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EX-23.3 - EXHIBIT 23.3 - Community Savings Bancorp, Inc.t1602666_ex23-3.htm
EX-23.2 - EXHIBIT 23.2 - Community Savings Bancorp, Inc.t1602666_ex23-2.htm

 

As filed with the Securities and Exchange Commission on November 10 , 2016

 

Registration No. 333-213561

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

PRE-EFFECTIVE AMENDMENT NO. 2 TO THE

FORM S-1

REGISTRATION STATEMENT UNDER

THE SECURITIES ACT OF 1933

 

Community Savings Bancorp, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

Maryland 6035 81-3840964
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)

 

425 Main Street

Caldwell, Ohio 43724

(740) 732-5678

(Address, Including Zip Code, and Telephone Number, Including Area Code, of

Registrant’s Principal Executive Offices)

 

Mr. Alvin B. Parmiter

President and Chief Executive Officer

425 Main Street, Caldwell, Ohio

Caldwell, Ohio 43724

(740) 732-5678

(Address, Including Zip Code, and Telephone Number, Including Area Code, of

Agent for Service)

 

Copies to:

 

Kip Weissman, Esq.

Steven Lanter, Esq.

Luse Gorman, PC

5335 Wisconsin Avenue, N.W., Suite 780

Washington, D.C. 20015

(202) 274-2000

Edward G. Olifer, Esq.

Steve Donahoe, Esq.

Kilpatrick Townsend & Stockton LLP

607 14th Street, NW, Suite 900

Washington, DC 20005-2018

(202) 508-5800

  

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: x

 

If this Form is filed to register additional shares for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

  Large accelerated filer ¨ Accelerated filer   ¨
  Non-accelerated filer   ¨ Smaller reporting company   x
(Do not check if a smaller reporting company)      

 

CALCULATION OF REGISTRATION FEE

 

Title of each class of
securities to be registered
  Amount to be
registered
  Proposed maximum
offering price per share
   Proposed maximum
aggregate offering price
   Amount of
registration fee
 
Common Stock, $0.01 par value per share  608,350 shares  $10.00    $6,083,500(1)   $613(2)
Participation Interests  55,368 (3)             (3)

 

(1)Estimated solely for the purpose of calculating the registration fee.
(2)Previously filed.
(3)The securities of Community Savings Bancorp, Inc. to be purchased by the Community Savings 401(k) Plan are included in the amount shown for the common stock. Accordingly, no separate fee 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 Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 
   

 

 

Prospectus Supplement

 

Interests in

 

COMMUNITY SAVINGS 401(k) PLAN

 

Offering of Participation Interests in up to 55,368 Shares of

 

Community Savings Bancorp, Inc.

Common Stock

 

In connection with the conversion of Community Savings, a federally-chartered savings association located in Caldwell, Ohio, from the mutual to the stock form of organization, Community Savings Bancorp, Inc., a newly-formed Maryland corporation, is allowing participants in the Community Savings 401(k) Plan (the “401(k) Plan”) a one-time opportunity to invest all or a portion of their accounts in stock units representing an indirect ownership interest in the common stock of Community Savings Bancorp, Inc. Based upon the value of the assets in the 401(k) Plan at September 30, 2016, the trustee of the 401(k) Plan could purchase up to 55,368 shares of Community Savings Bancorp, Inc. common stock, at the purchase price of $10.00 per share. This prospectus supplement relates to the one-time election of 401(k) Plan participants to direct the trustee of the 401(k) Plan to invest all or a portion of their 401(k) Plan accounts in stock units representing an indirect ownership interest in the Community Savings Bancorp, Inc. Stock Fund at the time of the stock offering.

 

The prospectus of Community Savings Bancorp, Inc., dated [date], accompanies this prospectus supplement. It contains detailed information regarding the conversion and stock offering of Community Savings Bancorp, Inc. common stock and the financial condition, results of operations and business of Community Savings. This prospectus supplement provides information regarding the 401(k) Plan. You should read this prospectus supplement together with the prospectus and keep both for future reference.

 

 

 

For a discussion of risks that you should consider, see “Risk Factors” beginning on page 15 of the accompanying prospectus and “Notice of Your Rights Concerning Employer Securities” below.

 

The interests in the 401(k) Plan and the offering of Community Savings Bancorp, Inc. common stock have not been approved or disapproved by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Securities and Exchange Commission or any other federal or state agency. Any representation to the contrary is a criminal offense.

 

The securities offered in this prospectus supplement and in the prospectus 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 Community Savings Bancorp, Inc. of interests or shares of common stock pursuant to the 401(k) Plan. No one may use this prospectus supplement to re-offer or resell interests or shares of common stock acquired through the 401(k) Plan.

 

You should rely only on the information contained in this prospectus supplement and the accompanying prospectus. Community Savings Bancorp, Inc., Community Savings and the 401(k) 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 or stock units representing an ownership interest in Community Savings Bancorp, Inc. common stock shall under any circumstances imply that there has been no change in the affairs of Community Savings Bancorp, Inc. or any of its subsidiaries or the 401(k) 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 [date].

 

 

 

 

TABLE OF CONTENTS

 

THE OFFERING 1
   
Securities Offered 1
Community Savings Bancorp, Inc. Stock Fund 1
Purchase Priorities 2
Purchases in the Offering and Oversubscriptions 3
Composition and Purpose of Stock Units 4
Value of the 401(k) Plan Assets 4
In Order to Participate in the Offering 4
How to Order Stock in the Offering 5
Order Deadline 7
Irrevocability of Transfer Direction 7
Other Purchases in Your Account During the Offering Period 7
Direction to Purchase Community Savings Bancorp, Inc. Stock Fund Units after the Offering 8
Purchase Price of Common Stock in the Offering 8
Nature of a Participant’s Interest in the Common Stock 8
Voting Rights of Common Stock 8
   
DESCRIPTION OF THE 401(K) PLAN 9
   
Introduction 9
Eligibility and Participation 9
Contributions under the 401(k) Plan 10
Limitations on Contributions 11
Benefits under the 401(k) Plan 11
Investment of Contributions and Account Balances 12
Performance History 13
Description of the Investment Funds 13
Community Savings Bancorp, Inc. Stock Fund 16
Withdrawals from the 401(k) Plan 16
Administration of the 401(k) Plan 17
Amendment and Termination 17
Merger, Consolidation or Transfer 18
Federal Income Tax Consequences 18
Notice of Your Rights Concerning Employer Securities 19
Additional ERISA Considerations 20
Securities and Exchange Commission Reporting and Short-Swing Profit Liability 20
Financial Information Regarding 401(k) Plan Assets 21
   
LEGAL OPINION 21

 

 

 

THE OFFERING

 

Securities Offered  

Community Savings Bancorp, Inc. is offering stock units in the Community Savings Employees Savings Plan (the “401(k) Plan”). The stock units represent indirect ownership of Community Savings Bancorp, Inc. common stock through the Community Savings Bancorp, Inc. Stock Fund being established under the 401(k) Plan in connection with the stock offering. Given the purchase price of $10 per share in the stock offering, the 401(k) Plan may acquire up to 55,368 shares of Community Savings Bancorp, Inc. common stock in the stock offering, based on the 401(k) Plan’s asset value as of September 30, 2016. Only employees of Community Savings may become participants in the 401(k) Plan and only participants may purchase stock units in the Community Savings Bancorp, Inc. Stock Fund. Your investment in stock units in connection with the stock offering through the Community Savings Bancorp, Inc. Stock Fund is subject to the purchase priorities contained in the Plan of Conversion of Community Savings.

 

Information with regard to the Plan is contained in this prospectus supplement and information with regard to the financial condition, results of operations and business of Community Savings Bancorp, Inc. is contained in the accompanying prospectus. The address of the principal executive office of Community Savings Bancorp, Inc. and Community Savings is 425 Main Street, Caldwell, Ohio 43724. Our telephone number at this address is (740) 732-5678.

 

All elections to purchase stock units in the Community Savings Bancorp, Inc. Stock Fund in the stock offering under the 401(k) Plan and any questions about this prospectus supplement should be addressed to Sherman Crum, Controller, Community Savings, 425 Main Street, Caldwell, Ohio 43724; phone: (740) 732-5678; email: Sherman@mycommunitysavings.com.

 

Community Savings Bancorp, Inc. Stock Fund   In connection with the conversion and stock offering, you may make a one-time election to designate a percentage of your 401(k) Plan account balance (up to 100 percent) to the Community Savings Bancorp, Inc. Stock Fund, to be used to purchase common stock of Community Savings Bancorp, Inc. issued in the stock offering at $10 per share.  In making this determination, you should carefully consider the information set forth on page 19 of this prospectus supplement under “Notice of Your Rights Concerning Employer Securities — The Importance of Diversifying Your Retirement Savings.”  The trustee of the Community Savings Bancorp, Inc. Stock Fund will purchase common stock of Community Savings Bancorp, Inc. at $10.00 per share to be held as stock units in

 

 

 

   

accordance with your directions.

 

Your beneficial interest in the Community Savings Bancorp, Inc. Stock Fund will be valued using the unit accounting method and he common stock acquired by the trustee will be represented in stock units. Initially one stock unit will equal one share of Community Savings Bancorp, Inc. common stock and a stock unit will be valued at $10.00. Following the stock offering, the stock unit value will be determined by dividing the total market value of the Community Savings Bancorp, Inc. Stock Fund at the end of each day by the total number of units held by all 401(k) Plan participants as of the close of the previous day. The change in stock unit value will reflect the day’s change in stock price, any cash dividends accrued and the interest earned on the cash component of the Community Savings Bancorp, Inc. Stock Fund, less any investment management fees.

 

In order to provide some liquidity in the Community Savings Bancorp, Inc. Stock Fund, the trustee will instruct the custodian to monitor a reserve of 3% to 5% of the amount transferred to the Community Savings Bancorp, Inc. Stock Fund in an interest bearing account for cash reserve. Liquidity is required in order to facilitate periodic transactions, such as investment transfers or distributions from the Community Savings Bancorp, Inc. Stock Fund.

 

Purchase Priorities

 

 

401(k) Plan participants are eligible to direct a transfer of funds to the Community Savings Bancorp, Inc. Stock Fund. However, such directions are subject to the purchase priorities and purchase limitations in the plan of conversion of Community Savings, which provides for a subscription and community offering, as described below.

 

In the offering, the purchase priorities are as follows and apply in the case more shares are ordered than are available for sale (an “oversubscription”):

 

Subscription offering:

 

(1)   First, to depositors of Community Savings with $50 or more as of January 1, 2015.

(2)   Second, to Community Savings’ and Community Savings Bancorp, Inc.’s tax-qualified plans, including the employee stock ownership plan and the 401(k) Plan.

(3)    Third, to depositors of Community Savings with $50 or more on deposit as of September 30, 2016.

(4)    Fourth, to depositors of Community Savings as of the close of business on October 31, 2016 and borrowers of Community Savings as of May 26, 2004 who maintain such 

 

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borrowings at the close of business on May 26, 2004.

 

If there are shares remaining after all of the orders in the subscription offering have been filled, shares will be offered in a community offering with a preference to natural persons residing in Nobel, Washington and Monroe Counties, Ohio.

 

If you fall into subscription offering categories (1), (3), or (4) above, you have subscription rights to purchase Community Savings Bancorp, Inc. common stock in the subscription offering. You will separately receive offering materials in the mail, including a Stock Order Form. If you wish to purchase stock outside of the 401(k) Plan, you must complete and submit an original Stock Order Form with payment, using the reply envelope provided with those materials.

 

Additionally, or instead of placing an order outside of the 401(k) Plan through a Stock Order Form, as a 401(k) Plan participant, you may place an order for stock units through the 401(k) Plan, using the enclosed Special Investment Election Form, to be completed and submitted in the manner described below.

     
Purchases in the Offering and Oversubscriptions  

The trustee of the 401(k) Plan will purchase common stock of Community Savings Bancorp, Inc. in the stock offering based on the designated percentage set forth in your Special Investment Election Form. Once you make your election, the amount that you elect to transfer from your existing investment options for the purchase of stock units in connection with the stock offering will be removed from your existing investment options and transferred to an interest-bearing cash account in the Community Savings Bancorp, Inc. Stock Fund, pending the formal closing of the offering, several weeks later.

 

After the end of the stock offering period, we will determine whether all or any portion of your order may be filled (based on your purchase priority as described above and whether the stock offering is oversubscribed). The amount that can be used toward your order will be applied to the purchase of common stock of Community Savings Bancorp, Inc. and will be denominated in stock units in the 401(k) Plan.

 

In the event the stock offering is oversubscribed, i.e. there are more orders for shares of common stock than shares available for sale in the stock offering, and the trustee is unable to use the full amount allocated by you to purchase shares of common stock in the stock offering, the amount that cannot be invested in shares of common stock, and any interest earned, will be reinvested in the other

 

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investment funds of the 401(k) Plan in accordance with your then existing investment election (in proportion to your investment direction for future contributions). If you do not have an existing election as to the investment of future contributions, then these amounts will be transferred to and invested in the applicable State Street Global Advisors Target Retirement Fund Series in the 401(k) Plan, pending your reinvestment in another fund of your choice.

 

If you choose not to direct the investment of your account balances towards the purchase of any shares in the offering, your account balances will remain in the investment funds of the 401(k) Plan as previously directed by you.

 

Composition and Purpose of Stock Units  

Each participant’s beneficial interest in his or her common stock of Community Savings Bancorp, Inc. will be valued using the unit accounting method and the common stock acquired by the trustee will be denominated in stock units and held in trust for the participants in the Plan. Accordingly, initially one stock unit will equal one share of common stock of Community Savings Bancorp, Inc. and a stock unit will be initially valued at $10.

 

After the closing of the stock offering, as 401(k) Plan participants begin to trade their stock units, the Community Savings Bancorp, Inc. Stock Fund will maintain a cash component for liquidity purposes. Liquidity is required in order to facilitate periodic transactions, such as investment transfers or distributions from the Community Savings Bancorp, Inc. Stock Fund. Following the stock offering, each day, the stock unit value of the Community Savings Bancorp, Inc. Stock Fund will be determined by dividing the total market value of the Community Savings Bancorp, Inc. Stock Fund at the end of the day by the total number of units held in the Community Savings Bancorp, Inc. Stock Fund by all participants as of the previous day’s end. The change in stock unit value reflects the day’s change in stock price, any cash held in the fund, including dividends accrued and the interest earned on the cash component of the Community Savings Bancorp, Inc. Stock Fund, less any investment management fees. The market value and unit holdings of your account in the Community Savings Bancorp, Inc. Stock Fund will be reported to you on your regular 401(k) Plan participant statements. You can also go on-line at any time to www.pentegra.com to view your account balances.

 

Value of the 401(k) Plan Assets  

As of September 30, 2016, the market value of the assets of the 401(k) Plan attributable to active and former employees of Community Savings was approximately $553,682.

 

In Order to Participate in   Enclosed is a Special Investment Election Form on which you can

 

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the Offering  

elect to transfer all or a portion of your account balance in the 401(k) Plan to the Community Savings Bancorp, Inc. Stock Fund for the purchase of stock units at $10 each in the offering. If you wish to use all or part of your account balance in the 401(k) Plan to purchase common stock issued in the offering (which will be designated as “stock units” in the 401(k) Plan), you should indicate that decision on the Special Investment Election Form. In making this determination, you should carefully consider the information set forth on page 19 of this prospectus supplement under “Notice of Your Rights Concerning Employer Securities — The Importance of Diversifying Your Retirement Savings.”

 

If you do not wish to purchase stock units in the offering through the 401(k) Plan, you must still fill out the Special Investment Election Form and check Box D for “No Election” in Section D of the form and return the form to Sherman Crum, Controller, Community Savings, as indicated below.

 

How to Order Stock in the Offering  

Enclosed is a Special Investment Election Form on which you can elect to purchase stock units in the Community Savings Bancorp, Inc. Stock Fund in connection with the stock offering. This is done by following the procedures designated below. Please note the following stipulations concerning this election:

 

·     Using your Special Investment Election Form, you can direct all or a portion (designated as a percentage) of your current account balance to the Community Savings Bancorp, Inc. Stock Fund.

 

·     Your election is subject to a minimum purchase of 25 shares which equates to $250.

 

·     Your election, plus any order you placed outside the 401(k) Plan, is subject to a maximum purchase of 15,000 shares which equates to $150,000.

 

·     The election period closes at 4:00 p.m., Eastern Time, Thursday, December 8, 2016.

 

·     Following the offering period for the 401(k) Plan (“401(k) offering period”), the 401(k) Plan trustee will sell the applicable percentage of each of your investment funds that you have elected to sell in order to purchase shares in the Community Savings Bancorp, Inc. Stock Fund and will transfer the proceeds upon settlement to the Community Savings Bancorp, Inc. Stock Fund. The 401(k) Plan trustee will process the sales for all participants on a single day following the 401(k) offering period and before the close of

 

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the subscription offering period. After your election is accepted, it will be rounded down to the closest dollar amount divisible by $10.00.  The difference will remain in the Community Savings Bancorp, Inc. Stock Fund until the offering closes and the shares are acquired by the 401(k) Plan.

 

·     At that time, the shares purchased based on your election will be transferred to the Community Savings Bancorp, Inc. Stock Fund and any remaining funds from your account will be transferred out of the Community Savings Bancorp, Inc. Stock Fund for investment in other funds under the 401(k) Plan, based on your election currently on file for future contributions. If you do not have an election on file for future contributions, any remaining funds will be transferred to the applicable State Street Global Advisors Target Retirement Fund Series to be reinvested by you in your discretion.

 

·     During the stock offering period, you will continue to have the ability to transfer amounts not invested in the Community Savings Bancorp, Inc. Stock Fund among all the other investment funds on a daily basis. However, you will not be permitted to change the investment amounts that you designated to be transferred to the Community Savings Bancorp, Inc. Stock Fund on your Special Investment Election Form.

 

·     The amount you elect to transfer to the Community Savings Bancorp, Inc. Stock Fund needs to be segregated and held until the offering closes.  Therefore, this money is not available for distributions, loans or withdrawals until the transaction is completed, which is after the closing of the subscription offering period.

 

You are allowed only one election to transfer funds to the Community Savings Bancorp, Inc. Stock Fund. Follow these steps to elect to use all or part of your account balance in the 401(k) Plan to purchase shares in the stock offering: 

 

·     Use the enclosed Special Investment Election Form to transfer all or a portion of your account balance to the Community Savings Bancorp, Inc. Stock Fund to purchase stock in the offering. Your interests in the fund will be

 

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represented by stock units. Indicate next to each fund in which you are invested the percentage of that fund you wish to transfer to the Community Savings Bancorp, Inc. Stock Fund.

 

·     Please print your name and social security number on the Special Investment Election Form.

 

·     Please complete Section D of the Special Investment Election Form– Purchaser Information - indicating your individual purchase priority and provide the information requested on your accounts in Community Savings.

 

·     Sign and date the Special Investment Election Form and return it by hand delivery or fax to the person designated immediately below.

 

Order Deadline  

If you wish to purchase stock units representing an ownership interest in common stock of Community Savings Bancorp, Inc. with all or a portion of your 401(k) Plan account balances, your Special Investment Election Form must be received by Sherman Crum, Community Savings, 425 Main Street, Caldwell, Ohio 43724; phone: (740) 732-5678; fax: (740) 732-4462; email: Sherman@mycommunitysavings.com; no later than 4:00 p.m., Eastern Standard Time, on December 8, 2016. To allow for processing, this deadline is prior to the subscription offering period deadline (which is December 15, 2016). If you have any questions with respect to the Special Investment Election Form, please contact Sherman Crum, Community Savings, 425 Main Street, Caldwell, Ohio 43724; phone: (740) 732-5678; fax: (740) 732-4462; email: Sherman@mycommunitysavings.com.

 

Irrevocability of Transfer Direction  

You may not revoke your Special Investment Election Form once it has been delivered to Sherman Crum. You will, however, continue to have the ability to transfer amounts not directed towards the purchase of stock in the offering among all of the other investment funds on a daily basis.

 

Other Purchases in Your Account During the Offering Period   Whether or not you choose to purchase stock in the offering through the 401(k) Plan, you will at all times have complete access to those amounts in your account that you do not apply towards purchases in the offering.  For example, you will be able to purchase other funds within the 401(k) Plan with that portion of your account balance that you do not apply towards purchases in the offering during the offering period.  The purchases will be made at the prevailing market price in the same manner as you make those purchases now, i.e., through telephone transfers and internet access to your account.  You can only purchase stock units in the offering through the 401(k)

 

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Plan by returning your Special Investment Election Form to Sherman Crum. Community Savings, by the due date. You cannot purchase stock units in the offering by means of telephone transfers or the internet. That portion of your 401(k) Plan account balance that you elect to apply towards the purchase of stock units in the offering will be irrevocably committed to the purchase.

 

Direction to Purchase Community Savings Bancorp, Inc. Stock Fund Units after the Offering  

After the offering, you will again have complete access to any amount that you directed towards the purchase of shares in the offering. For example, after the offering closes, you may sell any units that you purchased in the offering. Special restrictions may apply to transfers directed from the Community Savings Bancorp, Inc. Stock Fund by the participants who are subject to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended, relating to the purchase and sale of securities by officers, directors and principal shareholders of Community Savings Bancorp, Inc..

 

Purchase Price of Common Stock in the Offering  

The trustee will pay $10 per share of common stock in the stock offering, which will be the same price paid by all other persons for a share of common stock in the stock offering. No sales commision will be charged for common stock purchased in the stock offering.

 

The trustee will pay transaction fees, if any, associated with the sale or transfer of the common stock after the offering. You may not invest additional amounts in the Community Savings Bancorp, Inc. Stock Fund following the offering.

 

Nature of a Participant’s Interest in the Common Stock  

The common stock acquired by the trustee will be denominated in stock units in trust for the participants of the 401(k) Plan. Stock units acquired by the trustee at your direction will be allocated to your account.

 

Voting Rights of Common Stock   The Plan provides that you may direct the trustee as to how to vote your shares of Community Savings Bancorp, Inc. common stock.  If the trustee does not receive your voting instructions, the trustee will be directed by Community Savings to vote your shares in the same proportion as the voting instructions received from other participants related to their shares of Community Savings Bancorp, Inc. common stock held by the Plan, provided that such vote is made in accordance with the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).  All voting instructions will be kept confidential.  

 

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DESCRIPTION OF THE 401(K) PLAN

Introduction

 

Community Savings originally adopted the 401(k) Plan effective as of March 1, 1995 and participated in the Pentegra Defined Contribution Plan for Financial Institutions, a multiple employer plan. In order to facilitate the opportunity for purchase of purchase common stock of Community Savings Bancorp, Inc. in the stock offering, a new single employer plan was established effective October 1, 2016.

 

The 401(k) Plan effective October 1, 2016 is a single-employer, tax- qualified plan with a cash or deferred compensation feature established in accordance with the requirements under Section 401(a) and Section 401(k) of the Internal Revenue Code of 1986, as amended (the “Code”).

 

Community Savings intends that the 401(k) Plan, in operation, will comply with the requirements under Section 401(a) and Section 401(k) of the Code. Community Savings will adopt any amendments to the 401(k) Plan that may be necessary to ensure the continuing qualified status of the 401(k) Plan under the Code and applicable Treasury Regulations.

 

Employee Retirement Income Security Act of 1974 (“ERISA”). The 401(k) Plan is an “individual account plan” other than a “money purchase pension plan” within the meaning of ERISA. As such, the 401(k) Plan is subject to all of the provisions of Title I (Protection of Employee Benefit Rights) and Title II (Amendments to the Code Relating to Retirement Plans) of ERISA, except to the funding requirements contained in Part 3 of Title I of ERISA, which by their terms do not apply to an individual account plan (other than a money purchase plan). The Plan is not subject to Title IV (Plan Termination Insurance) of ERISA. The funding requirements contained in Title IV of ERISA are not applicable to participants or beneficiaries under the 401(k) Plan.

 

Reference to Full Text of 401(k) Plan. The following portions of this prospectus supplement summarize certain provisions of the 401(k) Plan. They are not complete and are qualified in their entirety by the full text of the 401(k) Plan. Copies of the 401(k) Plan are available to all employees by filing a request with the 401(k) Plan Administrator is Pentegra Services, Inc., 701 Westchester Avenue, Suite 320E, White Plains, NY 10604; phone: (800) 872-3473. You are urged to read carefully the full text of the 401(k) Plan.

 

Eligibility and Participation

 

As an employee of Community Savings, you are eligible to become a participant in the 401(k) Plan on the entry date coinciding with or immediately following completion of six months of service (completion of 500 hours of service) and attainment of age 21. For entitlement to Employer matching contributions, you must complete one year of service in which you have 1,000 hours of service and attainment of age 21. The entry dates under the 401(k) Plan are the first day of each calendar month.

 

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As of September 30, 2016, there were approximately 5 participants in the 401(k) Plan.

 

Contributions under the 401(k) Plan

 

Elective Deferrals. You are permitted to defer on any whole percentage of your Compensation, from 1% up to 15%, subject to certain restrictions imposed by the Code, and to have that amount contributed to the 401(k) Plan on your behalf. You may make either traditional 401(k) deferrals (pre-tax) or Roth 401(k) deferrals (after-tax). If you make pre-tax deferrals, your deferrals are not subject to income tax until distributed from the Plan. If you make Roth 401(k) deferrals, your deferrals are subject to income tax at the time of deferral. The Roth 401(k) deferrals, however, are not taxed when you receive a distribution from the Plan. For purposes of the 401(k) Plan, “Compensation” means the taxable compensation reported on Form W-2, with certain exclusions. In addition, any pre-tax contributions that you make to a 401(k) plan and pre-tax contributions to a Section 125 cafeteria plan and qualified transportation fringe benefits are included in Compensation. In 2016, the Compensation of each participant taken into account under the 401(k) Plan is limited to $265,000. (Limits established by the Internal Revenue Service are subject to increase pursuant to an annual cost-of-living adjustment, as permitted by the Code). Canceling or changing your contribution percentage can be accomplished either over the telephone or over the internet at any time.

 

Catch-up Contributions. If you have made the maximum amount of regular before-tax contributions allowed by the 401(k) Plan or other legal limits and you have attained at least age 50 (or will reach age 50 prior to the end of the Plan Year, which is December 31), you are also eligible to make an additional catch-up contribution. In 2016, the maximum catch-up contribution is $6,000. You may authorize your employer to withhold a specified dollar amount of your compensation for this purpose.

 

Qualified Non-elective Contributions. Community Savings may make discretionary qualified non-elective contributions which shall be allocated to each eligible participant’s account in proportion to his or her compensation as a percentage of all eligible participant’s compensation. Such qualified non-elective contributions will only be made to non-highly compensated employees and will be made to satisfy certain non-discrimination tests that ensure that the elective deferrals of highly compensated employees do not exceed the elective deferrals of non-highly compensated employees by more than a certain margin. If made, qualified non-elective contributions are deemed to be elective deferrals for purposes of helping to satisfy such tests. Qualified non-elective contributions are fully vested when made.

 

Employer Matching Contributions. Effective January 1, 2017, Community Savings will make a safe harbor matching contribution to the 401(k) Plan equal to 100% of the first 3% of compensation deferred by eligible employees under the 401(k) Plan and 50% of the contributions in excess of 3% of compensation deferred, but not of any amount deferred in excess of 5% of compensation deferred under the 401(k) Plan.

 

Qualified Matching Contributions. Community Savings has the right to make discretionary qualified matching contributions. Community Savings’ discretionary matching contribution is determined each year. If made, such qualified matching contribution will be

 

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made in an amount equal to a percentage of elective deferrals of each contributing participant who is a non-highly compensated employee, which would be sufficient to satisfy certain non-discrimination tests.

 

Limitations on Contributions

 

Contribution Limits. For the Plan Year beginning January 1, 2016, the amount of your before-tax contributions may not exceed $18,000 per calendar year, or $24,000, if you are eligible to make catch-up contributions. Contributions in excess of this limit are known as excess deferrals. If you defer amounts in excess of this limitation, your gross income for federal income tax purposes will include the excess in the year of the deferral. In addition, unless the excess deferral is distributed before April 15 of the following year, it will be taxed again in the year distributed. Income on the excess deferral distributed by April 15 of the immediately succeeding year will be treated, for federal income tax purposes, as earned and received by you in the tax year in which the contribution is made.

 

The total amount of contributions that you make and any contribution your employer makes on your behalf to your account in one year is limited to the lesser of 100% of your compensation or $53,000, or if applicable, $59,000 including catch-up contributions.

 

Catch-up Contributions. For 2016, the maximum catch-up contribution is $6,000.

 

Rollovers. You may make a rollover contribution of an eligible rollover distribution from any other qualified retirement plan or an individual retirement arrangement (IRA). These funds will be maintained in a separate rollover account in which you will have a nonforfeitable vested interest.

 

Benefits under the 401(k) Plan

 

Vesting. At all times, you have a fully vested, nonforfeitable interest in your elective deferral contributions, rollover contributions and matching contributions.

 

Distribution at Termination of Employment. You (or your beneficiary, in the event of your death) will be entitled to receive a distribution of the vested amounts in your account when your employment terminates for any reason. Your benefit will be equal to the vested balance of your account. You will receive payment of your benefit in a lump sum. You may request a partial distribution of the vested portion of your account; the minimum amount will be $1,000. You may be eligible to elect a direct rollover of your distribution to an IRA or another qualified plan to avoid current taxation of your benefit. The Plan will make involuntary cash-out distributions of vested account balances of $1,000 or less. In determining the value of your vested account balance, the Plan will include rollover contributions. If the value of your vested account balance exceeds $1,000, you must consent to any distribution of such account balance. If you are not a 5% or more owner of your employer, your required benefit commencement date is the April 1st following the close of the year in which the later occurs: you attain age 70-½ or you terminate employment.

 

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Distribution after Death of Participant. In the event of your death, the value of your entire account will be payable to your beneficiary. If your spouse is your beneficiary, distribution must begin by December 31 of the calendar year immediately following the calendar year in which you died, or by December 31 of the calendar year in which you would have attained age 70-½, if later.

 

Investment of Contributions and Account Balances

 

All amounts credited to your accounts under the 401(k) Plan are held in the Plan trust (the “Trust”), which is administered by the trustee appointed by Community Savings’ Board of Directors. Prior to the effective date of the stock offering, you are currently given the opportunity to direct the investment of your account into one or more of the following investment options:

 

MetLife Stable Value Fund

SSgA U.S. Bond Index Fund

SSgA Inflation Protected Bond Index Fund

SSgA S&P 500 Index Fund

SSgA Russell Large Cap Growth Index Fund

SSgA Russell Large Cap Value Index Fund

SSgA S&P Mid Cap Index Fund

SSgA Russell Small Cap Index Fund

SSgA REIT Index Fund

SSgA International Index Fund

SSgA Conservative Strategic Balanced Fund

SSgA Moderate Strategic Balanced Fund

SSgA Aggressive Strategic Balanced Fund

SSgA Target Retirement 2015 Fund

SSgA Target Retirement 2020 Fund

SSgA Target Retirement 2025 Fund

SSgA Target Retirement 2030 Fund

SSgA Target Retirement 2035 Fund

SSgA Target Retirement 2040 Fund

SSgA Target Retirement 2045 Fund

SSgA Target Retirement 2050 Fund

SSgA Target Retirement 2055 Fund

SSgA Target Retirement 2060 Fund

SSgA Target Retirement Income Fund

 

Qualified Default Investment Alternative. For participants who are automatically enrolled in the 401(k) Plan, or otherwise fail to direct how their 401(k) Plan contributions are to be invested, contribution amounts will be invested in the 401(k) Plan’s “qualified default investment alternative” until such time as the participant provides investment direction. The 401(k) Plan’s qualified default investment alternative is the State Street Global Advisors Target Retirement Fund Series. The specific fund selected for a given participant will be the fund which coincides with or next follows the year in which the participant will attain age 65.

 

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In connection with the stock offering, the 401(k) Plan now provides that, in addition to the investment options specified above, you may direct the trustee, or its representative, to invest all or a portion of your account in the Community Savings Bancorp, Inc. Stock Fund through a one-time election.

 

Performance History

 

The following table provides performance data with respect to the above investment funds as of June 30, 2016:

 

    YTD
Returns as
of June 30,
    Total Returns as of June 30, 2016  
Fund Name   2016     1 Year     3 Year     5 Year     10 Year  
                               
MetLife Stable Value Fund     1.12 %     2.32 %     2.41 %     2.73 %     3.79 %
SSgA U.S. Bond Index Fund     5.29 %     5.99 %     4.05 %     5.29 %     5.99 %
SSgA Inflation Protected Bond Index Fund     6.18 %     4.27 %     2.23 %     2.54 %     4.65 %
SSgA S&P 500 Index Fund     3.81 %     3.97 %     11.62 %     12.08 %     7.45 %
SSgA Russell Large Cap Growth Index Fund     1.33 %     3.01 %     13.03 %     12.33 %     8.76 %
SSgA Russell Large Cap Value Index Fun     6.23 %     2.86 %     9.86 %     11.32 %     6.16 %
SSgA S&P Mid Cap Index Fund     7.92 %     1.31 %     10.48 %     10.51 %     8.54 %
SSgA Russell Small Cap Index Fund     2.24 %     -6.67 %     7.08 %     8.32 %     6.28 %
SSgA REIT Index Fund     10.71 %     22.63 %     13.40 %     12.15 %     6.71 %
SSgA International Index Fund     -2.91 %     9.27 %     2.53 %     2.03 %     1.86 %
SSgA Conservative Strategic Balanced Fund     4.61 %     4.46 %     5.41 %     5.29 %     5.73 %
SSgA Moderate Strategic Balanced Fund     3.80 %     2.76 %     7.12 %     7.22 %     6.26 %
SSgA Aggressive Strategic Balanced Fund     2.91 %     0.89 %     8.71 %     9.00 %     6.47 %
SSgA Target Retirement 2015 Fund     4.68 %     1.68 %     5.09 %     6.40 %       n.a.  
SSgA Target Retirement 2020 Fund     4.82 %     1.32 %     6.06 %     7.24 %     6.10 %
SSgA Target Retirement 2025 Fund     4.73 %     .86 %     6.61 %      7.66 %     n.a.  
SSgA Target Retirement 2030 Fund     4.44 %     0.38 %     6.90 %     7.83 %     6.14 %
SSgA Target Retirement 2035 Fund     4.15 %     -0.22 %     7.03 %     7.66 %       n.a.  
SSgA Target Retirement 2040 Fund     3.99 %     -0.81 %     7.14 %     7.60 %     6.00 %
SSgA Target Retirement 2045 Fund     3.89 %     -1.12 %     7.08 %     7.57 %       n.a.  
SSgA Target Retirement 2050 Fund     3.88 %     -1.13 %     7.07 %     7.57 %       n.a.  
SSgA Target Retirement 2055 Fund     3.89 %     -1.12 %     7.08 %     7.58 %       n.a.  
SSgA Target Retirement 2060 Fund     3.89 %     -1.11 %      n.a.       n.a.         n.a.  
SSgA Target Retirement Income Fund     4.42 %     1.92 %     3.80 %     4.35 %     4.76 %

 

Description of the Investment Funds

 

The following is a description of each of the funds:

 

MetLife Stable Value Fund. The primary investment objective of the fund is to preserve principal while generating earnings at rates competitive over time with short-term high quality fixed income investments.

 

SSgA U.S. Bond Index Fund. The fund seeks to offer broad, low cost exposure to the overall U.S. bond market. The fund seeks an investment return that approximates as closely as

 

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practicable, before expenses, the performance of the Barclays U.S. Aggregate Bond Index (the “Index”) over the long term.

 

SSgA Inflation Protected Bond Index Fund. The fund seeks to offer broad, low cost exposure to U.S. Treasury bonds which are indexed to inflation. The fund seeks to match the total rate of return of the Barclays Capital U.S. Inflation Securities Index during a calendar year.

 

SSgA S&P 500 Index Fund. The fund seeks to offer broad, low cost exposure to the stocks of large U.S. companies. The SSgA S&P 500 Index Fund seeks an investment return that approximates as closely as practicable, before expenses, the performance of the S&P 500 Index (the “Index”) over the long term.

 

SSgA Russell Large Cap Growth Index Fund. The fund seeks to offer broad, low cost exposure to the stocks of companies in the Russell 1000 Index forecasted to have higher growth potential and higher Price-to-Book ratios. The fund seeks an investment return that approximates as closely as practicable, before expenses, the performance of the Russell 1000 Growth Index (the “Index”) over the long term.

 

SSgA Russell Large Cap Value Index Fund. The fund seeks to offer broad, low cost exposure to the stocks of companies in the Russell 1000 Index forecasted to have lower growth rates and lower Price-to-Book ratios. The fund seeks an investment return that approximates as closely as practicable, before expenses, the performance of the Russell 1000 Value Index (the “Index”) over the long term.

 

SSgA Mid Cap Index Fund. The fund seeks to offer broad, low cost exposure to the stocks of mid-sized U.S. companies. The fund seeks an investment return that approximates as closely as practicable, before expenses, the performance of the S&P MidCap 400 Index (the “Index”) over the long term.

 

SSgA Small Cap Index Fund. The fund seeks to offer broad, low cost exposure to the stocks of smaller U.S. companies. The fund seeks an investment return that approximates as closely as practicable, before expenses, the performance of the Russell 2000 Index (the “Index”) over the long term.

 

SSgA REIT Index Fund. The fund seeks to offer broad, low cost exposure to the U.S. publicly traded real estate investment trust (REIT) market. The fund seeks an investment return that approximates as closely as practicable, before expenses, the performance of the Dow Jones U.S. Select REIT Index (the “Index”) over the long term.

 

SSgA International Index Fund. The fund seeks to offer broad, low cost exposure to international stocks of companies in the developed markets of Europe, Australia and the Far East. The fund seeks an investment return that approximates as closely as practicable, before expenses, the performance of the MSCI EAFE Index (the “Index”) over the long term.

 

SSgA Conservative Strategic Balanced Fund. The fund seeks to offer broad diversification and a disciplined rebalancing process by investing approximately 75% of the fund’s assets in U.S. bonds, 20% in U.S. stocks, and 5% in international stocks. The fund seeks

 

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to approximate as closely as practicable, before expenses, the return of the Conservative Strategic Balanced Custom Index (the “Index”) over the long term.

 

SSgA Moderate Strategic Balanced Fund. The fund seeks to offer broad diversification and a disciplined rebalancing process by investing approximately 45% of the fund’s assets in U.S. stocks, 45% in U.S. bonds, and 10% in international stocks. The fund

 

SSgA Aggressive Strategic Balanced Fund. The fund seeks to offer broad diversification and a disciplined rebalancing process by investing approximately 70% of the fund’s assets in U.S. stocks, 15% in U.S. bonds, and 15% in international stocks. The fund seeks to approximate as closely as practicable, before expenses, the return of the Aggressive Strategic Balanced Custom Index (the “Index”) over the long term.

 

SSgA Target Retirement Funds (including SSgA Target Retirement Income Fund, SSgA Target Retirement 2015 Fund, SSgA Target Retirement 2020 Fund, SSgA Target Retirement 2025 Fund, SSgA Target Retirement Fund 2030, SSgA Target Retirement Fund 2035 Fund, SSgA Target Retirement Fund 2040, SSgA Target Retirement Fund 2045, Fund SSgA Target Retirement Fund 2050, SSgA Target Retirement Fund 2055 Fund, and SSgA Target Retirement 2060 Fund). These funds offer complete, low cost investment strategies with asset allocations which become more conservative near the retirement date. Each fund (other than the SSgA Target Retirement Income Fund) is managed to a specific retirement year (target date) included in its name.The funds seek to match, as closely as possible, the performance of the corresponding SSgA Custom Benchmark Index (the “Index”), over the long term. Over time, the allocation to asset classes and funds change according to a predetermined “glide path.” (The glide path represents the shifting of asset classes over time and does not apply to the Income Fund). Each fund’s asset allocation will become more conservative as it approaches its target retirement date. This reflects the need for reduced investment risks as retirement approaches and the need for lower volatility of a portfolio, which may be a primary source of income after retirement. The allocations reflected in the glide path do not reflect tactical decisions made by SSgA to overweight or underweight a particular asset class based on its market outlook but rather management of each fund’s strategic allocation according to its glide path and applicable benchmark. Each fund attempts to closely match the characteristics and returns or its custom benchmark as opposed to any attempts to outperform this benchmark.

 

Once a fund reaches its target retirement date, it will begin a five-year transition period to the SSgA Target Retirement Income Fund, resulting at the end of that five-year period in an allocation to stocks, REITs and commodities that will remain fixed at approximately 35% of assets. The remainder of the fund will be invested in fixed-income securities.

 

An investment in any of the funds listed above is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. As with any mutual fund investment, there is always a risk that you may lose money on your investment in any of the funds listed above.

 

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Community Savings Bancorp, Inc. Stock Fund

 

In connection with the stock offering, the 401(k) Plan now offers the Community Savings Bancorp, Inc. Stock Fund as an additional choice to the investment options described above. Community Savings Bancorp, Inc. Stock Fund invests primarily in the shares of common stock of Community Savings Bancorp, Inc. In connection with the stock offering, you may, in the manner described earlier, direct the trustee to invest up to 100% of your 401(k) Plan account in Community Savings Bancorp, Inc. Stock Fund as a one-time special election.

 

Community Savings Bancorp, Inc. Stock Fund consists primarily of investments in the shares of common stock of Community Savings Bancorp, Inc..

 

As of the date of this prospectus supplement, there is no established market for Community Savings Bancorp, Inc. common stock. Accordingly, there is no record of the historical performance of Community Savings Bancorp, Inc. Stock Fund. Performance of Community Savings Bancorp, Inc. Stock Fund depends on a number of factors, including the financial condition and profitability of Community Savings Bancorp, Inc. and Community Savings and market conditions for shares of Community Savings Bancorp, Inc. common stock generally.

 

Investments in Community Savings Bancorp, Inc. Stock Fund involve special risks common to investments in the shares of common stock of Community Savings Bancorp, Inc. In making a decision to invest all or a part of your account balance in the Community Savings Bancorp, Inc. Stock Fund, you should carefully consider the information set forth on page 19 of this prospectus supplement under “Notice of Your Rights Concerning Employer Securities – The Importance of Diversifying Your Retirement Savings.”

 

For a discussion of material risks you should consider, see “Risk Factors” beginning on page 15 of the attached prospectus and the section of this prospectus supplement called “Notice of Your Rights Concerning Employer Securities” below.

 

Withdrawals from the 401(k) Plan

 

Applicable federal law requires the 401(k) Plan to impose substantial restrictions on the right of a 401(k) Plan participant to withdraw amounts held for his or her benefit under the 401(k) Plan prior to the participant’s termination of employment with Community Savings. A substantial federal tax penalty may also be imposed on withdrawals made prior to the participant’s attainment of age 59 ½, regardless of whether such a withdrawal occurs during his or her employment with Community Savings or after termination of employment.

 

Withdrawal from your Account prior to Retirement. Once you have attained age 59 ½, you may request distribution of all or part of the amounts credited to your accounts attributable to elective deferrals, qualified nonelective contributions and qualified matching contributions.

 

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Hardship Withdrawals. If you incur a financial hardship, you may request a withdrawal from the portion of your account attributable to your pre-tax elective deferrals and employer matching contributions.

 

Rollover Contributions. You may withdraw amounts you contributed to the 401(k) Plan as a rollover contribution at any time.

 

Loan. You may request a loan from your account pursuant to the procedures established in the 401(k) Plan. You may have one loan outstanding at any one time.

 

Administration of the 401(k) Plan

 

The Trustee and Custodian. The trustee of the 401(k) Plan is Pentegra Trust Company. Pentegra Trust Company serves as trustee and Reliance Trust Company serves as custodian for all the investments funds under the 401(k) Plan, except the Community Savings Bancorp, Inc. Stock Fund. The 401(k) Committee, with appointment of Community Savings representatives, serves as Trustee for the Community Savings Bancorp, Inc. Stock Fund.

 

Plan Administrator. Pursuant to the terms of the 401(k) Plan, the 401(k) Plan is administered by the Plan administrator. The address of the Plan administrator is Pentegra Services, Inc., 701 Westchester Avenue, Suite 320E, White Plains, NY 10604; phone: (800) 872-3473. The Plan administrator is responsible for the administration of the 401(k) Plan, interpretation of the provisions of the 401(k) Plan, prescribing procedures for filing applications for benefits, preparation and distribution of information explaining the 401(k) Plan, maintenance of plan records, books of account and all other data necessary for the proper administration of the 401(k) Plan, preparation and filing of all returns and reports relating to the 401(k) 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 Sections 104 and 105 of ERISA.

 

Reports to 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 (if any). In addition, you can go on-line to www.pentegra.com at any time to review your account balances.

 

Amendment and Termination

 

It is the intention of Community Savings to continue the 401(k) Plan indefinitely. Nevertheless, Community Savings may terminate the 401(k) Plan at any time. If the 401(k) Plan is terminated in whole or in part, then regardless of other provisions in the 401(k) Plan, you will have a fully vested interest in your accounts. Community Savings reserves the right to make any amendment or amendments to the 401(k) Plan 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 Community Savings may make any amendment it determines necessary or desirable, with or without retroactive effect, to comply with ERISA.

 

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Merger, Consolidation or Transfer

 

In the event of the merger or consolidation of the 401(k) Plan with another plan, or the transfer of the trust assets to another plan, the 401(k) Plan requires that you would receive a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit you would have been entitled to receive immediately before the merger, consolidation or transfer.

 

Federal Income Tax Consequences

 

The following is a brief summary of the material federal income tax aspects of the 401(k) Plan. You should not rely on this summary as a complete or definitive description of the material federal income tax consequences relating to the 401(k) Plan. Statutory provisions change, as do their interpretations, and their application may vary in individual circumstances. Finally, the consequences under applicable state and local income tax laws may not be the same as under the federal income tax laws. Please consult your tax advisor with respect to any distribution from the 401(k) Plan and transactions involving the 401(k) Plan.

 

As a “tax-qualified retirement plan,” the Code affords the 401(k) Plan special tax treatment, including:

 

(1)        the sponsoring employer is allowed an immediate tax deduction for the amount contributed to the 401(k) Plan each year;

 

(2)        participants pay no current income tax on amounts contributed by the employer on their behalf; and

 

(3)        earnings of the 401(k) Plan are tax-deferred, thereby permitting the tax-free accumulation of income and gains on investments.

 

Community Savings will administer the 401(k) Plan to comply with the requirements of the Code as of the applicable effective date of any change in the law.

 

Lump-Sum Distribution. A distribution from the 401(k) 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 ½, and consists of the balance credited to participants under the 401(k) Plan and all other profit sharing plans (and in some cases all other stock bonus plans), if any, maintained by Community Savings. 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 this 401(k) Plan and any other profit sharing plans maintained by Community Savings, which is included in the distribution.

 

Community Savings Bancorp, Inc. Common Stock Included in Lump-Sum Distribution. If a lump-sum distribution includes Community Savings Bancorp, Inc. common stock, the distribution generally will be taxed in the manner described above, except that the total taxable

 

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amount may be reduced by the amount of any net unrealized appreciation with respect to Community Savings Bancorp, Inc. common stock, that is, the excess of the value of Community Savings Bancorp, Inc. common stock at the time of the distribution over its cost or other basis of the securities to the trust. The tax basis of Community Savings Bancorp, Inc. common stock, for purposes of computing gain or loss on its subsequent sale, equals the value of Community Savings Bancorp, Inc. 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 Community Savings Bancorp, Inc. 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 Community Savings Bancorp, Inc. common stock. Any gain on a subsequent sale or other taxable disposition of Community Savings Bancorp, Inc. common stock, in excess of the amount of net unrealized appreciation at the time of distribution, will be considered long-term capital gain. 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 regulations to be issued by the Internal Revenue Service.

 

Distributions: Rollovers and Direct Transfers to Another Qualified Plan or to an IRA. You may roll over virtually all distributions from the 401(k) Plan to another qualified plan or to an individual retirement account (IRA) in accordance with the terms of the other plan or account.

 

Notice of Your Rights Concerning Employer Securities

 

There has been an important change in Federal law that provides specific rights concerning investments in employer securities, such as Community Savings Bancorp, Inc. common stock. Because you may in the future have investments in Community Savings Bancorp, Inc. Stock Fund under the 401(k) Plan, you should take the time to read the following information carefully.

 

Your Rights Concerning Employer Securities. The 401(k) Plan must allow you to elect to move any portion of your account that is invested in the Community Savings Bancorp, Inc. Stock Fund from that investment into other investment alternatives under the 401(k) Plan. You may contact the Plan Administrator shown above for specific information regarding this new right, including how to make this election. In deciding whether to exercise this right, you will want to give careful consideration to the information below that describes the importance of diversification. All of the investment options under the 401(k) Plan are available to you if you decide to diversify out of the Community Savings Bancorp, Inc. Stock Fund.

 

The Importance of Diversifying Your Retirement Savings. To help achieve long-term retirement security, you should give careful consideration to the benefits of a well-balanced and diversified investment portfolio. Spreading your assets among different types of investments can help you achieve a favorable rate of return, while minimizing your overall risk of losing money. This is because market or other economic conditions that cause one category of assets, or one particular security, to perform very well often cause another asset category, or another particular security, to perform poorly. If you invest more than 20% of your retirement savings in any one company or industry, your savings may not be properly diversified. Although diversification is not a guarantee against loss, it is an effective strategy to help you manage investment risk.

 

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In deciding how to invest your retirement savings, you should take into account all of your assets, including any retirement savings outside of the 401(k) Plan. No single approach is right for everyone because, among other factors, individuals have different financial goals, different time horizons for meeting their goals, and different tolerance for risk. Therefore, you should carefully consider the rights described here and how these rights affect the amount of money that you invest in Community Savings Bancorp, Inc. common stock through the 401(k) Plan.

 

It is also important to periodically review your investment portfolio, your investment objectives, and the investment options under the 401(k) Plan to help ensure that your retirement savings will meet your retirement goals.

 

Additional ERISA Considerations

 

As noted above, the 401(k) Plan is subject to certain provisions of ERISA, including special provisions relating to control over the 401(k) Plan’s assets by participants and beneficiaries. The 401(k) Plan’s feature that allows you to direct the investment of your account balances is intended to satisfy the requirements of Section 404(c) of ERISA relating to control over plan assets by a participant or beneficiary. The effect of this is two-fold. First, you will not be deemed a “fiduciary” because of your exercise of investment discretion. Second, no person who otherwise is a fiduciary, such as Community Savings, the Plan Administrator, or the 401(k) Plan’s trustee is liable under the fiduciary responsibility provision of ERISA for any loss which results from your exercise of control over the assets in your 401(k) Plan account.

 

Because you will be entitled to invest all or a portion of your account balance in the 401(k) Plan in Community Savings Bancorp, Inc. common stock, the regulations under Section 404(c) of ERISA require that the 401(k) Plan establish procedures that ensure the confidentiality of your decision to purchase, hold, or sell employer securities, except to the extent that disclosure of such information is necessary to comply with federal or state laws not preempted by ERISA. These regulations also require that your exercise of voting and similar rights with respect to the common stock be conducted in a way that ensures the confidentiality of your exercise of these rights.

 

Securities and Exchange Commission Reporting and Short-Swing Profit Liability

 

Section 16 of the Securities Exchange Act of 1934, as amended, imposes reporting and liability requirements on officers, directors, and persons beneficially owning more than 10% of public companies such as Community Savings Bancorp, Inc. Section 16(a) of the Securities Exchange Act of 1934 requires the filing of reports of beneficial ownership. Within 10 days of becoming an officer, director or person beneficially owning more than 10% of the shares of Community Savings Bancorp, Inc., the individual must fill out a Form 3 reporting initial beneficial ownership and file it with the Securities and Exchange Commission. Changes in beneficial ownership, such as purchases, sales and gifts generally must be reported periodically, either on a Form 4 within two business days after the change occurs, or annually on a Form 5 within 45 days after the close of Community Savings Bancorp, Inc.’s fiscal year. Discretionary transactions in and beneficial ownership of the common stock through the Community Savings Bancorp, Inc. Stock Fund of the 401(k) Plan by officers, directors and persons beneficially

 

 20 

 

owning more than 10% of the common stock of Community Savings Bancorp, Inc. generally must be reported to the Securities and Exchange Commission by such individuals.

 

In addition to the reporting requirements described above, Section 16(b) of the Securities Exchange Act of 1934, as amended, provides for the recovery by Community Savings Bancorp, Inc. of profits realized by an officer, director or any person beneficially owning more than 10% of Community Savings Bancorp, Inc.’s common stock resulting from non-exempt purchases and sales of Community Savings Bancorp, Inc. common stock within any six-month period.

 

The Securities and Exchange Commission has adopted rules that provide exemptions from the profit recovery provisions of Section 16(b) for all transactions in employer securities within an employee benefit plan, provided certain requirements are met. These requirements generally involve restrictions upon the timing of elections to acquire or dispose of employer securities for the accounts of Section 16(b) persons.

 

Except for distributions of common stock due to death, disability, retirement, termination of employment or under a qualified domestic relations order, persons affected by Section 16(b) are required to hold shares of common stock distributed from the Plan for six months following such distribution and are prohibited from directing additional purchases within the Community Savings Bancorp, Inc. Stock Fund for six months after receiving such a distribution.

 

Financial Information Regarding 401(k) Plan Assets

 

Financial information representing the assets available for plan benefits at December 31, 2015, is available upon written request to the Plan Administrator at the address shown above.

 

LEGAL OPINION

 

The validity of the issuance of the common stock has been passed upon by Luse Gorman, PC, Washington, D.C., which firm acted as special counsel to Community Savings Bancorp, Inc. in connection with Community Savings Bancorp, Inc.’s stock offering.

 

 21 

  

PROSPECTUS

 

(Proposed Holding Company for Community Savings)

Up to 529,000 shares of Common Stock

(Subject to Increase to up to 608,350 Shares)

 

Community Savings Bancorp, Inc., a Maryland corporation and the proposed holding company for Community Savings, is offering shares of common stock for sale at $10.00 per share in connection with the conversion of Community Savings from the mutual to the stock form of organization. There is currently no established market for our common stock. We expect that our common stock will be quoted on the OTC Pink Marketplace (OTCPK) operated by OTC Markets Group upon conclusion of the stock offering. We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012.

 

We are offering up to 529,000 shares of common stock for sale at a price of $10.00 per share on a best efforts basis. We may sell up to 608,350 shares of common stock because of demand for the shares of common stock or changes in market conditions, without resoliciting subscribers. We must sell a minimum of 391,000 shares in order to complete the offering.

 

We are offering the shares of common stock in a “subscription offering” to eligible depositors and certain borrowers of Community Savings. Shares of common stock not purchased in the subscription offering may be offered for sale to the public in a “community offering,” with a preference given to natural persons and trusts of natural persons residing in Noble, Monroe and Washington Counties, Ohio. We also may offer for sale shares of common stock not purchased in the subscription offering or community offering to the general public through a “syndicated community offering” managed by Keefe, Bruyette & Woods, Inc.

 

The minimum number of shares of common stock you may order is 25 shares. The maximum number of shares of common stock that can be ordered by any person in the offering is 15,000 shares ($150,000), and no person, together with an associate or group of persons acting in concert, may purchase more than 20,000 shares ($200,000) in the offering.

 

The offering is expected to expire at 2:00 p.m., Eastern Time, on December 15, 2016. We may extend this expiration date without notice to you until January 30, 2017. The Office of the Comptroller of the Currency may approve a later date, which may not be beyond December 21, 2018. Once submitted, orders are irrevocable unless the offering is terminated or is extended beyond January 30, 2017, or the number of shares of common stock to be sold is increased to more than 608,350 shares or decreased to fewer than 391,000 shares. If the offering is extended past January 30, 2017, we will resolicit subscribers. You will have the opportunity to confirm, change or cancel your order within a specified period of time. If you do not respond during that period, your stock order will be cancelled and your deposit account withdrawal authorizations will be cancelled or your funds submitted will be returned promptly with interest at 0.20% per annum. If the number of shares to be sold is increased to more than 608,350 shares or decreased to fewer than 391,000 shares, all funds submitted for the purchase of shares of common stock in the offering will be returned promptly with interest at 0.20% per annum. All subscribers will be resolicited and given an opportunity to place a new order within a specified period of time. Funds received in the subscription and the community offerings and, if applicable, the syndicated community offering will be held in a segregated account at Community Savings and will earn interest at 0.20% per annum until completion or termination of the offering.

 

Keefe, Bruyette & Woods, Inc. will assist us in selling our shares of common stock on a best efforts basis in the offering. Keefe, Bruyette & Woods, Inc. is not required to purchase any of the shares of common stock that are being offered for sale.

 

OFFERING SUMMARY

Price: $10.00 per Share

 

   Minimum   Midpoint   Maximum   Adjusted
Maximum
 
Number of shares   391,000    460,000    529,000    608,350 
Gross offering proceeds  $3,910,000   $4,600,000   $5,290,000   $6,083,500 
Estimated offering expenses, excluding selling agent commissions  $950,000   $950,000   $950,000   $950,000 
Selling agent commissions (1) (2)  $250,000   $250,000   $250,000   $250,000 
Estimated net proceeds  $2,710,000   $3,400,000   $4,090,000   $4,883,500 
Estimated net proceeds per share  $6.93   $7.39   $7.73   $8.03 

 

 

(1)See “The Conversion and Offering – Marketing and Distribution; Compensation” for information regarding compensation to be received by Keefe, Bruyette & Woods, Inc. in this offering.
(2)Assumes that all shares are sold in the subscription and community offerings, and excludes reimbursable expenses and conversion agent fees, which are included in estimated offering expenses. If all shares of common stock were sold in a syndicated community offering, the maximum selling agent commissions would be, subject to a minimum of $250,000, 6.0% of the aggregate offering dollar amount of all shares sold in the syndicated community offering (net of shares purchased by our directors and executive officers and shares purchased by our employee stock ownership plan), or approximately $250,000, $250,000, $270,000 and $314,000 at the minimum, midpoint, maximum, and adjusted maximum levels of the offering, respectively.

  

This investment involves a degree of risk, including the possible loss of principal.

Please read “Risk Factors” beginning on page 15.

 

These securities are not deposits or accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. None of the Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System or any state securities regulator has approved or disapproved of these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

 

________________________________

 

Keefe, Bruyette & Woods

A Stifel Company

________________________________

 

For assistance, please contact the Stock Information Center, toll-free, at (877) 821-5775 .

The date of this prospectus is ___________________.

 

 

 

 

 

 

TABLE OF CONTENTS

 

  Page
   
SUMMARY 1
RISK FACTORS 15
SELECTED FINANCIAL AND OTHER DATA OF COMMUNITY SAVINGS 30
RECENT DEVELOPMENTS 32
FORWARD-LOOKING STATEMENTS 36
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING 39
OUR DIVIDEND POLICY 41
MARKET FOR THE COMMON STOCK 42
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE 43
CAPITALIZATION 44
PRO FORMA DATA 45
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 49
BUSINESS OF COMMUNITY SAVINGS BANCORP 61
BUSINESS OF COMMUNITY SAVINGS 61
REGULATION AND SUPERVISION 80
TAXATION 91
MANAGEMENT 92
SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS 102
THE CONVERSION AND OFFERING 103
RESTRICTIONS ON ACQUISITION OF COMMUNITY SAVINGS BANCORP 126
DESCRIPTION OF CAPITAL STOCK OF COMMUNITY SAVINGS BANCORP 133
TRANSFER AGENT 134
CHANGE IN ACCOUNTANTS 134
EXPERTS 135
LEGAL MATTERS 135
WHERE YOU CAN FIND ADDITIONAL INFORMATION 135
INDEX TO FINANCIAL STATEMENTS OF COMMUNITY SAVINGS F-1

  

 i

 

SUMMARY

 

The following summary explains the significant and important material aspects of Community Savings’ mutual-to-stock conversion and the related offering of Community Savings Bancorp, Inc. common stock. It may not contain all of the information that is important to you. For additional information before making an investment decision, you should read this entire document carefully, including the financial statements and the notes to the financial statements, and the section entitled “Risk Factors.”

 

In this prospectus, the terms “we,” “our,” and “us” refer to Community Savings Bancorp, Inc. and Community Savings, unless the context indicates another meaning. In addition, we sometimes refer to Community Savings Bancorp, Inc. as “Community Savings Bancorp,” and to Community Savings as the “Bank.”

 

Community Savings

 

Community Savings is a federal mutual savings association that was founded in 1885. We have operated continuously in Caldwell, Ohio since our founding. We conduct our business from our full-service office in Caldwell, Ohio, which is located in Noble County in southeastern Ohio. Our primary market area is Noble County, Ohio. To a lesser extent, we also originate loans in neighboring Guernsey, Monroe and Washington Counties, Ohio, and Wood County, West Virginia. In July 2015, in order to reduce our noninterest expense and focus our business strategy on organic growth from our office in Caldwell, Ohio, we completed a sale of our two branch offices, both of which were located in Cambridge, Ohio, approximately 25 miles north of Caldwell.

 

Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations, in one- to four-family residential real estate, consumer and home equity loans, and, to a lesser extent, commercial real estate and multifamily loans. At June 30, 2016, $23.1 million, or 70.1% of our total loan portfolio, was comprised of one- to four-family residential real estate loans, and at this date an additional $8.2 million, or 24.9% of our total loan portfolio, was comprised of consumer and home equity loans. We offer a variety of deposit accounts, including interest-bearing and noninterest-bearing demand accounts, savings and money market accounts and certificates of deposit. We utilize advances from the FHLB-Cincinnati for asset/liability management purposes. On occasion we also utilize funds from a line of credit with another bank. At June 30, 2016, we had $7.3 million in advances outstanding with the FHLB-Cincinnati.

 

For the fiscal year ended June 30, 2016 we had net income of $679,000, and for the fiscal year ended June 30, 2015, we experienced a net loss of $312,000. Our income in fiscal 2016 was due in large part to an increase in noninterest income and decrease in noninterest expense primarily related to the sale of our two branch offices which occurred in July 2015. See, “Management Discussion and Analysis of Financial Condition and Results of Operation – Comparison of Operating Results for the Fiscal Years Ended June 30, 2016 and 2015.”

 

Community Savings is subject to comprehensive regulation and examination by its primary federal regulator, the Office of the Comptroller of the Currency (“OCC”).

 

Our executive and administrative office is located at 425 Main Street, Caldwell, Ohio 43724, and our telephone number at this address is (740) 732-5678. Our website address is www.mycommunitysavings.com. Information on our website is not incorporated into this prospectus and should not be considered part of this prospectus.

 

 

  

Community Savings Bancorp, Inc.

 

The shares being offered will be issued by Community Savings Bancorp, Inc., a newly formed Maryland corporation that will own all of the outstanding shares of common stock of Community Savings upon completion of Community Savings’ mutual-to-stock conversion. Community Savings Bancorp was incorporated on August 24, 2016 and has not engaged in any business to date. Upon completion of the conversion, Community Savings Bancorp will register as a savings and loan holding company and will be subject to comprehensive regulation and examination by the Board of Governors of the Federal Reserve System, which we refer to as the Federal Reserve Board.

 

Community Savings Bancorp’s executive and administrative office is located at 425 Main Street, Caldwell, Ohio 43724, and its telephone number at this address is (740) 732-5678.

 

The Conversion and Our Organizational Structure

 

Pursuant to the terms of the plan of conversion, Community Savings will convert from a mutual (meaning no stockholders) savings bank to a stock savings bank. As part of the conversion, Community Savings Bancorp, the newly formed proposed holding company for Community Savings, will offer for sale shares of its common stock in a subscription offering, and, if necessary, a community offering and a syndicated community offering. Upon the completion of the conversion and stock offering, Community Savings Bancorp will be 100% owned by stockholders and Community Savings will be a wholly owned subsidiary of Community Savings Bancorp. A full description of the conversion begins on page 103 of this prospectus under the heading “The Conversion and Offering.”

 

Business Strategy

 

Our principal objective is to build long-term value for our stockholders by operating a profitable community-oriented financial institution dedicated to meeting the banking needs of our customers by emphasizing personalized and efficient customer service. We are a very small financial institution, and we believe that managing prudent yet consistent asset growth in order to increase revenue is critical to our long-term success. Highlights of our current business strategy include:

 

·Prudently growing our asset size by continuing to emphasize the origination of one- to four-family residential real estate loans, including an increased emphasis on originating these types of loans in Washington and Monroe Counties, Ohio;

 

·Continuing to emphasize disciplined underwriting practices in order to maintain the quality of our loan portfolio;

 

·Continuing to supplement our one- to four-family residential real estate lending with the origination of non-residential lending;

 

·Continuing to rely on our historically favorable funding mix which emphasizes lower-cost transaction and savings accounts; and

 

·Continuing to manage interest rate risk.

 

 2 

  

Reasons for the Conversion and Offering

 

Consistent with our business strategy, our primary reasons for converting and raising additional capital through the offering are:

 

·to increase capital to support future growth and profitability;

 

·to retain and attract qualified personnel by establishing stock-based benefit plans for management and employees;

 

·to have greater flexibility to structure and finance the opportunistic expansion of our operations; and

 

·to offer our customers and employees an opportunity to purchase our stock.

 

As of June 30, 2016, Community Savings was considered “well capitalized” for regulatory purposes. As a result of the conversion, the proceeds from the stock offering will further improve our capital position during a period of significant economic, regulatory and political uncertainty.

 

See “The Conversion and Offering” for a more complete discussion of our reasons for conducting the conversion and offering.

 

Terms of the Offering

 

We are offering between 391,000 shares and 529,000 shares of common stock to eligible depositors and borrowers of Community Savings and to our tax-qualified employee benefit plans in a subscription offering. To the extent shares remain available, we may offer shares for sale in a community offering, with a preference given to natural persons and trusts of natural persons residing in Noble, Washington and Monroe Counties, Ohio. We may also offer for sale shares of common stock not purchased in the subscription offering or the community offering to the general public in a syndicated community offering. The number of shares of common stock to be sold may be increased to up to 608,350 shares as a result of demand for the shares of common stock in the offering or changes in market conditions. Unless the number of shares of common stock offered is increased to more than 608,350 shares or decreased to fewer than 391,000 shares, or the offering is extended beyond January 30, 2017, subscribers will not have the opportunity to change or cancel their stock orders once submitted. If the offering is extended past January 30, 2017, we will resolicit subscribers. You will have the opportunity to confirm, change or cancel your order within a specified period of time. If you do not respond during that period of time, your stock order will be cancelled and your deposit account withdrawal authorizations will be cancelled or your funds submitted will be returned promptly with interest at 0.20% per annum. If the number of shares to be sold is increased to more than 608,350 shares or decreased to fewer than 391,000 shares, all subscribers’ stock orders will be cancelled, their deposit account withdrawal authorizations will be cancelled and funds delivered for the purchase of shares of common stock in the offering will be returned promptly with interest at 0.20% per annum. We will give these subscribers an opportunity to place new orders for a specified period of time.

 

The purchase price of each share of common stock to be offered for sale in the offering is $10.00. All investors will pay the same purchase price per share. Investors will not be charged a commission to purchase shares of common stock in the offering. Keefe, Bruyette & Woods, Inc., our marketing agent in the offering, will use its best efforts to assist us in selling shares of our common stock but is not obligated to purchase any shares of common stock in the offering.

 

 3 

  

Important Risks in Owning Community Savings Bancorp’s Common Stock

 

Before you purchase shares of our common stock, you should read the “Risk Factors” section beginning on page 15 of this prospectus.

 

How We Determined the Offering Range and the $10.00 per Share Stock Price

 

The amount of common stock we are offering for sale is based on an independent appraisal of the estimated market value of Community Savings Bancorp, assuming the conversion and offering are completed. Keller & Company, Inc., our independent appraiser, has estimated that, as of August 24, 2016, this market value was $4.6 million. Based on regulations of the OCC, this market value forms the midpoint of a valuation range with a minimum of $3.9 million and a maximum of $5.3 million. Based on this valuation and a $10.00 per share price, the number of shares of common stock being offered for sale by us will range from 391,000 shares to 529,000 shares. We may sell up to 608,350 shares of common stock because of demand for the shares or changes in market conditions without resoliciting subscribers. The $10.00 per share price was selected primarily because it is the price most commonly used in mutual-to-stock conversions of financial institutions.

 

The appraisal is based in part on Community Savings’ financial condition and results of operations, the pro forma effect of the additional capital raised by the sale of shares of common stock in the offering, the pro forma effect of the costs associated with our planned withdrawal from the defined benefit plan, and an analysis of a peer group of ten publicly traded thrift holding companies with assets between $351 million and $830 million as of March 31, 2016 that Keller & Company, Inc. considers comparable to Community Savings Bancorp. See, “The Conversion and Offering – Determination of Share Price and Number of Shares to be Issued.”

 

In preparing the appraisal, Keller & Company, Inc. considered adjustments to the pro forma market value based on a comparison of Community Savings Bancorp with the peer group. Keller & Company, Inc. made downward adjustments for earnings, liquidity of the stock, asset growth, market area and marketing of the offering. No adjustments were made for subscription interest, dividends, financial condition, management or the effect of government regulations and regulatory reform. The downward valuation adjustments considered, among other things, Community Savings Bancorp’s low growth market area and shrinking asset levels compared to the peer group, lower reported and core or recurring earnings measures as compared to the peer group, and the fact that Community Savings Bancorp’s pro forma market capitalization and implied liquidity of the stock is expected to be lower than the peer group.

 

The range of downward adjustments represented 6.0% to 8.0% for earnings, market area and liquidity of the common stock. The range of adjustments for asset growth and marketing of the offering were 3.0% to 5.0%. In applying the downward adjustments, each adjustment was applied to the price to book ratio of the peer group of 80.92%, which represented a cumulative downward adjustment of 27.64% and resultant price to book ratio for Community Savings Bancorp of 58.55%.

 

The following table presents a summary of selected pricing ratios for the peer group companies and for Community Savings Bancorp (on a pro forma basis) utilized by Keller & Company, Inc. in its appraisal. These ratios are based on Community Savings Bancorp’s book value, tangible book value and core earnings as of and for the 12 months ended June 30, 2016, as adjusted for the impact of the cost to withdraw from the defined benefit plan. The peer group ratios are based on the latest date for which complete financial data are publicly available and stock prices as of August 24, 2016. Compared to the average pricing of the peer group, our pro forma pricing ratios at the midpoint of the offering range indicated a discount of 27.64% on a price-to-book value basis and a discount of 32.23% on a price-to-tangible book value basis.

 

 4 

  

  

Price-to-core earnings
multiple (1)

   Price-to-book 
value ratio
   Price-to-tangible
book value ratio
 
Community Savings Bancorp (on a pro forma basis, assuming completion of the conversion):               
Adjusted Maximum   n/m    66.36%   66.36%
Maximum   n/m    62.42%   62.42%
Midpoint   n/m    58.51%   58.51%
Minimum   n/m    53.88%   53.94%
                
Valuation of peer group companies, all of which are fully converted (on an historical basis):               
Average   17.14x   80.92%   86.39%
Median   16.67x   83.85%   85.49%

 

 

(n/m) Not meaningful.
(1)Price-to-earnings multiples calculated by Keller & Company, Inc. in the independent appraisal are based on an estimate of “core” or recurring earnings. These ratios are different from those presented in “Pro Forma Data.”

 

The independent appraisal does not indicate trading market value. Do not assume or expect that our valuation as indicated in the appraisal means that after the conversion and offering the shares of our common stock will trade at or above the $10.00 per share purchase price. Furthermore, the pricing ratios presented in the appraisal were utilized by Keller & Company, Inc. to estimate our pro forma appraised value for regulatory purposes and not to compare the relative value of shares of our common stock with the value of the capital stock of the peer group. The value of the capital stock of a particular company may be affected by a number of factors such as financial performance, asset size and market location.

 

For a more complete discussion of the amount of common stock we are offering for sale and the independent appraisal, see “The Conversion and Offering – Determination of Share Price and Number of Shares to be Issued.”

 

After-Market Stock Price Performance

 

The following table presents stock price performance information for all standard mutual-to-stock conversions completed between June 30, 2015 and August 24, 2016. These companies did not constitute the group of ten comparable public companies utilized in Keller & Company, Inc.’s valuation analysis because, pursuant to the appraisal guidelines, Keller & Company, Inc. included only Nasdaq-listed companies which have been converted for at least one year in the peer group .

 

Mutual-to-Stock Conversion Offerings with Closing Dates between June 30, 2015 and August 24, 2016
         Percentage Price Change
From Initial Trading Date
 
Company Name and
Ticker Symbol
  Conversion
Date
  Exchange  One Day   One Week   One Month   Through 
August 24,
2016
 
                       
New Bancorp (NWBB)  10/20/2015  OTC Pink   10.0%   11.0%   11.5%   28.5%
Best Hometown Bancorp (BTHT)  04/30/2016  OTC Pink   8.5%   8.5%   8.5%   8.5%
                           
Average         9.25%   9.75%   10.0%   18.5%
Median         9.25%   9.75%   10.0%   18.5%

 

Stock price performance is affected by many factors, including, but not limited to: general market and economic conditions; the interest rate environment; the amount of proceeds a company raises in its offering; and numerous factors relating to the specific company, including the experience and ability of management, historical and anticipated operating results, the nature and quality of the company’s assets, and the company’s market area. None of the companies listed in the table above is exactly similar to Community Savings Bancorp, the pricing ratios for their stock offerings may have been different from the pricing ratios for Community Savings Bancorp shares of common stock and the market conditions in which these offerings were completed may have been different from current market conditions. Furthermore, this table presents only short-term performance with respect to companies that recently completed their mutual-to-stock conversions and may not be indicative of the longer-term stock price

 

 5 

  

performance of these companies. The performance of these stocks may not be indicative of how our stock will perform.

 

Our stock price may trade below $10.00 per share, as the stock prices of certain mutual-to-stock conversions have decreased below the initial offering price. In addition, our public “float,” which is the total number of our outstanding shares less the shares held by our employee stock ownership plan and our directors and executive officers, will be quite limited. As a result, it is highly unlikely that an active trading market for the common stock will develop or that, if it develops, it will continue. If you purchase shares of common stock, you may not be able to sell them at or above $10.00 per share. Before you make an investment decision, we urge you to carefully read this prospectus, including, but not limited to, the section entitled “Risk Factors” beginning on page 14.

 

How We Intend to Use the Proceeds From the Stock Offering

 

Community Savings will receive a capital contribution equal to at least 50% of the net proceeds of the offering, plus such additional amounts as may be necessary so that, upon completion of the offering, Community Savings will have a Tier 1 leverage ratio of at least 10.0% after the costs associated with our planned withdrawal from the defined benefit plan. Based on this formula, we anticipate that Community Savings Bancorp will invest, at the minimum, midpoint, maximum and adjusted maximum of the offering range, approximately $2.2 million, $2.3 million, $2.4 million and $2.7 million, respectively, of the net proceeds from the stock offering in Community Savings. Of the remaining funds, we intend that Community Savings Bancorp will loan funds to our employee stock ownership plan to fund the plan’s purchase of shares of common stock in the stock offering, and retain the remainder of the net proceeds from the offering. Assuming we sell 460,000 shares of common stock in the stock offering and have net proceeds of $3.4 million, based on the above formula, we anticipate that Community Savings Bancorp will invest $2.3 million in Community Savings, loan $368,000 to our employee stock ownership plan to fund its purchase of shares of common stock, and retain the remaining $732,000 of the net proceeds.

 

Community Savings Bancorp may use the remaining funds that it retains to repurchase shares of common stock (subject to compliance with regulatory requirements), for investments, or for other general corporate purposes. Community Savings Bancorp will also be authorized to pay dividends to its shareholders, but it currently does not intend to pay dividends. Community Savings intends to use approximately $1.6 million of the proceeds that it receives from us to pay costs associated with its planned withdrawal from a defined benefit plan, and may use the remaining net proceeds it receives from us to fund new loans, enhance existing products and services, invest in securities, expand its banking franchise by establishing or acquiring a new branch or acquiring another financial institution as opportunities arise, or for general corporate purposes.

 

For more information on the proposed use of the proceeds from the offering, see “How We Intend to Use the Proceeds from the Offering.”

 

Persons Who May Order Shares of Common Stock in the Offering

 

We are offering the shares of common stock in a subscription offering in the following descending order of priority:

 

(i)First, to depositors with accounts at Community Savings with aggregate balances of at least $50 at the close of business on January 1, 2015.

 

 6 

  

(ii)Second, to our tax-qualified employee benefit plans (including Community Savings’ employee stock ownership plan), which will receive, without payment therefor, nontransferable subscription rights to purchase in the aggregate up to 10% of the shares of common stock sold in the offering. We expect our employee stock ownership plan to purchase up to 8% of the shares of common stock sold in the offering.

 

(iii)Third, to depositors with accounts at Community Savings with aggregate balances of at least $50 at the close of business on September 30, 2016.

 

(iv)Fourth, to depositors of Community Savings at the close of business on October 31, 2016 and borrowers of Community Savings as of May 26, 2004 who maintain such borrowings at the close of business on October 31, 2016.

 

Shares of common stock not purchased in the subscription offering may be offered for sale in a community offering, with a preference given to natural persons and trusts of natural persons residing in Noble, Washington and Monroe Counties, Ohio. The community offering may begin concurrently with, during or after the subscription offering. We also may offer for sale shares of common stock not purchased in the subscription offering or the community offering to the general public through a syndicated community offering, which will be managed by Keefe, Bruyette & Woods, Inc. We have the right to accept or reject, in our sole discretion, orders received in the community offering or syndicated community offering. Any determination to accept or reject stock orders in the community offering or the syndicated community offering will be based on the facts and circumstances available to management at the time of the determination.

 

If we receive orders for more shares than we are offering, we may not be able to fully or partially fill your order. Shares will be allocated first to categories in the subscription offering. A detailed description of the subscription offering, the community offering and the syndicated community offering, as well as a discussion regarding allocation procedures, can be found in the section of this prospectus entitled “The Conversion and Offering.”

 

Limits on How Much Common Stock You May Purchase

 

The minimum number of shares of common stock that may be purchased is 25.

 

Generally, no individual, or individuals through a single account held jointly, may purchase more than 15,000 shares ($150,000) of common stock. If any of the following purchase shares of common stock, their purchases, in all categories of the offering combined, when combined with your purchases, cannot exceed 20,000 shares ($200,000) of common stock:

 

·your spouse or relatives of you or your spouse who reside with you;

 

·most companies, trusts or other entities in which you are a trustee, have a substantial beneficial interest or hold a senior position; or

 

·other persons who may be your associates or persons acting in concert with you.

 

Unless we determine otherwise, persons having the same address and persons exercising subscription rights through qualifying accounts registered to the same address will be subject to the overall purchase limitation of 20,000 shares ($200,000). See the detailed descriptions of “acting in concert” and “associate” in the section of this prospectus headed “The Conversion and Offering – Limitations on Common Stock Purchases.”

 

 7 

  

Subject to OCC approval, we may increase or decrease the purchase limitations at any time. See the detailed description of the purchase limitations in the section of this prospectus headed “The Conversion and Offering – Limitations on Common Stock Purchases.”

 

How You May Purchase Shares of Common Stock in the Subscription Offering and the Community Offering

 

In the subscription offering and community offering, you may pay for your shares only by:

 

·personal check, bank check or money order made payable directly to Community Savings Bancorp, Inc.; or

 

·authorizing us to withdraw available funds (without any early withdrawal penalty) from your account(s) maintained with Community Savings, other than checking accounts or individual retirement accounts (IRAs).

 

Please do not submit cash or wire transfers. For orders paid for by check or money order, the funds must be available in the account. Community Savings is not permitted to lend funds to anyone for the purpose of purchasing shares of common stock in the offering. Additionally, you may not use a Community Savings line of credit check or any type of third-party check to pay for shares of common stock. On the stock order form, you may not designate withdrawal from Community Savings accounts with check-writing privileges; instead, please submit a check. If you request that we directly withdraw the funds from an account with check writing privileges, we reserve the right to interpret that as your authorization to treat those funds as if we had received a check for the designated amount, and we will immediately withdraw the amount from your checking account. Funds received in the subscription and community offerings and, if applicable, the syndicated community offering will be held in a segregated account at Community Savings and will earn interest at 0.20% per annum until completion or termination of the offering. You may not authorize direct withdrawal from a Community Savings retirement account. See “– Using Retirement Account Funds to Purchase Shares of Common Stock in the Subscription and Community Offerings.”

 

Withdrawals from certificates of deposit at Community Savings for the purpose of purchasing common stock in the offering may be made without incurring an early withdrawal penalty. All funds authorized for withdrawal from deposit accounts with Community Savings must be in the deposit accounts at the time the stock order form is received. A hold will be placed on those funds when your stock order form is received, making the designated funds unavailable to you. However, funds will not be withdrawn from the accounts until the offering is completed and will continue to earn interest at the applicable deposit account rate until the completion of the offering. If a withdrawal results in a certificate of deposit account with a balance less than the applicable minimum balance requirement, the certificate will be canceled at the time of withdrawal without penalty, and the remaining balance will earn interest at Community Savings’ current statement savings rate thereafter.

 

You may subscribe for shares of common stock in the offering by delivering a signed and completed original stock order form, together with full payment payable to Community Savings Bancorp, Inc. or authorization to withdraw funds from one or more of your Community Savings deposit accounts, provided that the stock order form is received (not postmarked) before 2:00 p.m., Eastern Time, on December 15, 2016. You may submit your stock order form and payment by mail using the stock order reply envelope provided, by overnight delivery to our Stock Information Center at the address noted on the stock order form or by hand-delivery to Community Savings’ office, located at 425 Main Street, Caldwell, Ohio. Please do not mail stock order forms to Community Savings. Once submitted, your order will be irrevocable unless the offering is terminated or is extended beyond January 30, 2017, or the number of shares of common stock to be sold is increased to more than 608,350 shares or decreased to

 

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fewer than 391,000 shares. We are not required to accept incomplete stock order forms, unsigned stock order forms, or copies or facsimiles of stock order forms.

 

For a complete description of how to purchase shares in the stock offering, see “The Conversion and Offering – Procedure for Purchasing Shares.”

 

Using Retirement Account Funds to Purchase Shares of Common Stock in the Subscription and Community Offerings

 

You may be able to subscribe for shares of common stock using funds in your individual retirement account (“IRA”), or other retirement account. If you wish to use some or all of the funds in your IRA or other retirement account held at Community Savings, the applicable funds must be transferred to a self-directed account maintained by an independent custodian or trustee, such as a brokerage firm, before you place your stock order. If you do not have such an account, you will need to establish one. An annual administrative fee may be payable to the independent custodian or trustee. Because individual circumstances differ and the processing of retirement fund orders takes additional time, we recommend that you contact our Stock Information Center promptly, preferably at least two weeks before the December 15, 2016 offering deadline, for assistance with purchases using funds in your IRA or other retirement account held at Community Savings or elsewhere. Whether you may use such funds for the purchase of shares in the stock offering may depend on timing constraints and, possibly, limitations imposed by the institution where the funds are held.

 

For a complete description of how to use IRA funds to purchase shares in the stock offering, see “The Conversion and Offering – Procedure for Purchasing Shares – Using Retirement Account Funds.”

 

You May Not Sell or Transfer Your Subscription Rights

 

Federal regulations prohibit you from transferring your subscription rights. If you order shares of common stock in the subscription offering, you will be required to state that you are purchasing the common stock for yourself and that you have no agreement or understanding to sell or transfer your subscription rights. We intend to take legal action against anyone who we believe has sold or transferred his or her subscription rights. In addition, we intend to advise the appropriate federal agencies of any person who we believe has sold or transferred his or her subscription rights. We will not accept your order if we have reason to believe that you have sold or transferred your subscription rights. On the stock order form, you may not add the names of others for joint stock registration who do not have subscription rights or who qualify only in a lower subscription offering priority than you do. You may add only those who were eligible to purchase shares of common stock in the subscription offering at your date of eligibility. In addition, the stock order form requires that you list all qualifying accounts, giving all names on each account and the account number at the applicable eligibility date. Failure to provide this information, or providing incomplete or incorrect information, may result in a loss of part or all of your share allocation if there is an oversubscription.

 

Purchases by Executive Officers and Directors

 

We expect our directors and executive officers, together with their associates, to subscribe for 37,000 shares ($370,000) of common stock in the offering, representing 9.5% of shares to be sold at the minimum of the offering range. However, there can be no assurance that any individual director or executive officer, or the directors and executive officers as a group, will purchase any specific number of shares of our common stock. The purchase price paid by them will be the same $10.00 per share price paid by all other persons who purchase shares of common stock in the offering. Our directors and executive officers will be subject to the same minimum purchase requirements and purchase limitations as other participants in the offering set forth under “– Limits on How Much Stock You May Purchase.”

 

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Purchases by our directors, executive officers and their associates will be included in determining whether the required minimum number of shares has been subscribed for in the offering. Any purchases made by our directors or executive officers, or their associates, for the explicit purpose of meeting the minimum number of shares of common stock required to be sold in order to complete the offering shall be made for investment purposes only and not with a view toward redistribution.

 

For more information on the proposed purchases of shares of common stock by our directors and executive officers, see “Subscriptions by Directors and Executive Officers.”

 

Deadline for Orders of Shares of Common Stock in the Subscription and Community Offerings

 

The deadline for submitting orders for shares of common stock in the subscription and community offerings is 2:00 p.m., Eastern Time, on December 15, 2016, unless we extend the subscription offering and/or the community offering. If you wish to purchase shares of common stock, a properly completed and signed original stock order form, together with full payment, must be received (not postmarked) by this time. Orders received after 2:00 p.m., Eastern Time, on December 15, 2016 will be rejected unless the offering is extended.

 

Although we will make reasonable attempts to provide this prospectus and offering materials to holders of subscription rights, the subscription offering and all subscription rights will expire at 2:00 p.m., Eastern Time, on December 15, 2016, whether or not we have been able to locate each person entitled to subscription rights.

 

For a complete description of the deadline for purchasing shares in the stock offering, see “The Conversion and Offering – Procedure for Purchasing Shares in the Subscription and Community Offerings – Expiration Date.”

 

Steps We May Take if We Do Not Receive Orders for the Minimum Number of Shares

 

If we do not receive orders for at least 391,000 shares of common stock, we may take additional steps in order to issue the minimum number of shares of common stock in the offering range. Specifically, we may:

 

·increase the purchase limitations; and/or

 

·seek regulatory approval to extend the offering beyond January 30, 2017.

 

If we extend the offering past January 30, 2017, we will resolicit subscribers and you will have the opportunity to confirm, change or cancel your order within a specified period of time. If you do not respond during that period of time, your stock order will be cancelled and your deposit account withdrawal authorizations will be cancelled or your funds submitted will be returned promptly with interest at 0.20% per annum from the date the stock order was processed.

 

If one or more purchase limitations are increased we will not resolicit all subscribers, however, subscribers in the subscription offering who ordered the maximum amount and who indicated a desire to be resolicited on the stock order form will be and, in our sole discretion, some other large subscribers may be, given the opportunity to increase their subscriptions up to the newly applicable limit. We may increase the individual or aggregate purchase limitations to an amount not to exceed 5.0% of the common stock sold in the offering, see “The Conversion and Offering – Limitations on Common Stock Purchases.”

 

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Conditions to Completion of the Conversion

 

The board of directors of Community Savings has approved the plan of conversion. In addition, the OCC has conditionally approved the plan of conversion and the Federal Reserve Board has conditionally approved our holding company application. We cannot complete the conversion unless:

 

·The plan of conversion is approved by a majority of votes eligible to be cast by members of Community Savings (depositors and certain borrowers of Community Savings). A special meeting of members to consider and vote upon the plan of conversion has been scheduled for December 21, 2016;

 

·We have received orders for at least the minimum number of shares of common stock offered; and

 

·We receive the final approval required from the OCC to complete the conversion and offering and the final approval from the Federal Reserve Board on the holding company application.

 

Any approval by the OCC or the Federal Reserve Board does not constitute a recommendation or endorsement of the plan of conversion.

 

Our Dividend Policy

 

We do not currently intend to pay dividends on our common stock following completion of the stock offering. In the unlikely event that we do determine to pay dividends in the future, the payment and amount of any dividend payments will depend upon a number of factors, including the following: regulatory capital requirements; our financial condition and results of operations; our other uses of funds for the long-term value of stockholders; tax considerations; statutory and regulatory limitations; and general economic conditions. See “Our Dividend Policy” in this prospectus for additional information regarding our dividend policy.

 

Market for Common Stock

 

We anticipate that the common stock sold in the offering will be quoted on the OTC Pink Marketplace (OTCPK) operated by OTC Markets Group. Keefe, Bruyette & Woods, Inc. currently intends to make a market in the shares of our common stock, but is under no obligation to do so. See “Market for the Common Stock.”

 

Delivery of Shares of Stock

 

All shares of common stock of Community Savings Bancorp sold in the subscription offering and community offering will be issued in book entry form and held electronically on the books of our transfer agent. Stock certificates will not be issued. A statement reflecting ownership of shares of common stock sold in the offering will be mailed by our transfer agent to the persons entitled thereto at the address noted by them on their stock order form as soon as practicable following consummation of the conversion. Shares of common stock sold in the syndicated community offering may be delivered electronically through the services of The Depository Trust Company. We expect trading in the stock to begin on the business day of or on the business day immediately following the completion of the conversion and stock offering. It is possible that until a statement reflecting ownership of shares of common stock is available and delivered to purchasers, purchasers might not be able to sell the shares of common stock that they ordered, even though the common stock will have begun trading. Your ability to sell the shares of common stock before receiving your statement will depend on arrangements you may make with a brokerage firm.

 

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Possible Change in the Offering Range

 

Keller & Company, Inc. will update its appraisal before we complete the offering. If, as a result of demand for the shares or changes in market conditions, Keller & Company, Inc. determines that our pro forma market value has increased, we may sell up to 608,350 shares in the offering without further notice to you. If our pro forma market value at that time is either below $3.9 million or above $6.1 million, then, after consulting with the OCC, we may:

 

·terminate the stock offering, cancel deposit account withdrawal authorizations and promptly return all funds received in the offering with interest at 0.20% per annum;

 

·set a new offering range; or

 

·take such other actions as may be permitted by the OCC, the Federal Reserve Board, the Financial Industry Regulatory Authority (“FINRA”) and the Securities and Exchange Commission.

 

If we set a new offering range, we will promptly return funds, with interest at 0.20% per annum for funds received in the offering, cancel deposit account withdrawal authorizations and commence a resolicitation. In connection with the resolicitation, we will notify subscribers of their right to place a new stock order for a specified period of time.

 

Possible Termination of the Offering

We may terminate the offering at any time prior to the special meeting of members of Community Savings that is being called to vote on the conversion, and at any time after member approval with the concurrence of the OCC. If we terminate the offering, we will promptly return funds, as described above.

 

Benefits to Management and Potential Dilution to Stockholders Resulting from the Conversion

 

We expect our employee stock ownership plan, which is a tax-qualified retirement plan for the benefit of all of our employees being established in connection with the conversion and stock offering, to purchase up to 8% of the shares of common stock that we sell in the offering. If we receive orders for more shares of common stock than the maximum of the offering range, the employee stock ownership plan will have first priority to purchase shares over this maximum, up to a total of 8% of the shares of common stock that we sell in the offering. This would reduce the number of shares available for allocation to eligible depositors. For further information, see “Management – Benefit Plans and Agreements – Employee Stock Ownership Plan.”

 

Purchases by the employee stock ownership plan in the offering will be included in determining whether the required minimum number of shares have been sold in the offering. Subject to market conditions and receipt of regulatory approval, the employee stock ownership plan may instead elect to purchase shares of common stock in the open market following the completion of the offering in order to fill all or a portion of the employee stock ownership plan’s intended subscription.

 

We also intend to implement a stock-based benefit plan no earlier than six months after completion of the conversion. Stockholder approval of this plan will be required, and the stock-based benefit plan cannot be implemented until at least six months after the completion of the conversion pursuant to applicable OCC regulations. If adopted within 12 months following the completion of the conversion, and provided that upon completion of the offering Community Savings has at least a 10% tangible capital to assets ratio, the OCC conversion regulations would allow for the stock-based benefit

 

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plan to reserve a number of shares of common stock equal to not more than 4% of the shares sold in the offering, or up to 21,160 shares of common stock at the maximum of the offering range, for restricted stock awards to key employees and directors, at no cost to the recipients. If adopted within 12 months following the completion of the conversion, the stock-based benefit plan will also reserve a number of shares equal to not more than 10% of the shares of common stock sold in the offering, or up to 52,900 shares of common stock at the maximum of the offering range, for the exercise of stock options granted to key employees and directors. If the stock-based benefit plan is adopted after one year from the date of the completion of the conversion, the 4% and 10% limitations described above will no longer apply, and we may adopt a stock-based benefit plan encompassing more than 74,060 shares of our common stock assuming the maximum of the offering range. We have not yet determined whether we will present this plan for stockholder approval within 12 months following the completion of the conversion or whether we will present this plan for stockholder approval more than 12 months after the completion of the conversion.

 

The following table summarizes the number of shares of common stock and aggregate dollar value of grants (valuing each share granted at the offering price of $10.00) that would be available under a stock-based benefit plan if such plan is adopted within one year following the completion of the conversion and the offering and Community Savings has at least a 10% tangible capital to assets ratio at that time. The table shows the dilution to stockholders if all these shares are issued from authorized but unissued shares, instead of shares purchased in the open market. The table also sets forth the number of shares of common stock to be acquired by the employee stock ownership plan for allocation to all employees. A portion of the stock grants shown in the table below may be made to non-management employees.

 

   Number of Shares to be Granted or Purchased (1)   Dilution
Resulting
   Value of Grants (2) 
   At
Minimum
of Offering
Range
   At
Maximum
of Offering
Range
   As a
Percentage
of Common
Stock to be
Issued
   From
Issuance of
Shares for
Stock Benefit
Plans
  

At
Minimum
of

Offering
Range

  

At
Maximum
of

Offering
Range

 
                         
Employee stock ownership plan   31,280    42,320    8.00%   n/a(3)  $312,800   $423,200 
Stock awards   15,640    21,160    4.00    3.85%   156,400    211,600 
Stock options   39,100    52,900    10.00    9.09%   94,231    127,489 
Total   86,020    116,380    22.00%   12.28%  $563,431   $762,289 

 

 

(1)The stock-based benefit plan may award a greater number of options and shares, respectively, if the plan is adopted more than 12 months after the completion of the conversion.
(2)The actual value of restricted stock grants will be determined based on their fair value as of the date grants are made. For purposes of this table, fair value is assumed to be the same as the offering price of $10.00 per share. The fair value of stock options has been estimated at $2.41 per option using the Black-Scholes option pricing model with the following assumptions: a grant-date share price and option exercise price of $10.00; dividend yield of 0%; an expected option life of 10 years; a risk-free interest rate of 1.46%; and a volatility rate of 14.13%. The actual expense of stock options granted under a stock-based benefit plan will be determined by the grant-date fair value of the options, which will depend on a number of factors, including the valuation assumptions used in the option pricing model ultimately adopted, which may or may not be the Black-Scholes model.
(3)Represents the dilution of stock ownership interest. No dilution is reflected for the employee stock ownership plan because these shares are assumed to be purchased in the offering.

 

In addition to the stock-based benefit plan that we may adopt, we intend to enter into a Salary Continuation Agreement with Alvin B. Parmiter, our President and Chief Executive Officer, subject to consummation of the conversion and regulatory approval. See “Management – Benefit Plans and Agreements” in this prospectus for a further discussion of these agreements, including their terms and potential costs, as well as a description of other benefits arrangements.

 

Tax Consequences

 

Community Savings and Community Savings Bancorp have received an opinion of counsel, Luse Gorman, PC, regarding the material federal income tax consequences of the conversion, including an

 

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opinion that it is more likely than not that the fair market value of the nontransferable subscription rights to purchase the common stock will be zero and, accordingly, no gain or loss will be recognized by depositors upon the distribution to them of the nontransferable subscription rights to purchase the common stock and no taxable income will be realized by depositors as a result of the exercise of the nontransferable subscription rights. Community Savings and Community Savings Bancorp have also received an opinion of Suttle & Stalnaker PLLC regarding the material Ohio state tax consequences of the conversion. As a general matter, the conversion will not be a taxable transaction for purposes of federal or state income taxes to Community Savings, Community Savings Bancorp or persons eligible to subscribe in the subscription offering. See the section of this prospectus entitled “Taxation” for additional information regarding taxes.

 

How You Can Obtain Additional Information – Stock Information Center

 

Our banking personnel may not, by law, assist with investment-related questions about the offering. If you have questions regarding the conversion or offering, please call our Stock Information Center. The toll-free telephone number is (877) 821-5775 . The Stock Information Center is open for telephone calls Monday through Friday between 10:00 a.m. and 4:00 p.m., Eastern Time. The Stock Information Center will be closed on bank holidays.

 

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RISK FACTORS

 

You should consider carefully the following risk factors in evaluating an investment in the shares of common stock.

 

Risks Related to Our Business

 

In recent years we have incurred losses and we may not achieve significant profitability from our business strategies and growth plan.

 

During the years ended June 30, 2016 and 2015, we had net income of $679,000 and a net loss of $312,000, respectively. During fiscal year 2016, we sold two branch offices which resulted in a gain of $810,000. Excluding this one-time gain, we would have experienced a loss of $109,000 for fiscal 2016.

 

Our growth is essential to our future profitability. In July 2015, we sold our two branch offices in order to reduce noninterest expense and focus our business strategy on prudent organic growth through our main office in Caldwell, Ohio. We expect to incur expenses related to the implementation of our growth plan, including possible hiring initiatives, and the development and marketing of new products and services. In addition, the conversion and offering will have a short-term adverse impact on our operating results, due to additional costs related to becoming a public company, increased compensation expenses associated with our employee stock ownership plan and the possible implementation of a stock-based benefit plan after the completion of the conversion and offering. Additionally, upon completion of our conversion, we intend to withdraw from our multiple-employer defined benefit plan which we expect to result in a one-time expense of approximately $1.6 million. However, the actual cost to withdraw from the defined benefit plan will be based on the cost of purchasing annuities through an insurance company for the benefit of the former participants of the plan as well as the value of the plan’s underlying assets at the time of withdrawal. The cost of these annuities will depend, in part, on interest rates at the time of the withdrawal. Both the annuity costs and underlying asset values are subject to change, and therefore, the final contribution due to terminate the plan could be more than the $1.6 million estimate. We expect that we will incur a net loss for the fiscal year during which the withdrawal occurs.

 

Our ability to achieve profitability depends upon a number of factors, including, we believe, most importantly our ability to increase our revenues and grow our asset size. In order to grow, we need to successfully implement our business strategy, including the addition of one or two lenders, increasing our loan originations in Washington and Monroe Counties, Ohio, managing expenses related to nonperforming and classified assets and general economic conditions. Our ability to achieve profitability will also be affected by competition with other financial institutions, changes to the interest rate environment that may reduce our profit margins or impair our business strategy, adverse changes in the securities markets, changes in laws or government regulations, changes in consumer spending, borrowing, or saving, and changes in accounting policies, as well as other risks and uncertainties described in this “Risk Factors” section.

 

We are not in a high-growth market area, and continued adverse economic conditions, especially affecting our market area, could adversely affect our financial condition and results of operations. Additionally, economic growth in the United States has been slow and unemployment levels are high.

 

Our success depends primarily on the general economic conditions in our market area which we consider to be Noble County, Ohio, and to a lesser extent Guernsey, Washington and Monroe Counties, Ohio, and Wood County, West Virginia. Noble County is located approximately 90 miles southeast of Columbus, Ohio in southeastern Ohio, and is primarily rural. We have relatively few loans outside of our market area, and, as a result, we have a greater risk of loan defaults and losses in the event of an economic downturn in our market area, as adverse economic conditions may have a negative effect on the ability of our borrowers to make timely payments of their loans. Our market area is sparsely populated and has limited industrial development compared to more urban and suburban areas. In recent years, our market area has been, and we believe will continue to be, significantly affected by the oil and gas exploration industry. Many landowners in our market area have leased their properties for oil and gas exploration and related purposes.

 

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As a result, an increase in the price of oil and gas generally has resulted in increases in deposits and also decreases in average loan balances, resulting from increased loan pay downs and lower loan demand. Following a decrease in these commodities prices, as was experienced in 2014 and 2015, we would expect a decrease in some of these revenues and resultant deposits.

 

According to the United States census, the estimated July 2015 population of Noble County was 14,326, representing a decrease of 2.2% from the 2010 census population of 14,645. During this same time period, the population of Ohio is estimated to have grown by 0. 7%, and the United States population grew by an estimated 4.1%. In 2014, the median household income for Noble County was $37,126, compared to median household incomes of $48,849 and $53,482 for Ohio and the United States, respectively.

 

Unlike larger banks that are more geographically diversified, we provide banking and financial services to customers primarily in this area. The local economic conditions in our market area, therefore, have a significant impact on our lending, the ability of the borrowers to repay their loans and the value of the collateral securing loans.

 

We participate in a multiple employer defined benefit pension plan for the benefit of certain of our employees. We intend to withdraw from this plan upon completion of the conversion and offering. We expect to incur a substantial expense in connection with the withdrawal, which will reduce the proceeds available for other purposes.

 

We participate in a multiple employer defined benefit pension plan for the benefit of our employees. We intend to withdraw from the plan following completion of the conversion. The administrator of the plan has estimated that as of March 2016 the expense associated with withdrawal from the plan would be approximately $1.6 million assuming a withdrawal date of March 31, 2016. We intend to use a portion of the proceeds of the offering to fund the costs associated with our withdrawal from the plan, which will reduce the amount of proceeds available for originating new loans and other business purposes. In addition, because the costs are primarily dependent on the value of the plan’s assets and applicable interest rates at the time of our withdrawal, we will not know the actual costs associated with our withdrawal from the plan until the date of the withdrawal, and the actual cost could be significantly higher than the estimated cost provided by the plan administrator.

 

We depend on our management team to implement our business strategy and execute successful operations and we could be harmed by the loss of their services.

 

We are dependent upon the services of the members of our senior management team, and especially Alvin B. Parmiter, our President and Chief Executive Officer, who directs our strategy and operations. We have benefited from the continuity of Mr. Parmiter’s service, having served as our President and Chief Executive Officer since 1998. We do not hold any key person insurance or bank-owned life insurance for Mr. Parmiter, and the loss of the services of our President and Chief Executive Officer could impact our ability to implement our business strategy, and could have a material adverse effect on our results of operations and our ability to compete in our markets. As a small community bank, we have fewer management-level personnel who are in a position to assume the responsibilities of our executive officers.

 

Our small size makes it more difficult for us to compete and to achieve significant profitability.

 

Our small asset size makes it more difficult to compete with other financial institutions which are generally larger and can more easily afford to invest in the marketing and technologies needed to attract and retain customers. Because our principal source of income is the net interest income we earn on our loans after deducting interest paid on deposits and other sources of funds, our ability to generate the revenues needed to cover our expenses and finance such investments is limited by the size of our loan portfolio. Accordingly, we are not always able to offer new products and services as quickly as our competitors. Our lower earnings also make it more difficult to offer competitive salaries and benefits. In addition, our smaller

 

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customer base makes it difficult to generate meaningful non-interest income from such activities as securities and insurance brokerage. Finally, as a smaller institution, we are disproportionately affected by the continually increasing costs of compliance with new banking and other regulations.

 

Our loan portfolio has inherent risk due to the substantial amount of indirect and other consumer loans in our portfolio.

 

Our loan portfolio includes a substantial number of consumer loans, the majority of which are indirect automobile loans. At June 30, 2016, our consumer loans totaled $4.9 million, or 14.8% of our total loan portfolio, of which indirect auto loans totaled $4.0 million, representing 12.3% of total loans. Indirect auto lending is currently not an active area of lending for Community Savings, due to a change in our third-party lending source. We believe that indirect automobile loans and other consumer loans may provide growth opportunities in the future and intend to continue to emphasize the origination of these types of loans consistent with market conditions and risk management considerations.

 

Consumer loans generally have a greater risk of loss or default than one- to four-family residential real estate loans, particularly in the case of loans that are secured by rapidly depreciable assets, such as automobiles, or loans that are unsecured. In these cases, we face the risk that any collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance. Thus, the recovery and sale of such property could be insufficient to compensate us for the principal outstanding on these loans. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit our ability to recover on such loans. Finally, because indirect automobile loan applications are originated by automobile dealerships, although we underwrite the loans, we assume the risks associated with unsatisfactory origination procedures, including compliance with federal, state and local laws. As a result of our relatively large portfolio of consumer loans, it may become necessary to increase our provision for loan losses in the event our losses on these loans increase, which would reduce our profits.

 

If our allowance for loan losses is not sufficient to cover actual loan losses, our earnings could decrease.

 

We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. In determining the amount of the allowance for loan losses, we review our loans and our loss and delinquency experience, and we evaluate economic conditions. If our assumptions are incorrect, our allowance for loan losses may not be sufficient to cover probable incurred losses in our loan portfolio, resulting in additions to our allowance for loan losses. Additions to the allowance for loan losses are established through the provision for losses on loans which is charged against income.

 

Material additions to our allowance could materially decrease our net income. In addition, bank regulators periodically review our allowance for loan losses and, based on judgments different than management’s, we may determine to increase our provision for loan losses or recognize further loan charge-offs as a result of these regulatory reviews. Any material increase in our allowance for loan losses or loan charge-offs may adversely effect on our financial condition and results of operations.

 

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If our nonperforming assets increase, our earnings will be adversely affected.

 

At June 30, 2016, our nonperforming assets, which consist of nonaccruing loans and foreclosed assets, were $358,000, or 0.66% of total assets. Our nonperforming assets adversely affect our net income in various ways:

 

·we must provide for probable loan losses through a current period charge to the provision for loan losses;

 

·noninterest expense increases when we write down the value of properties in our real estate owned portfolio to reflect changing market values or recognize other-than-temporary impairment on nonperforming securities;

 

·there are legal fees associated with the resolution of problem assets, as well as carrying costs, such as taxes, insurance, and maintenance fees related to our real estate owned; and

 

·the resolution of nonperforming assets requires the active involvement of management, which can distract them from more profitable activity.

 

If additional borrowers become delinquent and do not pay their loans and we are unable to successfully manage our nonperforming assets, our losses and troubled assets could increase significantly, which could have a material adverse effect on our financial condition and results of operations.

 

Our growth or future losses may require us to raise additional capital in the future, but that capital may not be available when it is needed or the cost of that capital may be very high.

 

We are required by federal regulatory authorities to maintain adequate levels of capital to support our operations. We believe the net proceeds of this offering will be sufficient to permit Community Savings to maintain regulatory capital compliance for the foreseeable future. Nonetheless, we may at some point need to raise additional capital to support continued growth.

 

Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial condition and performance. Accordingly, we may not be able to raise additional capital if needed on terms that are acceptable to us, or at all. If we cannot raise additional capital when needed, our operations could be materially impaired and our financial condition and liquidity could be materially and adversely affected. In addition, if we are unable to raise additional capital when required by the Federal Reserve Board or the OCC, we may be subject to adverse regulatory action. See “Regulation and Supervision.”

 

If our real estate owned is not properly valued or if our allowance for loan losses is insufficient, our earnings could be reduced.

 

We obtain updated valuations in the form of appraisals when a loan has been foreclosed and the property taken in as real estate owned and at certain other times during the holding period of the asset. Our net book value (“NBV”) in the loan at the time of foreclosure and thereafter is compared to the updated fair value of the foreclosed property less estimated selling costs (fair value). A charge-off is recorded for any excess in the asset’s NBV over its fair value less estimated selling costs. If our valuation process is incorrect, or if property values decline, the fair value of our real estate owned may not be sufficient to recover our carrying value in such assets, resulting in the need for additional charge-offs. Significant charge-offs to our real estate owned could have a material adverse effect on our financial condition and results of operations. In addition, bank regulators periodically review our real estate owned and may require us to recognize further

 

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charge-offs. Any increase in our charge-offs may have a material adverse effect on our financial condition and results of operations.

 

Future changes in interest rates could reduce our profits and asset values.

 

Future changes in interest rates could impact our financial condition and results of operations.

 

Net income is the amount by which net interest income and non-interest income exceeds non-interest expense and the provision for loan losses. Net interest income makes up a majority of our income and is based on the difference between:

 

·interest income earned on interest-earning assets, such as loans and securities; and

 

·interest expense paid on interest-bearing liabilities, such as deposits and borrowings.

 

We are vulnerable to changes in interest rates including the shape of the yield curve because of a mismatch between the terms to repricing of our assets and liabilities. For the years ended June 30, 2016 and 2015, our net interest margin was 2.95% and 2.77%, respectively. Our asset/liability management committee utilizes a computer simulation model to provide an analysis of estimated changes in net interest income in various interest rate scenarios. At June 30, 2016, our “rate shock” analysis indicated that our net portfolio value would decrease $935,000, or 10.3% in the event of an immediate 200 basis point increase in interest rates. Also, our interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our balance sheet.

 

Additionally, increases in interest rates may decrease loan demand and/or make it more difficult for borrowers to repay adjustable-rate loans. Conversely, a reduction in interest rates can result in increased prepayments of loans and mortgage-backed and related securities, as borrowers refinance their debt in order to reduce their borrowing costs. This creates reinvestment risk, which is the risk that we may not be able to reinvest prepayments at rates that are comparable to the rates we earned on the prepaid loans or securities.

 

Strong competition within our market areas may limit our growth and profitability.

 

Competition in the banking and financial services industry is intense. In our market area, we compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere. Some of our competitors have greater name recognition and market presence that benefit them in attracting business, and offer certain services that we do not or cannot provide. In addition, larger competitors may be able to price loans and deposits more aggressively than we do, which could affect our ability to grow and remain profitable on a long-term basis. Our ability to achieve significant profitability depends upon our ability to successfully compete in our market area. If we must raise interest rates paid on deposits or lower interest rates charged on our loans, our net interest margin and profitability could be adversely affected. For additional information see “Business of Community Savings – Market Area and Competition.”

 

The financial services industry could become even more competitive as a result of new legislative, regulatory and technological changes and continued consolidation. Banks, securities firms and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Also, technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Many of our competitors have fewer regulatory constraints and may have lower cost

 

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structures. Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than we can.

 

We have become subject to more stringent capital requirements, which may adversely impact our return on equity, require us to raise additional capital, or constrain us from paying dividends or repurchasing shares.

 

In July 2013, the federal banking agencies approved a new rule that has substantially amended regulatory risk-based capital rules. The final rule implements the regulatory capital reforms from the Basel Committee on Banking Supervision (“Basel III”) and changes required by the Dodd-Frank Act.

 

The final rule includes new minimum risk-based capital and leverage ratios, which were effective for us on January 1, 2015, and refines the definition of what constitutes “capital” for purposes of calculating these ratios. The new minimum capital requirements are: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from prior rules); and (iv) a Tier 1 leverage ratio of 4%. The final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-out is exercised. We have elected to exercise our one-time option to opt-out of the requirement under the final rule to include certain “available-for-sale” securities holdings for purposes of calculating our regulatory capital requirements. The final rule also establishes a “capital conservation buffer” of 2.5%, and, when fully phased in, will result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 to risk-based assets capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement would be phased in beginning in January 2016 at 0.625% of risk-weighted assets and would increase each year until fully implemented in January 2019. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that can be utilized for such actions.

 

We have analyzed the effects of these new capital requirements, and we believe that, upon completion of the offering, we would meet all of these new requirements, including the full 2.5% capital conservation buffer.

 

The application of more stringent capital requirements could, among other things, result in lower returns on equity, require the raising of additional capital, and result in regulatory actions if we were to be unable to comply with such requirements. Furthermore, the imposition of liquidity requirements in connection with the implementation of Basel III could result in our having to lengthen the term of our funding, restructure our business models, and/or increase our holdings of liquid assets. Implementation of changes to asset risk weightings for risk-based capital calculations, items included or deducted in calculating regulatory capital and/or additional capital conservation buffers could result in management modifying its business strategy, and could limit our ability to make distributions, including paying out dividends or buying back shares. Specifically, our ability to pay dividends will be limited if we do not have the capital conservation buffer required by the new capital rules, which may further limit our ability to pay dividends to shareholders. See “Supervision and Regulation – Federal Bank Regulation – Capital Requirements.”

 

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Government responses to economic conditions may adversely affect our operations, financial condition and earnings.

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) has changed the bank regulatory framework. For example, it has created an independent Consumer Financial Protection Bureau that has assumed the consumer protection responsibilities of the various federal banking agencies, established more stringent capital standards for banks and gives the Federal Reserve Board exclusive authority to regulate savings and loan holding companies. The legislation has also resulted in new regulations affecting the lending, funding, trading and investment activities of banks and their holding companies. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions such as Community Savings, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. Banks and savings institutions with $10.0 billion or less in assets will continue to be examined by their applicable bank regulators. The new legislation also weakens the federal preemption available for national banks and federal savings associations, and gives state attorneys general the ability to enforce applicable federal consumer protection laws. The Dodd-Frank Act also requires the federal banking agencies to promulgate rules requiring mortgage lenders to retain a portion of the credit risk related to loans that are securitized and sold to investors. We expect that such rules would make it more difficult for us to sell loans into the secondary market. Bank regulatory agencies also have been responding aggressively to concerns and adverse trends identified in examinations. Ongoing uncertainty and adverse developments in the financial services industry and in the domestic and international credit markets, and the effect of new legislation and regulatory actions in response to these conditions, may adversely affect our operations by restricting our business activities, including our ability to originate or sell loans, modify loan terms, or foreclose on property securing loans.

 

The full impact of the Dodd-Frank Act on our business will not be known until all of the regulations implementing the statute are adopted and implemented. As a result, we cannot at this time predict the extent to which the Dodd-Frank Act will impact our business, operations or financial condition. However, compliance with these new laws and regulations may require us to make changes to our business and operations and will likely result in additional costs and divert management’s time from other business activities, any of which may adversely impact our results of operations, liquidity or financial condition.

 

Furthermore, the Federal Reserve Board, in an attempt to help the overall economy, has, among other things, adopted a low interest rate policy through its targeted federal funds rate and the purchase of mortgage-backed securities. If the Federal Reserve Board increases the federal funds rate, market interest rates would likely rise, which may negatively affect the housing markets and the U.S. economic recovery.

 

Risks associated with system failures, interruptions, or breaches of security could negatively affect our earnings.

 

Information technology systems are critical to our business. We use various technology systems to manage our customer relationships, general ledger, securities, deposits, and loans. However, while our policies and procedures are designed to prevent or limit the impact of system failures, interruptions, and security breaches, they may not be adequate. In addition any compromise of our systems could deter customers from using our products and services. Although we rely on security systems to provide security and authentication necessary to effect the secure transmission of data, these precautions may not protect our systems from compromises or breaches of security.

 

In addition, we outsource a majority of our data processing to certain third-party providers. If these third-party providers encounter difficulties, or if we have difficulty communicating with them, our ability to adequately process and account for transactions could be affected, and our business operations could be

 

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adversely affected. Threats to information security also exist in the processing of customer information through various other vendors and their personnel.

 

The occurrence of any system failures, interruption, or breach of security could damage our reputation and result in a loss of customers and business, subject us to additional regulatory scrutiny or expose us to litigation and possible financial liability. Any of these events could have a material adverse effect on our financial condition and results of operations.

 

We could be adversely affected by a failure in our internal controls.

 

A failure in our internal controls could have a significant negative impact not only on our earnings, but also on the perception that customers, regulators and investors may have of us. We continue to devote a significant amount of effort, time and resources to strengthen our controls and ensuring compliance with complex accounting standards and banking regulations.

 

The cost of additional finance and accounting systems, procedures and controls in order to satisfy our new public company reporting requirements will increase our expenses.

 

As a result of the completion of this offering, we will become a public reporting company. We expect that the obligations of being a public company, including the substantial public reporting obligations, will require significant expenditures and place additional demands on our management team. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a stand-alone public company. However, the measures we take may not be sufficient to satisfy our obligations as a public company. Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting, starting with the second annual report that we would expect to file with the SEC. Any failure to achieve and maintain an effective internal control environment could have a material adverse effect on our business and stock price. In addition, we may need to hire additional compliance, accounting and financial staff with appropriate public company experience and technical knowledge, and we may not be able to do so in a timely fashion. As a result, we may need to rely on outside consultants to provide these services for us until qualified personnel are hired. These obligations will increase our operating expenses and could divert our management’s attention from our operations.

 

We operate in a highly regulated environment and may be adversely affected by changes in laws and regulations.

 

We are subject to extensive regulation, supervision, and examination by the Federal Reserve Board, the OCC and, to a lesser extent, the Federal Deposit Insurance Corporation (the “FDIC”). Such regulators govern the activities in which we may engage, primarily for the protection of depositors. These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of a financial institution, the classification of assets by a financial institution, and the adequacy of a financial institution’s allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, or legislation, could have a material impact on us and our operations. Because our business is highly regulated, the laws, rules and applicable regulations are subject to regular modification and change. Laws, rules and regulations may be adopted in the future that could make compliance more difficult or expensive or otherwise adversely affect our business, financial condition or prospects. See “Regulation and Supervision” for a discussion of the regulations to which we are subject.

 

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Changes in accounting standards could affect reported earnings.

 

The bodies responsible for establishing accounting standards, including the Financial Accounting Standards Board, the Securities and Exchange Commission and other regulatory bodies, periodically change the financial accounting and reporting guidance that governs the preparation of our consolidated financial statements. These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply new or revised guidance retroactively.

 

Future legislative or regulatory actions responding to perceived financial and market problems could impair our rights against borrowers.

 

There have been proposals made by members of Congress and others that would reduce the amount distressed borrowers are otherwise contractually obligated to pay under their mortgage loans and limit an institution’s ability to foreclose on mortgage collateral. If proposals such as these, or other proposals limiting our rights as a creditor, are implemented, we could experience increased credit losses or increased expense in pursuing our remedies as a creditor.

 

We are a community bank and our ability to maintain our reputation is critical to the success of our business and the failure to do so may materially adversely affect our performance.

 

We are a community bank, and our reputation is one of the most valuable components of our business. A key component of our business strategy is to rely on our reputation for customer service and knowledge of local markets to expand our presence by capturing new business opportunities from existing and prospective customers in our market area and contiguous areas. This is done, in part, by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers and associates. If our reputation is negatively affected, by the actions of our employees, or by our inability to conduct our operations in a manner that is appealing to current or prospective customers, our business and, therefore, our operating results may be materially adversely affected.

 

Risks Related to the Offering

 

The future price of our common stock may be less than the purchase price in the stock offering.

 

If you purchase shares of common stock in the stock offering, you may not be able to sell them at or above the purchase price in the stock offering. The purchase price in the offering is based upon an independent third-party appraisal of the pro forma market value of Community Savings, pursuant to federal banking regulations and subject to review and approval by the OCC. The appraisal is not intended, and should not be construed, as a recommendation of any kind as to the advisability of purchasing shares of our common stock. Our aggregate pro forma market value as reflected in the final independent appraisal may exceed the market price of our shares of common stock after the completion of the offering, which may result in our stock trading below the initial offering price of $10.00 per share.

 

After the shares of our common stock begin trading, the trading price of the common stock will be determined by the marketplace, and will be influenced by many factors outside of our control, including prevailing interest rates, investor perceptions, securities analyst research reports and general industry, geopolitical and economic conditions. Publicly traded stocks, including stocks of financial institutions, often experience substantial market price volatility. These market fluctuations might not be related to the operating performance of particular companies whose shares are traded.

 

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We do not intend to pay dividends on our common stock.

 

Following completion of the conversion, we do not intend to pay dividends on our common stock. However, any future declaration and payment of cash dividends will be subject to, among other things, our then current and projected consolidated operating results, financial condition, tax considerations, future growth plans, general economic conditions, and other factors our board of directors deems relevant. We may also be limited in the payment of dividends under statutory and regulatory provisions. See “ – Risks Related to Our Business – The short-term and long-term impact of the changing regulatory capital requirements and new capital rules is uncertain”; “Regulation and Supervision – Federal Banking Regulation – Capital Requirements”; “ – New Capital Rule”; “ – Capital Distributions”; and “ – Holding Company Regulation – Dividends.”

 

There will be a limited trading market in our common stock, which could hinder your ability to sell our common stock and may lower the market price of the stock.

 

We have never issued stock and, therefore, there is no current trading market for the shares of common stock. Moreover, our public “float,” which is the total number of our outstanding shares less the shares held by our employee stock ownership plan and our directors and executive officers and is used as a measurement of shares available for trading, will be quite limited. The limited trading market could also result in a wider spread between the “bid” and “ask” prices for the stock, which could make it more difficult to sell a large number of shares at one time and could mean a sale of a large number of shares at one time could depress the market price.

 

We expect that our common stock will be quoted on the OTC Pink Marketplace. Generally, the OTC Pink Marketplace is a market with less liquidity and fewer buyers and sellers than the Nasdaq Stock Market. We do not expect a liquid market to develop for our stock. If you purchase shares of common stock, you may not be able to sell them at or above $10.00 per share. Purchasers of common stock in this stock offering should have long-term investment intent and should recognize that there will be a limited trading market in the common stock. This may make it difficult to sell the common stock after the stock offering and may have an adverse impact on the price at which the common stock can be sold.

 

You may not be able to sell your shares of common stock until you have received ownership statements, which will affect your ability to take advantage of changes in the stock price immediately following the offering.

 

Statements of ownership for the shares of common stock purchased in the offering may not be delivered for several days after the completion of the offering and the commencement of trading in the common stock. Your ability to sell the shares of common stock before receiving your ownership statement will depend on arrangements you may make with a brokerage firm, and you may not be able to sell your shares of common stock until you have received these statements. As a result, you may not be able to take advantage of fluctuations in the price of the common stock immediately following the offering.

 

Our stock-based benefit plans will increase our costs, which will reduce our income.

 

We anticipate that our employee stock ownership plan will purchase up to 8.0% of the total shares of common stock sold in the stock offering, with funds borrowed from Community Savings Bancorp. The cost of acquiring the shares of common stock for the employee stock ownership plan will be between $313,000 at the minimum of the offering range and $487,000 at the adjusted maximum of the offering range. We will record annual employee stock ownership plan expense in an amount equal to the fair value of shares of common stock committed to be released to employees. If shares of common stock appreciate in value over time, compensation expense relating to the employee stock ownership plan will increase.

 

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We also intend to adopt a stock-based benefit plan after the stock offering that would award participants (at no cost to them) shares of our common stock and/or options to purchase shares of our common stock. The number of shares reserved for awards of restricted stock or grants of stock options under any initial stock-based benefit plan may not exceed 4% and 10%, respectively, of the total shares sold in the offering, if these plans are adopted within 12 months after the completion of the conversion. We may reserve shares of common stock for stock awards and stock options in excess of these amounts, provided the stock-based benefit plan is adopted more than one year following the stock offering.

 

Assuming the market price of the common stock is $10.00 per share; the options are granted with an exercise price of $10.00 per share; the dividend yield on the stock is 0%; the expected option life is ten years; the risk free interest rate is 1.46% (based on the ten-year Treasury rate) and the volatility rate on the shares of common stock is 14.13% (based on an index of publicly traded thrift institutions), the estimated grant-date fair value of the options using a Black-Scholes option pricing analysis is $2.41 per option granted. Assuming this value is amortized over a five-year vesting period, the corresponding annual pre-tax expense associated with the stock options in the first year after the offering would be $29,000 at the adjusted maximum of the offering range. In addition, assuming that all shares of restricted stock are awarded at a price of $10.00 per share, and that the awards vest over a five-year period, the corresponding annual pre-tax expense associated with restricted stock awarded under the stock-based benefit plan would be $49,000 at the adjusted maximum of the offering range in the first year after the offering. Moreover, if we grant shares of common stock or options in excess of these amounts, such grants would increase our costs further.

 

The fair value of the shares of restricted stock on the date granted under the stock-based benefit plan will be expensed by us over the vesting period of the shares. If the shares of restricted stock to be granted under the plan are repurchased in the open market (rather than issued directly from authorized but unissued shares by Community Savings Bancorp) and cost the same as the purchase price in the stock offering, the reduction to stockholders’ equity due to the stock-based benefit plan would be between $156,000 at the minimum of the offering range and $243,000 at the adjusted maximum of the offering range. To the extent we repurchase shares of common stock in the open market to fund the grants of shares under the plan, and the price of such shares exceeds the offering price of $10.00 per share, the reduction to stockholders’ equity would exceed the range described above. Conversely, to the extent the price of such shares is below the offering price of $10.00 per share, the reduction to stockholders’ equity would be less than the range described above.

 

The implementation of a stock-based benefit plan will dilute your ownership interest.

 

We intend to adopt a stock-based benefit plan, which will allow participants to be awarded shares of common stock (at no cost to them) and/or options to purchase shares of our common stock, following the stock offering. If this stock-based benefit plan is funded from the issuance of authorized but unissued shares of common stock, stockholders would experience a reduction in ownership interest totaling 12.28%. Although the implementation of the stock-based benefit plan will be subject to stockholder approval, historically, the overwhelming majority of stock-based benefit plans adopted by savings institutions and their holding companies following mutual-to-stock conversions have been approved by stockholders.

 

We have not determined whether we will adopt a stock-based benefit plan more than one year following the stock offering. Stock-based benefit plans adopted more than one year following the stock offering may exceed regulatory restrictions on the size of stock-based benefit plans adopted within one year, which would increase our costs and the dilution to other shareholders.

 

If we adopt a stock-based benefit plan within one year following the completion of the stock offering, then we may grant shares of common stock or stock options under our stock-based benefit plan for up to 4% and 10%, respectively, of our total outstanding shares. The amount of stock awards and stock

 

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options available for grant under the stock-based benefit plan may exceed these amounts, provided the stock-based benefit plans are adopted more than one year following the stock offering. Although the implementation of the stock-based benefit plan will be subject to stockholder approval, the determination as to the timing of the implementation of such a plan will be at the discretion of our board of directors. Stock-based benefit plans that provide for awards in excess of these amounts would increase our costs beyond the amounts estimated in “ – Our stock-based benefit plans will increase our costs, which will reduce our income.” Stock-based benefit plans that provide for awards in excess of these amounts could also result in dilution to stockholders in excess of that described in “ – The implementation of stock-based benefit plans will dilute your ownership interest.”

 

We have entered into an employment agreement, and intend to enter into a salary continuation agreement, with our president and chief executive officer, which may increase our compensation costs upon the occurrence of certain events or increase the cost of acquiring us.

 

We have entered into an employment agreement, and following consummation of the conversion intend to enter into a salary continuation agreement, with our President and Chief Executive Officer. In the event of termination of employment other than for cause, or in the event of certain types of termination following a change in control, as set forth in the employment agreement, the agreement will provide for cash severance benefits that would cost us up to $420,000 based on Mr. Parmiter’s current total compensation. In addition, in the event of a change in control, Mr. Parmiter becomes entitled to the normal retirement benefit under the salary continuation agreement regardless of his age at the time of the change in control. For additional information see “Management – Executive Officer Compensation.”

 

We have broad discretion in using the proceeds of the stock offering. Our failure to effectively deploy the net proceeds of the offering may have an adverse effect on our financial performance and the value of our common stock.

 

We intend to invest between $2.2 million and $2.4 million of the net proceeds of the offering (or $2.7 million at the adjusted maximum of the offering range) in Community Savings. We also expect to use a portion of the net proceeds we retain to fund a loan for the purchase of shares of common stock in the offering by the employee stock ownership plan. We may use the remaining net proceeds to invest in short-term and other investments, repurchase shares of common stock, pay dividends, or for other general corporate purposes. Community Savings intends to use approximately $1.6 million of the proceeds that it receives from us to pay costs associated with its planned withdrawal from a defined benefit plan, and may use the remaining net proceeds it receives to fund new loans, enhance existing products and services, invest in securities, expand its banking franchise by establishing or acquiring a new branch or acquiring another financial institution as opportunities arise, or for other general corporate purposes. However, with the exception of the loan to the employee stock ownership plan and the withdrawal from the defined benefit plan, we have not allocated specific amounts of the net proceeds for any of these purposes, and we will have significant flexibility in determining the amount of the net proceeds we apply to different uses and the timing of such applications. Also, certain of these uses, such as opening new branches or acquiring other financial institutions, paying dividends and repurchasing common stock, may require the approval of the OCC or the Federal Reserve Board. We have not established a timetable for investing the net proceeds, and, accordingly, we may not invest the net proceeds at the time that is most beneficial to Community Savings Bancorp, Community Savings or the shareholders. For additional information see “How We Intend To Use The Proceeds From The Offering.”

 

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Certain provisions of our articles of incorporation and bylaws, and state and federal law could prevent or impede the ability of stockholders to obtain representation on our board of directors, and may discourage hostile acquisitions of control of Community Savings Bancorp, Inc., which could negatively affect our stock value.

 

Certain provisions in our articles of incorporation and bylaws may discourage attempts to acquire Community Savings Bancorp, pursue a proxy contest for control of Community Savings Bancorp, assume control of Community Savings Bancorp by a holder of a large block of common stock, and remove Community Savings Bancorp’s management, all of which shareholders might think are in their best interests. These provisions include:

 

·restrictive requirements regarding eligibility for service on the board of directors, including a mandatory retirement age, residency requirements, a prohibition on service by persons who are or have been the subject of certain legal or regulatory proceedings, a prohibition on service by persons who are party to agreements that may affect their voting discretion, a prohibition on service by persons who have lost more than one campaign for election, and a prohibition on service by nominees or representatives (as defined in applicable Federal Reserve Board regulations) of another person who would not be eligible for service or of an entity the partners or controlling persons of which would not be eligible for service;

 

·the election of directors to staggered terms of three years;

 

·provisions requiring advance notice of shareholder proposals and director nominations;

 

·a limitation on the right to vote more than 10% of the outstanding shares of common stock;

 

·a prohibition on cumulative voting;

 

·a requirement that the calling of a special meeting by shareholders requires the request of a majority of all votes entitled to be cast at the special meeting;

 

·a requirement that directors may only be removed for cause and by a majority of the votes entitled to be cast;

 

·the board of directors’ ability to cause Community Savings Bancorp to issue preferred stock; and

 

·the requirement of the vote of 80% of the votes entitled to be cast in order to amend certain provisions of the articles of incorporation, including those set forth above.

 

For further information, see “Restrictions on Acquisition of Community Savings Bancorp – Community Savings Bancorp’s Articles of Incorporation and Bylaws.”

 

Federal regulations prohibit, for three years following the completion of a mutual-to-stock conversion, the offer to acquire or the acquisition of more than 10% of any class of equity security of Community Savings or Community Savings Bancorp without the prior approval of the Federal Reserve Board. In addition, the business corporation law of Maryland, the state where Community Savings Bancorp is incorporated, provides for certain restrictions on acquisition of Community Savings Bancorp. See “Restrictions on Acquisitions of Community Savings Bancorp – Maryland Corporate Law,” “ – Community Savings’ Charter” and “ – Change in Control Regulations.”

 

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A significant percentage of our common stock will be held or controlled by our directors and executive officers and benefit plans.

 

Our board of directors and executive officers intend to purchase in the aggregate approximately 9.5% and 7.0% of our common stock at the minimum and maximum of the offering range, respectively. These purchases, together with the purchase by the employee stock ownership plan of 8.0% of the aggregate shares sold in the offering, as well as the potential acquisition of common stock through the proposed equity incentive and stock award plan will result in ownership by insiders of Community Savings Bancorp and Community Savings of approximately 31.5% of the total shares issued in the offering at the minimum and approximately 29.0% of the total shares issued in the offering at the maximum of the offering range. The ownership by executive officers, directors and our stock plans could result in actions being taken that are not in accordance with other shareholders’ wishes, and could prevent any action requiring a supermajority vote under our articles of incorporation and bylaws (including the amendment of certain protective provisions of our articles and bylaws discussed immediately above).

 

Our stock value may be negatively affected by federal regulations that restrict takeovers.

 

For three years following the stock offering, OCC regulations prohibit any person from acquiring or offering to acquire more than 10% of our common stock without the prior written approval of the OCC, or successor regulator. See “Restrictions on Acquisition of Community Savings Bancorp” for a discussion of applicable OCC regulations regarding acquisitions. Certain prospective investors may choose to purchase shares of a company if they believe that the company will be acquired, thereby potentially increasing its stock value. Because federal regulations will restrict any such acquisition of us or Community Savings for at least three years after the completion of the conversion, these regulations may negatively affect our stock value.

 

We are an emerging growth company within the meaning of the Securities Act, and if we decide to take advantage of certain exemptions from various reporting requirements applicable to emerging growth companies, our common stock could be less attractive to investors.

 

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933 (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 ( the “JOBS Act”). We are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, reduced disclosure about our executive compensation and omission of compensation discussion and analysis, and an exemption from the requirement of holding a non-binding advisory vote on executive compensation. In addition, we will not be subject to certain requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes Oxley Act”), including the additional level of review of our internal control over financial reporting as may occur when outside auditors attest as to our internal control over financial reporting. As a result, our stockholders may not have access to certain information they may deem important.

 

We could remain an “emerging growth company” for up to five years, or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1.0 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (c) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three-year period. Taking advantage of any of these exemptions may adversely affect the value and trading price of our common stock.

 

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We have elected to delay the adoption of new and revised accounting pronouncements, which means that our financial statements may not be comparable to those of other public companies.

 

As an “emerging growth company” we have elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.

 

We may take other actions to meet the minimum required sales of shares if we cannot find enough purchasers in the community.

 

If we are not able to reach the minimum of the offering range, we may do any of the following: increase the maximum purchase limitations and allow all maximum purchase subscribers to increase their orders to the new maximum purchase limitations; terminate the offering and promptly return all funds; set a new offering range, notify all subscribers of the opportunity to confirm, cancel or change their orders; or take such other actions as may be permitted, to the extent such permission is required, by the Federal Reserve Board.

 

The distribution of subscription rights could have adverse income tax consequences and the cost basis of the stock to purchasers with subscription rights could be less than the purchase price.

 

If the subscription rights granted to certain current or former depositors or certain borrowers of Community Savings are deemed to have an ascertainable value, receipt of such rights may be taxable in an amount equal to such value. Whether subscription rights are considered to have ascertainable value is an inherently factual determination. Additionally, if the subscription rights were deemed to have an ascertainable value, it is possible that the cost basis of the stock to any purchaser who used subscription rights could be reduced by an amount equal to the value ascribed to the subscription rights. We have received an opinion of counsel, Luse Gorman, PC, that it is more likely than not that such rights have no value and that it is more likely than not that the basis of the common stock to its stockholders will be the purchase price thereof; however, such opinion is not binding on the Internal Revenue Service.

 

 29 

 

SELECTED FINANCIAL AND OTHER DATA
OF COMMUNITY SAVINGS

 

The following tables set forth selected consolidated historical financial and other data of Community Savings for the periods and at the dates indicated. The information at and for the years ended June 30, 2016 and 2015 is derived in part from, and should be read together with, the audited financial statements and notes thereto of Community Savings beginning at page F-1 of this prospectus. The following information is only a summary, and should be read in conjunction with our financial statements and notes beginning on page F-1 of this prospectus.

 

   At June 30, 
   2016   2015 
   (In thousands) 
Selected Financial Condition Data:          
           
Total assets  $54,279   $64,943 
Cash and cash equivalents   3,184    10,148 
Interest-earning time deposits in banks   5,567    5,801 
Investment securities   12,037    17,204 
Loans, net   32,629    29,010 
Premises and equipment, net   452    2,231 
Deposits   40,102    57,859 
FHLB advances   7,250    1,000 
Total equity   6,655    5,778 

 

   For the Years Ended June 30, 
   2016   2015 
   (In thousands) 
Selected Operations Data:          
           
Interest income  $1,794   $2,035 
Interest expense   214    315 
Net interest income   1,580    1,720 
Provision for loan losses        
Net interest income after provision for loan losses   1,580    1,720 
Noninterest income   1,098    406 
Noninterest expense   1,977    2,438 
Income (loss) before income tax expense   701    (312)
Income tax expense   22     
Net income (loss)  $679   $(312)

 

 30 

  

   At or For the Years Ended
June 30,
 
   2016   2015 
         
Selected Financial Ratios and Other Data:          
           
Performance Ratios:          
Return (loss) on average assets   1.20%   (0.46)%
Return (loss) on average equity   10.39%   (5.21)%
Interest rate spread (1)   2.84%   2.65%
Net interest margin (2)   2.95%   2.77%
Efficiency ratio (3)   73.82%   114.68%
Non-interest expense to average total assets   3.50%   3.57%
Average interest-earning assets to average interest-bearing liabilities   126.73%   123.81%
Average equity to average total assets   11.57%   8.78%
           
Asset Quality Ratios:          
Non-performing assets to total assets   0.66%   0.56%
Non-performing loans to total loans   0.99%   0.99%
Allowance for loan losses to non-performing loans   78.09%   99.65%
Allowance for loan losses to total loans   0.77%   0.98%
           
Capital Ratios:          
Total capital (to risk-weighted assets)   27.70%   24.90%
Common equity Tier 1 capital (to risk-weighted assets)   26.70%   23.80%
Tier 1 capital (to risk-weighted assets)   26.70%   23.80%
Tier 1 leverage capital (to average assets)   11.90%   8.80%
           
Other Data:          
Number of full service offices   1    3 
Full-time equivalent employees   14    22 

 

 

 

(1)Represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities for the year.
(2)The net interest margin represents net interest income as a percent of average interest-earning assets for the year.
(3)The efficiency ratio represents non-interest expense divided by the sum of net interest income and non-interest income.

 

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RECENT DEVELOPMENTS

 

The following tables set forth selected historical financial and other data of Community Savings for the periods and at the dates indicated. The information at June 30, 2016 is derived in part from, and should be read together with, the audited financial statements and notes thereto of Community Savings beginning at page F-1 of this prospectus. The information at September 30, 2016 and for the three months ended September 30, 2016 and 2015 is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The results of operations for the three months ended September 30, 2016 are not necessarily indicative of the results to be achieved for the remainder of the fiscal year ending June 30, 2017 or any other period.

 

   At September 30,   At June 30, 
   2016   2016 
   (In thousands) 
   (Unaudited)     
Selected Financial Condition Data:          
Total assets  $53,606   $54,279 
Cash and cash equivalents   4,077    3,184 
Interest-earning time deposits in other financial institutions   4,570    5,567 
Investment securities available-for-sale   10,612    11,097 
Other investment securities   940    940 
Loans, net   32,193    32,629 
Premises and equipment, net   442    452 
Foreclosed assets, net   23    34 
Accrued interest receivable   174    185 
Other assets   575    191 
           
Total liabilities   46,941    47,624 
Deposits   40,280    40,102 
Federal Home Loan Bank advances   6,200    7,250 
Other liabilities   461    272 
Total equity   6,665    6,655 

 

   For the Three Months Ended September 30, 
   2016   2015 
   (Unaudited) 
   (In thousands) 
Selected Operating Data:          
Interest income  $439   $445 
Interest expense   52    55 
Net interest income   387    390 
Provision for loan losses        
Net interest income after provision for loan losses   387    390 
Noninterest income   99    893 
Noninterest expense   484    618 
Income before federal income tax   2    665 
Federal income tax expense (benefit)   (2)   37 
Net income  $4   $628 

 

 32 

  

   At or For the Three Months Ended 
   September 30, 
   2016   2015 
   (Unaudited) 
Performance ratios:          
Return on average assets (1)   0.03%   4.25%
Return on average equity (1)   0.24%   39.62%
Interest rate spread (1) (2)   2.93%   2.71%
Net interest margin (1) (3)   3.05%   2.82%
Efficiency ratio (4)   99.59%   48.17%
Noninterest expense to average total assets (1)   3.61%   4.19%
Average interest-earning assets to average interest-bearing liabilities   129.51%   126.14%
Average equity to average total assets   12.43%   10.74%
Asset Quality Ratios:          
Nonperforming assets to total assets   0.65%   0.59%
Nonperforming loans to total loans   1.00%   0.90%
Allowance for loan losses to nonperforming loans   78.09%   101.10%
Allowance for loan losses to total loans   0.78%   0.91%
Capital Ratios:          
Total capital (to risk-weighted assets)   27.60%   30.10%
Common equity Tier 1 capital (to risk-weighted assets)   26.57%   28.88%
Tier 1 capital (to risk-weighted assets)   26.57%   28.88%
Leverage capital (to adjusted total average assets)   12.27%   11.09%
Other Data:          
Number of full service offices   1    1 
Full-time equivalent employees   14    14 

 

 

(1)Annualized.
(2)Represents the difference between the weighted-average yield on average interest-earning assets and the weighted-average cost of average interest-bearing liabilities.
(3)Represents net interest income as a percent of average interest-earning assets.
(4)Represents noninterest expense divided by the sum of net interest income and noninterest income.

 

Comparison of Financial Condition at September 30, 2016 and June 30, 2016

 

Total Assets. Total assets decreased $673,000, or 1.2%, to $53.6 million at September 30, 2016 from $54.3 million at June 30, 2016. The decrease was due primarily to decreases in interest-earning time deposits in other financial institutions, available-for-sale securities, and net loans, offset in part by increases in cash and cash equivalents and deferred conversion costs in other assets.

 

Cash and Cash Equivalents. Cash and cash equivalents increased $893,000, or 28.0%, to $4.1 million at September 30, 2016 from $3.2 million at June 30, 2016. The increase in cash and cash equivalents was primarily due to funds retained from maturities of interest-earning time deposits in other financial institutions and available-for-sale securities.

 

Interest-earning Time Deposits in Other Financial Institutions. Interest-earning time deposits in other financial institutions decreased $997,000, or 17.9%, to $4.6 million at September 30, 2016 from $5.6 million at June 30, 2016. The decrease was due to maturities of these deposits during the period.

 

Securities available-for-sale. Investments in securities available-for-sale decreased $485,000, or 4.4%, to $10.6 million at September 30, 2016 from $11.1 million at June 30, 2016. The decrease in securities available-for-sale was primarily due to maturities of $1.5 million and principal repayments on mortgage-backed securities totaling $460,000, partially offset by purchases of $1.4 million. Net proceeds from maturities of securities, as well as maturities of interest-earning time deposits in other financial institutions, were used in part to fund repayments of Federal Home Loan Bank advances and held in cash and cash equivalents.

 

Net Loans. Net loans decreased $436,000, or 1.3%, to $32.2 million at September 30, 2016 from $32.6 million at June 30, 2016. The decrease in net loans was due primarily to a decrease of $360,000, or 7.4%, in consumer loans to $4.5 million at September 30, 2016 from $4.9 million at June 30, 2016, and a decrease of $178,000, or 10.8%, in commercial real estate and multifamily loans, to $1.5 million at September 30, 2016

 

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from $1.6 million at June 30, 2016. Partially offsetting these decreases, one-to four-family residential real estate loans increased $162,000, or 0.7%, during the three months ended September 30, 2016. Loans originated during the three months ended September 30, 2016 totaled $1.5 million, of which $1.4 million were loans secured by one-to four-family residential real estate.

 

Other Assets. Other assets increased $384,000, or 201.0%, to $575,000 at September 30, 2016 from $191,000 at June 30, 2016. The increase was due primarily to conversion costs incurred of $368,000. These costs have been deferred and will ultimately be offset against the proceeds of the sale of common stock upon completion of the stock offering.

 

Deposits. Deposits increased $178,000, or 0.4%, to $40.3 million at September 30, 2016 from $40.1 million at June 30, 2016. The increase was comprised of growth in demand deposits of $1.2 million, partially offset by decreases in savings and money market accounts of $894,000 and in certificates of deposit of $101,000.

 

FHLB Advances. FHLB advances decreased $1.1 million, or 14.5%, to $6.2 million at September 30, 2016 from $7.3 million at June 30, 2016, as we utilized funds from maturing interest-earning time deposits in other financial institutions and investment securities available for sale to repay certain FHLB advances.

 

Total Equity. Total equity increased $10,000, or 0.2%, to $6.7 million at September 30, 2016 compared to June 30, 2016. The increase resulted from net income of $4,000 and other comprehensive income of $6,000 during the period.

 

Comparison of Operating Results for the Three Months Ended September 30, 2016 and September 30, 2015

 

General. For the three months ended September 30, 2016, we had net income of $4,000 compared to net income of $628,000 for the three months ended September 30, 2015, a decrease of $624,000. The decrease in net income resulted primarily from a decrease of $794,000 in noninterest income, which included an $810,000 one-time gain on sale of branch offices realized in the 2015 quarter, offset in part by a decrease of $134,000 in noninterest expense and a decrease of $39,000 in federal income tax.

 

Interest Income. Interest income decreased $6,000, or 1.3%, to $439,000 for the three months ended September 30, 2016 from $445,000 for the three months ended September 30, 2015. The decrease resulted primarily from a $21,000 decrease in interest on investment securities offset in part by a $17,000 increase in interest on loans receivable. The average balance of investment securities decreased $5.4 million, or 33.4%, to $10.7 million during the three months ended September 30, 2016 from $16.1 million during the three months ended September 30, 2015, and the average yield on investment securities increased 11 basis points to 1.90% for the 2016 period from 1.79% for the 2015 period. The average balance of loans receivable increased $3.2 million, or 10.7%, to $32.7 million during the three months ended September 30, 2016 from $29.5 million during the three months ended September 30, 2015, but the average yield on loans decreased 23 basis points to 4.36% during the three months ended September 30, 2016 from 4.59% during the year earlier period, reflecting lower market interest rates.

 

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Interest Expense. Interest expense decreased $3,000, or 5.5%, to $52,000 for the three months ended September 30, 2016 from $55,000 for the three months ended September 30, 2015. Interest expense on deposits decreased $9,000, or 23.1%, to $30,000 for the three months ended September 30, 2016 from $39,000 for the three months ended September 30, 2015. The decrease was primarily due to a decrease of $5.7 million, or 14.9%, in the average balance of interest-bearing deposits, resulting primarily from our branch sales in July 2015, to $32.6 million for the three month period in 2016 from $38.3 million for the comparable period in 2015, and a decrease of four basis points in the average cost of interest-bearing deposits to 0.37% for the three months ended September 30, 2016 from 0.41% for the three months ended September 30, 2015, reflecting the declining interest rate environment. Interest expense on borrowings increased $6,000 to $22,000 for the three months ended September 30, 2016 from $16,000 for the three months ended September 30, 2015. The average balance of FHLB advances increased $972,000 to $6.5 million for the three months ended September 30, 2016 from $5.6 million for the three months ended September 30, 2015, while the average cost of these advances increased 19 basis points to 1.34% from 1.15% period-to-period.

 

Net Interest Income. Net interest income decreased $3,000, or 0.8%, to $387,000 for the three months ended September 30, 2016 from $390,000 for the three months ended September 30, 2015. Our net interest rate spread increased to 2.93% for the three months ended September 30, 2016 from 2.71% for the three months ended September 30, 2015, and our net interest margin increased to 3.05% for the three months ended September 30, 2016 from 2.82% for the comparable three-month period in 2015.

 

Provision for Loan Losses. Based on our analysis of the factors described in “Critical Accounting Policies – Allowance for Loan Losses,” we did not record a provision for loan losses for either of the three months ended September 30, 2016 or 2015. The allowance for loan losses was $253,000, or 0.78% of total loans, at September 30, 2016, compared to $275,000, or 0.91% of total loans, at September 30, 2015. Total nonperforming loans were $324,000 at September 30, 2016, compared to $272,000 at September 30, 2015. Classified (substandard, doubtful and loss) loans were $855,000 at September 30, 2016, compared to $844,000 at September 30, 2015, and total loans past due greater than 30 days were $264,000 and $291,000 at September 30, 2016 and 2015, respectively. The Bank had no net charge-offs during either of the three months ended September 30, 2016 and 2015. As a percentage of nonperforming loans, the allowance for loan losses was 78.1% at September 30, 2016 compared to 101.1% at September 30, 2015.

 

The allowance for loan losses reflects the estimate we believe to be appropriate to cover incurred probable losses which were inherent in the loan portfolio at September 30, 2016 and 2015. While we believe the estimates and assumptions used in our determination of the adequacy of the allowance are reasonable, the actual amount of future provisions may exceed the amount of past provisions, and the increase in future provisions that may be required may adversely impact our financial condition and results of operations.

 

Noninterest Income. Noninterest income decreased $794,000, or 88.9%, to $99,000 for the three months ended September 30, 2016 from $893,000 for the three months ended September 30, 2015. The decrease was primarily due to an $810,000 one-time gain on sale of branch offices in July 2015 realized during the three months ended September 30, 2015. Additionally, service charges and fees decreased $18,000 to $65,000 during the three months ended September 30, 2016 compared to the same period in 2015, which resulted from the loss of customers at our former branch offices following the July 2015 sale. These decreases were partially offset by a gain of $29,000 on sale of foreclosed assets in the three months ended September 30, 2016, compared to a loss on sale of $1,000 in the 2015 quarter.

 

Noninterest Expense. Noninterest expense decreased $134,000, or 21.7%, to $484,000 for the three months ended September 30, 2016 compared to $618,000 for the three months ended September 30, 2015. Occupancy and equipment decreased $22,000, or 46.8%, to $25,000 during the three months ended September 30, 2016 from $47,000 during the three months ended September 30, 2015. Similarly, our data processing, correspondent bank service charges, and FDIC insurance premiums all decreased period-to-period resulting from cost savings from our branch sales in July 2015.

 

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Noninterest expense can be expected to increase because of costs associated with operating as a public company and increased compensation costs related to possible implementation of a stock-based benefit plan, if approved by our stockholders. Additionally, we intend to withdraw from our multiple-employer defined benefit plan following completion of the conversion and expect to incur a one-time charge of approximately $1.6 million in connection with this withdrawal.

 

Federal Income Taxes. We recognized a federal income tax benefit of $2,000 for the three months ended September 30, 2016, a decrease of $39,000 from the $37,000 expense recognized during the three months ended September 30, 2015. The decrease resulted from a decline in pre-tax income of $663,000 during the three months ended September 30, 2016 compared to the same period in 2015.

 

FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “believe,” “contemplate,” “continue,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:

 

·statements of our goals, intentions and expectations;

 

·statements regarding our business plans, prospects, growth and operating strategies;

 

·statements regarding the asset quality of our loan and investment portfolios; and

 

·estimates of our risks and future costs and benefits.

 

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this prospectus.

 

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

 

·our ability to manage our operations under the economic conditions in our market area;

 

·adverse changes in the financial industry, securities, credit and national and local real estate markets (including real estate values);

 

·significant increases in our loan losses, including as a result of our inability to resolve classified and non-performing assets or reduce risks associated with our loans, and management’s assumptions in determining the adequacy of the allowance for loan losses;

 

·credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and in our allowance for loan losses and provision for loan losses;

 

·the use of estimates in determining fair value of certain of our assets, which may prove to be incorrect and result in significant declines in valuations;

 

·competition among depository and other financial institutions;

 

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·our success in increasing our one- to four-family residential real estate lending;

 

·our ability to attract and maintain deposits and our success in introducing new financial products;

 

·our ability to maintain our asset quality even as we continue to originate consumer and non-residential real estate loans;

 

·changes in interest rates generally, including changes in the relative differences between short term and long term interest rates and in deposit interest rates, that may affect our net interest margin and funding sources;

 

·fluctuations in the demand for loans, which may be affected by the cyclical nature of the oil and gas exploration industry in our market area and the number of unsold homes, land and other properties in our market areas and by declines in the value of real estate in our market area;

 

·changes in consumer spending, borrowing and savings habits;

 

·declines in the yield on our assets resulting from the current low interest rate environment;

 

·risks related to a high concentration of loans secured by real estate located in our market area;

 

·the results of examinations by our regulators, including the possibility that our regulators may, among other things, require us to increase our allowance for loan losses, write down assets, change our regulatory capital position, limit our ability to borrow funds or maintain or increase deposits, or prohibit us from paying dividends, which could adversely affect our dividends and earnings;

 

·changes in the level of government support of housing finance;

 

·our ability to enter new markets successfully and capitalize on growth opportunities;

 

·changes in laws or government regulations or policies affecting financial institutions, including the Dodd-Frank Act and the JOBS Act, which could result in, among other things, increased deposit insurance premiums and assessments, capital requirements, regulatory fees and compliance costs, particularly the new capital regulations, and the resources we have available to address such changes;

 

·changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;

 

·changes in our compensation and benefit plans, and our ability to retain key members of our senior management team and to address staffing needs in response to product demand or to implement our strategic plans;

 

·loan delinquencies and changes in the underlying cash flows of our borrowers;

 

·our ability to control costs and expenses, particularly those associated with operating as a publicly traded company;

 

·the failure or security breaches of computer systems on which we depend;

 

·the ability of key third-party service providers to perform their obligations to us;

 

·changes in the financial condition or future prospects of issuers of securities that we own; and

 

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·other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing, products and services described elsewhere in this prospectus.

 

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Please see “Risk Factors” beginning on page 15.

 

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HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING

 

Although we cannot determine what the actual net proceeds from the sale of the shares of common stock in the offering will be until the offering is completed, we anticipate that the net proceeds will be between $2.7 million and $4.1 million, or $4.9 million if the offering range is increased by 15%.

 

We intend to distribute the net proceeds as follows:

 

  

Based Upon the Sale at $10.00 Per Share of

 
  

391,000 shares

  

460,000 shares 

  

529,000 shares 

  

608,350 shares (1)

 
  

Amount

  

Percent
of Net
Proceeds

  

Amount

  

Percent
of Net
Proceeds

  

Amount

  

Percent
of Net
Proceeds

  

Amount

  

Percent
of Net
Proceeds

 
   (Dollars in thousands) 
                                 
Offering proceeds   $3,910        $4,600        $5,290        $6,084      
Less offering expenses    (1,200)        (1,200)        (1,200)        (1,200)     
Net offering proceeds (2)   $2,710    100.0%  $3,400    100.0%  $4,090    100.0%  $4,884    100.00%
                                         
Distribution of net proceeds:                                        
To Community Savings   $(2,214)   (81.7)%  $(2,297)   (67.6)%  $(2,380)   (58.2)%  $(2,685)   (55.0)%
To fund loan to employee stock ownership plan   $(313)   (11.5)%  $(368)   (10.8)%  $(423)   (10.3)%  $(487)   (10.0)%
Retained by Community Savings Bancorp   $183    6.8%  $735    21.6%  $1,287    31.5%  $1,712    35.0%

 

 

(1)As adjusted to give effect to an increase in the number of shares, which could occur due to a 15% increase in the offering range to reflect demand for the shares or changes in market conditions following the commencement of the offering.
(2)Assumes that all shares of common stock are sold in the subscription and community offerings.

 

Payments for shares of common stock made through withdrawals from existing deposit accounts will not result in the receipt of new funds for investment but will result in a reduction of Community Savings’ deposits. The net proceeds may vary because total expenses relating to the offering may be more or less than our estimates. For example, our expenses would increase if a syndicated community offering were used to sell shares of common stock not purchased in the subscription and community offerings.

 

Community Savings Bancorp intends to fund a loan to the employee stock ownership plan to purchase shares of common stock in the stock offering. Community Savings Bancorp may also use the proceeds it retains from the offering:

 

·to invest in short-term and other securities consistent with our investment policy;

 

·to pay cash dividends to our stockholders, although we do not currently intend to pay dividends;

 

·to repurchase shares of our common stock subject to compliance with applicable regulatory requirements; and

 

·for other general corporate purposes.

 

With the exception of the funding of the loan to the employee stock ownership plan, Community Savings Bancorp has not quantified its plans for use of the offering proceeds for each of the foregoing purposes. Initially, we intend to invest a substantial portion of the net proceeds in investment grade

 

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securities, including securities issued by U.S. Government agencies and mortgage-backed securities issued by U.S. Government agencies and U.S. Government-sponsored enterprises.

 

See “Our Dividend Policy” for a discussion of our expected dividend policy following the completion of the conversion. Under applicable federal regulations, we may not repurchase shares of our common stock during the first year following the completion of the conversion, except when extraordinary circumstances exist and with prior regulatory approval, or except to fund management recognition plans (which would require notification to the Federal Reserve Board) or tax-qualified employee stock benefit plans.

 

Community Savings will receive a capital contribution equal to at least 50% of the net proceeds of the offering, plus such additional amounts as may be necessary so that, upon completion of the offering, Community Savings will have a Tier 1 leverage ratio of at least 10.00%, after payment of costs to withdraw from the multiple employer defined benefit plan. Based on this formula, we anticipate that Community Savings Bancorp will invest $2.2 million, $2.3 million, $2.4 million and $2.7 million, respectively, of the net proceeds at the minimum, midpoint, maximum and adjusted maximum of the offering in Community Savings.

 

Community Savings intends to use approximately $1.6 million of the proceeds that it receives from us to pay costs associated with its planned withdrawal from a multiple employer defined benefit plan. Management has decided to withdraw from the plan because of the expense associated with its participation in the plan, which varies significantly year to year. The withdrawal from the plan is expected to result in a significant net savings and increase the predictability of the Bank’s compensation expense. The actual cost to withdraw from the defined benefit plan will be based on the cost of purchasing annuities through an insurance company for the benefit of the former participants of the plan as well as the value of the plan’s underlying assets at the time of withdrawal. The cost of these annuities will depend, in part, on interest rates at the time of the withdrawal. The purchase of these annuities will be overseen by the plan’s administrator consistent with its fiduciary duties under the Employee Retirement Income Security Act of 1974 (ERISA) and will follow the administrator’s procedures in soliciting bids from annuity providers (generally, insurance companies) for single-premium annuity contracts. Both the annuity costs and underlying asset values are subject to change, and therefore, the final contribution due to terminate the plan could be more or less than the $1.6 million estimate. The Company has not set a specific maximum amount it would be willing to pay in order to withdraw from the plan, but would expect to notify its shareholders through a public filing of the decision to withdrawal.

 

Community Savings and may use the remaining net proceeds it receives from the stock offering:

 

·to fund new residential real estate loans, including home equity loans, consumer loans, and to a lesser extent, commercial real estate loans;

 

·to enhance existing products and services and to support the development of new products and services;

 

·to invest in securities issued by U.S. Government agencies and mortgage-backed securities issued by U.S. Government agencies and U.S. Government-sponsored enterprises, municipal securities and other securities in accordance with our investment policy;

 

·to expand our retail banking franchise by establishing or acquiring a new branch or acquiring another financial institution as opportunities arise, although we do not currently have any understandings or agreements to establish or acquire any new branch offices or other financial institution; and

 

·for other general corporate purposes.

 

With the exception of the payment of costs associated with its planned withdrawal from the multiple employer defined benefit plan, Community Savings has not quantified its plans for use of the offering proceeds for each of the foregoing purposes. Initially, a substantial portion of the net proceeds

 

 40 

  

will be invested in securities issued by U.S. Government agencies and mortgage-backed securities issued by U.S. Government agencies and U.S. Government-sponsored enterprises. The use of the proceeds outlined above may change based on many factors, including, but not limited to, changes in interest rates, equity markets, laws and regulations affecting the financial services industry, our relative position in the financial services industry, the attractiveness of opportunities to expand our operations through establishing or acquiring new branches, our ability to receive regulatory approval for any such expansion activities, and overall market conditions.

 

We expect our return on equity to decrease, until we are able to reinvest effectively the additional capital raised in the stock offering. See “Risk Factors – Risks Related to the Offering – We have broad discretion in using the proceeds of the stock offering. Our failure to effectively deploy the net proceeds may have an adverse effect on our financial performance and the value of our common stock.”

 

OUR DIVIDEND POLICY

 

We do not intend to pay dividends following completion of the stock offering. However, our board of directors will have the authority to declare dividends on our shares of common stock, subject to statutory and regulatory requirements. In determining whether to pay a cash dividend and the amount of such cash dividend, the board of directors would take into account a number of factors, including capital requirements, our financial condition and results of operations, other uses of funds for the long-term value of stockholders, tax considerations, statutory and regulatory limitations and general economic conditions. Special cash dividends, stock dividends or returns of capital, to the extent permitted by regulations and policies of the Federal Reserve Board and the Office of the Comptroller of the Currency, may be paid in addition to, or in lieu of, regular cash dividends.

 

We expect to file a consolidated federal tax return with Community Savings. Accordingly, it is anticipated that any cash distributions that we make to our stockholders would be treated as cash dividends and not as a non-taxable return of capital for federal and state tax purposes. Additionally, pursuant to regulations of the Federal Reserve Board, during the three-year period following the stock offering, we 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.

 

Pursuant to our articles of incorporation, we are authorized to issue preferred stock. If we issue preferred stock, the holders thereof may have a priority over the holders of our shares of common stock with respect to the payment of dividends. For a further discussion concerning the payment of dividends on our shares of common stock, see “Description of Capital Stock of Community Savings Bancorp – Common Stock.” Dividends we can declare and pay will depend, in part, upon receipt of dividends from Community Savings, because initially we will have no source of income other than dividends from Community Savings and earnings from the investment of the net proceeds from the sale of shares of common stock retained by Community Savings Bancorp and interest payments received in connection with the loan to the employee stock ownership plan. Regulations of the Office of the Comptroller of the Currency impose limitations on “capital distributions” by savings institutions. See “Regulation and Supervision – Federal Banking Regulation – Capital Distributions.”

 

Any payment of dividends by Community Savings to us that would be deemed to be drawn out of Community Savings’ bad debt reserves, if any, would require a payment of taxes at the then-current tax rate by Community Savings on the amount of earnings deemed to be removed from the reserves for such distribution. Community Savings does not intend to make any distribution to us that would create such a federal tax liability. See “Taxation.”

 

 41 

  

MARKET FOR THE COMMON STOCK

 

Community Savings Bancorp is a newly formed company and has never issued capital stock. Community Savings, as a mutual institution, has never issued capital stock. Community Savings Bancorp expects that that its common stock will be quoted on the OTC Pink Marketplace (OTCPK) operated by OTC Markets Group. Keefe, Bruyette & Woods, Inc. has advised us that it intends to make a market in our common stock following the conversion and stock offering, but it is under no obligation to do so.

 

We do not expect that there will be an active trading market for our common stock. The development of an active trading market depends on the existence of willing buyers and sellers, the presence of which is not within our control, or that of any market maker. The number of active buyers and sellers of the shares of common stock at any particular time may be limited. Under such circumstances, you could have difficulty selling your shares of common stock on short notice, and, therefore, you should not view the shares of common stock as a short-term investment. In addition, our public “float,” which is the total number of our outstanding shares less the shares held by our employee stock ownership plan and our directors and executive officers, will be quite limited. As a result, it is highly unlikely that an active trading market for the common stock will develop or that, if it develops, it will continue. Furthermore, we cannot assure you that, if you purchase shares of common stock, you will be able to sell them at or above $10.00 per share. Purchasers of common stock in this stock offering should have long-term investment intent and should recognize that there will be a limited trading market in the common stock. This may make it difficult to sell the common stock after the stock offering and may have an adverse impact on the price at which the common stock can be sold.

 

 42 

 

HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE

 

At June 30, 2016, Community Savings exceeded all of the applicable regulatory capital requirements and was considered “well capitalized.” The table below sets forth the historical equity capital and regulatory capital of Community Savings at June 30, 2016, and the pro forma equity capital and regulatory capital of Community Savings after giving effect to the sale of shares of common stock at $10.00 per share. The table assumes the receipt by Community Savings of $2.2 million, $2.3 million, $2.4 million and $2.7 million, respectively at the minimum, midpoint, maximum and adjusted maximum of the offering range. See “How We Intend to Use the Proceeds from the Offering.”

 

  

Community Savings
Historical at

  

Pro Forma at June 30, 2016, Based Upon the Sale in the Offering of (1)

 
  

June 30, 2016

  

391,000 shares

  

460,000 shares

  

529,000 shares

  

608,350 shares (2)

 
  

Amount

  

Percent of
Assets (3)

  

Amount

  

Percent of
Assets (3)

  

Amount

  

Percent of
Assets (3)

  

Amount

  

Percent of
Assets (3)

  

Amount

  

Percent of
Assets (3)

 
   (Dollars in thousands) 
     
Equity  $6,655    12.3%  $6,755    12.3%  $6,755    12.3%  $6,755    12.3%  $6,965    12.6%
                                                   
Tier 1 leverage capital  $6,567    11.9%  $6,667    12.0%  $6,667    12.0%  $6,667    11.9%  $6,877    12.2%
Tier 1 leverage capital requirement   2,756    5.0    2,785    5.0    2,789    5.0    2,793    5.0    2,808    5.0 
Excess  $3,811    6.9%  $3,882    7.0%  $3,878    7.0%  $3,874    6.9%  $4,069    7.2%
                                                   
Tier 1 risk-based
capital (4)
  $6,567    26.7%  $6,667    28.5%  $6,667    28.5%  $6,667    28.4%  $6,877    29.3%
Risk-based requirement   1,969    8.0    1,873    8.0    1,874    8.0    1,876    8.0    1,881    8.0 
Excess  $4,598    18.7%  $4,794    20.5%  $4,793    20.5%  $4,791    20.4%  $4,996    21.3%
                                                   
Total risk-based
capital (4)
  $6,820    27.7%  $6,920    29.6%  $6,920    29.5%  $6,920    29.5%  $7,130    30.3%
Risk-based requirement   2,462    10.0    2,341    10.0    2,343    10.0    2,345    10.0    2,351    10.0 
Excess  $4,358    17.7%  $4,579    19.6%  $4,577    19.5%  $4,575    19.5%  $4,779    20.3%
                                                   
Common equity Tier 1 risk-based capital (4)  $6,567    26.7%  $6,667    28.5%  $6,667    28.5%  $6,667    28.4%  $6,877    29.3%
Risk-based requirement   1,600    6.5    1,522    6.5    1,523    6.5    1,524    6.5    1,528    6.5 
Excess  $4,967    20.2%  $5,145    22.0%  $5,144    22.0%  $5,143    21.9%  $5,349    22.8%
                                                   
Reconciliation of capital infused into Community Savings:                                         
Net offering proceeds   $2,710        $3,400        $4,090        $4,884      
Proceeds to Community Savings    2,214         2,297         2,380         2,685      
Less: Cost to withdraw from defined benefit plan (5)    1,645         1,645         1,645         1,645      
Less:  Common stock acquired by employee stock ownership plan    313         368         423         487      
Less:  Common stock acquired by stock-based incentive plan    156         184         212         243      
Pro forma (decrease) increase   $100        $100        $100        $310      

 

 

(1)Pro forma capital levels assume that the employee stock ownership plan purchases 8% of the shares of common stock sold in the stock offering with funds we lend and that our stock-based equity plan purchases 4% of the shares sold in the offering for restricted stock awards. Pro forma capital calculated under generally accepted accounting principles (“GAAP”) and regulatory capital have been reduced by the amount required to fund these plans. See “Management” for a discussion of the employee stock ownership plan.
(2)As adjusted to give effect to an increase in the number of shares which could occur due to a 15% increase in the offering range to reflect demand for the shares or changes in market conditions following the commencement of the offering.
(3)Tier 1 leverage capital levels are shown as a percentage of total adjusted assets. Risk-based capital levels are shown as a percentage of risk-weighted assets.
(4)Pro forma amounts and percentages assume net proceeds are invested in assets that carry a 20% risk weighting.
(5)Community Savings intends to withdraw from its multiple employer defined benefit plan following completion of the conversion. The administrator of the defined benefit plan has estimated that as of March 2016, assuming a withdrawal date of March 31, 2016, the total cost associated with the withdrawal will be approximately $1.6 million. The actual costs associated with the withdrawal cannot be known until the time of the withdrawal, and may exceed $1.6 million.

 

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CAPITALIZATION

 

The following table presents the historical consolidated capitalization of Community Savings at June 30, 2016 and the pro forma consolidated capitalization of Community Savings Bancorp after giving effect to the conversion and offering, based upon the assumptions set forth in the “Pro Forma Data” section.

 

   Community   Pro Forma at June 30, 2016
Based upon the Sale in the Offering at $10.00 per Share of
 
   Savings at June
30, 2016
   391,000
Shares
   460,000
Shares
   529,000
Shares
   608,350
Shares (1)
 
   (Dollars in thousands, except per share amounts) 
                     
Deposits (2)  $40,102   $40,102   $40,102   $40,102   $40,102 
Borrowings   7,250    7,250    7,250    7,250    7,250 
Total deposits and borrowings  $47,352   $47,352   $47,352   $47,352   $47,352 
                          
Stockholders’ equity:                         
Preferred stock, $0.01 par value, 5,000,000 shares authorized (post-conversion)  $   $   $   $   $ 
Common stock, $0.01 par value, 50,000,000 shares authorized (post-conversion); shares to be issued as reflected (3)       4    5    5    6 
Additional paid-in capital (4)       2,706    3,395    4,085    4,878 
Retained earnings (5)   6,567    6,567    6,567    6,567    6,567 
Accumulated other comprehensive income   88    88    88    88    88 
                          
Less:                         
Cost to withdraw from defined benefit plan (6)       1,645    1,645    1,645    1,645 
Common stock held by employee stock ownership plan (7)       313    368    423    487 
Common stock to be acquired by stock-based benefit plan (8)       156    184    212    243 
Total stockholders’ equity  $6,655   $7,251   $7,858   $8,465   $9,164 
                          
Pro forma shares outstanding                         
                          
Total stockholders’ equity as a percentage of total assets (2)   12.26%   12.83%   13.76%   14.66%   15.68%
Tangible equity as a percentage of tangible assets (2)   12.26%   12.83%   13.76%   14.66%   15.68%

 

 

(1)As adjusted to give effect to an increase in the number of shares of common stock that could occur due to a 15% increase in the offering range to reflect demand for shares or changes in market conditions following the commencement of the subscription and community offerings.
(2)Does not reflect withdrawals from deposit accounts for the purchase of shares of common stock in the conversion and offering. These withdrawals would reduce pro forma deposits and assets by the amount of the withdrawals.
(3)No effect has been given to the issuance of additional shares of Community Savings Bancorp common stock pursuant to the exercise of options under a stock-based benefit plan. If the plan is implemented within the first year after the closing of the offering, an amount up to 10% of the shares of Community Savings Bancorp common stock sold in the offering will be reserved for issuance upon the exercise of options under the plan.
(4)On a pro forma basis, common stock and additional paid-in capital have been revised to reflect the number of shares of Community Savings Bancorp common stock to be outstanding.
(5)The retained earnings of Community Savings will be substantially restricted after the conversion. See “The Conversion and Offering – Liquidation Rights” and “Regulation and Supervision.”
(6)The administrator of the defined benefit plan has estimated that as of March 2016, assuming a withdrawal date of March 31, 2016, the total cost associated with the withdrawal will be approximately $1.6 million. The actual costs associated with the withdrawal cannot be known until the time of the withdrawal, and may exceed $1.6 million.
(7)Assumes that 8% of the shares sold in the offering will be acquired by the employee stock ownership plan financed by a loan from Community Savings Bancorp. The loan will be repaid principally from Community Savings’ contributions to the employee stock ownership plan. Since Community Savings Bancorp will finance the employee stock ownership plan debt, this debt will be eliminated through consolidation and no liability will be reflected on Community Savings Bancorp’s consolidated financial statements. Accordingly, the amount of shares of common stock acquired by the employee stock ownership plan is shown in this table as a reduction of total stockholders’ equity.
(8)Assumes a number of shares of common stock equal to 4% of the shares of common stock to be sold in the offering will be purchased for grant by a stock-based benefit plan in open market purchases by Community Savings Bancorp. The dollar amount of common stock to be purchased is based on the $10.00 per share subscription price in the offering and represents unearned compensation. This amount does not reflect possible increases or decreases in the value of common stock relative to the subscription price in the offering. As Community Savings Bancorp accrues compensation expense to reflect the vesting of shares pursuant to the stock-based benefit plan, the credit to equity will be offset by a charge to noninterest expense. Implementation of the stock-based benefit plans will require stockholder approval.

 

 44 

  

PRO FORMA DATA

 

The following tables summarize historical data of Community Savings and pro forma data of Community Savings Bancorp at and for the year ended June 30, 2016. This information is based on assumptions set forth below and in the table, and should not be used as a basis for projections of market value of the shares of common stock following the conversion and offering.

 

The net proceeds in the tables are based upon the following assumptions:

 

·all shares of common stock will be sold in the subscription offering;

 

·our employee stock ownership plan will purchase 8% of the shares of common stock sold in the stock offering with a loan from Community Savings Bancorp. The loan will be repaid in substantially equal payments of principal and interest (at the prime interest rate, adjusted annually) over a period of 20 years;

 

·the Bank will use approximately $1.6 million to pay costs associated with the Bank’s planned withdrawal from the defined benefit plan; and

 

·expenses of the stock offering, including fees and expenses to be paid to Keefe, Bruyette & Woods, Inc., will be $1.2 million.

 

Pro forma earnings on net proceeds have been calculated assuming the stock has been sold at the beginning of the period and the net proceeds have been invested at a yield of 1.15% for the year ended June 30, 2016. This represents the five-year U.S. Treasury Note rate as of August 14, 2016, which, in light of current market interest rates, we consider to more accurately reflect the pro forma reinvestment rate than the arithmetic average of the weighted average yield earned on our interest-earning assets and the weighted average rate paid on our deposits, which is the reinvestment rate generally required by regulations of the OCC. The pro forma after-tax yield on the net proceeds from the offering is assumed to be 0.76% for the year ended June 30, 2016, based on an effective tax rate of 34%.

 

We calculated historical and pro forma per share amounts by dividing historical and pro forma amounts of consolidated net income and stockholders’ equity by the indicated number of shares of common stock. We adjusted the earnings figures to give effect to the shares of common stock purchased by the employee stock ownership plan. We computed per share amounts for each period as if the shares of common stock were outstanding at the beginning of each period, but we did not adjust per share historical or pro forma stockholders’ equity to reflect the earnings on the estimated net proceeds.

 

The pro forma tables give effect to the implementation of stock-based benefit plans. Subject to the receipt of stockholder approval, we have assumed that the stock-based benefit plans will acquire for restricted stock awards a number of shares of common stock equal to 4% of our outstanding shares of common stock at the same price for which they were sold in the stock offering. We assume that shares of common stock are granted under the plans in awards that vest over a five-year period.

 

We have also assumed that the stock-based benefit plan will grant options to acquire shares of common stock equal to 10% of our outstanding shares of common stock. In preparing the tables below, we assumed that stockholder approval was obtained, that the exercise price of the stock options and the market price of the stock at the date of grant were $10.00 per share and that the stock options had a term of ten years and vested over five years. We applied the Black-Scholes option pricing model to estimate a grant-date fair value of $2.41 for each option. In addition to the terms of the options described above, the Black-Scholes option pricing model assumed an estimated volatility rate of 14.13% for the shares of

 

 45 

 

common stock, no dividend yield, an expected option life of 10 years and a risk-free interest rate of 1.46%. Finally, we assumed that 25% of the stock options were non-qualified options granted to directors, resulting in a tax benefit (at an assumed tax rate of 34%) for a deduction equal to the grant date fair value of the options.

 

We may reserve shares for the exercise of stock options and the grant of stock awards under a stock-based benefit plan in excess of 10% and 4%, respectively, of our total outstanding shares if the stock-based benefit plan is adopted more than one year following the stock offering. In addition, we may grant options and award shares that vest more rapidly than over a five-year period if the stock-based benefit plans are adopted more than one year following the stock offering.

 

As discussed under “How We Intend to Use the Proceeds from the Offering,” we intend to contribute at the minimum, midpoint, maximum and adjusted maximum of the offering range approximately $2.2 million, $2.3 million, $2.4 million and $2.7 million, respectively, of the net proceeds from the stock offering to Community Savings, and we will retain the remainder of the net proceeds from the stock offering. We will use portions of the proceeds we retain for the purpose of making a loan to the employee stock ownership plan and retain the rest of the proceeds for future use.

 

The pro forma table does not give effect to: (i) withdrawals from deposit accounts for the purpose of purchasing shares of common stock in the stock offering; (ii) our results of operations after the stock offering; or (iii) changes in the market price of the shares of common stock after the stock offering.

 

The following pro forma information may not represent the financial effects of the stock offering at the date on which the stock offering actually occurs and you should not use the table to indicate future results of operations. Pro forma stockholders’ equity represents the difference between the stated amount of our assets and liabilities, computed in accordance with GAAP. We did not increase or decrease stockholders’ equity to reflect the difference between the carrying value of loans and other assets and their market value. Pro forma stockholders’ equity is not intended to represent the fair market value of the shares of common stock and may be different than the amounts that would be available for distribution to stockholders if we liquidated. Pro forma stockholders’ equity does not give effect to the impact of intangible assets, bad debt reserve or the liquidation account we will establish in the conversion in the unlikely event we are liquidated.

 

 46 

  

  

At or for the year ended June 30, 2016

Based upon the Sale at $10.00 Per Share of

 
  

391,000

Shares

  

460,000

Shares

  

529,000

Shares

  

608,350

Shares (1)

 
   (Dollars in thousands, except per share amounts) 
                 
Gross proceeds of offering  $3,910   $4,600   $5,290   $6,084 
Less: Expenses   (1,200)   (1,200)   (1,200)   (1,200)
Estimated net proceeds   2,710    3,400    4,090    4,884 
Less: Common stock acquired by ESOP (2)   (313)   (368)   (423)   (487)
Less: Common stock acquired by stock-based benefit plans (3)   (156)   (184)   (212)   (243)
Estimated net proceeds  $2,241   $2,848   $3,455   $4,154 
                     
For the year ended June 30, 2016                    
Consolidated net income:                    
Historical  $679   $679   $679   $679 
Pro forma adjustments:                    
Expense savings from withdrawal from defined benefit plan (4)   25    25    25    25 
Income on adjusted net proceeds   17    22    26    32 
Employee stock ownership plan (2)   (10)   (12)   (14)   (16)
Stock awards (3)   (21)   (24)   (28)   (32)
Stock options (5)   (17)   (20)   (23)   (27)
Pro forma net income  $673   $670   $665   $661 
                     
Income per share:                    
Historical  $1.88   $1.60   $1.39   $1.21 
Pro forma adjustments:                    
Expense savings from withdrawal from defined benefit plan (4)   0.07    0.06    0.05    0.04 
Income on adjusted net proceeds   0.05    0.05    0.05    0.06 
Employee stock ownership plan (2)   (0.03)   (0.03)   (0.03)   (0.03)
Stock awards (3)   (0.06)   (0.06)   (0.06)   (0.06)
Stock options (5)   (0.05)   (0.05)   (0.05)   (0.05)
Pro forma earnings per share  $1.86   $1.57   $1.35   $1.17 
                     
Offering price to pro forma net earnings per share   5.38x   6.37x   7.41x   8.55x
Number of shares used in earnings per share calculations   361,284    425,040    488,796    562,115 
                     
At June 30, 2016                    
Stockholders’ equity:                    
Historical  $6,655   $6,655   $6,655   $6,655 
Estimated net proceeds   2,710    3,400    4,090    4,884 
Less: Cost to withdraw from defined benefit plan (6)   (1,645)   (1,645)   (1,645)   (1,645)
Less: Common stock acquired by ESOP (2)   (313)   (368)   (423)   (487)
Less: Common stock acquired by stock-based benefit plans (3)(5)   (156)   (184)   (212)   (243)
Pro forma stockholders’ equity (7)  $7,251   $7,858   $8,465   $9,164 
                     
Stockholders’ equity per share:                    
Historical  $17.02   $14.47   $12.58   $10.94 
Estimated net proceeds   6.93    7.39    7.73    8.03 
Less: Cost to withdraw from defined benefit plan (6)   (4.21)   (3.58)   (3.11)   (2.70)
Less: Common stock acquired by ESOP (2)   (0.80)   (0.80)   (0.80)   (0.80)
Less: Common stock acquired by stock-based benefit plans (3)(5)   (0.40)   (0.40)   (0.40)   (0.40)
Pro forma stockholders’ equity per share (7)  $18.54   $17.08   $16.00   $15.07 
                     
Pro forma price to book value   53.92%   58.54%   62.49%   66.39%
Number of shares outstanding for pro forma book value per share calculations   391,000    460,000    529,000    608,350 

 

(Footnotes begin on following page)

 

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n/mNot meaningful.
(1)As adjusted to give effect to an increase in the number of shares which could occur due to a 15% increase in the offering range to reflect demand for the shares or changes in market conditions following the commencement of the offering.
(2)Assumes that 8% of shares of common stock sold in the offering will be purchased by the employee stock ownership plan (“ESOP”). For purposes of this table, the funds used to acquire these shares are assumed to have been borrowed by the ESOP from Community Savings Bancorp. Community Savings intends to make annual contributions to the ESOP in an amount at least equal to the required principal and interest payments on the debt. Community Savings’ total annual payments on the employee stock ownership plan debt are based upon 20 equal annual installments of principal and interest. Financial Accounting Standards Board Accounting Standards Codification 718-40, “Employers’ Accounting for Employee Stock Ownership Plans” (“ASC 718-40”) requires that an employer record compensation expense in an amount equal to the fair value of the shares committed to be released to employees. The pro forma adjustments assume that the ESOP shares are allocated in equal annual installments based on the number of loan repayment installments assumed to be paid by Community Savings, the fair value of the common stock remains equal to the subscription price and the employee stock ownership plan expense reflects an effective tax rate of 34%. The unallocated ESOP shares are reflected as a reduction of stockholders’ equity. No reinvestment is assumed on proceeds contributed to fund the ESOP. The pro forma net income further assumes that 1,564, 1,840, 2,116 and 2,433 were committed to be released during the year ended June 30, 2016, respectively, at the minimum, midpoint, maximum, and adjusted maximum of the offering range, respectively, and in accordance with ASC 718-40, only the ESOP shares committed to be released during the period were considered outstanding for purposes of income per share calculations.
(3)If approved by Community Savings Bancorp’s stockholders, a stock-based benefit plan may purchase an aggregate number of shares of common stock equal to 4% of the shares to be sold in the offering (or possibly a greater number of shares if the plan is implemented more than one year after completion of the conversion or a lesser number if Community Savings has a tier 1 leverage ratio of less than 10.00% within one year of the completion of the conversion). Stockholder approval of the stock-based benefit plan, and purchases by the plan may not occur earlier than six months after the completion of the conversion. The shares may be acquired directly from Community Savings Bancorp or through open market purchases. The funds to be used by the stock-based benefit plans to purchase the shares will be provided by Community Savings Bancorp. The table assumes that (i) the stock-based benefit plan acquires the shares through open market purchases at $10.00 per share, (ii) 20% of the amount contributed to the stock-based benefit plan is amortized as an expense during the year, and (iii) the stock-based benefit plan expense reflects an effective tax rate of 34%. Assuming stockholder approval of the stock-based benefit plan and that shares of common stock equal to 4% of the shares sold in the offering are awarded through the use of authorized but unissued shares of common stock, stockholders would have their ownership and voting interests diluted by approximately 3.85%.
(4)Represents expense savings resulting from Community Savings’ withdrawal from the multiple employer defined benefit plan of approximately $25,000 annually, assuming an effective tax rate of 34%.
(5)If approved by Community Savings Bancorp’s stockholders, a stock-based benefit plan may grant options to acquire an aggregate number of shares of common stock equal to 10% of the shares to be sold in the offering (or possibly a greater number of shares if the plan is implemented more than one year after completion of the conversion). Stockholder approval of the stock-based benefit plan may not occur earlier than six months after the completion of the conversion. In calculating the pro forma effect of the stock options to be granted under a stock-based benefit plan, it is assumed that the exercise price of the stock options and the trading price of the common stock at the date of grant were $10.00 per share, the estimated grant-date fair value determined using the Black-Scholes option pricing model was $2.41 for each option, and the aggregate grant-date fair value of the stock options was amortized to expense on a straight-line basis over a five-year vesting period of the options. The actual expense of the stock options to be granted under the stock-based benefit plan will be determined by the grant-date fair value of the options, which will depend on a number of factors, including the valuation assumptions used in the option pricing model ultimately adopted. Under the above assumptions, the adoption of the stock-based benefit plan will result in no additional shares under the treasury stock method for purposes of calculating earnings per share. There can be no assurance that the actual exercise price of the stock options will be equal to the $10.00 price per share. If a portion of the shares to satisfy the exercise of options under the stock-based benefit plans is obtained from the issuance of authorized but unissued shares, our net income per share and stockholders’ equity per share would decrease. Assuming stockholder approval of the stock-based benefit plan and that shares of common stock used to fund stock options (equal to 10% of the shares sold in the offering) are awarded through the use of authorized but unissued shares of common stock, stockholders would have their ownership and voting interests diluted by approximately 9.09%.
(6)Represents costs associated with Community Savings’ withdrawal from the defined benefit plan. Based on estimates provided by the administrator of the defined benefit plan in March 2016, assuming a withdrawal date of March 31, 2016, these costs will be approximately $1.6 million. The actual costs will not be known until the date of Community Savings’ withdrawal from the defined benefit plan, and may exceed $1.6 million.
(7)The retained earnings of Community Savings will be substantially restricted after the conversion. See “Our Dividend Policy,” “The Conversion and Offering – Liquidation Rights” and “Regulation and Supervision.” The number of shares used to calculate pro forma stockholders’ equity per share is equal to the total number of shares to be outstanding upon completion of the offering.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

 

This discussion and analysis reflects our financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the audited financial statements, which appear beginning on page F-1 of this prospectus. You should read the information in this section in conjunction with the business and financial information regarding Community Savings provided in this prospectus.

 

Overview

 

We conduct our business from our full-service banking office in Caldwell, Ohio, which is in, and is the County Seat of, Noble County, located in southeastern Ohio. Caldwell is approximately 90 miles southeast of Columbus, Ohio and is mostly rural. Our primary market area is Noble County. To a lesser extent, we also originate loans in neighboring Guernsey, Washington and Monroe Counties, Ohio, and Wood County, West Virginia. In recent years, our market area has been, and we believe will continue to be, significantly affected by the oil and gas exploration industry. Certain residents in our market area have leased their properties for oil and gas exploration and related purposes. As a result, an increase in the price of oil and gas has generally resulted in increases in deposits and also decreases in average loan balances, resulting from increased loan pay downs and lower loan demand. Following a decrease in these commodities prices, as was experienced in 2014 and 2015, we would expect a decrease in some of these revenues and resultant deposits.

 

Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations, in one- to four-family residential real estate loans, consumer loans and home equity loans. To a lesser extent, we also originate commercial real estate and multifamily loans. At June 30, 2016, $23.1 million, or 70.1% of our total loan portfolio, was comprised of one- to four-family residential real estate loans, and at this date an additional $3.3 million, or 10.1% of our total loan portfolio, was comprised of home equity loans. We offer a variety of deposit accounts, including interest-bearing and noninterest-bearing demand accounts, savings accounts and certificates of deposit. We utilize advances from the FHLB-Cincinnati for asset/liability management purposes. On occasion, we also utilize funds from a line of credit with another bank. At June 30, 2016, we had $7.3 million in advances outstanding with the FHLB-Cincinnati.

 

For the fiscal year ended June 30, 2016, we had net income of $679,000, and for the fiscal year ended June 30, 2015, we experienced a net loss of $312,000. In July 2015, we sold two branch offices in Cambridge, Ohio, approximately 25 miles north of Caldwell, which resulted in a gain of $810,000 during fiscal 2016. The significant noninterest expense to operate these two branch offices, it was determined, impeded our ability for organic growth. Therefore, the board decided to sell the deposits and premises and equipment of these branch offices, while retaining the loans from these offices, and focus our resources on organic growth through our main office in Caldwell. Excluding this one-time gain, we would have experienced a loss of $109,000 for fiscal 2016.

 

Community Savings is subject to comprehensive regulation and examination by its primary federal regulator, the Office of the Comptroller of the Currency (“OCC”).

 

Our executive and administrative office is located at 425 Main Street, Caldwell, Ohio 43724, and our telephone number at this address is (740) 732-5678. Our website address is www.mycommunitysavings.com. Information on our website is not incorporated into this prospectus and should not be considered part of this prospectus.

 

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Business Strategy

 

Our principal objective is to build long-term value for our stockholders by operating a profitable community-oriented financial institution dedicated to meeting the banking needs of our customers by emphasizing personalized and efficient customer service. Highlights of our current business strategy include:

 

·Prudently growing our asset size by continuing to emphasize the origination of one- to four-family residential real estate loans, including an increased emphasis on originating these types of loans in Washington and Monroe Counties, Ohio. We will continue to emphasize the origination of one- to four-family residential real estate loans in our market area. At June 30, 2016, $23.1 million, or 70.1% of our total loan portfolio, consisted of one- to four-family residential real estate loans. We will continue to originate these types of loans because it is a strong recurring source of interest income.

 

·Continuing to emphasize disciplined underwriting practices in order to maintain the quality of our loan portfolio. As we emphasize slow and steady growth in our loan portfolio, we intend to maintain strict, quality-oriented loan underwriting and monitoring processes. At June 30, 2016 and 2015, we had $324,000 and $289,000 of nonperforming loans, respectively, which includes $46,000 and $143,000 of loans 90 days or more delinquent, respectively.

 

·Continuing to supplement our one- to four-family residential real estate lending with the origination of non-residential lending. We intend to continue to originate consumer and home equity loans and lines of credit. Additionally, although there are limited opportunities for the origination of commercial real estate loans in our market area, we would consider purchasing commercial real estate loans, subject to our strict underwriting criteria.

 

·Continuing to rely on our historically favorable funding mix which emphasizes lower-cost transaction and savings accounts. During the fiscal years ended June 30, 2016 and 2015, the average balance of our certificates of deposits comprised 19.4% and 22.8% of total average deposits, with core deposits (statements savings, non interest-bearing demand and interest-bearing demand accounts) comprising the remainder. We will continue to emphasize accruing these lower-cost core deposits which will benefit our net interest spread.

 

·Continuing to manage interest rate risk. We intend to continue to sell our conforming, fixed-rate one- to four-family residential real estate loans with maturities of greater than 20 years. Additionally we intend to continue to emphasize the origination of home equity loans and lines of credit, which generally have adjustable rates of interest and have shorter terms to maturity than our one- to four-family residential real estate loans.

 

Anticipated Increase in Noninterest Expense

 

Following the completion of the conversion, our noninterest expense is expected to increase because of the increased costs associated with operating as a public company, and the increased compensation expenses associated with the purchase of shares of common stock by our employee stock ownership plan and the possible implementation of a stock-based benefit plan, if approved by our

 

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stockholders, no earlier than six months after the completion of the conversion. For further information, see “Summary – Benefits to Management and Potential Dilution to Stockholders Resulting from the Conversion;” “Risk Factors – Risks Related to the Offering – Our stock-based benefit plan will increase our costs, which will reduce our income;” and “Management – Benefit Plans and Agreements.” In addition, we intend to withdraw from our multiple employer defined benefit plan following completion of the conversion, and expect to incur a non-recurring expense of approximately $1.6 million associated with our withdrawal, based on estimates provided by the administrator of the defined benefit plan in March 2016 assuming a withdrawal date of March 31, 2016. Finally, upon consummation of the conversion, we intend to enter into a Salary Continuation Agreement with, Alvin B. Parmiter, our president and chief executive officer.

 

Critical Accounting Policies

 

The discussion and analysis of the financial condition and results of operations are based on our financial statements, which are prepared in conformity with generally accepted accounting principles used in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be critical accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

 

The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.

 

The following represent our critical accounting policies:

 

Allowance for Loan Losses. The allowance for loan losses is the estimated amount considered necessary to cover inherent, but unconfirmed, credit losses in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses which is charged against income. In determining the allowance for loan losses, management makes significant estimates and has identified this policy as one of our most critical accounting policies.

 

Management performs a quarterly evaluation of the allowance for loan losses. Consideration is given to a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change.

 

The analysis has two components, specific and general allowances. The specific percentage allowance is for unconfirmed losses related to loans that are determined to be impaired. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent

 

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loans, the fair value of the collateral, adjusted for market conditions and selling expenses. If the fair value of the loan is less than the loan’s carrying value, a charge is recorded for the difference. The general allowance, which is for loans reviewed collectively, is determined by segregating the remaining loans by type of loan, risk weighting (if applicable) and payment history. We also analyze historical loss experience, delinquency trends, general economic conditions and geographic and industry concentrations. This analysis establishes historical loss percentages and qualitative factors that are applied to the loan groups to determine the amount of the allowance for loan losses necessary for loans that are reviewed collectively. The qualitative component is critical in determining the allowance for loan losses as certain trends may indicate the need for changes to the allowance for loan losses based on factors beyond the historical loss history. Not incorporating a qualitative component could misstate the allowance for loan losses. Actual loan losses may be significantly more than the allowances we have established which could result in a material negative effect on our financial results.

 

Deferred Tax Assets. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax asset will not be realized. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Determining the proper valuation allowance for deferred taxes is critical in properly valuing the deferred tax asset and the related recognition of income tax expense or benefit. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets.

 

Fair Value Measurements. The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Bank estimates the fair value of a financial instrument and any related asset impairment using a variety of valuation methods. Where financial instruments are actively traded and have quoted market prices, quoted market prices are used for fair value. When the financial instruments are not actively traded, other observable market inputs, such as quoted prices of securities with similar characteristics, may be used, if available, to determine fair value. When observable market prices do not exist, the Bank estimates fair value. These estimates are subjective in nature and imprecision in estimating these factors can impact the amount of gain or loss recorded. A more detailed description of the fair values measured at each level of the fair value hierarchy and the methodology utilized by the Bank can be found in Note 13 of the Financial Statements “– Disclosures About Fair Value of Assets and Liabilities.”

 

Comparison of Financial Condition at June 30, 2016 and June 30, 2015

 

Total Assets. Total assets decreased $10.7 million, or 16.4%, to $54.3 million at June 30, 2016 from $64.9 million at June 30, 2015. The decrease was due primarily to decreases in cash and cash equivalents, available-for-sale securities and in premises and equipment, net, offset in part by an increase in net loans.

 

Cash and Cash Equivalents. Cash and cash equivalents decreased $7.0 million, or 68.6%, to $3.2 million at June 30, 2016 from $10.1 million at June 30, 2015. The decrease in cash and cash equivalents was primarily due to the decrease in deposits which resulted from the sale of our two branch

 

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offices in July 2015. During fiscal 2015, we agreed to sell two branch offices, both of which were located in Cambridge, Ohio, as the performance of these offices did not meet our expectations and the continuing operation of them added significant noninterest expense to our operations. The sale included the deposits, as well as the buildings and fixtures. We retained the loans from these branch offices. The sale was consummated on July 31, 2015.

 

Securities available-for-sale. Investments in securities available-for-sale decreased $5.2 million, or 31.8%, to $11.1 million at June 30, 2016 from $16.3 million at June 30, 2015. The decrease in securities available-for-sale was primarily due to maturities and repayments of $5.4 million and sales of securities of $500,000, which were partially offset by purchases of $656,000. Net proceeds from sales and maturities of securities, as well as excess cash equivalents were used to fund the growth in the loan portfolio as well as the sale of deposits in connection with our branch sales.

 

Net Loans. Net loans increased $3.6 million, or 12.5%, to $32.6 million at June 30, 2016 from $29.0 million at June 30, 2015. The increase in net loans was due primarily to an increase of $2.8 million, or 131.7%, in consumer loans to $4.9 million at June 30, 2016 from $2.1 million at June 30, 2015, an increase of $708,000, or 75.9%, in commercial real estate and multifamily loans, to $1.6 million at June 30, 2016 from $933,000 at June 30, 2015, and an increase of $164,000, or 0.7%, in one-to four-family residential real estate loans, offset in part by a decrease in home equity loans of $52,000, or 1.5%, year to year. During the fiscal years ended June 30, 2016 and 2015, we purchased $3.7 million and $288,000, respectively, of auto loans from another financial institution. The outstanding balance of auto loans purchased totaled $4.0 million at June 30, 2016. Although automobile loans generally have greater risk of loss or default than one- to four-family residential real estate loans, management attempted to address these inherent risks by lending primarily on late-model used vehicles for which, generally, most of the asset’s rapid depreciation has already occurred. Automobile loans generally have higher yields than one-to four-family residential real estate loans and also have shorter maturities, consistent with our effort to improve our interest rate risk profile. These auto loans were purchased through one third-party referral source that has since sold its business. Therefore, although consumer loans increased materially in recent years, it is likely that this portfolio will decrease in the future unless we choose to find another third-party origination source or determine to implement an in-house indirect auto lending platform.

 

Premises and Equipment. Premises and equipment decreased $1.8 million, or 79.7%, to $452,000 at June 30, 2016 from $2.2 million at June 30, 2015. The decreases resulted from the sale of our two branch offices which was consummated on July 31, 2015.

 

Deposits. Deposits decreased $17.8 million, or 30.7%, to $40.1 million at June 30, 2016 from $57.9 million at June 30, 2015. The decrease resulted primarily from the sale of deposits totaling $15.1 million in connection with the sale of our two branch offices. Aside from the decrease in deposits due to the branch sales, demand deposits decreased $947,000, savings and money market accounts decreased $739,000 and certificates of deposit decreased $951,000. Certain residents in our market area derive income from oil and gas exploration-related activities, such as from leasing land for exploration purposes. Due to the cyclical nature of the oil and gas exploration industry, deposits have historically increased during times when the price of gas and oil increases, which results in increased oil and gas exploration and related activities in our market area. Following a decrease in these commodities prices, as was experienced in 2014 and 2015, we would expect a decrease in some of these revenues and resultant deposits. We believe that the additional decrease in deposits in fiscal 2016 was a result of this cycle.

 

FHLB Advances. FHLB advances increased $6.3 million, or 625.0%, to $7.3 million at June 30, 2016 from $1.0 million at June 30, 2015, as we elected to fund our sale of deposits in part with low cost FHLB advances.

 

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Total Equity. Total equity increased $877,000, or 15.2%, to $6.7 million at June 30, 2016 from $5.8 million at June 30, 2015. The increase resulted from net income of $679,000 and other comprehensive income of $198,000 during the fiscal year.

 

Comparison of Operating Results for the Fiscal Years Ended June 30, 2016 and 2015

 

General. For the fiscal year ended June 30, 2016, we had net income of $679,000 compared to a net loss of $312,000 for the fiscal year ended June 30, 2015, an increase of $991,000. The increase in net income for fiscal 2016 resulted primarily from an increase of $692,000 in noninterest income which was the result of an $810,000 one-time gain on the sale of branch offices, and a decrease of $461,000 in noninterest expense, offset in part by a decrease of $140,000 in net interest income.

 

Interest Income. Interest income decreased $241,000, or 11.8%, to $1.8 million for the fiscal year ended June 30, 2016 from $2.0 million for the fiscal year ended June 30, 2015. The decrease resulted primarily from a $196,000 decrease in interest on investment securities and a $59,000 decrease in interest on loans receivable, offset in part by a $14,000 increase in interest on interest-earning deposits. The average balance of investment securities decreased $6.7 million, or 33.0%, to $13.7 million during the fiscal year ended June 30, 2016 from $20.4 million during the fiscal year ended June 30, 2015, and the average yield on investment securities decreased 32 basis points to 1.95% for fiscal 2016 from 2.27% for fiscal 2015. The decrease in average balance of investment securities resulted from the decrease in deposits funding these investments as a result of our branch sales in July 2015. The average balance of loans receivable increased $1.4 million, or 4.6%, to $31.3 million during the fiscal year ended June 30, 2016 from $29.9 million during the fiscal year ended June 30, 2015, but the average yield on loans decreased 40 basis points to 4.46% during fiscal 2016 from 4.86% during fiscal 2015, reflecting lower market interest rates.

 

Interest Expense. Interest expense decreased $101,000, or 32.1%, to $214,000 for the fiscal year ended June 30, 2016 from $315,000 for the fiscal year ended June 30, 2015. Interest expense on deposits decreased $140,000, or 51.1%, to $134,000 for fiscal 2016 from $274,000 for fiscal 2015. The decrease was primarily due to a decrease of $13.9 million, or 28.3%, in the average balance of interest-bearing deposits to $35.3 million for fiscal 2016 from $49.2 million for fiscal 2015, and a decrease of 18 basis points in the average cost of interest-bearing deposits to 0.38% for the fiscal year ended June 30, 2016 from 0.56% for the fiscal year ended June 30, 2015, reflecting the effects of our branch sales and the declining interest rate environment. Interest expense on borrowings increased $39,000 to $80,000 for the fiscal year ended June 30, 2016 from $41,000 for the fiscal year ended June 30, 2015. The average balance of advances increased $6.0 million to $7.0 million for the fiscal year ended June 30, 2016 from $1.0 million for fiscal 2015, while the average cost of these advances decreased 287 basis points to 1.14% from 4.01% year to year, as we were able to obtain the new advances at significantly lower interest rates, reflecting the ongoing low interest rate environment. Management elected to increase outstanding advances as a source of low-cost funding following consummation of the July 2015 branch sales.

 

Net Interest Income. Net interest income decreased $140,000, or 8.1%, to $1.6 million for the fiscal year ended June 30, 2016 from $1.7 million for the fiscal year ended June 30, 2015. The decrease resulted from a $647,000 decrease in the average balance of net interest-earning assets to $11.3 million for fiscal 2016 from $12.0 million for fiscal 2015, partially offset by an increase of 20 basis points in our net interest rate spread to 2.84% for fiscal 2016 from 2.64% for fiscal 2015, and an increase of 18 basis points in our net margin to 2.95% for fiscal 2016 from 2.77% for fiscal 2015.

 

Provision for Loan Losses. Based on our analysis of the factors described in “Critical Accounting Policies – Allowance for Loan Losses,” we did not record a provision for loan losses for

 

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either of the fiscal years ended June 30, 2016 or June 30, 2015. The allowance for loan losses was $253,000, or 0.77% of total loans, at June 30, 2016, compared to $288,000, or 0.98% of total loans, at June 30, 2015. Total nonperforming loans were $324,000 at June 30, 2016, compared to $289,000 at June 30, 2015. Classified (substandard, doubtful and loss) loans were $881,000 at June 30, 2016, compared to $854,000 at June 30, 2015, and total loans past due greater than 30 days were $255,000 and $159,000 at June 30, 2016 and June 30, 2015, respectively. We had net charge-offs of $35,000 during fiscal 2016 and no net charge-offs during fiscal 2015. As a percentage of nonperforming loans, the allowance for loan losses was 78.1% at June 30, 2016 compared to 99.7% at June 30, 2015.

 

The allowance for loan losses reflects the estimate we believe to be appropriate to cover incurred probable losses which were inherent in the loan portfolio at June 30, 2016 and 2015. While we believe the estimates and assumptions used in our determination of the adequacy of the allowance are reasonable, the actual amount of future provisions may exceed the amount of past provisions, and the increase in future provisions that may be required may adversely impact our financial condition and results of operations.

 

Noninterest Income. Noninterest income increased $692,000, or 170.4%, to $1.1 million for the fiscal year ended June 30, 2016 from $406,000 for the fiscal year ended June 30, 2015. The increase was primarily due to an $810,000 gain on the sale of branch offices during fiscal 2016. Additionally, we experienced a net loss of $33,000 on sale of investment securities resulting from the recognition of a loss of $41,000 from a called security, offset in part by a gain of $8,000 on a sale of available-for-sale securities in fiscal 2015 and had no corresponding loss in 2016. These increases were offset in part by a decrease of $143,000 in service charges and fees to $278,000 during fiscal 2016 from $421,000 during fiscal 2015, which resulted from the loss of customers at our former branch offices following their July 2015 sale.

 

Noninterest Expense. Noninterest expense decreased $461,000, or 18.9%, to $2.0 million for the fiscal year ended June 30, 2016 compared to $2.4 million for the fiscal year ended June 30, 2015. Salaries, employee benefits and directors fees decreased $134,000, or 14.6%, to $784,000 during the fiscal year ended June 30, 2016 from $918,000 during the fiscal year ended June 30, 2015, and occupancy and equipment decreased $113,000, or 49.1%, to $117,000 during fiscal 2016 from $230,000 during fiscal 2015. Similarly, our data processing, correspondent bank service charges and FDIC insurance premiums all decreased year-to-year resulting from cost savings from our branch sales in July 2015. We had 14 full time employees at June 30, 2016 compared to 22 at June 30, 2015, resulting from the branch sales.

 

Noninterest expense can be expected to increase because of costs associated with operating as a public company and increased compensation costs related to the expected implementation of certain benefit plans. Additionally, we intend to withdraw from our multiple-employer defined benefit plan following completion of the conversion and expect to incur a one-time charge of approximately $1.6 million in connection with this withdrawal.

 

Federal Income Taxes. Federal income tax expense increased to $22,000 for the fiscal year ended June 30, 2016 from no income tax expense during the fiscal year ended June 30, 2015. The increase resulted from pre-tax income of $701,000 during fiscal 2016 as opposed to a pre-tax loss of $312,000 during fiscal 2015. The federal income tax provision for fiscal 2016 was affected by the reversal of the impairment valuation allowance recorded against our net deferred tax assets during the previous years.

 

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Average balances and yields. The following table sets forth average balance sheets, average yields and costs, and certain other information at and for the years indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or interest expense.

 

   At June 30,   For the Fiscal Year Ended June 30, 
   2016   2016   2015 
   Yield/ Cost   Average
Outstanding
Balance
   Interest   Yield/
Rate
   Average
Outstanding
Balance
   Interest   Yield/
Rate
 
                             
Interest-earning assets:                                   
Loans   4.60%  $31,272   $1,394    4.46%  $29,907   $1,453    4.86%
Investment securities   2.44    13,674    267    1.95    20,402    463    2.27 
Other interest-earning assets   1.74    8,672    133    1.53    11,855    119    1.00 
Total interest-earning assets   3.72    53,618    1,794    3.35    62,164    2,035    3.27 
Noninterest-earning assets        3,138              6,367           
Allowance for loan losses        (264)             (293)          
Total assets       $56,492             $68,238           
                                    
Interest-bearing liabilities:                                   
Interest-bearing demand   0.20%  $2,590    5    0.19   $4,169    8    0.19 
Savings accounts   0.28    24,416    69    0.28    31,111    96    0.31 
Certificates of deposit   0.69    8,284    60    0.72    13,907    170    1.22 
Total interest-bearing deposits   0.38    35,290    134    0.38    49,187    274    0.56 
Borrowings   1.06    7,020    80    1.14    1,022    41    4.01 
Total interest-bearing liabilities   0.50    42,310    214    0.51    50,209    315    0.63 
Other non-interest bearing liabilities        7,646              12,037           
Total liabilities        49,956              62,246           
Equity        6,536              5,992           
Total liabilities and equity       $56,492             $68,238           
                                    
Net interest income            $1,580             $1,720      
Net interest rate spread (1)   3.22%             2.84%             2.64%
Net interest-earning assets (2)       $11,308             $11,955           
Net interest margin (3)                  2.95%             2.77%
Average of interest-earning assets to interest-bearing liabilities        126.73%             123.81%          

 

 

(1)Net interest spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(2)Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
(3)Net interest margin represents net interest income divided by average total interest-earning assets.

 

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Rate/Volume Analysis

 

The following table presents the effects of changing rates and volumes on our net interest income for the years indicated. 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 both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume.

  

  

Fiscal Years Ended June 30,

2016 vs. 2015

 
   Increase (Decrease) Due
to
   Total Increase
   Volume   Rate   (Decrease) 
   (In thousands) 
             
Interest-earning assets:            
Loans  $64   $(123)  $(59)
Investment securities   (138)   (58)   (196)
Other interest-earning assets   (38)   52    14 
                
Total interest-earning assets   (112)   (129)   (241)
                
Interest-bearing liabilities:               
Interest-bearing demand   (3)       (3)
Savings accounts   (20)   (7)   (27)
Certificates of deposit   (55)   (55)   (110)
Total deposits   (78)   (62)   (140)
                
Borrowings   87    (48)   39 
                
Total interest-bearing liabilities   9    (110)   (101)
                
Change in net interest income  $(121)  $(19)  $(140)

 

Management of Market Risk

 

General. Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. Our Asset/Liability Committee is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our board of directors.

 

Our asset/liability management strategy attempts to manage the impact of changes in interest rates on net interest income, our primary source of earnings. Among the techniques we use to manage interest rate risk are:

 

·originating home equity lines of credit and consumer loans, which tend to have shorter terms and higher interest rates than one- to four-family residential real estate loans, and which generate customer relationships that can result in larger noninterest bearing checking accounts;

 

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·emphasizing lower-cost core deposits rather than certificates of deposit;

 

·generally selling our conforming fixed-rate, one- to four-family residential real estate loans with terms of greater than 20 years that we originate and retaining shorter term fixed-rate loans and the adjustable-rate residential real estate loans that we originate, subject to market conditions and periodic review of our asset/liability management needs; and

 

·lengthening the weighted average maturity of our liabilities through longer-term wholesale funding sources such as fixed-rate advances from the FHLB-Cincinnati.

 

Our full board of directors serves as our Asset/Liability Committee. In this capacity the board develops and implements an asset/liability management plan, and reviews pricing and liquidity needs and assesses our interest rate risk. We currently utilize a third-party modeling program, prepared on a quarterly basis, to evaluate our sensitivity to changing interest rates, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors. In addition, we regularly perform a “gap analysis” of the discrepancy between the repricing of our assets and liabilities. We also engage a third-party asset/liability advisor.

 

Net Portfolio Value. The Office of the Comptroller of Currency requires the computation of amounts by which the net present value of an institution’s cash flow from assets, liabilities and off-balance sheet items (the institution’s net portfolio value or “NPV”) would change in the event of a range of assumed changes in market interest rates. Previously, the Office of Thrift Supervision provided all institutions that filed a Consolidated Maturity/Rate Schedule as a part of their quarterly Thrift Financial Report with an interest rate sensitivity report of net portfolio value. Institutions are now required to develop their own rate sensitivity analysis report, or contract with a third-party vendor which specializes in the analysis of interest rate risk analysis. The model utilized by Community Savings is a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumption of instantaneous rate increases or decreases of 100 to 300 basis points in 100 basis point increments. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below.

 

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The table below sets forth, as of June 30, 2016, the calculation of the estimated changes in our net portfolio value that would result from the designated immediate changes in the United States Treasury yield curve.

 

           NPV as a Percentage of 
           Present Value of Assets (3) 
Change in      Estimated Increase       Increase 
Interest Rates  Estimated   (Decrease) in NPV   NPV   (Decrease) 
(basis points) (1)  NPV (2)   Amount   Percent   Ratio (4)   (basis points) 
(Dollars in thousands)
                     
+300  $7,460   $(1,643)   (18.05)%   14.36%   (179)
+200   8.168    (935)   (10.27)%   15.26%   (89)
+100   8,736    (367)   (4.03)%   15.88%   (27)
   9,103            16.15%    
-100   9,110    7    0.08%   15.92%   (23)

 

 

(1)Assumes an immediate uniform change in interest rates at all maturities.
(2)NPV is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.
(3)Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.
(4)NPV Ratio represents NPV divided by the present value of assets.

 

The table above indicates that at June 30, 2016, in the event of a 200 basis point increase in interest rates, we would experience a 10% decrease in net portfolio value. In the event of a 100 basis point decrease in interest rates, we would experience a 0.08% increase in net portfolio value.

 

Certain shortcomings are inherent in the methodologies used in determining interest rate risk through changes in net portfolio value. Modeling changes in net portfolio value require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the net portfolio value tables presented assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assume that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the net portfolio value tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.

 

Liquidity and Capital Resources

 

Our primary sources of funds are deposits, principal and interest payments on loans, proceeds from sale of loans and advances from the FHLB-Cincinnati. While maturities and scheduled amortization of loans are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments including interest-earning demand deposits. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

 

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $136,000 and $136,000 for the fiscal years ended June 30, 2016 and 2015, respectively. Net cash provided by (used in) investing activities was $(10.7 million) and $4.3 million in fiscal 2016 and 2015, respectively. The change in cash flows in investing activities resulted primarily from the sale of two branch offices in July 2015 which resulted in cash paid of $12.6 million during fiscal 2016. Cash

 

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provided by (used in) financing activities was $3.6 million and $(5.5 million) in fiscal 2016 and 2015, respectively.

 

Community Savings is subject to various regulatory capital requirements, 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, 2016, Community Savings exceeded all regulatory capital requirements and was categorized as “well-capitalized” under regulatory guidelines.

 

The net proceeds from the stock offering will increase our 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 funding loans. Our financial condition and results of operations will be enhanced by the net proceeds from the stock offering, which will increase our net interest-earning assets and net interest income. However, due to the increase in equity resulting from the net proceeds raised in the stock offering, as well as other factors associated with the stock offering, our return on equity will be adversely affected following the stock offering.

 

At June 30, 2016, we had outstanding commitments to originate loans of $295,000, commitments under undisbursed construction loans of $576,000 and commitments under home equity lines of credit of $2.8 million. We anticipate that we will have sufficient funds available to meet our current loan origination commitments. Certificates of deposit that are scheduled to mature in less than one year from June 30, 2016 totaled $4.4 million. Management expects that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize FHLB-Cincinnati advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

 

Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with U.S. generally accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit.

 

We also generally sell our conforming, fixed-rate one- to four-family residential real estate loans with terms of greater than 20 years to Community Mortgage Network. In the fiscal year ended June 30, 2016, we sold no loans. Subject to our ongoing interest rate risk analysis, we generally intend to continue to sell our conforming, fixed-rate one- to four-family residential real estate loans with terms of greater than 20 years that we originate. Under specific circumstances we may be obligated to repurchase certain loans as required by the sales agreement. Based on our historical experience, our reserve at June 30, 2016 was deemed immaterial. 

 

For information about our loan commitments and unused lines of credit, see Note 12 of the notes to our Financial Statements beginning on page F-1 of this prospectus.

 

We have not engaged in any other off-balance sheet transactions in the normal course of our lending activities.

 

Recent Accounting Pronouncements

 

For a discussion of the impact of recent accounting pronouncements, see Note 15 of the notes to our financial statements beginning on page F-1 of this prospectus.

 

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Impact of Inflation and Changing Prices

 

The financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles in the United States of America which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of 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 does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

 

BUSINESS OF COMMUNITY SAVINGS BANCORP

 

Community Savings Bancorp was incorporated in the State of Maryland on August 24, 2016, and has not engaged in any business to date. Upon completion of the conversion, Community Savings Bancorp will own all of the issued and outstanding stock of Community Savings. We intend to contribute at least 50% of the net proceeds from the stock offering to Community Savings, plus such additional amounts as may be necessary so that, upon completion of the offering, Community Savings will have a Tier 1 leverage ratio of at least 10.0% after the costs associated with our planned withdrawal from the defined benefit plan. Community Savings Bancorp will retain the remainder of the net proceeds from the stock offering and use a portion of the retained net proceeds to make a loan to the employee stock ownership plan. At a later date, we may use the net proceeds to repurchase shares of common stock, subject to our planned growth, capital needs and regulatory limitations. We will invest our initial capital as discussed in “How We Intend to Use the Proceeds from the Offering.”

 

After the conversion and the offering are complete, Community Savings Bancorp, as the holding company of Community Savings, will be authorized to pursue other business activities permitted by applicable laws and regulations. See “Regulation and Supervision – Holding Company Regulation” for a discussion of the activities that are permitted for savings and loan holding companies. We may also borrow funds for reinvestment in Community Savings.

 

Following the offering, our cash flow will depend on earnings from the investment of the net proceeds from the offering that we retain, and any dividends we receive from Community Savings. Community Savings is subject to regulatory limitations on the amount of dividends that it may pay. See “Regulation and Supervision – Federal Banking Regulation – Capital Distributions.” Initially, Community Savings Bancorp will neither own nor lease any property, but will instead pay a fee to Community Savings for the use of its premises, equipment and furniture. At the present time, we intend to employ only persons who are officers of Community Savings to serve as officers of Community Savings Bancorp. We will, however, use the support staff of Community Savings from time to time. We will pay a fee to Community Savings for the time devoted to Community Savings Bancorp by employees of Community Savings; however, these persons will not be separately compensated by Community Savings Bancorp. Community Savings Bancorp may hire additional employees, as appropriate, to the extent it expands its business in the future.

 

BUSINESS OF COMMUNITY SAVINGS

 

General

 

We conduct our business from our full-service banking office in Caldwell, Ohio, which is in, and is the County Seat of, Noble County, located in southeastern Ohio. Caldwell is approximately 90 miles southeast of Columbus, Ohio and is mostly rural. Our primary market area is Noble County. To a lesser

 

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extent, we also originate loans in Guernsey, Washington and Monroe Counties, Ohio, and Wood County, West Virginia.

 

Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations, in one- to four-family residential real estate loans, consumer loans and home equity loans, the vast majority of which are home equity lines of credit (“HELOCs”). To a lesser extent, we also originate commercial real estate and multifamily loans. At June 30, 2016, $23.1 million, or 70.1% of our total loan portfolio, was comprised of one- to four-family residential real estate loans, and at this date an additional $3.3 million, or 10.1% of our total loan portfolio, was comprised of home equity loans and HELOCs. We offer a variety of deposit accounts, including interest-bearing and non interest-bearing demand accounts, savings accounts and certificates of deposit. We utilize advances from the FHLB-Cincinnati for asset/liability management purposes. On occasion we also utilize funds from a line of credit with another bank. At June 30, 2016, we had $7.3 million in advances outstanding with the FHLB-Cincinnati.

 

For the fiscal year ended June 30, 2016, we had net income of $679,000, and for the fiscal year ended June 30, 2015, we experienced a net loss of $312,000. In July 2015, we sold two branch offices in Cambridge, Ohio, approximately 25 miles north of Caldwell, which resulted in a gain of $810,000 during fiscal 2016. The significant noninterest expense to operate these two branch offices, it was determined, impeded the Bank’s ability for organic growth. Therefore, the board decided to sell the deposits and premises and equipment of these branch offices, while retaining the loans from these offices, and focus the Bank’s resources on organic growth through our main office in Caldwell. Excluding this one-time gain, we would have experienced a loss of $109,000 for fiscal 2016. See, “Management Discussion and Analysis of Financial Condition and Results of Operation – Comparison of Operating Results for the Fiscal Years Ended June 30, 2016 and 2015.” In recent years, our market area has been, and we believe will continue to be, significantly affected by the oil and gas exploration industry. Many landowners in our market area have leased their properties for these purposes, and an increase in the price of oil and gas has generally resulted in increases in deposits and also decreases in average loan balances, resulting from increased loan pay downs and lower loan demand. Following a decrease in these commodities prices, as was experienced in 2014 and 2015, we would expect a decrease in some of these revenues and resultant deposits.

 

Our current business strategy includes continuing our disciplined underwriting practices to maintain our strong asset quality; continuing our emphasis on originating one- to four-family residential real estate loans; continuing to increase the origination of consumer loans; and enhancing core earnings by increasing lower-cost transaction and savings accounts.

 

Community Savings is subject to comprehensive regulation and examination by its primary federal regulator, the Office of the Comptroller of the Currency (“OCC”).

 

Our executive and administrative office is located at 425 Main Street, Caldwell, Ohio 43724, and our telephone number at this address is (740) 732-5678. Our website address is www.mycommunitysavings.com. Information on our website is not incorporated into this prospectus and should not be considered part of this prospectus.

 

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Market Area

 

We conduct our business from our full-service office in Caldwell, Ohio, which is located in and is the County Seat of, Noble County, Ohio, approximately 90 miles southeast of Columbus, Ohio. Noble County is largely rural. To a lesser extent, we also originate loans in Guernsey, Washington and Monroe Counties, Ohio, and Wood County, West Virginia. In recent years, our market area has been, and we believe will continue to be, significantly affected by the oil and gas exploration industry. Certain residents in our market area derive income from oil and gas exploration-related activities, such as from leasing land for exploration purposes. An increase in the price of oil and gas has generally resulted in increases in revenues and resultant deposits and also decreases in average loan balances, resulting from increased loan pay downs and lower loan demand.

 

According to the United States census, the estimated July 2015 population of Noble County was 14,326, representing a decrease of 2.2% from the 2010 census population of 14,645. During this same time period, the population of Ohio is estimated to have grown by 0.7%, and the United States population grew by an estimated 4.1%. In 2014, the median household income for Noble County was $37,126, compared to median household incomes of $48,849 and $53,482 for Ohio and the United States, respectively.

 

Competition

 

We face competition within our market area both in making loans and attracting deposits. Our market area has a concentration of financial institutions that include large money center and regional banks, community banks and credit unions. We also face competition from commercial banks, savings institutions, mortgage banking firms, consumer finance companies and credit unions and, with respect to deposits, from money market funds, brokerage firms, mutual funds and insurance companies. As of June 30, 2015, based on the most recent available FDIC data, there were only three FDIC-insured financial institutions with offices in Noble County, of which we ranked third, with a market share of deposits of 18.3%. We do not have a significant market share of either deposits or residential lending in any other county in our market area.

 

Lending Activities

 

General. Our principal lending activity is originating one- to four-family residential real estate, consumer and home equity loans, and, to a lesser extent, commercial real estate and multifamily loans. We generally retain the loans that we originate, however, we have sold loans on occasion in the secondary market. Loan sales are done on a servicing-released basis. In recent years, we experienced significant increases in our consumer loan portfolio resulting from purchases of auto loans from a third-party source. This source sold its business and as a result we expect that our consumer loan portfolio will decrease unless we initiate a relationship with another third-party referral source or implement an internal indirect auto lending program. We expect that one- to four-family residential real estate lending will continue to be the primary emphasis of our lending operations in the future, including our intention to increase our emphasis on originating these types of loans in Washington and Monroe Counties. Finally, while our market area does not provide significant opportunities for the origination of commercial real estate and multifamily lending, in the future we will consider originating and/or purchasing these types of loans, subject to our conservative underwriting standards, both within and outside our market area.

 

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Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio, by type of loan at the dates indicated.

 

   At June 30, 
   2016   2015 
   Amount   Percent   Amount   Percent 
   (Dollars in thousands) 
                 
One- to four-family residential (1)  $23,065    70.1%  $22,901    78.1%
Commercial real estate and multifamily   1,641    5.0    933    3.2 
Home equity   3,312    10.1    3,364    11.5 
Consumer   4,863    14.8    2,099    7.2 
                     
Total loans receivable   32,881    100.0%   29,297    100.0%
Deferred loan costs, net   1         1      
Allowance for loan losses   (253)        (288)     
                     
Total loans receivable, net  $32,629        $29,010      

 

 

(1)At June 30, 2016 and 2015 includes $3.7 million and $3.6 million of non owner-occupied properties.

 

Loan Portfolio Maturities. The following table summarizes the scheduled repayments of our loan portfolio at June 30, 2016. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in the year ending June 30, 2017. Maturities are based on the final contractual payment date and do not reflect the impact of prepayments and scheduled principal amortization.

 

   One- to four-
family
residential
   Commercial
real estate
and
multifamily
   Home
Equity
   Consumer   Total 
   (In thousands) 
Due During the Years
Ending June 30,
                         
2017  $16   $   $6   $57   $79 
2018   143            120    263 
2019   145            361    506 
2020 to 2021   250    15    16    1,196    1,477 
2022 to 2026   2,808    809    61    2,793    6,471 
2027 to 2031   8,551    162    193        8,906 
2032 and beyond   11,152    655    3,036    336    15,179 
                          
Total  $23,065   $1,641   $3,312   $4,863   $32,881 

 

The following table sets forth the scheduled repayments of fixed- and adjustable-rate loans at June 30, 2016 that are contractually due after June 30, 2017.

 

   Due After June 30, 2017 
   Fixed   Adjustable   Total 
   (In thousands) 
             
One-to four-family residential  $19,078   $3,971   $23,049 
Commercial real estate and multifamily   1,641        1,641 
Home equity       3,306    3,306 
Consumer   4,470    336    4,806 
Total  $25,189   $7,613   $32,802 

 

Loan Approval Procedures and Authority. Our lending is subject to written, non-discriminatory underwriting standards and origination procedures. Decisions on loan applications are made on the basis of detailed applications submitted by the prospective borrower and property valuations. Our policies require that for all real estate loans that we originate, property valuations must be performed by outside independent state-licensed appraisers approved by our board of directors. The loan applications are

 

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designed primarily to determine the borrower’s ability to repay the requested loan, and the more significant items on the application are verified through use of credit reports, financial statements and tax returns. We will also evaluate a guarantor when a guarantee is provided as part of the loan.

 

Pursuant to applicable law, the aggregate amount of loans that we are permitted to make to any one borrower or a group of related borrowers is generally limited to 15% of Community Savings’ unimpaired capital and surplus (25% if the amount in excess of 15% is secured by “readily marketable collateral” or 30% for certain residential development loans). At June 30, 2016, our largest credit relationship consisted of four loans which totaled $713,000 and were secured by residential real estate. Our second largest relationship at this date consisted of two loans totaling $688,000 and was secured by commercial and residential real estate. At June 30, 2016, these loans were performing in accordance with their repayment terms.

 

Our President and Chief Executive Officer has approval authority of up to $200,000 for residential and commercial real estate loans, and any loan officer has authority for these types of loans for up to $90,000. Amounts in excess of the authorities require approval of a majority of the board of directors. In certain circumstances, a loan officer’s authority may be raised up to $200,000 and the President’s approval authority may be raise up to $300,000. These are limited to applicants with high credit scores, low debt-to-income and housing ratios, and a loan-to-value ratio at or below 80%.

 

Generally, we require fire and extended coverage casualty insurance in amounts at least equal to the principal amount of the loan or the value of improvements on the property, depending on the type of loan. In addition, we require flood insurance (where appropriate) and may require escrow for property taxes and insurance on our conventional one- to four-family residential loans. For loans exceeding an 80% loan-to-value ratio, we require private mortgage insurance in amounts intended to reduce our exposure to 80% or less.

 

One- to Four-Family Residential Real Estate Lending. At June 30, 2016, $23.1 million, or 70.1%, of our total loans, was secured by one- to four-family residential real estate. We originate both fixed-rate and adjustable-rate one- to four-family residential real estate loans, and at June 30, 2016, these types of loans were comprised of 82.8% fixed-rate loans, and 17.2% adjustable-rate loans.

 

We generally limit the loan-to-value ratios of our one- to four-family residential real estate loans to 80% of the purchase price or appraised value, whichever is lower. In addition, we may make one- to four-family residential real estate loans with loan-to-value ratios between 80% and 95% of the purchase price or appraised value, whichever is less, where the borrower obtains private mortgage insurance.

 

Our fixed-rate, one- to four-family residential real estate loans are generally underwritten according to Freddie Mac guidelines, typically with terms of 10 to 30 years. We generally originate both fixed- and adjustable-rate one- to four-family residential real estate loans in amounts up to the maximum conforming loan limits as established by the Federal Housing Finance Agency, which as of June 30, 2016 was $417,000 for single-family homes in our market area. On a very limited basis, we also originate loans above the lending limit for conforming loans, which are referred to as “jumbo loans.” Virtually all of our one- to four-family residential real estate loans, including $3.3 million of home equity loans and lines of credit, are secured by properties located in our market area. On a limited basis we have made to our existing customers one- to four-family residential real estate loans out of our market area.

 

Our adjustable-rate, one- to four-family (owner-occupied) residential estate loans generally have fixed rates of interest for initial terms of one and three years, and adjust annually thereafter at a margin, which in recent years has been 3.50% and 3.25% over the weekly average yield on U.S. treasury securities adjusted to a constant maturity of one and three years.  In recent years, our adjustable-rate loans have had a maximum lifetime adjustment of 6% above or 6% below the initial rate of the loan, and the

 

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maximum amount by which the interest rate may be increased is generally 2% per adjustment period.  Our adjustable-rate loans carry terms to maturity of up to 30 years.

 

Our adjustable-rate, one- to four-family (non owner-occupied) residential real estate loans generally have fixed rates of interest for initial terms of one and three years, and adjust annually thereafter at a margin, which in recent years has been 4.50% and 4.25% over the weekly average yield on U.S. treasury securities adjusted to a constant maturity of one and three years. 

 

Although adjustable-rate one- to four-family residential real estate loans may reduce our vulnerability to changes in market interest rates because they periodically reprice, as interest rates increase, the required payments due from the borrower also increase (subject to rate caps), increasing the potential for default by the borrower. At the same time, the ability of the borrower to repay the loan and the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustments of the contractual interest rate are also limited by the maximum periodic and lifetime rate adjustments permitted by our loan documents. As a result, the effectiveness of adjustable-rate one- to four-family residential real estate loans in compensating for changes in market interest rates may be limited during periods of rapidly rising interest rates.

 

We do not offer “interest only” mortgage loans on permanent one- to four-family residential real estate loans (where the borrower pays interest for an initial period, after which the loan converts to a fully amortizing loan). We also do not offer one- to four-family residential real estate loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on the loan, resulting in an increased principal balance during the life of the loan. We generally do not offer “subprime loans” on one-to four- family residential real estate loans (i.e., loans to borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios), or “Alt-A” (i.e., loans to borrowers with better credit scores who borrow with alternative documentation such as little or no verification of income).

 

Home Equity Lines of Credit and Loans. We offer home equity lines of credit and home equity loans, which are generally made for owner-occupied homes, and are secured by first or second mortgages on residences. We generally offer these loans with a maximum loan-to-value ratio (including senior liens on the collateral property) of 80%. We currently offer home equity lines of credit with a draw period of five years and a repayment period of 15 years, and generally at rates tied to the prevailing prime interest rate. We also offer home equity lines of credit on non-owner occupied properties, where the first mortgage is also originated by us, with a maximum loan-to-value ratio of 80% for second homes on a case-by-case basis. Our home equity loans and lines of credit are generally underwritten in the same manner as our one- to four-family residential loans. At June 30, 2016, we had $3.3 million of home equity lines of credit and fixed-term home equity loans, representing 10.1% of our total loan portfolio. At June 30, 2016, we had no home equity loans or lines of credit that were 60 days or more delinquent. At June 30, 2016 $1.3 million of our home equity lines of credit were interest-only loans.

 

Home equity lines of credit and fixed-term home equity loans have greater risk than one- to four family residential real estate loans secured by first mortgages. Our interest is generally subordinated to the interest of the institution holding the first mortgage. Even where we hold the first mortgage, we face the risk that the value of the collateral may not be sufficient to compensate us for the amount of the unpaid loan and costs of foreclosure and we may be unsuccessful in recovering the remaining balance from those customers.

 

Consumer Lending. At June 30, 2016, we had $4.9 million, or 14.8% of our total loan portfolio, in consumer loans, virtually all of which were auto loans. In recent years, we experienced significant increases in our consumer loan portfolio resulting from purchases of auto loans from a third-party source.

 

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