. Lawrence Financial is subject to the Ohio
corporation franchise tax, which, as applied to it, is a tax measured by both
net income and net worth. In general, the tax liability is the greater of 5.1%
on the first $50,000 of computed Ohio taxable income and 8.5% of computed Ohio
taxable income in excess of $50,000, or 0.40% of taxable net worth. Under these
alternative measures of computing the tax liability, complex formulas determine
the jurisdictions to which total net income and total net worth are apportioned
or allocated. The minimum tax is $50 per year and maximum tax liability as
measured by net worth is limited to $150,000 per year.
A special litter tax also applies to all corporations, including
Lawrence Financial, subject to the Ohio corporation franchise tax. This litter
tax does not apply to "financial institutions." If a corporation pays franchise
tax on the basis of net income, the litter tax is equal to 0.11% of the first
$50,000 of computed Ohio taxable income
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and 0.22% of computed Ohio taxable income in excess of $50,000. If a corporation
pays franchise tax on the basis of net worth, the litter tax is equal to 0.014%
times taxable net worth.
A statutory exemption from the net worth tax is available to Lawrence
Financial if certain conditions are satisfied. Lawrence Financial expects to
qualify for this exemption, which would restrict its tax liability to the tax
measured by net income.
Lawrence Federal is a "financial institution" for State of Ohio tax
purposes. Accordingly, it must pay the Ohio corporate franchise tax on
"financial institutions," which is imposed annually at a rate of 1.4% of the
Lawrence Federal's apportioned book net worth, determined under generally
accepted accounting principles, less any statutory deduction. This tax rate is
scheduled to decrease to 1.3% in the year 2000. As a "financial institution,"
Lawrence Federal does not pay any Ohio tax based upon net income or net profits.
Maryland State Taxation. As a Maryland holding company not earning
income in Maryland, Lawrence Financial will be exempt from Maryland corporate
income tax.
Shares to be Purchased by Management
with Subscription Rights
The following table presents certain information as to the approximate
purchases of common stock by the directors and executive officers of Lawrence
Federal, including their associates, as defined by applicable regulations. No
individual has entered into a binding agreement to purchase these shares and,
therefore, actual purchases could be more or less than indicated. Pursuant to
regulations of the Office of Thrift Supervision, directors and executive
officers and their associates may not purchase more than 33.80% of the shares
sold in the conversion. For purposes of the following table, sufficient shares
are assumed to be available to satisfy subscriptions in all categories.
Percent of Percent of Percent of
Anticipated Anticipated Shares at Shares at Shares at
Number of Dollar Minimum Maximum Adjusted Maximum
Shares to be Amount to be of Estimated of Estimated of Estimated
Name Purchased(1) Purchased(1) Valuation Range Valuation Range Valuation Range
- ---- ------------ ------------ --------------- --------------- ----------------
Charles E. Austin, II ........ 12,500 $125,000 2.3% 1.7% 1.5%
Jack L. Blair ................ 10,000 100,000 1.8 1.3 1.2
Tracy E. Brammer, Jr. ........ 12,500 125,000 2.3 1.7 1.5
Herbert J. Karlet ............ 7,500 75,000 1.4 1.0 0.9
Phillip O. McMahon ........... 12,500 125,000 2.3 1.7 1.5
Robert N. Taylor ............. 7,500 75,000 1.4 1.0 0.9
All Directors and Officers
as a Group (nine persons) .. 66,500 665,000 12.0% 8.9% 7.7%
- -------------
(1) Does not include shares to be awarded under the employee stock ownership
plan and stock-based incentive plan or options to acquire shares under
the stock-based incentive plan.
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The Conversion
The Office of Thrift Supervision has approved Lawrence Federal's plan
of conversion, provided that it is approved by the members of Lawrence Federal
and that Lawrence Financial and Lawrence Federal satisfy certain other
conditions imposed by the Office of Thrift Supervision in its approval. Office
of Thrift Supervision approval is not a recommendation or endorsement of the
plan of conversion and is not a recommendation to purchase common stock in the
offering.
General
On July 31, 2000, the Board of Directors of Lawrence Federal
unanimously adopted the plan of conversion. Under the plan of conversion,
Lawrence Federal will convert from a federally chartered mutual savings bank to
a federally chartered stock savings bank and become a wholly owned subsidiary of
Lawrence Financial, a newly formed Maryland corporation. In addition, the plan
provides that Lawrence Financial will offer its common stock in a subscription
offering and, if necessary, through a community offering and/or a syndicate of
registered broker-dealers. The following discussion of the plan of conversion
contains all material terms about the conversion. Nevertheless, you should read
carefully the plan of conversion, which accompanies Lawrence Federal's proxy
statement and is available to members of Lawrence Federal upon request. The plan
of conversion is also filed as an exhibit to the registration statement that
Lawrence Financial has filed with the Securities and Exchange Commission. See
"Where You Can Find More Information."
The Office of Thrift Supervision has approved Lawrence Federal's plan
of conversion, subject to, among other things, approval of the plan of
conversion by Lawrence Federal's members. Lawrence Federal has called a special
meeting of its members for this purpose on _________, 2000. Depositors as of
November 1, 2000 and borrowers with loans outstanding as of March 23, 1993 whose
loans continue to be outstanding as of November 1, 2000 will be entitled to vote
at the special meeting. Lawrence Federal will complete the conversion only upon
completion of the sale of at least the minimum number of shares of Lawrence
Financial common stock offered through this prospectus and approval of the plan
of conversion by Lawrence Federal's voting members.
The Board of Directors established the aggregate price of the shares of
common stock to be issued in the conversion based upon an independent appraisal
of Lawrence Federal giving effect to the conversion. Keller & Company, a
consulting firm experienced in the valuation and appraisal of savings
institutions, prepared the appraisal. Keller & Company will affirm or, if
necessary, update its appraisal at the completion of the offering.
The completion of the offering depends on market conditions and other
factors beyond Lawrence Federal's control. No assurance can be given as to the
length of time after approval of the plan of conversion at the special meeting
that will be required to complete the sale of the common stock. If delays are
experienced, significant changes may occur in the appraisal of Lawrence
Financial and Lawrence Federal as converted, which would require a change in the
offering range. A change in the offering range would result in a change in the
net proceeds realized by Lawrence Financial from the sale of the common stock.
If the conversion is terminated, Lawrence Federal would be required to charge
all conversion expenses against current income.
Reasons for the Conversion
After considering the advantages and disadvantages of the conversion,
the Board of Directors of Lawrence Federal unanimously approved the conversion
as being in the best interests of Lawrence Federal, its customers and employees
and the communities it serves. The Board of Directors concluded that the
conversion offers a number of advantages that will be important to the future
growth and performance of Lawrence Federal.
Formation of Lawrence Federal as a capital stock savings bank
subsidiary of Lawrence Financial will permit Lawrence Financial to sell common
stock, which is a source of capital not available to mutual savings banks. The
capital raised through the sale of common stock in the conversion will support
Lawrence Federal's future
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lending and operational growth and may also support possible future branching
activities or the acquisition of other financial institutions or financial
service companies or their assets. Additional capital also will increase
Lawrence Federal's ability to render services to the communities it serves,
although Lawrence Federal has no current specific plans, arrangements or
understandings regarding these activities.
After completion of the conversion, the unissued common and preferred
stock authorized by Lawrence Financial's articles of incorporation will permit
Lawrence Financial to raise additional capital through further sales of
securities and to issue securities in connection with possible acquisitions,
subject to market conditions and any required regulatory approvals. Lawrence
Financial currently has no plans with respect to additional offerings of
securities.
The conversion will afford Lawrence Federal's management, members and
others the opportunity to become stockholders of Lawrence Financial and
participate more directly in, and contribute to, any future growth of Lawrence
Financial and Lawrence Federal. Lawrence Financial will use stock-related
incentive programs to attract and retain executive and other personnel.
The disadvantages of the conversion considered by Lawrence Federal's
Board of Directors are the additional expense and effort of operating as a
public company and the fact that operating in the stock form of organization
could subject Lawrence Federal to contests for corporate control. The Board of
Directors determined that the advantages of the conversion outweighed the
disadvantages.
Effects of Conversion to Stock Form
General. Each depositor in a mutual savings bank has both a deposit
account in the institution and a pro rata ownership interest in the net worth of
the institution based upon the balance in his or her account. However, this
ownership interest is tied to the depositor's account and has no value separate
from such deposit account. Furthermore, this ownership interest may only be
realized in the unlikely event that the institution is liquidated. In such
event, the depositors of record at that time, as owners, would be able to share
in any residual surplus and reserves after payment of other claims, including
claims of depositors to the amounts of their deposits. Any depositor who opens a
deposit account obtains a pro rata ownership interest in the net worth of the
institution without any additional payment beyond the amount of the deposit. A
depositor who reduces or closes his account receives a portion or all of the
balance in the account but nothing for his or her ownership interest in the net
worth of the institution, which is lost to the extent that the balance in the
account is reduced.
When a mutual savings bank converts to stock form, depositors lose all
rights to the net worth of the mutual savings bank, except the right to claim a
pro rata share of funds representing the liquidation account established in
connection with the conversion. Additionally, permanent nonwithdrawable capital
stock is created and offered to depositors which represents the ownership of the
institution's net worth. The common stock of Lawrence Financial is separate and
apart from deposit accounts and cannot be and is not insured by the Federal
Deposit Insurance Corporation or any other governmental agency. Certificates are
issued to evidence ownership of the permanent stock. The stock certificates are
transferable, and therefore the stock may be sold or traded if a purchaser is
available with no effect on any deposit account the seller may hold in the
institution.
No assets of Lawrence Financial or Lawrence Federal will be distributed
in connection with the conversion other than the payment of those expenses
incurred in connection with the conversion.
Continuity. While the conversion is being accomplished, the normal
business of Lawrence Federal will continue without interruption, including being
regulated by the Office of Thrift Supervision and the Federal Deposit Insurance
Corporation. After conversion, Lawrence Federal will continue to provide
services for depositors and borrowers under current policies by its present
management and staff.
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The directors of Lawrence Federal at the time of conversion will serve
as directors of Lawrence Federal after the conversion. The directors of Lawrence
Financial will be solely composed of individuals who served on the Board of
Directors of Lawrence Federal. All officers of Lawrence Federal at the time of
conversion will retain their positions after the conversion.
Deposit Accounts and Loans. Lawrence Federal's deposit accounts,
account balances and existing Federal Deposit Insurance Corporation insurance
coverage of deposit accounts will not be affected by the conversion.
Furthermore, the conversion will not affect the loan accounts, loan balances or
obligations of borrowers under their individual contractual arrangements with
Lawrence Federal.
Effect on Voting Rights. Voting rights in Lawrence Federal, as a mutual
savings bank, belong to its depositor and borrower members. After the
conversion, depositors will no longer have voting rights in Lawrence Federal
and, therefore, will no longer be able to elect directors of Lawrence Federal or
control its affairs. Instead, Lawrence Financial, as the sole stockholder of
Lawrence Federal, will possess all voting rights in Lawrence Federal. The
holders of the common stock of Lawrence Financial will possess all voting rights
in Lawrence Financial. Depositors of Lawrence Federal will not have voting
rights after the conversion except to the extent that they become stockholders
of Lawrence Financial by purchasing common stock.
Tax Effects. Lawrence Federal has received an opinion from Muldoon,
Murphy & Faucette LLP, Washington, D.C., that addresses all the material federal
income tax consequences of the conversion. The opinion, which relies upon
factual representations given by Lawrence Federal, concludes that the conversion
will constitute a nontaxable reorganization under Section 368(a)(1)(F) of the
Internal Revenue Code. Among other things, the opinion states the following,
which constitutes all of the material federal tax consequences of the
conversion:
o no gain or loss will be recognized by Lawrence Federal in its
mutual or stock form by reason of the conversion;
o no gain or loss will be recognized by Lawrence Federal or
Lawrence Financial on the receipt by Lawrence Federal of money
from Lawrence Financial in exchange for shares of Lawrence
Financial's capital stock or by Lawrence Financial upon the
receipt of money from the sale of its common stock;
o the basis of the assets of Lawrence Federal in the stock form
will be the same as immediately prior to the conversion;
o the holding period of the assets of Lawrence Federal in the stock
form will include the holding period of Lawrence Federal in the
mutual form;
o no gain or loss will be recognized to Lawrence Federal's account
holders upon the issuance to them of accounts in Lawrence Federal
immediately after the conversion, in the same dollar amounts and
on the same terms and conditions as their accounts at Lawrence
Federal in its mutual form, plus interest in the liquidation
account;
o no gain or loss will be recognized to account holders upon the
receipt or exercise of subscription rights in the conversion,
except if subscription rights are deemed to have value as
discussed below;
o the tax basis of account holders' accounts in Lawrence Federal
immediately after the conversion will be the same as the tax
basis of their accounts immediately before conversion;
o the tax basis of each account holder's interest in the
liquidation account will be zero; and
o the tax basis of the common stock purchased in the conversion
will be the amount paid and the holding period for the stock will
begin on the date of purchase.
Unlike a private letter ruling issued by the Internal Revenue Service,
an opinion of counsel is not binding on the Internal Revenue Service and the
Internal Revenue Service could disagree with the conclusions reached in the
opinion. If there is a disagreement, no assurance can be given that the
conclusions reached in an opinion of counsel would be sustained by a court if
contested by the Internal Revenue Service.
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Based upon past rulings issued by the Internal Revenue Service, the
opinion provides that the receipt of subscription rights by eligible account
holders, supplemental eligible account holders and other individuals under the
plan of conversion will be taxable if the subscription rights are deemed to have
a fair market value. Keller & Company, whose findings are not binding on the
Internal Revenue Service, has issued a letter indicating that the subscription
rights do not have any value, based on the fact that the rights are acquired by
the recipients without cost, are nontransferable and of short duration and
afford the recipients the right only to purchase shares of the common stock at a
price equal to its estimated fair market value, which will be the same price
paid by purchasers in the community offering for unsubscribed shares of common
stock. If the subscription rights are deemed to have a fair market value, the
receipt of the rights may only be taxable to those persons who exercise their
subscription rights. Lawrence Federal could also recognize a gain on the
distribution of subscription rights. Holders of subscription rights are
encouraged to consult with their own tax advisors as to the tax consequences if
the subscription rights are deemed to have a fair market value.
Lawrence Federal has also received an opinion from Crowe, Chizek and
Company LLP, Columbus, Ohio, that, assuming the conversion does not result in
any federal income tax liability to Lawrence Federal, its account holders, or
Lawrence Financial, implementation of the plan of conversion will not result in
any Ohio income tax liability to those entities or persons.
The opinions of Muldoon, Murphy & Faucette LLP and Crowe, Chizek and
Company LLP, and the letter from Keller & Company are filed as exhibits to the
registration statement that Lawrence Financial has filed with the Securities and
Exchange Commission. See "Where You Can Find More Information."
You should consult with your own tax advisor regarding the tax
consequences of the conversion particular to you.
Liquidation Account. In the unlikely event of a complete liquidation of
Lawrence Federal, before the conversion, each depositor in Lawrence Federal
would receive a pro rata share of any assets of Lawrence Federal remaining after
payment of claims of all creditors, including the claims of all depositors up to
the withdrawal value of their accounts. Each depositor's pro rata share of the
remaining assets would be in the same proportion as the value of his or her
deposit account to the total value of all deposit accounts in Lawrence Federal
at the time of liquidation.
After the conversion, holders of withdrawable deposit(s) in Lawrence
Federal, including certificates of deposit, will not be entitled to share in any
residual assets upon liquidation of Lawrence Federal. However, under Office of
Thrift Supervision regulations, Lawrence Federal will, at the time of the
conversion, establish a liquidation account in an amount equal to its total
equity as of the date of the latest statement of financial condition contained
in the final prospectus relating to the conversion.
Lawrence Federal will maintain the liquidation account after the
conversion for the benefit of eligible account holders and supplemental eligible
account holders who retain their savings accounts in Lawrence Federal. Each
eligible account holder and supplemental eligible account holder will, with
respect to each deposit account held, have a related inchoate interest in a
sub-account portion of the liquidation account balance.
The initial subaccount balance for a savings account held by an
eligible account holder or a supplemental eligible account holder will be
determined by multiplying the opening balance in the liquidation account by a
fraction of which the numerator is the amount of the holder's "qualifying
deposit" in the deposit account and the
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denominator is the total amount of the "qualifying deposits" of all eligible or
supplemental eligible account holders. The initial subaccount balance will not
be increased, but it will be decreased as provided below.
If the deposit balance in any deposit account of an eligible account
holder or supplemental eligible account holder at the close of business on any
annual closing day of Lawrence Federal (which is December 31) after March 31,
1999, or September 30, 2000 is less than the lesser of the deposit balance in a
deposit account at the close of business on any other annual closing date after
March 31, 1999 or September 30, 2000, or the amount of the "qualifying deposit"
in a savings account on March 31, 1999 or September 30, 2000, then the
subaccount balance for a savings account will be adjusted by reducing the
subaccount balance in an amount proportionate to the reduction in the savings
balance. Once reduced, the subaccount balance will not be subsequently
increased, notwithstanding any increase in the savings balance of the related
savings account. If any savings account is closed, the related subaccount
balance will be reduced to zero.
Upon a complete liquidation of Lawrence Federal, each eligible account
holder and supplemental eligible account holder will be entitled to receive a
liquidation distribution from the liquidation account in the amount of the then
current adjusted subaccount balance(s) for deposit account(s) held by the holder
before any liquidation distribution may be made to stockholders. No merger,
consolidation, bulk purchase of assets with assumptions of savings accounts and
other liabilities or similar transactions with another federally insured
institution in which Lawrence Federal is not the surviving institution will be
considered to be a complete liquidation. In any of these transactions, the
liquidation account will be assumed by the surviving institution.
In the unlikely event Lawrence Federal is liquidated after the
conversion, depositors will be entitled to full payment of their deposit
accounts before any payment is made to Lawrence Financial as the sole
stockholder of Lawrence Federal.
Subscription Offering and Subscription Rights
Under the plan of conversion, Lawrence Federal has granted rights to
subscribe for Lawrence Financial common stock to the following persons in the
following order of priority:
1. Persons with deposits in Lawrence Federal with balances
aggregating $50 or more ("qualifying deposits") as of March 31,
1999 ("eligible account holders"). For this purpose, deposit
accounts include all savings, time, and demand accounts.
2. Tax-qualified benefit plans of Lawrence Financial or Lawrence
Federal, including Lawrence Federal's employee stock ownership
plan.
3. Persons with qualifying deposits in Lawrence Federal as of
September 30, 2000 ("supplemental eligible account holders").
4. Persons with deposits in Lawrence Federal as of November 1, 2000
and borrowers of Lawrence Federal who had loans outstanding on
March 23, 1993 that continue to be outstanding as of November 1,
2000 ("other members").
The amount of common stock that any person may purchase will depend on
the availability of the common stock after satisfaction of all subscriptions
having prior rights in the subscription offering and to the maximum and minimum
purchase limitations set forth in the plan of conversion. See "--Limitations on
Purchases of Shares." All persons on a joint account will be counted as a single
depositor for purposes of determining the maximum amount that may be subscribed
for by owners of a joint account.
Subscription rights are nontransferable. If you sell or otherwise
transfer your rights to subscribe for common stock in the subscription offering
or subscribe for common stock on behalf of another person, you may forfeit those
rights and face possible further sanctions and penalties imposed by the Office
of Thrift
79
Supervision or another agency of the U.S. Government. If you exercise your
subscription rights, you will be required to certify that you are purchasing
shares solely for your own account and that you have no agreement or
understanding with any other person for the sale or transfer of the shares. Once
tendered, subscription orders cannot be revoked without the consent of Lawrence
Federal and Lawrence Financial.
Category 1: Eligible Account Holders. Each eligible account holder has
the right to subscribe for up to the greater of:
o $75,000 of common stock (which equals 7,500 shares);
o one-tenth of one percent of the total offering of common stock; or
o 15 times the product, rounded down to the next whole number,
obtained by multiplying the total number of shares of common stock
to be issued by a fraction of which the numerator is the amount of
qualifying deposit of the eligible account holder and the
denominator is the total amount of qualifying deposits of all
eligible account holders.
If there are not sufficient shares to satisfy all subscriptions by
eligible account holders, shares first will be allocated so as to permit each
subscribing eligible account holder, if possible, to purchase a number of shares
sufficient to make the person's total allocation equal 100 shares or the number
of shares actually subscribed for, whichever is less. After that, unallocated
shares will be allocated among the remaining subscribing eligible account
holders whose subscriptions remain unfilled in the proportion that the amounts
of their respective qualifying deposits bear to the total qualifying deposits of
all remaining eligible account holders whose subscriptions remain unfilled.
Subscription rights of eligible account holders who are also executive officers
or directors of Lawrence Federal or their associates will be subordinated to the
subscription rights of other eligible account holders to the extent attributable
to increased deposits in Lawrence Federal in the one year period preceding March
31, 1999.
To ensure a proper allocation of stock, each eligible account holder
must list on his or her stock order form all deposit accounts in which such
eligible account holder had an ownership interest at March 31, 1999. Failure to
list an account, or providing incorrect information, could result in the loss of
all or part of a subscriber's stock allocation.
Category 2: Tax-Qualified Employee Benefit Plans. Lawrence Federal's
tax-qualified employee benefit plans have the right to purchase up to 10% of the
shares of common stock issued in the conversion. As a tax- qualified employee
benefit plan, Lawrence Federal's employee stock ownership plan intends to
purchase 8% of the shares of common stock issued in the conversion.
Subscriptions by the employee stock ownership plan will not be aggregated with
shares of common stock purchased by any other participants in the offering,
including subscriptions by the officers and directors of Lawrence Federal, for
the purpose of applying the purchase limitations in the plan of conversion. If
Lawrence Financial increases the number of shares offered in the conversion, the
employee stock ownership plan will have a first priority right to purchase any
shares exceeding that amount up to 8% of the common stock. If the plan's
subscription is not filled in its entirety, the employee stock ownership plan
may purchase shares in the open market or may purchase shares directly from
Lawrence Financial with the approval of the Office of Thrift Supervision.
Category 3: Supplemental Eligible Account Holders. Each supplemental
eligible account holder has the right to subscribe for up to the greater of:
o $75,000 of common stock (which equals 7,500 shares);
o one-tenth of one percent of the total offering of common stock; or
80
o 15 times the product, rounded down to the next whole number,
obtained by multiplying the total number of shares of common stock
to be issued by a fraction of which the numerator is the amount of
qualifying deposit of the supplemental eligible account holder and
the denominator is the total amount of qualifying deposits of all
supplemental eligible account holders.
If eligible account holders and Lawrence Federal's employee stock
ownership plan subscribe for all of the shares being sold by Lawrence Financial,
no shares will be available for supplemental eligible account holders. If shares
are available for supplemental eligible account holders but there are not
sufficient shares to satisfy all subscriptions by supplemental eligible account
holders, shares first will be allocated so as to permit each subscribing
supplemental eligible account holder, if possible, to purchase a number of
shares sufficient to make the person's total allocation equal 100 shares or the
number of shares actually subscribed for, whichever is less. After that,
unallocated shares will be allocated among the remaining subscribing
supplemental eligible account holders whose subscriptions remain unfilled in the
proportion that the amounts of their respective qualifying deposits bear to the
total qualifying deposits of all remaining supplemental eligible account holders
whose subscriptions remain unfilled.
To ensure a proper allocation of stock, each supplemental eligible
account holder must list on his or her stock order form all deposit accounts in
which such supplemental eligible account holder had an ownership interest at
September 30, 2000. Failure to list an account, or providing incorrect
information, could result in the loss of all or part of a subscriber's stock
allocation.
Category 4: Other Members. Each other member of Lawrence Federal has
the right to purchase up to $75,000 of common stock (which equals 7,500 shares).
If eligible account holders, Lawrence Federal's employee stock ownership plan
and supplemental eligible account holders subscribe for all of the shares being
sold by Lawrence Financial, no shares will be available for other members. If
shares are available for other members but there are not sufficient shares to
satisfy all subscriptions by other members, shares first will be allocated so as
to permit each subscribing other member, if possible, to purchase a number of
shares sufficient to make the person's total allocation equal 100 shares or the
number of shares actually subscribed for, whichever is less. After that,
unallocated shares will be allocated among the remaining subscribing other
members in the proportion that the number of votes each other member is eligible
to cast as of the record date for persons eligible to vote at Lawrence Federal's
special meeting bears to the total votes of all remaining other members whose
subscriptions remain unfilled.
To ensure a proper allocation of stock, each other member must list on
his or her stock order form all deposit accounts in which such other member had
an ownership interest at November 1, 2000 or each loan from Lawrence Federal
that was outstanding on March 23, 1993 that continues to be outstanding as of
November 1, 2000. Failure to list an account or loan, or providing incorrect
information, could result in the loss of all or part of a subscriber's stock
allocation.
Expiration Date for the Subscription Offering. The subscription
offering and all subscription rights under the plan of conversion will expire at
12:00 Noon, Eastern time, on ___________, 2000. Lawrence Federal will not accept
orders for common stock in the subscription offering received in hand after that
time. Lawrence Financial and Lawrence Federal may extend the subscription
offering to up to ______, 2000 without regulatory approval. Lawrence Financial
and Lawrence Federal will make reasonable attempts to provide a prospectus and
related offering materials to holders of subscription rights, however all
subscription rights will expire on the expiration date, as extended, whether or
not Lawrence Federal has been able to locate each person entitled to
subscription rights.
Office of Thrift Supervision regulations require that Lawrence
Financial complete the sale of common stock within 45 days after the close of
the subscription offering. If the sale of the common stock is not completed
within that period, all funds received will be returned promptly with interest
at Lawrence Federal's passbook rate and all withdrawal authorizations will be
canceled unless Lawrence Federal receives approval of the Office of Thrift
Supervision to extend the time for completing the offering. If regulatory
approval of an extension of the time period has been
81
granted, all subscribers will be notified of the extension and of the duration
of any extension that has been granted, and will be given the right to increase,
decrease or rescind their orders. If Lawrence Financial does not receive an
affirmative response from a subscriber to any resolicitation, the subscriber's
order will be rescinded and all funds received will be promptly returned with
interest, or withdrawal authorizations will be canceled. No single extension can
exceed 90 days, and all extensions in the aggregate, may not last beyond ______,
2002.
Persons in Non-Qualified States. Lawrence Financial and Lawrence
Federal will make reasonable efforts to comply with the securities laws of all
states in the United States in which persons entitled to subscribe for stock
under the plan of conversion reside. However, Lawrence Financial and Lawrence
Federal are not required to offer stock in the subscription offering to any
person who resides in a foreign country or who resides in a state of the United
States in which only a small number of persons otherwise eligible to subscribe
for shares of common stock reside and where Lawrence Financial or Lawrence
Federal determines that compliance with that state's securities laws would be
impracticable for reasons of cost or otherwise. Lawrence Federal may determine
compliance with state securities laws to be impracticable based on a request or
requirement that Lawrence Financial and Lawrence Federal or their officers or
directors register as a broker, dealer, salesman or selling agent under the
securities laws of the state, or a request or requirement to register or
otherwise qualify the subscription rights or common stock for sale or submit any
filing in the state.
Community Offering
To the extent that shares remain available for purchase after
satisfaction of all subscriptions received in the subscription offering,
Lawrence Financial may offer shares pursuant to the plan of conversion in a
community offering to the following persons in the following order of priority:
1. Persons and trusts of natural persons who are residents of Lawrence
or Scioto County, Ohio, Greenup or Boyd County, Kentucky or Cabell
County, West Virginia.
2. Other persons to whom Lawrence Federal delivers a prospectus.
Purchasers in the community offering, together with any associate or
persons acting in concert with the purchaser, are eligible to purchase up to
$75,000 of common stock (which equals 7,500 shares). If not enough shares are
available to fill orders in the community offering, the available shares will be
allocated first to each subscriber whose order is accepted by Lawrence Federal
in an amount equal to the lesser of 100 shares or the number of shares
subscribed for by each such subscriber, if possible. After that, unallocated
shares will be allocated among such subscribers whose orders remain unsatisfied
on a 100 shares per order basis until all such orders have been filled or the
remaining shares have been allocated.
The community offering, if held, may commence concurrently with or
subsequent to the subscription offering and will terminate no later than 45 days
after the close of the subscription offering unless extended by Lawrence
Financial and Lawrence Federal, with approval of the Office of Thrift
Supervision. Lawrence Financial presently intends to terminate the community
offering as soon as it has received orders for all shares available for purchase
in the conversion. If Lawrence Federal receives regulatory approval of an
extension of time, all subscribers will be notified of the extension and of the
duration of any extension that has been granted, and will be given the right to
increase, decrease or rescind their orders. If Lawrence Financial does not
receive an affirmative response from a subscriber to any resolicitation, the
subscriber's order will be rescinded and all funds received will be promptly
returned with interest.
The opportunity to subscribe for shares of common stock in the
community offering is subject to the right of Lawrence Financial and Lawrence
Federal to reject orders, in whole or part, either at the time of receipt of an
order or as soon as practicable following the expiration date of the offering.
If your order is rejected in part, you will not have the right to cancel the
remainder of your order.
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Syndicated Community Offering
The plan of conversion provides that, if necessary, all shares of
common stock not purchased in the subscription offering and community offering
may be offered for sale to the general public in a syndicated community offering
through a syndicate of registered broker-dealers to be formed and managed by
Keefe, Bruyette & Woods acting as agent of Lawrence Financial. Alternatively,
Lawrence Financial may sell any remaining shares in an underwritten public
offering. Neither Keefe, Bruyette & Woods nor any registered broker-dealer will
have any obligation to take or purchase any shares of the common stock in the
syndicated community offering; however, Keefe, Bruyette & Woods has agreed to
use its best efforts in the sale of shares in the syndicated community offering.
Lawrence Financial has not selected any particular broker-dealers to participate
in a syndicated community offering. The syndicated community offering will
terminate no later than 45 days after the expiration of the subscription
offering, unless extended by Lawrence Financial and Lawrence Federal, with
approval of the Office of Thrift Supervision. See "--Community Offering" above
for a discussion of rights of subscribers in the event an extension is granted.
The opportunity to subscribe for shares of common stock in the
syndicated community offering is subject to the right of Lawrence Financial and
Lawrence Federal to reject orders, in whole or part, either at the time of
receipt of an order or as soon as practicable following the expiration date of
the offering. If your order is rejected in part, you will not have the right to
cancel the remainder of your order.
Stock sold in the syndicated community offering also will be sold at
the $10.00 purchase price. See "--Stock Pricing and Number of Shares to Be
Issued." Purchasers in the syndicated community offering, together with any
associate or persons acting in concert with the purchaser, are eligible to
purchase up to $75,000 of common stock (which equals 7,500 shares). See "--Stock
Pricing and Number of Shares to Be Issued."
If Lawrence Federal is unable to find purchasers from the general
public for all unsubscribed shares, other purchase arrangements will be made by
the Board of Directors of Lawrence Federal, if feasible. Other purchase
arrangements must be approved by the Office of Thrift Supervision and may
provide for purchases for investment purposes by directors, officers, their
associates and other persons in excess of the limitations provided in the plan
of conversion and in excess of the proposed director purchases discussed
earlier, although no purchases are currently intended. If other purchase
arrangements cannot be made, the plan of conversion will terminate.
Marketing and Underwriting Arrangements
Lawrence Federal and Lawrence Financial have retained Keefe, Bruyette &
Woods to consult with and advise Lawrence Federal and to assist Lawrence Federal
and Lawrence Financial, on a best efforts basis, in the distribution of shares
in the offering. Keefe, Bruyette & Woods is a broker-dealer registered with the
Securities and Exchange Commission and a member of the National Association of
Securities Dealers, Inc. Keefe, Bruyette & Woods will assist Lawrence Federal in
the conversion by acting as marketing advisor with respect to the subscription
offering and will represent Lawrence Federal as placement agent on a best
efforts basis in the sale of the common stock in the community offering if one
is held. The services that Keefe, Bruyette & Woods will provide include, but are
not limited to:
o training the employees of Lawrence Federal who will perform
ministerial functions in the subscription offering and community
offering regarding the mechanics and regulatory requirements of
the stock offering process;
o managing the stock information center by assisting interested
stock subscribers and by keeping records of all stock orders;
o preparing marketing materials; and
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o assisting in the solicitation of proxies from Lawrence Federal's
members for use at the special meeting.
Based on negotiations between Lawrence Federal and Lawrence Financial
concerning the fee structure, Keefe, Bruyette & Woods will receive a management
fee of $25,000 and a success fee of $125,000 against which the management fee
will be credited. Lawrence Federal will pay Keefe, Bruyette & Woods's fee upon
completion of the conversion. Lawrence Federal will reimburse Keefe, Bruyette &
Woods for its legal fees.
Keefe, Bruyette & Woods has not prepared any report or opinion
constituting a recommendation or advice to Lawrence Financial or Lawrence
Federal or to persons who subscribe for stock, nor has it prepared an opinion as
to the fairness to Lawrence Financial or Lawrence Federal of the purchase price
or the terms of the stock to be sold. Keefe, Bruyette & Woods expresses no
opinion as to the prices at which common stock to be issued may trade. Keefe,
Bruyette & Woods and selected dealers participating in the syndicated community
offering may receive a commission in the syndicated community offering in a
maximum amount to be agreed upon by Lawrence Financial and Lawrence Federal to
reflect market requirements at the time of the allocation of shares in the
syndicated community offering.
With certain limitations, Lawrence Financial and Lawrence Federal have
also agreed to indemnify Keefe, Bruyette & Woods against liabilities and
expenses, including legal fees, incurred in connection with certain claims or
litigation arising out of or based upon the performance of Keefe, Bruyette &
Woods of its services in connection with the conversion.
Description of Sales Activities
Lawrence Financial will offer the common stock in the subscription
offering and community offering principally by the distribution of this
prospectus and through activities conducted at Lawrence Federal's stock
information center. The stock information center is expected to operate during
normal business hours throughout the subscription offering and community
offering. It is expected that at any particular time one or more Keefe, Bruyette
& Woods employees will be working at the stock information center. Employees of
Keefe, Bruyette & Woods will be responsible for mailing materials relating to
the offering, responding to questions regarding the conversion and the offering
and processing stock orders.
Sales of common stock will be made by registered representatives
affiliated with Keefe, Bruyette & Woods or by the selected dealers managed by
Keefe, Bruyette & Woods. The management and employees of Lawrence Federal may
participate in the offering in clerical capacities, providing administrative
support in effecting sales transactions or, when permitted by state securities
laws, answering questions of a mechanical nature relating to the proper
execution of the order form. Management of Lawrence Federal may answer questions
regarding the business of Lawrence Federal when permitted by state securities
laws. Other questions of prospective purchasers, including questions as to the
advisability or nature of the investment, will be directed to registered
representatives. The management and employees of Lawrence Financial and Lawrence
Federal have been instructed not to solicit offers to purchase common stock or
provide advice regarding the purchase of common stock.
No officer, director or employee of Lawrence Federal or Lawrence
Financial will be compensated, directly or indirectly, for any activities in
connection with the offer or sale of securities issued in the conversion.
None of Lawrence Federal's personnel participating in the offering is
registered or licensed as a broker or dealer or an agent of a broker or dealer.
Lawrence Federal's personnel will assist in the above-described sales activities
under an exemption from registration as a broker or dealer provided by Rule
3a4-1 promulgated under the Securities Exchange Act of 1934. Rule 3a4-1
generally provides that an "associated person of an issuer" of securities will
not be deemed a broker solely by reason of participation in the sale of
securities of the issuer if the associated person meets certain conditions.
These conditions include, but are not limited to, that the associated person
participating in the sale of an issuer's securities not be compensated in
connection with the offering at the time of participation, that the person not
be associated with a broker or dealer and that the person observe certain
limitations on his or her participation in the sale of securities. For purposes
of this exemption, "associated person of an issuer" is
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defined to include any person who is a director, officer or employee of the
issuer or a company that controls, is controlled by or is under common control
with the issuer.
Procedure for Purchasing Shares in the Subscription and Community Offerings
Use of Order Forms. To purchase shares in the subscription offering,
you must submit a properly completed and executed order form to Lawrence Federal
by 12:00 Noon, Eastern time, on _________ __, 2000. Your order form must be
accompanied by full payment for all of the shares subscribed for or include
appropriate authorization in the space provided on the order form for withdrawal
of full payment from a deposit account with Lawrence Federal. In order to
purchase shares in the community offering, you must submit a properly completed
and executed order form to Lawrence Federal, accompanied by the required payment
for each share subscribed for, before the community offering terminates, which
may be on or at any time after the end of the subscription offering.
In order to ensure that your stock purchase eligibility and priority
are properly identified, you must list all accounts on the order form, giving
all names in each account, the account number and the approximate account
balance as of the appropriate eligibility date.
Lawrence Financial need not accept order forms that are received after
the expiration of the subscription offering or community offering, as the case
may be, or that are executed defectively or that are received without full
payment or without appropriate withdrawal instructions. In addition, Lawrence
Federal and Lawrence Financial are not obligated to accept orders submitted on
photocopied or facsimilied stock order forms. Lawrence Financial and Lawrence
Federal have the right to waive or permit the correction of incomplete or
improperly executed order forms, but do not represent that they will do so.
Under the plan of conversion, the interpretation by Lawrence Financial and
Lawrence Federal of the terms and conditions of the plan of conversion and of
the order form will be final. Once received, an executed order form may not be
modified, amended or rescinded without the consent of Lawrence Federal unless
the conversion has not been completed within 45 days after the end of the
subscription offering, unless extended.
The reverse side of the order form contains a regulatory mandated
certification form. Lawrence Financial will not accept order forms on which the
certification form is not executed. By executing and returning the certification
form, you will be certifying that you received this prospectus and acknowledging
that the common stock is not a deposit account and is not insured or guaranteed
by any federal or state governmental agency. You will also be acknowledging that
you received disclosure concerning the risks involved in this offering. The
certification form could be used as support to show that you understand the
nature of this investment.
To ensure that each purchaser receives a prospectus at least 48 hours
before the end of the offering as required by Rule 15c2-8 under the Securities
Exchange Act of 1934, no prospectus will be mailed any later than five days
before that date or hand delivered any later than two days before that date.
Execution of the order form will confirm receipt or delivery under Rule 15c2-8.
Order forms will be distributed only when preceded or accompanied by a
prospectus.
Payment for Shares. Payment for subscriptions may be made by cash,
check, bank draft or money order, or by authorization of withdrawal from deposit
accounts maintained with Lawrence Federal. Appropriate means by which
withdrawals may be authorized are provided on the order form. No wire transfers
or third party checks will be accepted. Interest will be paid on payments made
by cash, check, bank draft or money order at Lawrence Federal's passbook rate
from the date payment is received at the stock information center until the
completion or termination of the conversion. If payment is made by authorization
of withdrawal from deposit accounts, the funds authorized to be withdrawn from a
deposit account will continue to accrue interest at the contractual rates until
completion or termination of the conversion, unless the certificate matures
after the date of receipt of the order form but before
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closing, in which case funds will earn interest at the passbook rate from the
date of maturity until the conversion is completed or terminated, but a hold
will be placed on the funds, making them unavailable to the depositor until
completion or termination of the conversion. When the conversion is completed,
the funds received in the offering will be used to purchase the shares of common
stock ordered. The shares of common stock issued in the conversion cannot and
will not be insured by the Federal Deposit Insurance Corporation or any other
government agency. If the conversion is not consummated for any reason, all
funds submitted will be promptly refunded with interest as described above.
If a subscriber authorizes Lawrence Federal to withdraw the amount of
the purchase price from his or her deposit account, Lawrence Federal will do so
as of the effective date of conversion, though the account must contain the full
amount necessary for payment at the time the subscription order is received.
Lawrence Federal will waive any applicable penalties for early withdrawal from
certificate accounts. If the remaining balance in a certificate account is
reduced below the applicable minimum balance requirement at the time funds are
actually transferred under the authorization, the certificate will be canceled
at the time of the withdrawal, without penalty, and the remaining balance will
earn interest at Lawrence Federal's passbook rate.
The employee stock ownership plan will not be required to pay for the
shares subscribed for at the time it subscribes, but rather may pay for shares
of common stock subscribed for upon the completion of the conversion; provided
that there is in force from the time of its subscription until that time, a loan
commitment from an unrelated financial institution or Lawrence Financial to lend
to the employee stock ownership plan, at that time, the aggregate purchase price
of the shares for which it subscribed.
Individual retirement accounts maintained in Lawrence Federal do not
permit investment in the common stock. A depositor interested in using his or
her individual retirement account funds to purchase common stock must do so
through a self-directed individual retirement account. Since Lawrence Federal
does not offer those accounts, Lawrence Federal will allow a depositor to make a
trustee-to-trustee transfer of the individual retirement account funds to a
trustee offering a self-directed individual retirement account program with the
agreement that the funds will be used to purchase Lawrence Financial's common
stock in the offering. There will be no early withdrawal or Internal Revenue
Service interest penalties for transfers. The new trustee would hold the common
stock in a self- directed account in the same manner as Lawrence Federal now
holds the depositor's individual retirement account funds. An annual
administrative fee may be payable to the new trustee. Depositors interested in
using funds in an individual retirement account at Lawrence Federal to purchase
common stock should contact the stock information center as soon as possible so
that the necessary forms may be forwarded for execution and returned before the
subscription offering ends. In addition, federal laws and regulations require
that officers, directors and 10% shareholders who use self-directed individual
retirement account funds to purchase shares of common stock in the subscription
offering, make purchases for the exclusive benefit of individual retirement
accounts.
Certificates representing shares of common stock purchased, and any
refund due, will be mailed to purchasers at the address specified in properly
completed order forms or to the last address of the persons appearing on the
records of Lawrence Federal as soon as practicable following the sale of all
shares of common stock. Any certificates returned as undeliverable will be
disposed of as required by applicable law. Purchasers may not be able to sell
the shares of common stock which they purchased until certificates for the
common stock are available and delivered to them, even though trading of the
common stock may have begun.
Stock Pricing and Number of Shares to be Issued
Federal regulations require that the aggregate purchase price of the
securities sold in connection with the conversion be based upon an estimated pro
forma value of Lawrence Financial and Lawrence Federal as converted (i.e.,
taking into account the expected receipt of proceeds from the sale of securities
in the conversion), as determined by an independent appraisal. Lawrence Federal
and Lawrence Financial have retained Keller & Company, which is experienced in
the evaluation and appraisal of business entities, to prepare an appraisal of
the pro forma market value of Lawrence Financial and Lawrence Federal as
converted and to assist Lawrence Federal in preparing a business plan. Keller &
Company will receive a fee expected to total approximately $28,000 for its
appraisal services and assistance in the preparation of a business plan, plus
reasonable out-of-pocket expenses incurred in connection with
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the appraisal. Lawrence Federal has agreed to indemnify Keller & Company under
certain circumstances against liabilities and expenses, including legal fees,
arising out of, related to, or based upon the conversion.
Keller & Company has prepared an appraisal of the estimated pro forma
market value of Lawrence Financial and Lawrence Federal as converted taking into
account the formation of Lawrence Financial as the holding company for Lawrence
Federal. For its analysis, Keller & Company undertook substantial investigations
to learn about Lawrence Federal's business and operations. Management supplied
financial information, including annual financial statements, information on the
composition of assets and liabilities, and other financial schedules. In
addition to this information, Keller & Company reviewed Lawrence Federal's
conversion application as filed with the Office of Thrift Supervision and
Lawrence Financial's registration statement as filed with the Securities and
Exchange Commission. Furthermore, Keller & Company visited Lawrence Federal's
facilities and had discussions with Lawrence Federal's management and its
special conversion legal counsel, Muldoon, Murphy & Faucette LLP. Keller &
Company did not perform a detailed individual analysis of the separate
components of Lawrence Financial's or Lawrence Federal's assets and liabilities.
Keller & Company's analysis utilized three selected valuation
procedures, the price/book method, the price/earnings method, and price/assets
method, all of which are described in its report. Keller & Company placed the
greatest emphasis on the price/earnings and price/book methods in estimating pro
forma market value. In applying these procedures, Keller & Company reviewed,
among other factors, the economic make-up of Lawrence Federal's primary market
area, Lawrence Federal's financial performance and condition in relation to
publicly traded institutions that Keller & Company deemed comparable to Lawrence
Federal, the specific terms of the offering of Lawrence Financial's common
stock, the pro forma impact of the additional capital raised in the conversion,
conditions of securities markets in general, and the market for thrift
institution common stock in particular. Keller & Company's analysis provides an
approximation of the pro forma market value of Lawrence Financial and Lawrence
Federal as converted based on the valuation methods applied and the assumptions
outlined in its report. Included in its report were certain assumptions as to
the pro forma earnings of Lawrence Financial after the conversion that were
utilized in determining the appraised value. These assumptions included
estimated expenses and an assumed after-tax rate of return on the net conversion
proceeds as described under "Pro Forma Data," purchases by the employee stock
ownership plan of an amount equal to 8% of the common stock sold in the
conversion and purchases in the open market by the stock-based incentive plan of
a number of shares equal to 4% of the common stock sold in the conversion at the
$10.00 purchase price. See "Pro Forma Data" for additional information
concerning these assumptions. The use of different assumptions may yield
different results.
On the basis of the analysis in its report, Keller & Company has
advised Lawrence Financial and Lawrence Federal that, in its opinion, as of
August 11, 2000, the estimated pro forma market value of Lawrence Financial and
Lawrence Federal, as converted, was within the valuation range of $5,525,000 to
$7,475,000 with a midpoint of $6,500,000. After reviewing the methodology and
the assumptions used by Keller & Company in the preparation of the appraisal,
the Board of Directors established the offering range, which is equal to the
valuation range, of $5,525,000 to $7,475,000 with a midpoint of $6,500,000.
Assuming that the shares are sold at $10.00 per share in the conversion, the
estimated number of shares would be between 552,500 and 747,500 with a midpoint
of 650,000. The purchase price of $10.00 was determined by discussion among the
Boards of Directors of Lawrence Federal and Lawrence Financial and Keefe,
Bruyette & Woods, taking into account, among other factors, the requirement
under Office of Thrift Supervision regulations that the common stock be offered
in a manner that will achieve the widest distribution of the stock and desired
liquidity in the common stock after the conversion. Since the outcome of the
offering relates in large measure to market conditions at the time of sale, it
is not possible to determine the exact number of shares that will be issued by
Lawrence Financial at this time. The offering range may be amended, with the
approval of the Office of Thrift Supervision, if necessitated by developments
following the date of the appraisal in, among other things, market conditions,
the financial condition or operating results of Lawrence Federal, regulatory
guidelines or national or local economic conditions. Keller & Company's
appraisal report is filed as an exhibit to the registration statement that
Lawrence Financial has filed with the Securities and Exchange Commission.
See "Where You Can Find More Information."
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If, upon completion of the subscription offering, at least the minimum
number of shares are subscribed for, Keller & Company, after taking into account
factors similar to those involved in its prior appraisal, will determine its
estimate of the pro forma market value of Lawrence Financial and Lawrence
Federal as converted, as of the close of the subscription offering.
No shares will be sold unless Keller & Company confirms that, to the
best of its knowledge and judgment, nothing of a material nature has occurred
that would cause it to conclude that the actual total purchase price on an
aggregate basis was materially incompatible with its estimate of the total pro
forma market value of Lawrence Financial and Lawrence Federal as converted at
the time of the sale. If, however, the facts do not justify that statement, the
offering may be canceled, a new offering range and price per share set and new
subscription, community and syndicated community offerings held. Under those
circumstances, subscribers would have the right to modify or rescind their
subscriptions and to have their subscription funds returned promptly with
interest and holds on funds authorized for withdrawal from deposit accounts
would be released or reduced.
Depending upon market and financial conditions, the number of shares
issued may be more than 747,500 shares or less than 552,500 shares. If the total
amount of shares issued is less than 552,500 or more than 859,625 (15% above the
maximum of the offering range), for aggregate gross proceeds of less than
$5,525,000 or more than $8,596,250, subscription funds will be returned promptly
with interest to each subscriber unless he or she indicates otherwise. If Keller
& Company establishes a new valuation range, it must be approved by the Office
of Thrift Supervision.
In formulating its appraisal, Keller & Company relied upon the
truthfulness, accuracy and completeness of all documents Lawrence Federal
furnished to it. Keller & Company also considered financial and other
information from regulatory agencies, other financial institutions, and other
public sources, as appropriate. While Keller & Company believes this information
to be reliable, Keller & Company does not guarantee the accuracy or completeness
of the information and did not independently verify the financial statements and
other data provided by Lawrence Federal and Lawrence Financial or independently
value the assets or liabilities of Lawrence Financial and Lawrence Federal. The
appraisal is not intended to be, and must not be interpreted as, a
recommendation of any kind as to the advisability of voting to approve the plan
of conversion or of purchasing shares of common stock. Moreover, because the
appraisal must be based on many factors which change periodically, there is no
assurance that purchasers of shares in the conversion will be able to sell
shares after the conversion at prices at or above the purchase price.
Copies of the appraisal report of Keller & Company including any
amendments to the report, and the detailed memorandum of the appraiser setting
forth the method and assumptions for such appraisal are available for inspection
at the main office of Lawrence Federal and the other locations specified under
"Where You Can Find More Information."
Limitations on Purchases of Shares
The plan of conversion imposes limitations upon the purchase of common
stock by eligible subscribers and others in the conversion. In addition to the
purchase limitations described above under "--Subscription Offering and
Subscription Rights," "--Community Offering" and "--Syndicated Community
Offering," the plan of conversion provides for the following purchase
limitations:
o Except for Lawrence Federal's tax-qualified employee benefit
plans, no person, either alone or together with associates of or
persons acting in concert with such person, may purchase in the
aggregate more than $125,000 of the common stock (which equals
12,500 shares), subject to increase as described below.
o The Board of Directors and the executive officers of Lawrence
Federal, together with their associates, may purchase up to 33.80%
of the common stock sold in the offering.
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o Each subscriber must subscribe for a minimum of 25 shares.
The $125,000 limitation applies to individual purchases in the
offering, aggregated with purchases by the person's associates and those persons
acting in concert with the purchaser. If you purchase $75,000 of common stock in
the subscription offering, you may still purchase up to $50,000 of common stock
in the community offering. Alternatively, if you purchase $75,000 of common
stock in the subscription offering, your associates and persons acting in
concert with you may purchase in the aggregate up to $50,000 of common stock in
the subscription offering and/or community offering.
For purposes of the plan of conversion, the directors are not deemed to
be acting in concert solely by reason of their Board membership. Pro rata
reductions within each subscription rights category will be made in allocating
shares if the maximum purchase limitations are exceeded.
Lawrence Federal's and Lawrence Financial's Boards of Directors may, in
their sole discretion, increase the maximum purchase limitation up to 9.99% of
the shares of common stock sold in the conversion, provided that orders for
shares that exceed 5% of the shares of common stock sold in the conversion may
not exceed, in the aggregate, 10% of the shares sold in the conversion. Lawrence
Federal and Lawrence Financial do not intend to increase the maximum purchase
limitation unless market conditions warrant an increase in the maximum purchase
limitation and the sale of a number of shares in excess of the minimum of the
offering range. If the Boards of Directors decide to increase the purchase
limitations, persons who subscribed for the maximum number of shares of common
stock will be given the opportunity to increase their subscriptions accordingly,
subject to the rights and preferences of any person who has priority
subscription rights. Lawrence Financial and Lawrence Federal, in their
discretion, also may give other large subscribers the right to increase their
subscriptions.
The plan of conversion defines "acting in concert" to mean knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not by an express agreement; or a combination
or pooling of voting or other interests in the securities of an issuer for a
common purpose under any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise. In general, a person who acts
in concert with another party will also be deemed to be acting in concert with
any person who is also acting in concert with that other party. Lawrence
Financial and Lawrence Federal may presume that certain persons are acting in
concert based upon, among other things, joint account relationships and the fact
that persons may have filed joint Schedules 13D or 13G with the Securities and
Exchange Commission with respect to other companies.
The plan of conversion defines "associate," with respect to a
particular person, to mean:
1. any corporation or organization other than Lawrence Federal or a
majority-owned subsidiary of Lawrence Federal of which a person
is an officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity
securities;
2. any trust or other estate in which a person has a substantial
beneficial interest or as to which a person serves as trustee or
in a similar fiduciary capacity; and
3. any relative or spouse of a person, or any relative of a spouse,
who either has the same home as a person or who is a director or
officer of Lawrence Federal or any of its parents or
subsidiaries.
For example, a corporation of which a person serves as an officer would
be an associate of that person and, therefore, all shares purchased by the
corporation would be included with the number of shares that the person could
purchase individually under the purchase limitations described above.
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The plan of conversion defines "officer" to mean an executive officer
of Lawrence Federal, including its Chief Executive Officer, President, Executive
Vice Presidents, Senior Vice Presidents, Vice Presidents in charge of principal
business functions, Secretary, Treasurer and Controller.
Restrictions on Repurchase of Stock
Under Office of Thrift Supervision regulations, savings associations
and their holding companies may not for a period of one year from the date of an
institution's mutual-to-stock conversion repurchase any of its common stock from
any person, except in an offer made to all of its stockholders to repurchase the
common stock on a pro rata basis, approved by the Office of Thrift Supervision,
or the repurchase of qualifying shares of a director. Where extraordinary
circumstances exist, the Office of Thrift Supervision may approve the open
market repurchase of up to 5% of a savings association's or its holding
company's capital stock during the first year following the conversion. To
receive such approval, the savings association must establish compelling and
valid business purposes for the repurchase to the satisfaction of the Office of
Thrift Supervision. Furthermore, repurchases of any common stock are prohibited
if they would cause the association's regulatory capital to be reduced below the
amount required for the liquidation account or the regulatory capital
requirements imposed by the Office of Thrift Supervision.
Restrictions on Transfer of Shares After the Conversion Applicable to Officers,
Directors and NASD Members
Common stock purchased in the conversion will be freely transferable,
except for shares purchased by directors and officers of Lawrence Federal and
Lawrence Financial and by NASD members.
Shares of common stock purchased by directors and officers of Lawrence
Federal and Lawrence Financial may not be sold for a period of one year
following the conversion, except upon the death of the stockholder or unless
approved by the Office of Thrift Supervision. Shares purchased by these persons
after the conversion will be free of this restriction. Shares of common stock
issued by Lawrence Financial to directors and officers will bear a legend giving
appropriate notice of the restriction and, in addition, Lawrence Financial will
give appropriate instructions to the transfer agent for Lawrence Financial's
common stock with respect to the restriction on transfers. Any shares issued to
directors and officers as a stock dividend, stock split or otherwise with
respect to restricted common stock will be similarly restricted.
Purchases of outstanding shares of common stock of Lawrence Financial
by directors, officers, or any person who was an executive officer or director
of Lawrence Federal after adoption of the plan of conversion, and their
associates during the three-year period following the conversion may be made
only through a broker or dealer registered with the Securities and Exchange
Commission, except with the prior written approval of the Office of Thrift
Supervision. This restriction does not apply, however, to negotiated
transactions involving more than 1% of Lawrence Financial's outstanding common
stock or to the purchase of stock under stock benefit plans.
Lawrence Financial has filed with the Securities and Exchange
Commission a registration statement under the Securities Act of 1933 for the
registration of the common stock to be issued in the conversion. This
registration does not cover the resale of the shares. Shares of common stock
purchased by persons who are not affiliates of Lawrence Financial may be resold
without registration. Shares purchased by an affiliate of Lawrence Financial
will have resale restrictions under Rule 144 of the Securities Act. If Lawrence
Financial meets the current public information requirements of Rule 144, each
affiliate of Lawrence Financial who complies with the other conditions of Rule
144, including those that require the affiliate's sale to be aggregated with
those of certain other persons, would be able to sell in the public market,
without registration, a number of shares not to exceed, in any three-month
period, the greater of 1% of the outstanding shares of Lawrence Financial or the
average weekly volume of trading in the shares during the preceding four
calendar weeks. Provision may be made in the future by Lawrence Financial to
permit affiliates to have their shares registered for sale under the Securities
Act under certain circumstances.
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Under guidelines of the National Association of Securities Dealers,
Inc., members of that organization and their associates face restrictions on the
transfer of securities purchased with subscription rights and reporting
requirements upon purchase of the securities.
Interpretation, Amendment and Termination
To the extent permitted by law, all interpretations of the plan of
conversion by Lawrence Federal will be final; however, such interpretations have
no binding effect on the Office of Thrift Supervision. The plan of conversion
provides that, if deemed necessary or desirable by the Board of Directors, the
plan of conversion may be substantively amended by the Board of Directors as a
result of comments from regulatory authorities or otherwise, without the further
approval of Lawrence Federal's members.
Completion of the conversion requires the sale of all shares of the
common stock within 24 months following approval of the plan of conversion by
Lawrence Federal's members. If this condition is not satisfied, the plan of
conversion will be terminated and Lawrence Federal will continue its business in
the mutual form of organization. Lawrence Federal's Board of Directors may
terminate the plan of conversion at any time.
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Restrictions on Acquisition of Lawrence Financial
and Lawrence Federal
General
Lawrence Federal's plan of conversion provides for the conversion of
Lawrence Federal from the mutual to the stock form of organization and, as part
of the conversion, the adoption of a new federal stock charter and bylaws by
Lawrence Federal's members. The plan of conversion also provides for the
concurrent formation of a holding company. As described below and elsewhere in
this document, certain provisions in Lawrence Financial's articles of
incorporation and bylaws may have anti-takeover effects. In addition, provisions
in Lawrence Federal's federal stock charter and bylaws may also have
anti-takeover effects. Finally, Maryland corporate law and regulatory
restrictions may make it difficult for persons or companies to acquire control
of either Lawrence Financial or Lawrence Federal.
Restrictions in Lawrence Financial's Articles of Incorporation and Bylaws
Lawrence Financial's articles of incorporation and bylaws contain
provisions that could make more difficult an acquisition of Lawrence Financial
by means of a tender offer, proxy contest or otherwise. Some provisions will
also render the removal of the incumbent Board of Directors or management of
Lawrence Financial more difficult. These provisions may have the effect of
deterring a future takeover attempt that is not approved by the directors of
Lawrence Financial, but which Lawrence Financial stockholders may deem to be in
their best interests or in which stockholders may receive a substantial premium
for their shares over then current market prices. As a result, stockholders who
might desire to participate in such a transaction may not have the opportunity
to do so. The following description of these provisions is only a summary and
does not provide all of the information contained in Lawrence Financial's
articles of incorporation and bylaws. See "Where You Can Find More Information"
as to where to obtain a copy of these documents.
Business Combinations with Interested Stockholders. The articles of
incorporation require the approval of the holders of at least 80% of Lawrence
Financial's outstanding shares of voting stock entitled to vote to approve
certain "business combinations" with an "interested stockholder." This
supermajority voting requirement will not apply in cases where the proposed
transaction has been approved by a majority of those members of Lawrence
Financial's Board of Directors who are unaffiliated with the interested
stockholder and who were directors before the time when the interested
stockholder became an interested stockholder or if the proposed transaction
meets certain conditions that are designed to afford the stockholders a fair
price in consideration for their shares. In each such case, where stockholder
approval is required, the approval of only a majority of the outstanding shares
of voting stock is sufficient.
The term "interested stockholder" includes any individual, group acting
in concert, corporation, partnership, association or other entity (other than
Lawrence Financial or its subsidiary) who or which is the beneficial owner,
directly or indirectly, of 10% or more of the outstanding shares of voting stock
of Lawrence Financial.
A "business combination" includes:
1. any merger or consolidation of Lawrence Financial or any of its
subsidiaries with any interested stockholder or affiliate of an
interested stockholder or any corporation which is, or after such
merger or consolidation would be, an affiliate of an interested
stockholder;
2. any sale or other disposition to or with any interested
stockholder of 25% or more of the assets of Lawrence Financial or
combined assets of Lawrence Financial and its subsidiaries;
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3. the issuance or transfer to any interested stockholder or its
affiliate by Lawrence Financial (or any subsidiary) of any
securities of Lawrence Financial (or any subsidiary) in exchange
for cash, securities or other property the value of which equals
or exceeds 25% of the fair market value of the common stock of
Lawrence Financial;
4. the adoption of any plan for the liquidation or dissolution of
Lawrence Financial proposed by or on behalf of any interested
stockholder or its affiliate; and
5. any reclassification of securities, recapitalization, merger or
consolidation of Lawrence Financial with any of its subsidiaries
which has the effect of increasing the proportionate share of
common stock or any class of equity or convertible securities of
Lawrence Financial or subsidiary owned directly or indirectly, by
an interested stockholder or its affiliate.
Limitation on Voting Rights. The articles of incorporation of Lawrence
Financial provide that no record owner of any outstanding Lawrence Financial
common stock which is beneficially owned, directly or indirectly, by a person
who beneficially owns in excess of 10% of the then outstanding shares of
Lawrence Financial common stock will be entitled or permitted to any vote in
respect of the shares held in excess of the 10% limit. Beneficial ownership is
determined pursuant to the federal securities laws and includes shares
beneficially owned by such person or any of his or her affiliates (as defined in
the articles of incorporation), shares which such person or his or her
affiliates have the right to acquire upon the exercise of conversion rights or
options and shares as to which such person and his or her affiliates have or
share investment or voting power, but does not include shares beneficially owned
by directors, officers and employees of Lawrence Federal or Lawrence Financial
or shares that are subject to a revocable proxy and that are not otherwise
beneficially owned, or deemed by Lawrence Financial to be beneficially owned, by
such person and his or her affiliates.
Evaluation of Offers. The articles of incorporation of Lawrence
Financial provide that the Board of Directors of Lawrence Financial, when
evaluating a transaction that may involve a change in control of Lawrence
Financial, may, in connection with the exercise of its judgment in determining
what is in the best interest of Lawrence Financial and the stockholders of
Lawrence Financial, give consideration to a variety of factors including the
social and economic effects of the transaction on employees and customers of
Lawrence Financial and on the communities in which it operates. By having these
standards in the articles of incorporation of Lawrence Financial, the Board of
Directors may be in a stronger position to oppose such a transaction if the
Board concludes that the transaction would not be in the best interest of
Lawrence Financial, even if the price offered is significantly greater than the
then market price of any equity security of Lawrence Financial.
Board of Directors
Classified Board. The Board of Directors of Lawrence Financial is
divided into three classes, each of which contains one-third of the number of
directors. The stockholders elect one class of directors each year for a term of
three years. The classified Board makes it more difficult and time consuming for
a stockholder group to fully use its voting power to gain control of the Board
of Directors without the consent of the incumbent Board of Directors of Lawrence
Financial.
Filling of Vacancies; Removal. The articles of incorporation provide
that any vacancy occurring in the Lawrence Financial Board, including a vacancy
created by an increase in the number of directors, may be filled by a vote of a
majority of the directors then in office. A person appointed to fill a vacancy
on the Board of Directors will serve until the next annual meeting of directors.
The articles of incorporation of Lawrence Financial provide that a director may
be removed from the Board of Directors prior to the expiration of his or her
term only for cause and only upon the vote of 80% of the outstanding shares of
voting stock. These provisions make it more difficult for stockholders to remove
directors and replace them with their own nominees.
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Qualification. The bylaws provide that to be eligible to serve on the
Board of Directors of Lawrence Financial a person must reside in either Lawrence
or Scioto County, Ohio, Greenup or Boyd County, Kentucky or Cabell County, West
Virginia. In addition, no person 70 years of age or older is eligible to be
elected or appointed to the Board of Directors. Finally, the bylaws provide that
no person will be eligible to serve on the Board of Directors who has, in the
past 10 years, been subject to a supervisory action by a financial regulatory
agency that involved fraud or other bad actions, has been convicted of a crime
involving dishonesty or breach of trust that is punishable by a year or more in
prison, or is currently charged with such a crime. These provisions may prevent
stockholders from nominating themselves or persons of their choosing for
election to the Board of Directors.
Special Meetings of Stockholders. Lawrence Financial's bylaws provide
that the Chairman, the President or a majority of the Board of Directors of
Lawrence Financial may call special meetings of the stockholders of Lawrence
Financial. In addition, stockholders holding a majority of the outstanding
shares may request that a special meeting of stockholders be called. At a
special meeting, stockholders may consider only the business specified in the
notice of meeting given by Lawrence Financial. These provisions of Lawrence
Financial's bylaws make it more difficult for a stockholder to force stockholder
consideration of a proposal between annual meetings over the opposition of the
Board of Directors by calling a special meeting of stockholders.
Advance Notice Provisions for Stockholder Nominations and Proposals.
Lawrence Financial's bylaws establish an advance notice procedure for
stockholders to nominate directors or bring other business before an annual
meeting of stockholders of Lawrence Financial. A person may not be nominated for
election as a director unless that person is nominated by or at the direction of
the Lawrence Financial's Board of Directors or by a stockholder who has given
appropriate notice to Lawrence Financial before the meeting. Similarly, a
stockholder may not bring business before an annual meeting unless the
stockholder has given Lawrence Financial appropriate notice of its intention to
bring that business before the meeting. Lawrence Financial's Secretary must
receive notice of the nomination or proposal not less than 90 days prior to the
annual meeting. A stockholder who desires to raise new business must provide
certain information to Lawrence Financial concerning the nature of the new
business, the stockholder and the stockholder's interest in the business matter.
Similarly, a stockholder wishing to nominate any person for election as a
director must provide Lawrence Financial with certain information concerning the
nominee and the proposing stockholder.
Advance notice of nominations or proposed business by stockholders
gives Lawrence Financial's Board of Directors time to consider the
qualifications of the proposed nominees, the merits of the proposals and, to the
extent deemed necessary or desirable, to inform stockholders and make
recommendations about those matters.
Preferred Stock. The articles of incorporation authorize Lawrence
Financial's Board of Directors to establish one or more series of preferred
stock and, for any series of preferred stock, to determine the terms and rights
of the series, including voting rights, conversion rates, and liquidation
preferences. Although Lawrence Financial's Board of Directors has no intention
at the present time of doing so, it could issue a series of preferred stock that
could, depending on its terms, impede a merger, tender offer or other takeover
attempt. Lawrence Financial's Board of Directors will make any determination to
issue shares with those terms based on its judgment as to the best interests of
Lawrence Financial and its stockholders.
Amendment of Certificate of Incorporation. Lawrence Financial's
articles of incorporation require the affirmative vote of 80% of the outstanding
voting stock entitled to vote to amend or repeal certain provisions of the
articles of incorporation, including the provision limiting voting rights, the
provisions relating to approval of business combinations with related persons,
the classification and removal of directors, and amendment of Lawrence
Financial's bylaws and articles of incorporation. These supermajority voting
requirements make it more difficult for the stockholders to amend these
provisions of the articles of incorporation.
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Anti-Takeover Effects of Lawrence Financial's Articles of Incorporation and
Bylaws and Management Remuneration Adopted in Conversion
The provisions described above are intended to reduce Lawrence
Financial's vulnerability to takeover attempts and other transactions which have
not been negotiated with and approved by members of its Board of Directors.
Provisions of the stock-based incentive plan will provide for accelerated
benefits to participants if a change in control of Lawrence Financial or
Lawrence Federal occurs or a tender or exchange offer for their stock is made.
See "Management of Lawrence Federal Savings Bank--Benefits--Stock-based
Incentive Plan." Lawrence Financial and Lawrence Federal also intend to enter
into agreements with the chief executive officer and to establish the Severance
Compensation Plan, all of which will provide eligible employees with additional
payments and benefits on the officer's or employee's termination in connection
with a change in control of Lawrence Financial or Lawrence Federal. See
"Management of Lawrence Federal Savings Bank--Executive Compensation--Employment
Agreements," and "Management of Lawrence Federal Savings Bank--Executive
Compensation--Employee Severance Compensation Plan." The foregoing provisions
and limitations may make it more difficult for companies or persons to acquire
control of Lawrence Financial. Additionally, the provisions could deter offers
to acquire the outstanding shares of Lawrence Financial which might be viewed by
stockholders to be in their best interests. See "Management of Lawrence Federal
Savings Bank--Benefits--Stock-based Incentive Plan," "Management of Lawrence
Federal Savings Bank--Executive Compensation--Employment Agreements," and
"Management of Lawrence Federal Savings Bank--Executive Compensation--Employee
Severance Compensation Plan."
Lawrence Financial's Board of Directors believes that the provisions of
the articles of incorporation and bylaws are in the best interest of Lawrence
Financial and its stockholders. An unsolicited non-negotiated takeover proposal
can seriously disrupt the business and management of a corporation and cause it
great expense. Accordingly, the Board of Directors believes it is in the best
interests of Lawrence Financial and its stockholders to encourage potential
acquirors to negotiate directly with management and that these provisions will
encourage such negotiations and discourage non-negotiated takeover attempts.
Anti-Takeover Effects of Provisions of Maryland Law
Business Combinations. Maryland law prohibits specified "business
combinations" between a Maryland corporation and an "interested stockholder."
These business combinations include a merger, consolidation, share exchange, an
asset transfer or issuance or reclassification of equity securities. Interested
stockholders are either:
o anyone who beneficially owns 10% or more of the voting power of
the corporation's shares; or
o an affiliate or associate of the corporation who was an
interested stockholder or an affiliate or an associate of the
interested stockholder at any time within the two-year period
prior to the date in question.
These business combinations are prohibited for five years after the
most recent date on which the stockholder became an interested stockholder.
Thereafter, any of these business combinations must be recommended by the board
of directors of the corporation and approved by the vote of:
o at least 80% of the votes entitled to be cast by all holders of
voting shares of the corporation's voting shares; and
o at least 66 2/3% of the votes entitled to be cast by all holders
of the corporation's voting other than voting shares held by the
interested stockholder or an affiliate or associate of the
interested stockholder.
However, these special voting requirements do not apply if the
corporation's stockholders receive a minimum price for their shares (as
specified in the statute), the consideration is received in cash or in the same
form previously paid by the interested stockholder for its shares and, from the
time the interested stockholder is
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determined to have become an interested stockholder to the date the business
combination is consummated, the annual rate of dividends paid on all stock
remains the same.
This business combination statute does not apply to business
combinations that are approved or exempted by the corporation's board of
directors prior to the time that the interested stockholder becomes an
interested stockholder. A Maryland corporation may adopt an amendment to its
charter electing not to be subject to these special voting requirements. Any
amendment would have to be approved by at least 80% of the votes entitled to be
cast by all holders of outstanding shares of voting stock and two-thirds of the
votes entitled to be cast by holders of outstanding shares of voting stock who
are not interested stockholders.
Control Share Acquisitions. The Maryland general corporation law
provides that "control shares" of a Maryland corporation acquired in a "control
share acquisition" have no voting rights unless approved by a vote of two-thirds
of the votes entitled to be cast on the matter, excluding shares owned by the
acquiror or by the corporation's officers or directors who are employees of the
corporation. Control shares are shares of voting stock which, if aggregated with
all other shares of stock previously acquired, would entitle the acquiror to
exercise voting power in electing directors within one of the following ranges
of voting power:
o 20% or more but less than 33 1/3%;
o 33 1/3% or more but less than a majority; or
o a majority of all voting power.
Control shares do not include shares of stock an acquiring person is
entitled to vote as a result of having previously obtained stockholder approval.
A control share acquisition generally means the acquisition of, ownership of or
the power to direct the exercise of voting power with respect to, control
shares.
A person who has made or proposes to make a "control share
acquisition," under specified conditions, including an undertaking to pay
expenses, may require the board of directors to call a special stockholders'
meeting to consider the voting rights of the shares. The meeting must be held
within 50 days of the demand. If no request for a meeting is made, the
corporation may itself present the question at any stockholders' meeting.
If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as permitted by the
statute, the corporation generally may redeem any or all of the control shares,
except those for which voting rights have previously been approved. This
redemption of shares must be for fair value, determined without regard to the
absence of voting rights as of the date of the last control share acquisition or
of any stockholders' meeting at which the voting rights of the shares are
considered and not approved. If voting rights for "control shares" are approved
at a stockholders' meeting and the acquiror becomes entitled to vote a majority
of the shares entitled to vote, all other stockholders may exercise appraisal
rights. The fair value of the stock determined for purposes of appraisal rights
may not be less than the highest price per share paid in the control share
acquisition. The limitations and restrictions otherwise applicable to the
exercise of dissenters' rights do not apply in the context of a "control share
acquisition."
The control share acquisition statute does not apply to stock acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction, or to acquisition previously approved or exempted by a
provision in the charter or bylaws of the corporation.
Restrictions in Lawrence Federal's Federal Stock Charter and Bylaws
Although the Board of Directors of Lawrence Federal is not aware of any
effort that might be made to obtain control of Lawrence Federal after the
conversion, the Board of Directors believes that it is appropriate to adopt
provisions permitted by federal regulation to protect the interests of the
converted bank and its stockholders from any hostile takeover. These provisions
may, indirectly, inhibit a change in control of Lawrence Financial, as Lawrence
Federal's sole stockholder. See "Risk Factors--Various factors could make
takeover attempts that you want to occur more difficult to achieve."
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Lawrence Federal's federal stock charter will contain a provision
whereby the acquisition of beneficial ownership of more than 10% of the issued
and outstanding shares of any class of equity securities of Lawrence Federal by
any person (i.e., any individual, corporation, group acting in concert, trust,
partnership, joint stock company or similar organization), either directly or
through an affiliate, will be prohibited for a period of five years following
the date of completion of the conversion. If shares are acquired in violation of
this provision of Lawrence Federal's federal stock charter, all shares
beneficially owned by any person in excess of 10% will be considered "excess
shares" and will not be counted as shares entitled to vote and will not be voted
by any person or counted as voting shares in connection with any matters
submitted to the stockholders for a vote. If holders of revocable proxies for
more than 10% of the shares of the common stock of Lawrence Financial seek,
among other things, to elect one-third or more of Lawrence Financial's Board of
Directors, to cause Lawrence Financial's stockholders to approve the acquisition
or corporate reorganization of Lawrence Financial or to exert a continuing
influence on a material aspect of the business operations of Lawrence Financial,
which actions could indirectly result in a change in control of Lawrence
Federal, the Board of Directors of Lawrence Federal will be able to assert this
provision of Lawrence Federal's federal stock charter against such holders.
Although the Board of Directors of Lawrence Federal is not currently able to
determine when and if it would assert this provision of Lawrence Federal's
federal stock charter, the Board, in exercising its fiduciary duty, may assert
this provision if it were deemed to be in the best interests of Lawrence
Federal, Lawrence Financial and its stockholders. It is unclear, however,
whether this provision, if asserted, would be successful against such persons in
a proxy contest which could result in a change in control of Lawrence Federal
indirectly through a change in control of Lawrence Financial.
In addition, stockholders will not be permitted to cumulate their votes
in the election of Directors. Furthermore, Lawrence Federal's Bylaws provide for
the election of three classes of directors to staggered terms.
Finally, the federal stock charter provides for the issuance of shares
of preferred stock on terms, including conversion and voting rights, as may be
determined by Lawrence Federal's Board of Directors without stockholder
approval. Although Lawrence Federal has no arrangements, understandings or plans
at the present time for the issuance or use of the shares of undesignated
preferred stock proposed to be authorized, the Board believes that the
availability of such shares will provide Lawrence Federal with increased
flexibility in structuring possible future financings and acquisitions and in
meeting other corporate needs that may arise. If a proposed merger, tender offer
or other attempt to gain control of Lawrence Federal occurs of which management
does not approve, the Board can authorize the issuance of one or more series of
preferred stock with rights and preferences which could impede the completion of
such a transaction. An effect of the possible issuance of such preferred stock,
therefore, may be to deter a future takeover attempt. The Board does not intend
to issue any preferred stock except on terms which the Board deems to be in the
best interest of Lawrence Federal and its then existing stockholders.
Regulatory Restrictions
Office of Thrift Supervision Conversion Regulations. Regulations issued
by the Office of Thrift Supervision provide that for a period of three years
following the date of the completion of the conversion, no person, acting singly
or together with associates in a group of persons acting in concert, will
directly or indirectly offer to acquire or acquire the beneficial ownership of
more than 10% of any class of any equity security of Lawrence Financial without
the prior written approval of the Office of Thrift Supervision. Where any
person, directly or indirectly, acquires beneficial ownership of more than 10%
of any class of any equity security of Lawrence Financial without the prior
written approval of the Office of Thrift Supervision, the securities
beneficially owned by such person in excess of 10% will not be voted by any
person or counted as voting shares in connection with any matter submitted to
the stockholders for a vote, and will not be counted as outstanding for purposes
of determining the affirmative vote necessary to approve any matter submitted to
the stockholders for a vote.
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Change in Bank Control Act. The acquisition of 10% or more of the
common stock outstanding may trigger the provisions of the Change in Bank
Control Act. The Office of Thrift Supervision has also adopted a regulation
under the Change in Bank Control Act which generally requires persons who at any
time intend to acquire control of a federally chartered savings association,
including a converted savings bank such as Lawrence Federal, to provide 60 days
prior written notice and certain financial and other information to the Office
of Thrift Supervision.
The 60-day notice period does not commence until the information is
deemed to be substantially complete. Control for the purpose of this Act exists
in situations in which the acquiring party has voting control of at least 25% of
any class of Lawrence Financial's voting stock or the power to direct the
management or policies of Lawrence Financial. However, under Office of Thrift
Supervision regulations, control is presumed to exist where the acquiring party
has voting control of at least 10% of any class of Lawrence Financial's voting
securities if specified "control factors" are present. The statute and
underlying regulations authorize the Office of Thrift Supervision to disapprove
a proposed acquisition on certain specified grounds.
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Description of Lawrence Financial's Capital Stock
The common stock of Lawrence Financial will represent nonwithdrawable capital,
will not be an account of any type, and will not be insured by the Federal
Deposit Insurance Corporation or any other government agency.
The following summarizes the material terms of Lawrence Financial's
capital stock but does not purport to be complete. This discussion is qualified
in its entirety by reference to the applicable provisions of federal law
governing savings and loan holding companies, Maryland law, and Lawrence
Financial's articles of incorporation and bylaws. See "Where You Can Find More
Information" as to where to obtain a copy of these documents.
Common Stock
Lawrence Financial is authorized to issue 4,000,000 shares of common
stock having a par value of $.01 per share. Prior to the completion of the
conversion, no shares of Lawrence Financial's common stock will be outstanding.
Each share of Lawrence Financial's common stock will have the same relative
rights as, and will be identical in all respects with, each other share of
common stock.
Dividends. Lawrence Financial can pay dividends on its common stock if,
after giving effect to the distribution, it would be able to pay its
indebtedness as the indebtedness comes due in the usual course of business and
its total assets exceed the sum of its liabilities and the amount needed, if
Lawrence Financial were to be dissolved at the time of the distribution, to
satisfy the preferential rights upon dissolution of any holders of capital stock
who have a preference in the event of dissolution. See "Lawrence Financial's
Dividend Policy" and "Regulation and Supervision." The holders of common stock
of Lawrence Financial will be entitled to receive and share equally in dividends
as may be declared by the Board of Directors of Lawrence Financial out of funds
legally available for dividends. If Lawrence Financial issues preferred stock,
the holders of the preferred stock may have a priority over the holders of the
common stock with respect to dividends. See "Lawrence Financial's Dividend
Policy" and "Regulation and Supervision."
Voting Rights. After the conversion, the holders of common stock of
Lawrence Financial will possess exclusive voting rights in Lawrence Financial.
They will elect Lawrence Financial's Board of Directors and act on other matters
as are required to be presented to them under Maryland law or as are otherwise
presented to them by the Board of Directors. Except as discussed in
"Restrictions on Acquisition of Lawrence Financial and Lawrence Federal," 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 Lawrence Financial
issues preferred stock, holders of Lawrence Financial preferred stock may also
possess voting rights. Certain matters require a vote of 80% of the outstanding
shares entitled to vote. See "Restrictions on Acquisition of Lawrence Financial
and Lawrence Federal."
Liquidation. Upon liquidation, dissolution or winding up of Lawrence
Financial, the holders of its common stock would be entitled to receive all of
the assets of Lawrence Financial available for distribution after payment or
provision for payment of all its debts and liabilities. If Lawrence Financial
issues preferred stock, the preferred stock holders may have a priority over the
holders of the common stock upon liquidation or dissolution.
Preemptive Rights; Redemption. Holders of the common stock of Lawrence
Financial will not be entitled to preemptive rights with respect to any shares
that may be issued. The common stock cannot be redeemed.
Preferred Stock
Lawrence Financial is authorized to issue 1,000,000 shares of common
stock having a par value of $.01 per share. Lawrence Financial will not issue
any preferred stock in the conversion and it has no current plans to issue any
preferred stock after the conversion. Preferred stock may be issued with
designations, powers, preferences and
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rights as the Board of Directors may from time to time determine. The Board of
Directors can, without stockholder approval, issue preferred stock with voting,
dividend, liquidation and conversion rights that could dilute the voting
strength of the holders of the common stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
Restrictions on Acquisition
Acquisitions of Lawrence Financial are restricted by provisions in its
articles of incorporation and bylaws and by rules and regulations of various
regulatory agencies. See "Regulation and Supervision" and "Restrictions on
Acquisition of Lawrence Financial and Lawrence Federal."
Description of Lawrence Federal Savings Bank's Capital Stock
Common Stock
The federal stock charter of Lawrence Federal, to be effective upon
completion of the conversion, authorizes the issuance of 3,000,000 shares of
common stock, par value $1.00 per share. Each share of common stock of Lawrence
Federal will have the same relative rights as, and will be identical in all
respects with, each other share of common stock. After the conversion, the Board
of Directors will be authorized to approve the issuance of common stock up to
the amount authorized by the federal stock charter without the approval of
Lawrence Federal's stockholders. All of the issued and outstanding common stock
of Lawrence Federal will be held by Lawrence Financial. Lawrence Federal's
common stock will represent non-withdrawable capital, will not be an account of
an insurable type and will not be insured by the Federal Deposit Insurance
Corporation.
Dividends. The holders of Lawrence Federal's common stock will be
entitled to receive and to share equally in such dividends as may be declared by
the Board of Directors of Lawrence Federal out of its legally available funds.
See "Regulation and Supervision--Federal Savings Institution
Regulation--Limitations on Capital Distributions" for certain restrictions on
the payment of dividends and "Federal and State Taxation--Federal Income
Taxation" for a discussion of the consequences of the payment of cash dividends
from income appropriated to bad debt reserves.
Voting Rights. As a federal mutual savings bank, corporate powers and
control of Lawrence Federal are currently vested in (1) its members who elect
Lawrence Federal's directors, and (2) its Board of Directors, who elect the
officers of Lawrence Federal and who fill any vacancies on the Board of
Directors. Immediately after the conversion, the holders of Lawrence Federal's
common stock will possess exclusive voting rights in Lawrence Federal. Each
holder of shares of common stock will be entitled to one vote for each share
held. Stockholders will not be entitled to cumulate their votes for the election
of directors. After the conversion, Lawrence Financial will own all of the
outstanding common stock of Lawrence Federal, which will be voted at the
direction of Lawrence Financial's Board of Directors. Consequently, the holders
of the common stock of Lawrence Financial will not have direct control of
Lawrence Federal.
Liquidation. In the event of any liquidation, dissolution, or winding
up of Lawrence Federal, Lawrence Financial as the holder of all of the
outstanding common stock of Lawrence Federal will be entitled to receive, after
payment of all Lawrence Federal's debts and liabilities (including all deposit
accounts and accrued interest thereon), and distribution of the balance in the
special liquidation account to eligible account holders and supplemental
eligible account holders, all assets of Lawrence Federal available for
distribution in cash or in kind. If preferred stock is issued after the
conversion, the holders of the preferred stock may also have priority over the
holders of common stock in the event of liquidation or dissolution.
100
Preemptive Rights; Redemption. Holders of Lawrence Federal's common
stock will not be entitled to preemptive rights with respect to any shares of
Lawrence Federal which may be issued. Lawrence Federal's common stock cannot be
redeemed.
Preferred Stock
The federal stock charter of Lawrence Federal, to be effective upon
completion of the conversion, authorizes the issuance of 1,000,000 shares of
preferred stock, par value $1.00 per share. The preferred stock may be issued in
series and classes having such rights, preferences, privileges and restrictions
as Lawrence Federal's Board of Directors may determine.
Transfer Agent and Registrar
The transfer agent and registrar for Lawrence Financial's common stock
is _______________________.
Registration Requirements
Lawrence Financial has registered its common stock with the Securities
and Exchange Commission under Section 12(g) of the Securities Exchange Act of
1934, as amended, and will not deregister its common stock for a period of at
least three years following the conversion. As a result of registration, the
proxy and tender offer rules, insider trading reporting and restrictions, annual
and periodic reporting and other requirements of that statute will apply.
Legal and Tax Opinions
The legality of the common stock has been passed upon for Lawrence
Financial by Muldoon, Murphy & Faucette LLP, Washington, D.C. The federal tax
consequences of the conversion have been opined upon by Muldoon, Murphy &
Faucette LLP and the state tax consequences of the conversion have been opined
upon by Crowe, Chizek and Company LLP, Columbus, Ohio. Muldoon, Murphy &
Faucette LLP and Crowe, Chizek and Company LLP have consented to the references
to their opinions in this prospectus. Certain legal matters will be passed upon
for Keefe, Bruyette & Woods by Luse Lehman Gorman Pomerenk & Schick, A
Professional Corporation, Washington, D.C.
Experts
The financial statements of Lawrence Federal as of December 31, 1999,
and for the two years then ended are included in this prospectus and in the
registration statement in reliance upon the report of Crowe, Chizek and Company
LLP, Columbus, Ohio, independent certified public accountants, included
elsewhere in this prospectus, and upon the authority of said firm as experts in
accounting and auditing.
Keller & Company has consented to the summary in this prospectus of its
report to Lawrence Federal setting forth its opinion as to the estimated pro
forma market value of Lawrence Financial and Lawrence Federal, as converted, and
its letter with respect to subscription rights, and to the use of its name and
statements with respect to it appearing in this prospectus.
101
Where You Can Find More Information
Lawrence Financial has filed with the Securities and Exchange
Commission a Registration Statement on Form SB-2 (File No. 333-45404) under the
Securities Act of 1933, as amended, with respect to the common stock offered in
the conversion. This prospectus does not contain all the information contained
in the registration statement, certain parts of which are omitted as permitted
by the rules and regulations of the Securities and Exchange Commission. This
information may be inspected at the public reference facilities maintained by
the Securities and Exchange Commission at 450 Fifth Street, NW, Room 1024,
Washington, D.C. 20549 and at its regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies may be obtained at prescribed rates from the Public
Reference Room of the Securities and Exchange Commission at 450 Fifth Street,
NW, Washington, D.C. 20549. The public may obtain information on the operation
of the Public Reference Room by calling the Securities and Exchange Commission
at 1-800-SEC-0330. The registration statement also is available through the
Securities and Exchange Commission's World Wide Web site on the Internet at
http://www.sec.gov.
Lawrence Federal has filed an application for approval of conversion
with the Office of Thrift Supervision, which includes proxy materials for
Lawrence Federal's special meeting of members and certain other information.
This prospectus omits certain information contained in that application. The
application may be inspected, without charge, at the offices of the Office of
Thrift Supervision, 1700 G Street, NW, Washington, D.C. 20552 and at the offices
of the Regional Director of the Office of Thrift Supervision at the Central
Regional Office of the Office of Thrift Supervision, 200 West Madison Street,
Suite 1300, Chicago, Illinois 60606.
A copy of the plan of conversion, Lawrence Financial's articles of
incorporation and bylaws and Lawrence Federal's federal stock charter and bylaws
are available without charge from Lawrence Federal.
102
Index to Financial Statements
Lawrence Federal Savings Bank
Page
----
Report of Independent Auditors............................................ F-1
Consolidated Balance Sheets as of June 30, 2000 (unaudited),
December 31, 1999 and 1998.............................................. F-2
Consolidated Statements of Income for the Six Months Ended
June 30, 2000 and 1999 (unaudited) and the Years Ended
December 31, 1999 and 1998.............................................. F-3
Consolidated Statements of Comprehensive Income for the Six Months Ended
June 30, 2000 and 1999 (unaudited) and the Years Ended
December 31, 1999 and 1998.............................................. F-4
Consolidated Statement of Equity for the Six Months Ended
June 30, 2000 (unaudited) and the Years Ended December 31 1999 and 1998. F-5
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2000 and 1999 (unaudited) and the Years Ended
December 31, 1999 and 1998.............................................. F-6
Notes to Consolidated Financial Statements................................ F-7
* * *
All schedules are omitted as the required information either is not applicable
or is included in the financial statements or related notes.
Separate financial statements for Lawrence Financial have not been included in
this prospectus because Lawrence Financial, which has engaged only in
organizational activities to date, has no significant assets, contingent or
other liabilities, revenues or expenses.
103
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Lawrence Federal Savings Bank
Ironton, Ohio
We have audited the accompanying consolidated balance sheets of Lawrence Federal
Savings Bank as of December 31, 1999 and 1998, and the related consolidated
statements of income, comprehensive income, equity and cash flows for the years
then ended. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
amounts and disclosures in the financial statements. An audit also includes
assessing accounting principles used and significant estimates made by
management, as well as evaluating overall financial statement presentation. We
believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Lawrence Federal Savings Bank as of December 31, 1999 and 1998, and the
consolidated results of its operations and cash flows for the years then ended
in conformity with generally accepted accounting principles.
/s/Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Columbus, Ohio
February 24, 2000
F-1
LAWRENCE FEDERAL SAVINGS BANK
CONSOLIDATED BALANCE SHEETS
June 30, 2000 (unaudited), December 31, 1999 and 1998
- --------------------------------------------------------------------------------
December 31,
June 30, ------------------------------
2000 1999 1998
---- ---- ----
(Unaudited)
ASSETS
Cash and due from banks .................... $ 3,369,969 $ 4,156,623 $ 4,078,465
Merrill Lynch money market fund ............ 364,286 511,009 2,465,465
------------- ------------- -------------
Total cash and cash equivalents ........ 3,734,255 4,667,632 6,543,930
Securities available for sale .............. 12,281,177 12,241,175 12,763,057
Loans receivable, net ...................... 90,556,599 78,781,060 70,352,996
Federal Home Loan Bank stock ............... 529,100 510,800 461,800
Premises and equipment, net ................ 3,460,130 3,538,021 3,523,413
Accrued interest receivable ................ 767,412 684,882 651,010
Cash surrender value of life insurance ..... 1,846,689 1,822,853 1,780,716
Other assets ............................... 690,128 705,964 352,852
------------- ------------- -------------
Total assets ........................... $ 113,865,490 $ 102,952,387 $ 96,429,774
============= ============= =============
LIABILITIES AND EQUITY
Liabilities
Noninterest-bearing deposits ............... $ 1,390,184 $ 1,308,795 $ 1,336,560
Interest-bearing deposits .................. 98,456,046 88,990,477 87,155,285
------------- ------------- -------------
Total deposits ......................... 99,846,230 90,299,272 88,491,845
Federal Home Loan Bank (FHLB) borrowings ... 4,000,000 4,500,000 --
Other liabilities .......................... 1,907,050 361,602 321,822
------------- ------------- -------------
Total liabilities ...................... 105,753,280 95,160,874 88,813,667
Commitments and Contingencies
Equity
Retained earnings (substantially restricted) 8,431,073 8,132,702 7,589,433
Accumulated other comprehensive income,
net of tax of $(164,263) in 2000,
$(175,764) in 1999, and $13,741 in 1998 .. (318,863) (341,189) 26,674
------------- ------------- -------------
Total equity ........................... 8,112,210 7,791,513 7,616,107
------------- ------------- -------------
Total liabilities and equity ...... $ 113,865,490 $ 102,952,387 $ 96,429,774
============= ============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
LAWRENCE FEDERAL SAVINGS BANK
CONSOLIDATED STATEMENTS OF INCOME
Six Months ended June 30, 2000 and 1999 (unaudited) and
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
Six Months Years
Ended June 30, Ended December 31,
-------------------------- -------------------------
2000 1999 1999 1998
---- ---- ---- ----
(unaudited)
Interest income
Loans, including fees . $ 3,292,189 $ 2,866,561 $ 6,002,492 $ 5,411,726
Taxable securities .... 402,567 411,592 802,379 842,725
Overnight deposits .... 37,741 114,437 142,775 95,462
----------- ----------- ----------- -----------
3,732,497 3,392,590 6,947,646 6,349,913
Interest expense
Deposits .............. 2,112,524 2,034,104 4,022,375 3,722,484
FHLB Borrowings ....... 68,129 -- 35,707 59,713
----------- ----------- ----------- -----------
2,180,653 2,034,104 4,058,082 3,782,197
----------- ----------- ----------- -----------
Net interest income .... 1,551,844 1,358,486 2,889,564 2,567,716
Provision for loan
losses ............... 60,000 60,000 120,000 120,000
----------- ----------- ----------- -----------
Net interest income
after provision for
loan losses ........... 1,491,844 1,298,486 2,769,564 2,447,716
Noninterest income
Net securities gains
(losses) ............ (13,739) 1,687 1,735 48,468
Service charges ....... 167,714 141,479 287,612 231,175
Other ................. 79,429 65,110 136,528 120,970
----------- ----------- ----------- -----------
233,404 208,276 425,875 400,613
Noninterest expense
Salaries and benefits . 538,872 495,148 1,021,321 857,126
Deposit insurance
premiums ............. 24,586 39,726 52,248 48,181
Occupancy and equipment 179,775 148,327 313,086 274,589
Data processing ....... 204,505 155,269 358,085 256,043
Franchise tax ......... 50,535 54,302 106,206 105,128
Loss on disposal of
premises and
equipment ........... -- -- 7,336 --
Advertising expense ... 58,883 40,669 96,810 83,331
Other ................. 236,964 197,095 447,384 410,233
----------- ----------- ----------- -----------
1,294,120 1,130,536 2,402,476 2,034,631
----------- ----------- ----------- -----------
Income before income
tax ................... 431,128 376,226 792,963 813,698
Provision for income
tax ................... 132,757 117,114 249,694 238,269
----------- ----------- ----------- -----------
Net income ............. $ 298,371 $ 259,112 $ 543,269 $ 575,429
=========== =========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
LAWRENCE FEDERAL SAVINGS BANK
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Six Months ended June 30, 2000 and 1999 (unaudited) and
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
Six Months Years
Ended June 30, Ended December 31,
---------------------- ----------------------
2000 1999 1999 1998
---- ---- ---- ----
(unaudited)
Net income ........................ $ 298,371 $ 259,112 $ 543,269 $ 575,429
Other comprehensive income:
Unrealized gains (losses)
arising during period .......... 20,088 (248,910) (555,633) 72,787
Less: reclassification adjustment
for (gains) losses included in
net income ..................... 13,739 (1,687) (1,735) (48,468)
--------- --------- --------- ---------
33,827 (250,597) (557,368) 24,319
Income tax benefit (expense) .... (11,501) 85,203 189,505 (8,269)
--------- --------- --------- ---------
Other comprehensive
income(loss), net of tax ..... 22,326 (165,394) (367,863) 16,050
--------- --------- --------- ---------
Comprehensive income .............. $ 320,697 $ 93,718 $ 175,406 $ 591,479
========= ========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
LAWRENCE FEDERAL SAVINGS BANK
CONSOLIDATED STATEMENTS OF EQUITY
Six Months ended June 30, 2000 and 1999 (unaudited) and
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
Accumulated
Other
Retained Comprehensive Total
Earnings Income Equity
-------- ------ ------
Balance - January 1, 1998 .......... $ 7,014,004 $ 10,624 $ 7,024,628
Net income ......................... 575,429 -- 575,429
Change in fair value of
securities available for sale ..... -- 16,050 16,050
----------- ----------- -----------
Balance - December 31, 1998 ........ 7,589,433 26,674 7,616,107
Net income ......................... 543,269 -- 543,269
Change in fair value of
securities available for sale ..... -- (367,863) (367,863)
----------- ----------- -----------
Balance - December 31, 1999 ........ 8,132,702 (341,189) 7,791,513
Net income for the six months
ended June 30, 2000 (unaudited) ... 298,371 -- 298,371
Change in fair value of
securities available for
sale (unaudited) .................. -- 22,326 22,326
----------- ----------- -----------
Balance - June 30, 2000
(unaudited) ....................... $ 8,431,073 $ (318,863) $ 8,112,210
=========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
LAWRENCE FEDERAL SAVINGS BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months ended June 30, 2000 and 1999 (unaudited) and
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
Six Months Years
Ended June 30, Ended December 31,
---------------------------- ----------------------------
2000 1999 1999 1998
---- ---- ---- ----
(unaudited)
Cash flows from operating activities
Net income ................................... $ 298,371 $ 259,112 $ 543,269 $ 575,429
Adjustments to reconcile to net cash
from operating activities
Depreciation ............................. 93,560 73,575 197,123 148,390
Provision for loan losses ................ 60,000 60,000 120,000 120,000
Stock dividend on FHLB stock ............. (18,300) (16,300) (34,100) (31,600)
Securities amortization .................. (73,880) (53,930) 23,037 (71,385)
Net securities (gains) losses ............ 13,739 (1,687) (1,735) (48,468)
Loss on disposal of premises
and equipment ......................... -- -- 7,336 --
Deferred tax (benefit) expense ........... 17,445 (26,384) (30,050) (10,150)
Change in other assets and
liabilities ........................... 1,425,972 (20,252) (584,741) (378,496)
------------ ------------ ------------ ------------
Net cash from operating activities .. 1,816,907 274,134 240,139 303,720
------------ ------------ ------------ ------------
Cash flows from investing activities
Purchase of:
Securities available for sale............. (2,050,000) (2,183,195) (2,183,195) (16,822,629)
FHLB stock ............................... -- (14,900) (14,900) --
Premises and equipment ................... (15,669) (89,770) (219,067) (883,920)
Proceeds from:
Sales of securities available for sale ... 2,103,966 1,182,532 1,124,671 5,913,345
Calls, maturities and principal
repayments of securities
available for sale .................... -- 499,901 1,001,735 5,322,468
Net change in time deposits with FHLB ........ -- -- -- 9,000,000
Net change in loans .......................... (11,835,539) (4,894,916) (8,133,108) (7,258,148)
------------ ------------ ------------ ------------
Net cash from investing activities .. (11,797,242) (5,500,348) (8,423,864) (4,728,884)
------------ ------------ ------------ ------------
Cash flows from financing activities
Net change in:
Deposits ................................. 9,546,958 4,958,122 1,807,427 7,733,623
FHLB borrowings .......................... (500,000) -- 4,500,000 --
------------ ------------ ------------ ------------
Net cash from financing activities .. 9,046,958 4,958,122 6,307,427 7,733,623
------------ ------------ ------------ ------------
Net change in cash and cash equivalents ........... (933,377) (268,092) (1,876,298) 3,308,459
Cash and cash equivalents at beginning of year .... 4,667,632 6,543,930 6,543,930 3,235,471
------------ ------------ ------------ ------------
Cash and cash equivalents at end of year .......... $ 3,734,255 $ 6,275,838 $ 4,667,632 $ 6,543,930
============ ============ ============ ============
Supplemental disclosures:
Cash paid during the year for:
Interest ................................. $ 2,102,000 $ 2,031,000 $ 4,055,000 $ 3,779,000
Income taxes ............................. 119,000 105,000 231,000 263,000
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
LAWRENCE FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999 (unaudited) and December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include
Lawrence Federal Savings Bank and its wholly-owned subsidiary, Lawrence
Financial Services Corporation (together, "the Bank"). Intercompany transactions
are eliminated in consolidation.
Nature of Operations: Real estate and installment loans are to customers
primarily in Lawrence County. Substantially all loans are secured by specific
items of collateral including consumer assets and real estate. Real estate loans
are secured by both residential and commercial real estate. Lawrence Financial
Services Corporation holds real property for investment purposes.
Business Segments: An accounting standard adopted in 1998 changes the way public
companies report information about their operating segments in annual and
interim financial statements. The standard requires a management approach to
determine operating segments and then imposes quantitative criteria to determine
which operating segments, if any, must be reported. Management considers the
Bank to operate in one segment, banking.
Use of Estimates: To prepare financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions based
on available information. These estimates and assumptions affect the amounts
reported in the financial statements and the disclosures provided, and future
results could differ. The allowance for loan losses, fair values of financial
instruments and status of contingencies are particularly subject to change.
Cash Flows: Cash and cash equivalents include cash on hand and deposits with
other financial institutions with original maturities of 90 days or less. Net
cash flows are reported for loan and deposit transactions.
Securities: Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value,
with unrealized holding gains and losses reported in other comprehensive income.
Other securities such as Federal Home Loan Bank stock are carried at cost.
Securities are written down to fair value when a decline in fair value is not
temporary. Gains and losses on sales are based on the amortized cost of the
security sold. Interest and dividend income, adjusted by amortization of
purchase premium or discount using the interest method, is included in earnings.
Loans: Loans are reported at principal balance outstanding, net of unearned
interest, deferred loan fees and costs, and an allowance for loan losses.
Interest income is reported on the interest method and includes amortization of
net deferred loan fees and costs over the contractual life of the loan.
(Continued)
F-7
LAWRENCE FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999 (unaudited) and December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Interest on real estate and certain consumer loans is accrued over the term of
the loans based upon the principal balance outstanding. Where serious doubt
exists as to the collectibility of a loan, the accrual of interest is
discontinued. The carrying values of impaired loans are periodically adjusted to
reflect cash payments, revised estimates of future cash flows, and increases in
the present value of expected cash flows due to the passage of time. Cash
payments representing interest income are reported as such. Other cash payments
are reported as reductions in carrying value, while increases or decrease due to
changes in estimates of future payments and due to the passage of time are
reported as adjustments to the allowance for loan losses. If these adjustments
cause the allowance for loan losses to require adjustment, such adjustment is
reported as an adjustment to the provision for loan losses.
Allowance for Loan Losses: Because some loans may not be repaid in full, an
allowance for loan losses is maintained. The allowance for loan losses is a
valuation allowance, increased by the provision for loan losses and decreased by
charge-offs less recoveries. Management estimates the allowance balance required
based on past loan loss experience, known risks in the portfolio, information
about specific borrower situations and estimated collateral values, economic
conditions, and other factors. Allocations of the allowance may be made for
specific loans, but the entire allowance is available for any loan that, in
management's judgment, should be charged-off.
Loan impairment is reported when full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller-balance loans of similar
nature such as residential mortgage, consumer, and credit card loans, and on an
individual loan basis for other loans. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loan's existing rate or at the fair
value of collateral if repayment is expected solely from the collateral. Loans
are evaluated for impairment when payments are delayed, typically 90 days or
more, or when it is probable that not all principal and interest amounts will be
collected according to the original terms of the loan. While the factors which
identify a credit for consideration for measurement of impairment, or
nonaccrual, are similar, the measurement considerations differ. A loan is
impaired when management believes it is probable that they will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. A loan is placed on nonaccrual when payments are more than 90 days
past due unless the loan is adequately collateralized and in the process of
collection.
Premises and Equipment: Land is carried at cost. Premises and equipment are
stated at cost less accumulated depreciation. Depreciation is computed using the
straight-line method over the asset useful lives of the respective premises and
equipment, which are primarily thirty to fifty years for premises and five to
ten years for furniture, fixtures, and equipment. Maintenance and repairs are
charged to expense as incurred and improvements which extend the useful lives of
assets are capitalized.
(Continued)
F-8
LAWRENCE FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999 (unaudited) and December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Real Estate Owned: Real estate properties acquired in collection of a loan are
recorded at the lower of cost, which is the unpaid principal balance plus
foreclosure costs or fair value at acquisition. Any reduction to fair value from
the carrying value of the related loan is accounted for as a loan loss. After
acquisition, a valuation allowance reduces the reported amount to the lower of
the initial amount or fair value less costs to sell. Expenses, gains and losses
on disposition, and changes in the valuation allowance are reported in other
expenses.
Income Taxes: Income tax expense is the sum of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
Long-term Assets: Premises and equipment and other long term assets are reviewed
for impairment when events indicate its carrying amount may not be recoverable
from future undiscounted cash flows. If impaired, the assets are recorded at
discounted amounts.
Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes unrealized gains and
losses on securities available for sale, which are also recognized as a separate
component of equity.
Reclassification: Some items in the prior consolidated financial statements have
been reclassified to conform with current presentation.
Interim Financial Information: The unaudited consolidated balance sheet as of
June 30, 2000 and the related unaudited consolidated statements of income,
comprehensive income, and cash flows for the six months ended June 30, 2000 and
1999, and the related unaudited consolidated statement of equity for the six
months ended June 30, 2000 have been prepared in a manner consistent with the
audited financial information presented. Management believes that all
adjustments, which were all of a normal and recurring nature, have been recorded
to the best of its knowledge and that the unaudited financial information fairly
presents the financial position and results of operations and cash flows of the
Bank in accordance with generally accepted accounting principals.
(Continued)
F-9
LAWRENCE FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999 (unaudited) and December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES
The amortized cost and fair value of securities available for sale are as
follows.
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
June 30, 2000 (unaudited):
U.S. Treasury securities ....... $ 678,656 $ - $ (8,192) $ 670,464
U.S. Government agencies ....... 11,055,936 - (318,348) 10,737,588
Other securities ............... 1,029,711 - (156,586) 873,125
--------------- -------------- --------------- ---------------
$ 12,764,303 $ - $ (483,126) $ 12,281,177
=============== ============== =============== ===============
December 31, 1999:
U.S. Treasury securities ....... $ 681,537 $ - $ (12,335) $ 669,202
U.S. Government agencies ....... 11,057,353 - (301,005) 10,756,348
Other securities ............... 1,019,238 - (203,613) 815,625
--------------- -------------- --------------- ---------------
$ 12,758,128 $ - $ (516,953) $ 12,241,175
=============== ============== =============== ===============
December 31, 1998:
U.S. Treasury securities ....... $ 2,061,865 $ 10,923 $ (1,583) $ 2,071,205
U.S. Government agencies ....... 10,144,527 67,578 (30,019) 10,182,086
Other securities ............... 516,250 - (6,484) 509,766
--------------- -------------- --------------- ---------------
$ 12,722,642 $ 78,501 $ (38,086) $ 12,763,057
=============== ============== =============== ===============
(Continued)
F-10
LAWRENCE FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999 (unaudited) and December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 2 - SECURITIES (Continued)
Contractual maturities of securities at June 30, 2000 and December 31, 1999 were
as follows. Securities not due at a single maturity date are shown separately.
Amortized Fair
Cost Value
---- -----
June 30, 2000 (unaudited):
Due in one year or less ................ $ 1,428,713 $ 1,407,189
Due from one to five years ............. 10,305,879 10,000,863
Due after ten years .................... 1,029,711 873,125
----------- -----------
$12,764,303 $12,281,177
=========== ===========
December 31, 1999:
Due in one year or less ................ $ 2,299,776 $ 2,284,475
Due from one to five years ............. 9,439,114 9,141,075
Due after ten years .................... 1,019,238 815,625
----------- -----------
$12,758,128 $12,241,175
=========== ===========
Proceeds from the sales of securities were $2,103,966 and $1,182,532 for the six
months ended June 30, 2000 and 1999. Gross losses of $13,739 were recognized on
those sales in 2000, and gross gains of $1,687 were recognized on those sales in
1999. Proceeds from sales of securities were $1,124,671 and $5,913,345 for 1999
and 1998. Gross gains of $1,735 and $48,468 were recognized on those sales in
1999 and 1998.
Securities with amortized cost of $12,749,303 at June 30, 2000 were pledged to
secure public deposits. Securities with amortized cost of $8,623,897 and
$7,725,000 at year-end 1999 and 1998 were pledged to secure public deposits.
(Continued)
F-11
LAWRENCE FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999 (unaudited) and December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are as follows:
June 30, December 31,
-------- -----------------------------
2000 1999 1998
---- ---- ----
(unaudited)
1-4 single family
residential mortgage loans ... $ 52,391,939 $ 51,605,945 $ 48,384,842
Other real estate loans ........ 8,047,122 6,433,269 4,112,030
Automobile loans ............... 7,467,843 2,267,644 1,751,095
Mobile home loans .............. 13,336,464 11,758,743 10,358,246
Other .......................... 7,546,512 5,406,232 4,803,395
------------ ------------ ------------
88,789,880 77,471,833 69,409,608
Net deferred loan origination
costs ........................ 2,392,538 1,897,952 1,479,222
Allowance for loan losses ...... (625,819) (588,725) (535,834)
------------ ------------ ------------
Total ........................ $ 90,556,599 $ 78,781,060 $ 70,352,996
============ ============ ============
Activity in the allowance for loan losses is as follows:
Six Months Years
Ended June 30, Ended December 31,
---------------------- -----------------------
2000 1999 1999 1998
---- ---- ---- ----
(unaudited)
Beginning balance .......... $ 588,725 $ 535,834 $ 535,834 $ 501,122
Provision for loan losses .. 60,000 60,000 120,000 120,000
Charge-offs ................ (51,688) (69,766) (137,234) (98,659)
Recoveries ................. 28,782 58,684 70,125 13,371
--------- --------- --------- ---------
Ending balance ............. $ 625,819 $ 584,752 $ 588,725 $ 535,834
========= ========= ========= =========
Impaired loans for the six months ended June 30, 2000 and 1999, and the years
ended December 31, 1999 and 1998 were not material.
(Continued)
F-12
LAWRENCE FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999 (unaudited) and December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 3 - LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
Loans to principal officers, directors, and their affiliates were as follows:
Six Months Ended Year Ended
June 30, December 31,
2000 1999
---- ----
(unaudited)
Beginning balance ................. $ 708,313 $ 657,747
New loans ......................... 54,785 178,402
Repayments ........................ (36,696) (127,836)
--------- ---------
Ending balance .................... $ 726,402 $ 708,313
========= =========
NOTE 4- ACCRUED INTEREST RECEIVABLE
Accrued interest consists of the following:
December 31,
June 30, -------------------------
2000 1999 1998
---- ---- ----
(unaudited)
Loans ....................... $569,995 $513,306 $450,450
Securities .................. 197,417 171,576 200,560
-------- -------- --------
$767,412 $684,882 $651,010
======== ======== ========
(Continued)
F-13
LAWRENCE FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999 (unaudited) and December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 5- PREMISES AND EQUIPMENT
Office properties and equipment consisted of the following:
June 30, December 31,
-------- ----------------------------
2000 1999 1998
---- ---- ----
(unaudited)
Land ........................... $ 999,605 $ 999,605 $ 999,605
Buildings and improvements ..... 3,326,701 3,324,551 3,280,679
Furniture and equipment ........ 1,188,317 1,171,836 1,038,616
Automobile ..................... 17,288 13,138 13,138
----------- ----------- -----------
Total cost ................. 5,531,911 5,509,130 5,332,038
Accumulated depreciation ....... (2,071,781) (1,971,109) (1,808,625)
----------- ----------- -----------
$ 3,460,130 $ 3,538,021 $ 3,523,413
=========== =========== ===========
NOTE 6 - DEPOSITS
Certificates of deposit of $100,000 or more were $12,636,145 at June 30, 2000,
and $9,255,977 and $9,387,762 at December 31, 1999 and 1998. Deposits greater
than $100,000 are not federally insured.
At June 30, 2000, maturities of certificates of deposits for the following five
years are as follows:
Year ended June 30, (unaudited)
-------------------------------
2001 .................... $ 53,792,400
2002 .................... 4,887,502
2003 .................... 3,506,404
2004 .................... 3,255,187
2005 .................... 709,763
Thereafter .............. 1,675,478
---------------
$ 67,826,733
===============
(Continued)
F-14
LAWRENCE FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999 (unaudited) and December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 6 - DEPOSITS (Continued)
At December 31, 1999, maturities of certificates of deposits for the following
five years are as follows:
Year ended December 31,
-----------------------
2000 ...................... $ 41,059,860
2001 ...................... 9,184,242
2002 ...................... 1,520,386
2003 ...................... 5,229,151
2004 ...................... 1,162,161
Thereafter ................ 1,952,518
---------------
$ 60,108,318
===============
Interest expense related to deposits is as follows:
Six Months Years
Ended June 30, Ended December 31,
------------------ ------------------
2000 1999 1999 1998
---- ---- ---- ----
(unaudited)
(in thousands)
Passbook accounts .................. $ 269 $ 255 $ 534 $ 489
Money market and NOW accounts ...... 127 126 254 220
Certificates of deposit ............ 1,717 1,653 3,234 3,013
------ ------ ------ ------
$2,113 $2,034 $4,022 $3,722
====== ====== ====== ======
NOTE 7 - FEDERAL HOME LOAN BANK BORROWINGS
At December 31, 1999, the Bank had FHLB borrowings of $4,500,000. These
borrowings all had an interest rate of 4.75% and various maturities from
February 11, 2000 to March 27, 2000. These borrowings were collateralized by the
Bank's FHLB stock owned and $6,750,000 of qualifying mortgage loans. There were
no such borrowings at December 31, 1998.
At June 30, 2000, the Bank had FHLB borrowings of $4,000,000. These borrowings
all had an interest rate of 6.78% and mature on July 3, 2000. These borrowings
were collateralized by the Bank's FHLB stock owned and $6,000,000 of qualifying
mortgage loans.
(Continued)
F-15
LAWRENCE FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999 (unaudited) and December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 8 - COMMITMENTS, CONTINGENCIES AND FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK
Some financial instruments are used to meet customer-financing needs, including
commitments to make loans. These involve, to varying degrees, credit and
interest-rate risk more than the amount reported in the balance sheet.
Commitments to extend credit:
June 30, December 31,
-------- ---------------------------
2000 1999 1998
---- ---- ----
(unaudited)
Fixed rate ................. $1,178,500 $ 704,591 $1,356,700
Variable rate .............. 169,000 111,000 209,000
---------- ---------- ----------
$1,347,000 $ 815,591 $1,565,700
========== ========== ==========
Range of interest rates
on commitments ........... 7.25% to 9.63% 7.25% to 9.50% 6.75% to 8.75%
Commitments to make loans are agreements to lend to a customer as long as there
is no violation of any condition established in the commitment, and generally
have fixed expiration dates. Exposure to credit loss if the other party does not
perform is represented by the contractual amount of these items. Collateral or
other security is normally not obtained for these financial instruments before
their use, and many of the commitments are expected to expire without being
used.
NOTE 9 - RETIREMENT PLAN
The Bank sponsors a 401(k) profit sharing plan for eligible employees. Under the
plan, employees who are at least 20 1/2 years of age and have completed six
months of service are eligible to participate. The Bank matches each employee's
contribution at a rate of 100% of employees' contributions up to 5% of gross
compensation. Participants become 100% vested as to the Bank's contributions
after three years of service. Contributions and expense for the years ended
December 31, 1999 and 1998 totaled $25,346 and $19,010. Contributions and
expense for the six months ended June 30, 2000 and 1999 totaled $12,519 and
$10,955.
(Continued)
F-16
LAWRENCE FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999 (unaudited) and December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 10 - INCOME TAXES
An analysis of the provision for income tax is as follows:
Six Months Years
Ended June 30, Ended December 31,
------------------------ --------------------------
2000 1999 1999 1998
---- ---- ---- ----
(unaudited)
Current ......... $ 115,312 $ 143,498 $ 279,744 $ 248,419
Deferred ........ 17,445 (26,384) (30,050) (10,150)
--------- --------- --------- ---------
$ 132,757 $ 117,114 $ 249,694 $ 238,269
========= ========= ========= =========
The sources of gross deferred tax assets and liabilities are as follows:
June 30, December 31,
---------------------- ----------------------
2000 1999 1999 1998
---- ---- ---- ----
(unaudited)
Total deferred tax assets
Allowance for loan losses ..... $ 166,666 $ 147,585 $ 161,194 $ 133,469
Deferred compensation ......... 94,573 77,881 87,444 68,851
Net unrealized loss on
securities available for sale 164,263 71,462 175,764 --
Total deferred tax liabilities
FHLB stock dividends .......... (99,176) (86,893) (92,914) (81,320)
Deferred loan fees/cost ....... (59,911) (24,460) (33,907) (31,772)
Depreciation .................. (14,799) (12,981) (17,019) (14,480)
Net unrealized gain on
securities available for sale -- -- -- (13,741)
--------- --------- --------- ---------
Net deferred tax asset ..... $ 251,616 $ 172,594 $ 280,562 $ 61,007
========= ========= ========= =========
The Bank has sufficient taxes paid on current and prior years to warrant
recording the full deferred tax asset without a valuation allowance.
(Continued)
F-17
LAWRENCE FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999 (unaudited) and December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 10 - INCOME TAXES (Continued)
Total federal income tax expense differs from the expected amounts computed by
applying the statutory federal tax rate of 34% to income before taxes. The
reasons for this difference are as follows:
Six Months Ended June 30,
-------------------------------------------
2000 1999
-------------------- --------------------
(unaudited)
Amount Rate Amount Rate
------ ---- ------ ----
Tax expense at statutory
rate ............................ $ 146,584 34.0% $ 127,917 34.0%
Net earnings of insurance
contracts ....................... (8,104) (1.9) (7,323) (2.0)
Tax exempt interest income ....... (4,842) (1.1) (2,345) (0.6)
Other ............................ (881) (0.2) (1,135) (0.3)
--------- ---- --------- ----
Tax expense at effective
rate ....................... $ 132,757 30.8% $ 117,114 31.1%
========= ==== ========= ====
Years Ended December 31,
-------------------------------------------
1999 1998
-------------------- --------------------
(unaudited)
Amount Rate Amount Rate
------ ---- ------ ----
Tax expense at statutory
rate ............................ $ 269,607 34.0% $ 276,657 34.0%
Net earnings of insurance
contracts ....................... (14,327) (1.8) (15,915) (2.0)
Tax exempt interest income ....... (4,423) (0.6) (6,919) (0.8)
Other ............................ (1,163) (0.1) (15,554) (1.9)
--------- ---- --------- ----
Tax expense at effective
rate ....................... $ 249,694 31.5% $ 238,269 29.3%
========= ==== ========= ====
Accordingly, retained earnings at December 31, 1999 and June 30, 2000 include
$1,493,442, for which no provision for federal income taxes has been made. If
this portion of retained earnings is used in the future for any purpose other
than to absorb bad debts, the amount used will be added to future taxable
income. The unrecorded deferred tax liability on the above amount at December
31, 1999 and June 30, 2000 was $507,770.
(Continued)
F-18
LAWRENCE FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999 (unaudited) and December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 11 - REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered by
federal regulatory agencies. Failure to meet minimum capital requirements can
initiate certain mandatory actions that, if undertaken, could have a direct
material affect on the Bank's financial statements. Under capital adequacy
guidelines and regulatory framework for prompt-corrective action, the Bank must
meet specific capital guidelines involving 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 classifications
are also subject to qualitative judgments by regulators about the Bank's
components, risk weightings and other factors. At December 31, 1999 and June 30,
2000, management believes the Bank complies with all regulatory capital
requirements. Based on the Bank's computed regulatory capital ratios, the Bank
was considered well capitalized under Section 38 of the Federal Deposit
Insurance Act as of its last regulatory exam. Management is unaware of any
events or circumstances that would change the Bank's classification since that
time.
The following is a reconciliation of the Bank's equity under generally accepted
accounting principles (GAAP) to regulatory capital:
June 30, December 31,
-------- ---------------------
2000 1999 1998
---- ---- ----
(unaudited)
(in thousands)
GAAP equity ............................ $ 8,112 $ 7,792 $ 7,616
Unrealized loss (gain)
on securities available
for sale .............................. 319 341 (27)
------- ------- -------
Tier I capital ...................... 8,431 8,133 7,589
General regulatory loan
loss reserves ......................... 626 589 536
------- ------- -------
Total regulatory capital ............ $ 9,057 $ 8,722 $ 8,125
======= ======= =======
(Continued)
F-19
LAWRENCE FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999 (unaudited) and December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 11 - REGULATORY CAPITAL REQUIREMENTS (Continued)
The Bank's actual capital levels and minimum required levels were as follows:
Minimum
Required to be
Minimum Required Well Capitalized
for Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
-------------------- -------------------- --------------------
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
June 30, 2000 (unaudited):
- --------------------------
Total capital (to risk-
weighted assets) ............ $ 9,057 10.78% $ 6,722 8.0% $ 8,403 10.0%
Tier 1 (core) capital (to
risk-weighted assets) ....... $ 8,431 10.03% $ 3,361 4.0% $ 5,042 6.0%
Tier 1 (core) capital (to
adjusted total assets) ...... $ 8,431 7.35% $ 4,587 4.0% $ 5,734 5.0%
December 31, 1999:
- ------------------
Total capital (to risk-
weighted assets) ............ $ 8,722 11.96% $ 5,835 8.0% $ 7,294 10.0%
Tier 1 (core) capital (to
risk-weighted assets) ....... $ 8,133 11.15% $ 2,917 4.0% $ 4,376 6.0%
Tier 1 (core) capital (to
adjusted total assets) ...... $ 8,133 7.83% $ 4,156 4.0% $ 5,195 5.0%
December 31, 1998:
- ------------------
Total capital (to risk-
weighted assets) ............ $ 8,125 12.51% $ 5,198 8.0% $ 6,497 10.0%
Tier 1 (core) capital (to
risk-weighted assets) ....... $ 7,589 11.68% $ 2,599 4.0% $ 3,898 6.0%
Tier 1 (core) capital (to
adjusted total assets) ...... $ 7,589 7.87% $ 3,857 4.0% $ 4,823 5.0%
(Continued)
F-20
LAWRENCE FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999 (unaudited) and December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 12 - DEFERRED COMPENSATION
The Bank makes payments to retired directors under a plan approved by the Board
of Directors. Outside directors who currently serve on the Board are also
eligible for payments under deferred fee and director emeritus retirement plans
approved by the Board of Directors upon retirement. In addition, there is a
deferred compensation plan in place for the current President and CEO. Expenses
related to the plans amounted to $18,469 and $23,731 for the years ended
December 31, 1999 and 1998, and $10,767 and $8,359 for the six month periods
ended June 30, 2000 and 1999.
NOTE 13 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table shows the estimated fair values and the related carrying
values of the Bank's financial instruments at June 30, 2000 and December 31,
1999. Items which are not financial instruments are not included.
June 30, 2000 December 31, 1999
---------------------------- ----------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ----------- ------ ----------
(Unaudited)
Financial assets
Cash and cash equivalents .......... $ 3,734,255 $ 3,734,000 $ 4,667,632 $ 4,668,000
Securities available for sale ...... 12,281,177 12,281,000 12,241,175 12,241,000
Loans, net ......................... 90,556,599 88,727,000 78,781,060 78,544,000
FHLB stock ......................... 529,100 529,000 510,800 511,000
Cash surrender value of
life insurance ................... 1,846,689 1,847,000 1,822,853 1,823,000
Accrued interest receivable ........ 767,412 767,000 684,882 685,000
Financial liabilities
Deposits ........................... (99,846,230) (99,472,000) (90,299,272) (90,506,000)
FHLB advances ...................... (4,000,000) (4,000,000) (4,500,000) (4,500,000)
Accrued interest payable ........... (27,225) (27,000) (16,468) (16,000)
For purposes of the above disclosures of estimated fair values, the following
assumptions were used as of June 30, 2000 and December 31, 1999. The estimated
fair value for cash and cash equivalents, accrued interest receivable, cash
surrender value of life insurance and accrued interest payable are considered to
approximate cost. The estimated fair value for securities available for sale is
based on quoted market values for the individual securities or for equivalent
securities. The estimated fair value for loans is based on estimates of the
difference in interest rates the Bank would charge the borrowers for similar
such loans with similar maturities made at June 30, 2000 and December 31, 1999,
applied for an estimated time period until the loan is assumed to reprice or be
paid.
(Continued)
F-21
LAWRENCE FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999 (unaudited) and December 31, 1999 and 1998
- --------------------------------------------------------------------------------
NOTE 13 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
The estimated fair value for demand deposits, savings deposits, and the variable
rate line of credit from FHLB is based on their carrying value. The estimated
fair value for time deposits and fixed rate advances from FHLB is based on
estimates of the rate the Bank would pay on such deposits or borrowings at June
30, 2000 and December 31, 1999, applied for the time period until maturity. The
estimated fair value for other financial instruments and off-balance-sheet loan
commitments approximate cost at June 30, 2000 and December 31, 1999 and are not
considered significant to this presentation.
While these estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that were the Bank to have
disposed of such items at June 30, 2000 and December 31, 1999, the estimated
fair values would necessarily have been realized at that date, since market
values may differ depending on various circumstances. The estimated fair values
at June 30, 2000 and December 31, 1999 should not necessarily be considered to
apply at subsequent dates.
In addition, other assets and liabilities of the Bank that are not defined as
financial instruments are not included in the above disclosures, such as
premises and equipment. Also, non-financial instruments typically not recognized
in the financial statements nevertheless may have value but are not included in
the above disclosures. These include, among other items, the estimated earnings
power of core deposit accounts, the trained work force, customer goodwill and
similar items.
NOTE 14 - ADOPTION OF PLAN OF CONVERSION (unaudited)
On July 31, 2000, the Board of Directors of the Bank adopted a Plan of
Conversion to convert from a federal mutual savings bank to a federal stock
savings bank with the concurrent formation of a holding company. The conversion
will be accomplished through the adoption of a federal stock charter and the
sale of the proposed holding company's common stock in an amount equal to the
consolidated pro forma market value of the holding company and the Bank after
giving effect to the consolidation. The shares of common stock will be offered
initially to the Bank's eligible deposit account holders, then to other members
of the Bank. Any shares of the holding company's common stock not sold in the
subscription offering will be offered for sale to the general public, giving
preference to residents of the Bank's market area.
(Continued)
F-22
NOTE 14 - ADOPTION OF PLAN OF CONVERSION (unaudited) (Continued)
At the time of conversion, the Bank will establish a liquidation account in an
amount equal to its total net worth as of the latest statement of financial
condition appearing in the final prospectus. The liquidation account will be
maintained for the benefit of eligible depositors who continue to maintain their
accounts at the Bank after the conversion. The liquidation account will be
reduced annually to the extent the eligible depositors have reduced their
qualifying deposits. Subsequent increases in an eligible depositor's deposit
account will not restore such person's interest in the liquidation account. In
the event of a complete liquidation, each eligible depositor will be entitled to
receive a distribution from the liquidation account in an amount proportionate
to the current adjusted qualified balances for accounts then held. The
liquidation account balance is not available for payment of dividends.
Subsequent to the conversion, the Bank may not declare or pay cash dividends on
or repurchase any of its common stock if the effect here of would cause equity
to be reduced below applicable regulatory capital requirements.
Conversion costs will be deferred and deducted from the proceeds of the shares
sold in the conversion. If the conversion is not completed, all costs will be
charged to expense. At June 30, 2000, $3,000 has been deferred.
F-23
================================================================================
You should rely only on the information contained in this prospectus. Neither
Lawrence Financial nor Lawrence Federal Savings Bank has authorized anyone to
provide you with different information. This prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any of the securities offered
by this prospectus to any person or in any jurisdiction in which an offer or
solicitation is not authorized or in which the person making an offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make an offer or solicitation in those jurisdictions. The information
contained in this prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or of any sale of the
Lawrence Financial Holdings, Inc. common stock.
______________________________
TABLE OF CONTENTS
Page
----
Questions and Answers about the Stock Offering............
Summary...................................................
Recent Developments.......................................
Risk Factors..............................................
Selected Financial and Other Data. .......................
Use of Proceeds...........................................
Lawrence Financial's Dividend Policy......................
Market for the Common Stock..............................
Capitalization............................................
Regulatory Capital Compliance.............................
Pro Forma Data............................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations...................
Business of Lawrence Financial Holdings, Inc..............
Business of Lawrence Federal Savings Bank.................
Management of Lawrence Financial Holdings, Inc............
Management of Lawrence Federal Savings Bank...............
Regulation and Supervision ...............................
Federal and State Taxation................................
Shares to be Purchased by Management with
Subscription Rights..................................
The Conversion............................................
Restrictions on Acquisition of Lawrence Financial
and Lawrence Federal..................................
Description of Lawrence Financial's Capital Stock.........
Description of Lawrence Federal Savings Bank's
Capital Stock ........................................
Transfer Agent and Registrar..............................
Registration Requirements.................................
Legal and Tax Opinions....................................
Experts...................................................
Where You Can Find More Information.......................
Index of Financial Statements.............................
------------------------------
DEALER PROSPECTUS DELIVERY OBLIGATION
Until ___________, 2000, all dealers that buy, sell or trade these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
================================================================================
747,500 Shares
Lawrence Financial Holdings, Inc.
(Proposed Holding Company for
Lawrence Federal Savings Bank)
COMMON STOCK
______________
PROSPECTUS
______________
_________________
Keefe, Bruyette & Woods, Inc.
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
In accordance with the General Corporation Law of the State of Maryland
(being Subtitle 4 of Title 2 of the Maryland Code), Section L of Article EIGHTH
and Article TENTH of the Registrant's Articles of Incorporation provide as
follows:
Section L. To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, no director or officer of
this Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages. No amendment of the Articles of
Incorporation of the Corporation or repeal of any of its provisions
shall limit or eliminate the benefits provided to directors and
officers under this provision with respect to any act or omission
which occurred prior to such amendment or repeal.
ARTICLE TENTH:
The Corporation shall indemnify (A) its directors and officers,
whether serving the Corporation or at its request any other entity, to
the fullest extent required or permitted by the general laws of the
State of Maryland now or hereafter in force, including the advance of
expenses under the procedures required, and (B) other employees and
agents to such extent as shall be authorized by the Board of Directors
or the Corporation's Bylaws and be permitted by law. The foregoing
rights of indemnification shall not be exclusive of any rights to
which those seeking indemnification may be entitled. The Board of
Directors may take such action as is necessary to carry out these
indemnification provisions and is expressly empowered to adopt,
approve and amend from time to time such Bylaws, resolutions or
contracts implementing such provisions or such further indemnification
arrangements as may be permitted by law. No amendment of the Articles
of Incorporation of the Corporation shall limit or eliminate the right
to indemnification provided hereunder with respect to acts or
omissions occurring prior to such amendment or repeal.
Lawrence Federal Savings Bank maintains standard insurance coverage for its
directors and officers. Such insurance coverage limits the payment of claims
arising from covered actions to $2,000,000 per occurrence.
II-1
Item 25. Other Expenses of Issuance and Distribution.
SEC filing ...................................................... $ 2,269
OTS filing fee .................................................. 8,400
Edgar, printing, postage and mailing ............................ 100,000
Legal fees and expenses ......................................... 150,000
Accounting fees and expenses .................................... 70,000
Appraisers' fees and expenses (including business plan) ......... 28,000
Securities marketing firm fees and expenses ..................... 125,000
Underwriter's counsel fees ...................................... 30,000
Conversion Agent fees and expenses .............................. 12,500
Blue Sky fees and expenses ...................................... 30,000
Certificate printing ............................................ 3,000
Miscellaneous ................................................... 10,831
--------
TOTAL ........................................................... $570,000
========
Item 26. Recent Sales of Unregistered Securities.
None.
II-2
Item 27. Exhibits.
The exhibits filed as a part of this Registration Statement are as follows:
(a) List of Exhibits (filed herewith unless otherwise noted)
1.1 Engagement Letter between Lawrence Federal Savings Bank and Keefe,
Bruyette & Woods, Inc.*
1.2 Draft Form of Agency Agreement
2.0 Plan of Conversion (including the Federal Stock Charter and Bylaws of
Lawrence Federal Savings Bank)*
3.1 Articles of Incorporation of Lawrence Financial Holdings, Inc.*
3.2 Bylaws of Lawrence Financial Holdings, Inc.*
4.0 Specimen Stock Certificate of Lawrence Financial Holdings, Inc.*
5.0 Opinion of Muldoon, Murphy & Faucette LLP re: Legality
8.1 Opinion of Muldoon, Murphy & Faucette LLP re: Federal Tax Matters
8.2 Opinion of Crowe, Chizek and Company LLP re: State Tax Matters
8.3 Opinion of Keller & Company, Inc. re: Subscription Rights*
10.1 Draft ESOP Loan Commitment Letter and ESOP Loan Documents*
10.2 Form of Lawrence Federal Savings Bank Employment Agreement
10.3 Form of Lawrence Financial Holdings, Inc. Employment Agreement*
10.4 Lawrence Federal Savings Bank 401 (k) Savings Plan*
10.5 Form of Lawrence Federal Savings Bank Employee Severance Compensation
Plan
10.6 Form of Lawrence Federal Savings Bank Supplemental Executive Retirement
Plan*
10.7 Deferred Compensation Agreement dated as of June 25, 1996 between Lawrence
Federal Savings Bank and Jack L. Blair
10.8 Form of Deferred Fee Agreement between Lawrence Federal Savings Bank and
individual directors
10.9 Form of Director Emeritus Agreement between Lawrence Federal Savings Bank
and individual directors
10.10 Agreement dated December 1, 1992 between Lawrence Federal Savings Bank and
Lanco Services, Inc.*
23.1 Consent of Muldoon, Murphy & Faucette LLP*
23.2 Consent of Crowe, Chizek and Company LLP
23.3 Consent of Keller & Company, Inc.*
24.0 Powers of Attorney*
27.0 Financial Data Schedule*
99.1 Appraisal Report of Keller & Company, Inc. (P)*
99.2 Draft Marketing Materials*
- ----------
(P) Exhibits to the Appraisal Report were filed pursuant to Rule 202 of
Regulation S-T.
* Previously filed.
II-3
Item 28. Undertakings.
The small business issuer will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
The small business issuer will provide to the underwriter at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-4
CONFORMED
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Ironton,
State of Ohio, on October 26, 2000.
LAWRENCE FINANCIAL HOLDINGS, INC.
By: /s/ Jack L. Blair
----------------------------------
Jack L. Blair
President, Chief Executive Officer
and Director
(duly authorized representative)
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
Name Title Date
---- ----- ----
/s/ Jack L. Blair President, Chief Executive October 26, 2000
- ------------------------- Officer and Director
Jack L. Blair (principal executive officer)
/s/ Mary C. Kratzenberg Treasurer October 26, 2000
- ------------------------- (principal financial officer)
Mary C. Kratzenberg
/s/ Carey B. Dunfee Controller October 26, 2000
- ------------------------- (principal accounting officer)
Carey B. Dunfee
*/s/ Tracy E. Brammer, Jr. Director
- -------------------------
Tracy E. Brammer, Jr.
*/s/ Herbert J. Karlet Director
- -------------------------
Herbert J. Karlet
*/s/ Phillip O. McMahon Director
- -------------------------
Phillip O. McMahon
*/s/ Robert N. Taylor Director
- -------------------------
Robert N. Taylor
*/s/ Charles E. Austin, II Director
- -------------------------
Charles E. Austin, II
* Pursuant to the Power of Attorney filed on September 8, 2000 as Exhibit
24.1 to the Registration Statement on Form SB-2 for Lawrence Financial
Holdings, Inc.
/s/ Jack L. Blair President, Chief Executive October 26, 2000
- ------------------------- Officer and Director
Jack L. Blair
TABLE OF CONTENTS
List of Exhibits (filed herewith unless otherwise noted)
1.1 Engagement Letter between Lawrence Federal Savings Bank and Keefe,
Bruyette & Woods, Inc.*
1.2 Draft Form of Agency Agreement
2.0 Plan of Conversion (including the Federal Stock Charter and Bylaws of
Lawrence Federal Savings Bank)*
3.1 Articles of Incorporation of Lawrence Financial Holdings, Inc.*
3.2 Bylaws of Lawrence Financial Holdings, Inc.*
4.0 Specimen Stock Certificate of Lawrence Financial Holdings, Inc.*
5.0 Opinion of Muldoon, Murphy & Faucette LLP re: Legality
8.1 Opinion of Muldoon, Murphy & Faucette LLP re: Federal Tax Matters
8.2 Opinion of Crowe, Chizek and Company LLP re: State Tax Matters
8.3 Opinion of Keller & Company, Inc. re: Subscription Rights*
10.1 Draft ESOP Loan Commitment Letter and ESOP Loan Documents*
10.2 Form of Lawrence Federal Savings Bank Employment Agreement
10.3 Form of Lawrence Financial Holdings, Inc. Employment Agreement*
10.4 Lawrence Federal Savings Bank 401 (k) Savings Plan*
10.5 Form of Lawrence Federal Savings Bank Employee Severance Compensation
Plan
10.6 Form of Lawrence Federal Savings Bank Supplemental Executive Retirement
Plan*
10.7 Deferred Compensation Agreement dated as of June 25, 1996 between
Lawrence Federal Savings Bank and Jack L. Blair
10.8 Form of Deferred Fee Agreement between Lawrence Federal Savings Bank and
individual directors
10.9 Form of Director Emeritus Agreement between Lawrence Federal Savings Bank
and individual directors
10.10 Agreement dated December 1, 1992 between Lawrence Federal Savings Bank
and Lanco Services, Inc.*
23.1 Consent of Muldoon, Murphy & Faucette LLP*
23.2 Consent of Crowe, Chizek and Company LLP
23.3 Consent of Keller & Company, Inc.*
24.0 Powers of Attorney*
27.0 Financial Data Schedule*
99.1 Appraisal Report of Keller & Company, Inc. (P)*
99.2 Draft Marketing Materials*
- ---------------
(P) Exhibits to the Appraisal Report were filed pursuant to Rule 202 of
Regulation S-T
* Previously filed.