S-1 1 t1700634_s-1.htm FORM S-1

 

As filed with the Securities and Exchange Commission on March 9, 2017

 

Registration No. __________

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM S-1

REGISTRATION STATEMENT UNDER

THE SECURITIES ACT OF 1933

 

Eagle Financial Bancorp, Inc. and

Eagle Savings Bank 401(k) Profit Sharing Plan and Trust

(Exact Name of Registrant as Specified in Its Charter)

 

Maryland   6035   Being Applied For
(State or Other Jurisdiction of   (Primary Standard Industrial   (I.R.S. Employer
Incorporation or Organization)   Classification Code Number)   Identification Number)

 

6415 Bridgetown Road

Cincinnati, Ohio 45248

(513) 574-0700

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

Registrant’s Principal Executive Offices)

 

Mr. Gary J. Koester

President and Chief Executive Officer

6415 Bridgetown Road

Cincinnati, Ohio 45248

(513) 574-0700

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

Agent for Service)

 

Copies to:

 

Kip A. Weissman, Esq.

Michael J. Brown, Esq.

Luse Gorman, PC

5335 Wisconsin Avenue, N.W., Suite 780

Washington, D.C. 20015

(202) 274-2000

Jason L. Hodges, Esq.

Vorys, Sater, Seymour & Pease LLP

301 East Fourth Street, Suite 3500

Great American Tower

Cincinnati, OH 45202

(513) 723-4000

 

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   2,248,250 shares    $10.00   $22,482,500(1)  $2,606 
Participation Interests   137,300(2)             (2)

 

(1)Estimated solely for the purpose of calculating the registration fee.
(2)The securities of Eagle Financial Bancorp, Inc. to be purchased by the Eagle Savings Bank 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

 

EAGLE SAVINGS BANK 401(k) PROFIT SHARING PLAN

 

Offering of Participation Interests in up to 137,300 Shares of

 

Eagle Financial Bancorp, Inc.

Common Stock

 

In connection with the conversion of Eagle Savings Bank (the “Bank”) from the mutual to the stock form of organization and the related stock offering of Eagle Financial Bancorp, Inc. (the “Conversion”), Eagle Financial Bancorp, Inc. and the Bank are allowing participants in the Eagle Savings Bank 401(k) Profit Sharing Plan and Trust (the “Plan”) a one-time opportunity to invest all or a portion of their accounts in shares of common stock of Eagle Financial Bancorp, Inc. on the date of the stock offering. All purchases of common stock of Eagle Financial Bancorp, Inc. will be denominated in stock units. After the date of the stock offering, Plan participants may not purchase additional shares of common stock of Eagle Financial Bancorp, Inc. through the Plan; however, Plan participants will be able to direct the Plan trustee to sell their shares (units) of common stock.

 

The Bank has registered on behalf of the Plan up to 137,300 participation interests so that the trustee of the Plan could purchase up to 137,300 shares of Eagle Financial Bancorp, Inc. common stock in the offering, at the purchase price of $10.00 per share. This prospectus supplement relates to the election of Plan participants to direct the trustee of the Plan to invest all or a portion of their Plan accounts in the Eagle Financial Bancorp, Inc. Stock Fund on the date of the stock offering.

 

The prospectus of Eagle Financial Bancorp, Inc., dated [________], accompanies this prospectus supplement. It contains detailed information regarding the Conversion of the Bank and the stock offering of Eagle Financial Bancorp, Inc. common stock and the financial condition, results of operations and business of Eagle Financial Bancorp, Inc. and the Bank. This prospectus supplement provides information regarding the 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 [__] of the accompanying prospectus and “Notice of Your Rights Concerning Employer Securities” below.

 

The interests in the 401(k) Plan and the offering of Eagle Financial Bancorp, Inc. common stock have not been approved or disapproved by the Federal Deposit Insurance Corporation, 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 Eagle Financial 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. Eagle Financial Bancorp, Inc., the Bank 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 Eagle Financial Bancorp, Inc. common stock shall under any circumstances imply that there has been no change in the affairs of Eagle Financial 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 [________].

 

 

 

TABLE OF CONTENTS

 

THE OFFERING 1
   
Securities Offered 1
Eagle Financial Bancorp, Inc. Stock Fund 1
Purchase Priorities 1
Purchases in the Offering and Oversubscriptions 2
Composition and Purpose of Stock Units 3
Value of the 401(k) Plan Assets 4
In Order to Participate in the Offering 4
How to Order Stock in the Offering 4
Order Deadline 6
Irrevocability of Transfer Direction 6
Other Purchases in Your Account During the Offering Period 7
No Additional Purchases of Eagle Financial Bancorp, Inc. Stock Fund Units after the Offering 7
Purchase Price of Common Stock in the Offering 7
Nature of a Participant’s Interest in the Common Stock 7
Voting Rights of Common Stock 7
   
DESCRIPTION OF THE 401(k) PLAN 8
   
Introduction 8
Eligibility and Participation 8
Contributions under the 401(k) Plan 9
Limitations on Contributions 9
Benefits under the 401(k) Plan 9
Investment of Contributions and Account Balances 10
Performance History 10
Description of the Investment Funds 11
Eagle Financial Bancorp, Inc. Stock Fund 13
Withdrawals from the 401(k) Plan 13
Administration of the 401(k) Plan 14
Amendment and Termination 14
Merger, Consolidation or Transfer 14
Federal Income Tax Consequences 15
Notice of Your Rights Concerning Employer Securities 16
Additional ERISA Considerations 17
Securities and Exchange Commission Reporting and Short-Swing Profit Liability 17
Financial Information Regarding 401(k) Plan Assets 18
   
LEGAL OPINION 18

 

 

 

THE OFFERING

 

Securities Offered

Eagle Financial Bancorp, Inc. is offering participants in the Eagle Savings Bank 401(k) Profit Sharing Plan and Trust (the “Plan”) the opportunity to purchase stock of Eagle Financial Bancorp, Inc. through the 401(k) Plan. All purchases of common stock of Eagle Financial Bancorp, Inc. will be denominated in stock units. The stock (units) represents indirect ownership of Eagle Financial Bancorp, Inc. common stock, often referred to as “participation interests,” through the Eagle Financial Bancorp, Inc. Stock Fund established under the Plan in connection with the stock offering. The Plan may acquire up to 137,300 shares of Eagle Financial Bancorp, Inc. common stock in the stock offering. Your investment in stock in connection with the stock offering through the Eagle Financial Bancorp, Inc. Stock Fund is subject to the purchase priorities contained in the Eagle Savings Bank Plan of Conversion (“Plan of Conversion”).

 

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 Eagle Financial Bancorp, Inc. is contained in the accompanying prospectus. The address of the principal executive office of Eagle Financial Bancorp, Inc. and the Bank is 6415 Bridgetown Road, Cincinnati, Ohio 45248. The Bank’s telephone number is (513) 574-0700.

 

All elections to purchase stock units in the Eagle Financial Bancorp, Inc. Stock Fund in the stock offering under the 401(k) Plan and any questions about this prospectus supplement should be addressed to Kevin Schramm, Vice President, Chief Financial Officer and Treasurer, Eagle Savings Bank, 6415 Bridgetown Road, Cincinnati, Ohio 45248.

 

Eagle Financial Bancorp, Inc. Stock Fund

In connection with the Conversion and stock offering, you may elect to designate a percentage of your 401(k) Plan account balance (up to 100 percent) to the Eagle Financial Bancorp, Inc. Stock Fund, to be used to purchase common stock of Eagle Financial 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 [__] of this prospectus supplement under “Notice of Your Rights Concerning Employer Securities — The Importance of Diversifying Your Retirement Savings.” The trustee of the Eagle Financial Bancorp, Inc. Stock Fund will purchase common stock of Eagle Financial Bancorp, Inc. at $10.00 per share to be held as stock units in accordance with your directions.

 

Purchase Priorities 401(k) Plan participants are eligible to direct a transfer of funds to

 

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the Eagle Financial Bancorp, Inc. Stock Fund. However, such directions are subject to the purchase priorities and purchase limitations in the Plan of Conversion of Eagle Savings Bank, 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 Eagle Savings Bank with $50 or more as of December 31, 2015.

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

(3)   Third, to depositors of Eagle Savings Bank with $50 or more on deposit as of [______________].

(4)   Fourth, to depositors of Eagle Savings Bank as of [______________].

 

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 Hamilton county, Ohio.

 

If you fall into subscription offering categories (1), (3), or (4) above, you have subscription rights to purchase Eagle Financial 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 the Stock Order Form and payment, using the stock order reply envelope provided.

 

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 Eagle Financial 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-

 

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bearing cash account in the Eagle Financial 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 Eagle Financial 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 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 such amounts will be transferred to and invested in the applicable Target Date Retirement Fund 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

The Eagle Financial Bancorp, Inc. Stock Fund will initially invest 100% in the common stock of Eagle Financial Bancorp, Inc. Accordingly, initially one stock unit will equal one share of common stock of Eagle Financial 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 Eagle Financial Bancorp, Inc. Stock Fund will maintain a cash component for liquidity purposes. Liquidity is required in order to facilitate daily transactions such as investment transfers or distributions from the Eagle Financial Bancorp, Inc. Stock Fund. Following the stock offering, each day, the stock unit value of the Eagle Financial Bancorp, Inc. Stock Fund will be determined by dividing the total market value of the Eagle Financial Bancorp, Inc. Stock Fund at the end of the day by the total number of units held in the Eagle Financial Bancorp, Inc. Stock

 

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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 dividends accrued and the interest earned on the cash component of the Eagle Financial Bancorp, Inc. Stock Fund, less any investment management fees. The market value and unit holdings of your account in the Eagle Financial 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 mypencorp.com or call (800) 848-5848 to view your account balances.

 

Value of the 401(k) Plan Assets

As of December 31, 2016, the market value of the assets of the Plan attributable to active and former employees of the Bank was approximately $1,373,000. The 401(k) Plan administrator informed each participant of the value of his or her account balance under the Plan as of December 31, 2016.

 

In Order to Participate in the Offering

Enclosed is a Special Investment Election Form on which you can elect to transfer all or a portion of your account balance in the 401(k) Plan to the Eagle Financial 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 [___] 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 Kevin Schramm, Vice President, Chief Financial Officer and Treasurer, Eagle Savings Bank, 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 Eagle Financial 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 Eagle Financial Bancorp, Inc. Stock Fund.

 

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·     Your election is subject to a minimum purchase of 25 shares which equates to $250.00.

 

·     Your election, plus any order you placed outside the 401(k) Plan, is subject to a maximum purchase of 20,000 shares which equates to $200,000.

 

·     The election period closes at 4:00 p.m., Eastern Time, ________ __, 2017.

 

·     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 Eagle Financial Bancorp, Inc. Stock Fund and will transfer the proceeds upon settlement to the Eagle Financial Bancorp, Inc. Stock Fund. The 401(k) Plan trustee will process such sales for all participants on a single day following the 401(k) offering period and before the close of 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 Eagle Financial 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 Eagle Financial Bancorp, Inc. Stock Fund and any remaining funds from your account will be transferred out of the Eagle Financial 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 Metlife Stable Value Fund 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 Eagle Financial 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 Eagle Financial Bancorp, Inc. Stock Fund on your Special Investment Election Form.

 

·     The amount you elect to transfer to the Eagle Financial 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  

 

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transaction is completed, which is after the closing of the subscription offering period.

 

You are allowed only one election to transfer funds to the Eagle Financial 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 Eagle Financial Bancorp, Inc. Stock Fund to purchase stock in the offering. Your interests in the fund will be 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 Eagle Financial 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 Eagle Savings Bank.

 

·     Sign and date the Special Investment Election Form and return it by hand delivery, regular mail 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 Eagle Financial Bancorp, Inc. with all or a portion of your 401(k) Plan account balances, your Special Investment Election Form must be received by [_________]; no later than 4:00 p.m., Eastern Standard Time, on _______ __, _____. To allow for processing, this deadline is prior to the subscription offering period deadline (which is _______ __, _____). If you have any questions with respect to the Special Investment Election Form, please contact Kevin Schramm, Vice President, Chief Financial Officer and Treasurer.

 

Irrevocability of Transfer Direction

You may not revoke your Special Investment Election Form once it has been delivered to Kevin Schramm, Vice President, Chief Financial Officer and Treasurer. 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.

 

 

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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. Such purchases will be made at the prevailing market price in the same manner as you make such 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) Plan by returning your Special Investment Election Form to John Schuler 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 such purchase.

 

No Additional Purchases of Eagle Financial Bancorp, Inc. Stock Fund Units after the Offering

After the Conversion closes, you will have the opportunity to direct the Plan trustee to sell any shares that you purchased in the offering. You will not have the opportunity to purchase any additional shares. Special restrictions may apply to transfers directed to and from the Eagle Financial 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 Eagle Financial 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.

 

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 Eagle Financial Bancorp, Inc. common stock.  If the trustee does not receive your voting instructions, the trustee will be directed by Eagle Savings Bank to vote your shares in the same proportion as the voting instructions received from other participants related to their shares of Eagle Financial 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

 

Eagle Savings Bank originally adopted the former plan effective as of January 1, 1993. In connection with the Conversion of Eagle Savings Bank from the mutual to stock form of organization, Eagle Financial Bancorp, Inc. and the Bank desire to allow participants to purchase common stock of Eagle Financial Bancorp, Inc. in their accounts in the 401(k) Plan. The 401(k) Plan is a 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”).

 

The Bank intends that the 401(k) Plan, in operation, will comply with the requirements under Section 401(a) and Section 401(k) of the Code. The Bank 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 c/o Eagle Savings Bank, Attn: Kevin Schramm, Vice President, Chief Financial Officer and Treasurer. You are urged to read carefully the full text of the 401(k) Plan.

 

Eligibility and Participation

 

As an employee of the Bank, you are eligible to become a participant in the 401(k) Plan on the entry date coinciding with or immediately following completion of one year of service and attainment of age 21. The entry dates under the 401(k) Plan are the first day of each month.

 

As of December 31, 2016, there were approximately 21 active and former employees with account balances in the 401(k) Plan.

 

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Contributions under the 401(k) Plan

 

Elective Deferrals. You are permitted to defer on a pre-tax basis any whole percentage of your Compensation, from 1% up to 100%, subject to certain restrictions imposed by the Code, and to have that amount contributed to the 401(k) Plan on your behalf. Your pre-tax deferrals are subject to certain restrictions imposed by the Code, and for 2017, you may defer up to $18,000 and you may defer an additional $6,000 if you qualify for catch-up contributions as described in the next paragraph. The Compensation of each participant taken into account under the 401(k) Plan is limited by the Code, and for 2017 the limit is $270,000 (this limit may change on an annual basis). 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 elective deferrals 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 2017, 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.

 

Discretionary Employer Contributions. Discretionary employer contributions may be made for each plan year in an amount determined by the Bank.

 

Limitations on Contributions

 

Contribution Limits. For the Plan Year beginning January 1, 2017, the amount of your elective deferrals 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 $54,000 (for 2017), or if applicable, $60,000 (for 2017) including catch-up contributions.

 

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

 

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deferral contributions. You will become vested in discretionary employer contributions at the rate of 20% per year, commencing upon completion of two years of service, and will become 100% vested upon completion of six years of service. You will also become 100% vested in your entire account in the event you attain normal retirement age (age 65), you die or you are disabled.

 

Distribution at Termination of Employment. You 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. The Plan will make involuntary cash-out distributions of vested account balances in accordance with the 401(k) Plan. 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.

 

Distribution after Death of Participant. In the event of your death, the value of your entire account will be payable to your beneficiary in accordance with the 401(k) Plan.

 

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 of the 401(k) Plan. Prior to the effective date of the offering, you were provided the opportunity to direct the investments of your account into one of the investment options described below.

 

Performance History

 

The following table provides performance data with respect to the investment funds in the 401(k) Plan:

 

    Expense   Total Returns as of December 31, 2016 
Fund Name  Ratio   1 Year   3 Year   5 Year   10 Year 
Metlife Stable Value   1.30%   1.62%   1.76%   2.03%   2.97%
JP Morgan Government Bond   0.75%   1.29%   2.40%   1.29%   4.12%
Metro West Total Return Bond   0.79%   2.11%   2.55%   3.68%   5.54%
PIMCO Income   1.10%   8.02%   5.48%   8.23%    
American Balanced Fund   0.94%   8.24%   5.98%   10.45    6.17%
MFS Value Fund   1.11%   13.56%   7.33%   14.12%   6.35%
Columbia Contrarian Core Fund   1.06%   8.35%   7.85%   14.98%   8.59%
Vanguard 500 Index Fund   0.05%   11.93%   8.84%   14.62%   6.94%
MFS Growth Fund   0.97%   2.21%   5.91%   13.65%   8.53%
J Hancock Disciplined Value Mid Cap Fund   1.13%   15.01%   9.76%   16.79%   10.34%
Principal MidCap Fund   1.16%   9.70%   7.50%   14.37%   9.40%
Delaware Small Cap Value Fund   1.21%   31.02%   8.91%   14.07%   7.81%
Janus Triton Fund   1.17%   10.14%   6.67%   13.90%   10.63%
Am. Funds Cap. World Gro. & Inc. Fund   1.09%   6.15%   2.38%   9.67%   4.06%
Am. Funds EuroPacific Growth Fund   1.14%   0.39%   (1.23)%   6.54%   2.32%
Am. Funds New World Fund   1.34%   3.60%   (2.29)%   4.09%   2.77%

 

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Description of the Investment Funds

 

The following is a description of each of the funds:

 

MetLife Stable Value Fund. The Fund provides a guarantee of both principal and interest for participant-initiated withdrawals.

 

JP Morgan Government Bond Fund. The Fund seeks a high level of current income with liquidity and safety of principal. The Fund principally invests in securities issued by the U.S. government and its agencies and instrumentalities and related to securities issued by the U.S. government and its agencies and instruments.

 

Metropolitan West Total Return Bond Fund. The Fund seeks to maximize long-term total return. The Fund invests primarily in investment g-income securities. Normally the portfolio duration is two to eight years. The Fund may invest in securities of varying maturities issued by domestic and foreign corporations and governments.

 

PIMCO Income Fund. The Fund seeks to maximize current income; long-term capital appreciation is a secondary objective. The Fund invests at least 65% of its total assets in a multi-sector portfolio of fixed income instruments of varying maturities, which may be represented by forwards or derivatives such as options, futures contracts or swap agreements. It may invest up to 50% of its total assets in high yield securities rated below investment grade but rated at least Caa by Moody’s, or equivalently rated by S&P or Finch, or if unrated, determined by PIMCO to be of comparable quality.

 

American Balanced Fund. The Fund seeks conservation of capital, current income and long-term growth of capital and income. The Fund invests in a broad range of securities, including common stocks and investment-grade bonds. The Fund also invests in securities issued and guaranteed by the U.S. government and by federal agencies and instrumentalities.

 

MFS Value Fund. The Fund seeks capital appreciation. The Fund normally invests primarily in equity securities. Equity securities include common stocks and other securities that represent an ownership interest (or right to acquire an ownership interest) in a company or other issuer. It focuses on investing its assets in the stocks of companies it believes are undervalued compared to their perceived worth (value companies).

 

Columbia Contrarian Core Fund. The Fund seeks total return, consisting of long-term capital appreciation and current income. The Fund normally invests primarily in equity securities of U.S. companies that have large market capitalizations that are believed to be undervalued and have the potential for long-term growth and current income.

 

Vanguard 500 Index Fund. The Fund seeks to track the performance of the S&P 500 Index, a widely recognized benchmark of U.S. stock market performance that is dominated by the stocks of large U.S. companies. The Fund invests all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the Index.

 

 11 

 

MFS Growth Fund. The Fund seeks capital appreciation. The Fund normally invests primarily in equity securities which include common stocks and other securities that represent an ownership interest (or right to acquire an ownership interest) in a company or other issuer. The Fund focuses on investing its assets in the stocks of companies it believes to have above average earnings growth potential compared to other companies (growth companies).

 

J Hancock Disciplined Value Mid Cap Fund. The Fund seeks long-term growth of capital with current income as a secondary objective. The Fund normally invests primarily in a diversified portfolio consisting primarily of equity securities, such as common stocks, of issuers with medium market capitalizations, and identified by the manager as having value characteristics. It may also invest up to 20% of its total assets in foreign currency-denominated securities.

 

Principal MidCap Fund. The Fund seeks long-term growth of capital. The fund normally invests primarily in equity securities of companies with medium market capitalizations at the time of purchase. For this Fund, companies with medium market capitalizations are those with market capitalizations within the range of companies comprising the Russell Midcap Index. The Fund invests in foreign securities.

 

Delaware Small Cap Value Fund. The Fund seeks capital appreciation. The Fund invests primarily in investments of small companies whose stock prices appear low relative to their underlying value or future potential.

 

Janus Triton Fund. The Fund seeks long-term growth of capital. The Fund invests in equity securities, primarily common stocks, of small- and medium-sized companies selected for their growth potential. The Fund may invest in foreign securities, which may include investments in emerging markets.

 

Am. Funds Cap. World Gro. & Inc. Fund. The Fund seeks long-term growth of capital while providing current income. The Fund normally invests primarily in common stocks of well-established companies located around the world, many of which have the potential to pay dividends. It invests, on a global basis, in common stocks that are denominated in U.S. dollars or other currencies. It will normally invest a significant portion of its assets in securities of issuers domiciled outside the U.S., including those based in developing countries.

 

American Funds EuroPacific Growth Fund. The Fund seeks long-term growth of capital. The Fund invests primarily in common stocks of issuers in Europe and the Pacific Basin that the investment advisor believes have the potential for growth. Growth stocks are stocks that the investment advisor believes have the potential for above-average capital appreciation. The Fund may invest a portion of its assets in common stocks and other securities of companies in emerging markets.

 

American Funds New World Fund. The Fund seeks long-term capital appreciation. The Fund normally invests primarily in common stocks of companies with significant exposure to countries with developing economies and/or markets. Under normal market conditions, the Fund will invest at least 35% of its assets in equity and debt securities of issuers primarily based in qualified countries that have developing economies and/or markets.

 

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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.

 

Eagle Financial Bancorp, Inc. Stock Fund

 

In connection with the stock offering, the 401(k) Plan now offers the Eagle Financial Bancorp, Inc. Stock Fund as an additional choice to the investment options described above. Eagle Financial Bancorp, Inc. Stock Fund invests primarily in the shares of common stock of Eagle Financial 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 Eagle Financial Bancorp, Inc. Stock Fund as a one-time special election.

 

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

 

Investments in Eagle Financial Bancorp, Inc. Stock Fund involve special risks common to investments in the shares of common stock of Eagle Financial Bancorp, Inc. In making a decision to invest all or a part of your account balance in the Eagle Financial 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 [__] 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 the Bank. 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 the Bank 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, nonelective contributions and 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 and after-tax elective deferrals.

 

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.

 

Administration of the 401(k) Plan

 

The Trustee and Custodian. The trustee of the 401(k) Plan is the Board of Directors of the Bank.

 

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 Eagle Savings Bank, 6415 Bridgetown Road, Cincinnati, Ohio 45248. 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 mypencorp.com or call (800) 848-5848 at any time to review your account balances.

 

Amendment and Termination

 

It is the intention of the Bank to continue the 401(k) Plan indefinitely. Nevertheless, the Bank 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. The Bank 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 the Bank may make any amendment it determines necessary or desirable, with or without retroactive effect, to comply with ERISA.

 

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

 

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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.

 

The Bank 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 the Bank. 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 the Bank, which is included in the distribution.

 

Eagle Financial Bancorp, Inc. Common Stock Included in Lump-Sum Distribution. If a lump-sum distribution includes Eagle Financial Bancorp, Inc. common stock, the distribution generally will be taxed in the manner described above, except that the total taxable amount may be reduced by the amount of any net unrealized appreciation with respect to Eagle Financial Bancorp, Inc. common stock, that is, the excess of the value of Eagle Financial 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 Eagle Financial Bancorp, Inc. common stock, for purposes of computing gain or loss on its subsequent sale, equals the value of Eagle Financial Bancorp, Inc. common

 

 15 

 

stock at the time of distribution, less the amount of net unrealized appreciation. Any gain on a subsequent sale or other taxable disposition of Eagle Financial 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 Eagle Financial Bancorp, Inc. common stock. Any gain on a subsequent sale or other taxable disposition of Eagle Financial 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 Eagle Financial Bancorp, Inc. common stock. Because you may in the future have investments in Eagle Financial 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 Eagle Financial 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 Eagle Financial 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.

 

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 Eagle Financial Bancorp, Inc. common stock through the 401(k) Plan.

 

 16 

 

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 the Bank, 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 Eagle Financial 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 Eagle Financial 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 Eagle Financial 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 Eagle Financial Bancorp, Inc.’s fiscal year. Discretionary transactions in and beneficial ownership of the common stock through the Eagle Financial Bancorp, Inc. Stock Fund of the 401(k) Plan by officers, directors and persons beneficially owning more than 10% of the common stock of Eagle Financial 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 Eagle Financial Bancorp, Inc. of profits realized by an officer, director or any person beneficially owning more than 10% of Eagle Financial Bancorp, Inc.’s common stock resulting from non-exempt purchases and sales of Eagle Financial Bancorp, Inc. common stock within any six-month period.

 

 17 

 

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 Eagle Financial 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, 2016, 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 Eagle Financial Bancorp, Inc. in connection with Eagle Financial Bancorp, Inc.’s stock offering.

 

 18 

 

 

PROSPECTUS

 

EAGLE FINANCIAL BANCORP, INC.

(Proposed Holding Company for Eagle Savings Bank)

Up to 1,915,000 shares of Common Stock

(Subject to Increase to up to 2,208,250 shares)

 

Eagle Financial Bancorp, Inc., a Maryland corporation and the proposed holding company for Eagle Savings Bank, is offering shares of common stock for sale at $10.00 per share in connection with the conversion of Eagle Savings Bank from the mutual to the stock form of organization. In addition to the shares that we will sell in the offering, we intend to establish a charitable foundation in connection with the conversion and contribute to it $400,000 of our common stock and $100,000 of cash. There is no established market for our common stock. We expect that our common stock will be traded on the Nasdaq Capital Market under the symbol “EFBI” 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 1,915,000 shares of common stock for sale at a price of $10.00 per share on a best efforts basis. We may sell up to 2,208,250 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 1,405,000 shares in order to complete the offering.

 

We are offering the shares of common stock in a “subscription offering” to eligible current and former depositors of Eagle Savings Bank. 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 Hamilton County, 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. Generally, the maximum number of shares of common stock that can be ordered by any person in the offering, or persons exercising subscription rights through a single qualifying account held jointly, is 20,000 shares ($200,000), and no person together with an associate or group of persons acting in concert may purchase more than 40,000 shares ($400,000) in the offering.

 

The offering is expected to expire at 2:00 p.m., Eastern Time, on [expire date]. We may extend this expiration date without notice to you until [extension date]. The Ohio Division of Financial Institutions and the Federal Deposit Insurance Corporation may approve a later date, which may not be beyond [term date]. Once submitted, orders are irrevocable unless the offering is terminated or is extended beyond [extension date], or the number of shares of common stock to be sold is increased to more than 2,208,250 shares or decreased to less than 1,405,000 shares. If the offering is extended past [extension date], 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 ____% per annum. If the number of shares to be sold is increased to more than 2,208,250 shares or decreased to less than 1,405,000 shares, all funds submitted for the purchase of shares of common stock in the offering will be returned promptly with interest at ____% 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 Eagle Savings Bank and will earn interest at ____% per annum until completion or termination of the offering.

 

Keefe, Bruyette & Woods, Inc. will assist us in selling our shares of common stock in the offering on a best efforts basis. 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   1,405,000    1,660,000    1,915,000    2,208,250 
Gross offering proceeds  $14,050,000   $16,600,000   $19,150,000   $22,082,500 
Estimated offering expenses, excluding selling agent commissions  $860,000   $860,000   $860,000   $860,000 
Selling agent commissions (1)  $390,000   $390,000   $390,000   $390,000 
Estimated net proceeds  $12,800,000   $15,350,000   $17,900,000   $20,832,500 
Estimated net proceeds per share  $9.11   $9.25   $9.35   $9.43 

 

 

(1)Selling agent commissions shown assume that all shares are sold in the subscription and community offerings. The amounts shown include: (i) fees and selling commissions payable by us to Keefe, Bruyette & Woods, Inc. in connection with the subscription and community offerings equal to $250,000; and (ii) expenses of the offering payable to Keefe, Bruyette & Woods, Inc. in the subscription and community offerings of up to $105,000. Selling agent commissions on a per share basis amount to $0.28, $0.23, $0.20 and $0.18, at the minimum, midpoint, maximum and adjusted maximum levels of the offering, respectively. See “The Conversion and Offering—Marketing and Distribution; Compensation” for information regarding compensation to be received by Keefe, Bruyette & Woods, Inc. and the other broker-dealers that may participate in a syndicated community offering. If all shares of common stock were sold in a syndicated community offering, the maximum selling agent commissions would be 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 $651,840, $792,600, $933,360 and $1,095,234 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 16.

 

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 Ohio Division of Financial Institutions, the Federal Deposit Insurance Corporation, 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 [sic phone].

The date of this prospectus is [Prospectus Date].

 

   

 

 

[MAP TO BE INSERTED ON INSIDE FRONT COVER]

 

   

 

 

TABLE OF CONTENTS

 

  Page
   
SUMMARY 1
RISK FACTORS 16
SELECTED FINANCIAL AND OTHER DATA OF EAGLE SAVINGS BANK 35
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 37
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING 40
OUR DIVIDEND POLICY 41
MARKET FOR THE COMMON STOCK 42
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE 44
CAPITALIZATION 45
PRO FORMA DATA 47
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH AND WITHOUT THE CHARITABLE FOUNDATION 52
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 54
BUSINESS OF EAGLE FINANCIAL BANCORP, INC. 68
BUSINESS OF EAGLE SAVINGS BANK 68
REGULATION AND SUPERVISION 90
TAXATION 100
MANAGEMENT 102
SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS 112
THE CONVERSION AND OFFERING 113
EAGLE SAVINGS BANK CHARITABLE FOUNDATION 136
RESTRICTIONS ON ACQUISITION OF EAGLE FINANCIAL BANCORP, INC. 140
DESCRIPTION OF CAPITAL STOCK OF EAGLE FINANCIAL BANCORP, INC. 146
TRANSFER AGENT 148
EXPERTS 148
CHANGE IN ACCOUNTANTS 148
LEGAL MATTERS 149
WHERE YOU CAN FIND ADDITIONAL INFORMATION 149
INDEX TO FINANCIAL STATEMENTS OF EAGLE SAVINGS BANK F-1

 

 i 

 

SUMMARY

 

The following summary explains the significant aspects of Eagle Savings Bank’s mutual-to-stock conversion and the related offering of Eagle Financial 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 Eagle Financial Bancorp, Inc. and Eagle Savings Bank, unless the context indicates another meaning. In addition, we sometimes refer to Eagle Financial Bancorp, Inc. as “Eagle Financial Bancorp, Inc.,” and to Eagle Savings Bank as the “Bank.”

 

Eagle Savings Bank

 

Eagle Savings Bank is an Ohio chartered mutual savings and loan association that was originally organized in 1882 under the name The Price Hill Eagle Loan and Building Company No. 1 in the community of East Price Hill for the purposes of promoting savings and home ownership. The Bank changed its name to Eagle Savings Bank in 1996. We conduct our business from our main office and two branch offices. All of our offices are located in Hamilton County, Ohio. Our primary deposit-taking market includes the local communities surrounding our bank offices. Our primary lending market is Hamilton County, Ohio, and the adjoining counties of Butler, Warren and Clermont Counties in Ohio, Boone, Kenton and Campbell Counties in Kentucky, and Dearborn County in Indiana.

 

Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations and borrowings, in one- to four-family residential real estate loans, commercial real estate and land loans, construction loans and home equity loans and lines of credit. To a lesser extent, we also make commercial business loans, multi-family real estate loans and other consumer loans. At December 31, 2016, $47.7 million, or 53.2% of our total loan portfolio, was comprised of one- to four-family residential real estate loans. At that same date, $13.6 million, or 15.2% of our total loan portfolio, was comprised of commercial real estate and land loans, and $14.6 million, or 16.3% of our total loan portfolio, was comprised of consumer loans, all but $32,000 of which were home equity loans and lines of credit.

 

We also emphasize our mortgage banking operations. Our revenue from gain on sales of one- to four-family mortgage loans was $2.1 million and $1.6 million for the years ended December 31, 2016 and 2015, respectively. We intend to expand our one- to four-family mortgage lending business, including the addition of up to six new commission-based mortgage lenders over the next three years.

 

We offer a variety of deposit accounts, including checking accounts, savings accounts, money market demand accounts and certificate of deposit accounts. We utilize advances from the Federal Home Loan Bank of Cincinnati (the “FHLB-Cincinnati”) for asset/liability management purposes and, from time to time, for additional funding for our operations. At December 31, 2016, we had $28,000 in advances outstanding with the FHLB-Cincinnati.

 

Eagle Savings Bank is subject to comprehensive regulation and examination by its primary federal regulator, the Federal Deposit Insurance Corporation (the “FDIC”), and by its state regulator, the Ohio Division of Financial Institutions (the “ODFI”).

 

Our executive office is located at 6415 Bridgetown Road, Cincinnati, Ohio 45248, and our telephone number at this address is (513) 574-0700. Our website address is www.eaglesavings.com.

 

 

 

Information on our website is not incorporated into this prospectus and should not be considered part of this prospectus.

 

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. Following the conversion and offering, we will focus on increasing our portfolio of shorter term, higher yielding loans, continuing to grow our mortgage banking operations and increasing our “core” deposit base. Highlights of our current business strategy include:

 

·continuing to expand our mortgage banking operations;

 

·growing our portfolios of shorter term, higher yielding loans, including commercial business loans, commercial real estate loans, construction loans and home equity loans and lines of credit;

 

·increasing our “core” deposit base;

 

·implementing a managed growth strategy while maintaining high asset quality; and

 

·remaining a community-oriented institution. 

 

During the past year, we have hired new senior officers and credit support staff to support the managed growth of our lending operations using the proceeds of the offering. In May, 2016 we hired W. Raymond McCleese, our Vice President of Commercial Lending, with seven years of commercial lending experience in our market. Mr. McCleese joins our President and Chief Executive Officer, Gary J. Koester, with 40 years of experience with the Bank, including commercial and residential real estate lending in our market. In early 2017, we also hired an additional commercial lending underwriter with 30 years of experience. He joins our credit administrator with 10 years of experience with the Bank and over 30 years of experience in the banking industry including service with regulatory agencies where he was an examination specialist with respect to commercial business, retail, consumer, agriculture and commercial real estate lending. In addition, in July 2016 we added Patricia L. Walter, our Executive Vice President, who has 12 years of experience in the banking industry, including accounting and financial reporting.

 

We consider commercial real estate lending, construction lending, home equity lending and mortgage banking to be part of our core competencies and historical strengths.

 

The strategies listed above are intended to guide our investment of the net proceeds of the offering. We intend to continue to pursue our business strategy after the conversion and the offering, subject to changes necessitated by future market conditions and other factors. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Strategy” for a further discussion of our business strategy.

 

A full description of our products and services begins on page 68 of this prospectus under the heading “Business of Eagle Savings Bank.”

 

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Eagle Financial Bancorp, Inc.

 

The shares being offered will be issued by Eagle Financial Bancorp, Inc. a newly formed Maryland corporation that will own all of the outstanding shares of common stock of Eagle Savings Bank upon completion of Eagle Savings Bank’s mutual-to-stock conversion. Eagle Financial Bancorp, Inc. was incorporated on February 17, 2017 and has not engaged in any business to date. Upon completion of the conversion, Eagle Financial Bancorp, Inc. 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 (“Federal Reserve Board”).

 

Eagle Financial Bancorp, Inc.’s executive and administrative office is located at 6415 Bridgetown Road, Cincinnati, Ohio 45248, and its telephone number at this address is (513) 574-0700.

 

The Conversion and Our Organizational Structure

 

Pursuant to the terms of the plan of conversion, Eagle Savings Bank will convert from an Ohio-chartered mutual (meaning no stockholders) savings and loan association to an Ohio-chartered stock savings and loan association. As part of the conversion, Eagle Financial Bancorp, Inc., the newly formed proposed holding company for Eagle Savings Bank, 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, Eagle Financial Bancorp, Inc. will be 100% owned by stockholders and Eagle Savings Bank will be a wholly-owned subsidiary of Eagle Financial Bancorp, Inc. A full description of the conversion begins on page 113 of this prospectus under the heading “The Conversion and Offering.”

 

Reasons for the Conversion and Offering

 

Our primary reasons for converting and raising additional capital through the offering are:

 

·to increase our capital to support our strategic plan, which includes managed growth, increasing our mortgage banking operations and diversifying our lending;

 

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

 

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

 

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

 

·to support our local communities through establishing and funding a charitable foundation.

 

We believe the stock form of organization will better support the expansion of the products and services we can offer our customers. Management believes that the additional capital raised in the offering will enable us to take advantage of business opportunities that may not otherwise be available to us, while remaining an independent community-oriented institution.

 

As of December 31, 2016, Eagle Savings Bank 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.

 

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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 1,405,000 shares and 1,915,000 shares of common stock to eligible depositors of Eagle Savings Bank 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 Hamilton County, 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 2,208,250 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 2,208,250 shares or decreased to fewer than 1,405,000 shares, or the offering is extended beyond [extension date], subscribers will not have the opportunity to change or cancel their stock orders once submitted. If the offering is extended past [extension date], 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 ____% per annum. If the number of shares to be sold is increased to more than 2,208,250 shares or decreased to less than 1,405,000 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 ____% 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.

 

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 Eagle Financial Bancorp, Inc., assuming the conversion and offering are completed and the charitable foundation has been established and the contribution of shares of common stock and cash to it has been made. Keller & Company, Inc., our independent appraiser, has estimated that, as of February 21, 2017, this market value, including the shares to be issued to the charitable foundation, was $17.0 million. By regulation, this market value forms the midpoint of our valuation range with a minimum of $14.5 million and a maximum of $19.6 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 1,405,000 shares to 1,915,000 shares. We may sell up to 2,208,250 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 Eagle Savings Bank’s financial condition and results of operations, the pro forma effect of the additional capital raised by the sale of shares of common stock in the offering, and an analysis of a peer group of 10 publicly traded thrift holding companies with assets between $335.0 million and $777.5 million as of February 21, 2017 that Keller & Company, Inc. considers comparable to Eagle Financial Bancorp, Inc. The larger asset size of the comparable group is

 

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related to the fact that one of the general parameters for the selection of the comparables is that they must all be traded on one of the three major stock exchanges—the NYSE, American Stock Exchange or NASDAQ. Most of the converting institutions of our asset size are not eligible for listing on such a stock exchange. As a result, these financial institutions are noticeably larger in size than Eagle Financial Bancorp, Inc. See “The Conversion and Offering—Determination of Share Price and Number of Shares to be Issued.”

 

The following table presents a summary of selected pricing ratios for the peer group companies and for Eagle Financial Bancorp, Inc. (on a pro forma basis) utilized by Keller & Company, Inc. in its appraisal. These ratios are based on Eagle Financial Bancorp, Inc.’s book value, tangible book value and “core” earnings, where earnings have been adjusted by Keller & Company, Inc. to omit certain non-recurring income and expense items, as of and for the 12 months ended December 31, 2016. The peer group ratios are based on the latest date for which complete financial data are publicly available and stock prices as of February 21, 2017. 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 35.52% on a price-to-book value basis and a discount of 39.90% on a price-to-tangible book value basis.

 

  

Price-to-core
earnings

multiple

   Price-to-book
value ratio
   Price-to-tangible
book value ratio
 
Eagle Financial Bancorp, Inc. (on a pro forma basis, assuming completion of the conversion):               
Adjusted Maximum   29.72x   70.96%   70.96%
Maximum   26.00x   67.18%   67.18%
Midpoint   22.74x   63.30%   63.30%
Minimum   19.43x   58.71%   58.71%
                
Valuation of peer group companies, all of which are fully converted (on an historical basis):               
Averages   21.20x   98.17%   105.33%
Medians   17.16x   100.78%   105.08%

 

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 December 31, 2015 and February 21, 2017. These companies did not constitute the group of ten comparable public companies utilized in Keller & Company, Inc.’s valuation analysis.

 

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Mutual-to-Stock Conversion Offerings with Closing Dates between December 31, 2015 and February 21, 2017 
        

Percentage Price Change

From Initial Trading Date

 
Company Name and
Ticker Symbol
  Conversion
Date
  Exchange  One Day   One Week   One
Month
  

Through

February
21, 2017

 
                       
Best Hometown Bancorp, Inc. (BTHT)  4/30/2016  OTC Pink   8.50%   8.50%   8.50%   8.50%
Community Savings Bancorp, Inc. (CCSB)  1/10/2017  OTC Pink   30.00%   30.00%   30.00%   30.00%
HV Bancorp, Inc. (HVBC)  1/12/2017  NASDAQ   36.70%   41.30%   39.90%   41.80%
                           
Average         25.07%   26.60%   26.13%   36.43%
Median         30.00%   30.00%   30.00%   30.00%

 

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 are exactly similar to Eagle Financial Bancorp, Inc., the pricing ratios for their stock offerings may have been different from the pricing ratios for Eagle Financial Bancorp, Inc. 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 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. 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 16.

 

How We Intend to Use the Proceeds From the Stock Offering

 

We anticipate that Eagle Financial Bancorp, Inc. will invest, at the minimum, midpoint, maximum and adjusted maximum of the offering range, approximately $6.4 million, $7.7 million, $9.0 million and $10.4 million, respectively, of the net proceeds from the stock offering in Eagle Savings Bank. Of the remaining funds, we intend that Eagle Financial Bancorp, Inc. will loan funds to our employee stock ownership plan to fund the plan’s purchase of shares of common stock in the stock offering, contribute $100,000 of cash to the charitable foundation, and retain the remainder of the net proceeds from the offering. Assuming we sell 1,660,000 shares of common stock in the stock offering and have net proceeds of $15.4 million, we anticipate that Eagle Financial Bancorp, Inc. will invest $7.7 million in Eagle Savings Bank, loan $1.4 million to our employee stock ownership plan to fund its purchase of shares of common stock, use $100,000 of the net proceeds to fund the cash contribution to the charitable foundation, and retain the remaining $6.3 million of the net proceeds.

 

Eagle Financial Bancorp, Inc. may use the remaining funds that it retains to pay cash dividends (if declared by our board of directors), to repurchase shares of common stock (subject to compliance with regulatory requirements), for investments, or for other general corporate purposes. Eagle Savings Bank intends to use the net proceeds it receives from us to fund new loans, enhance existing products and services, invest in securities, expand its banking franchise by establishing new branches or loan production offices, or acquiring other financial institutions or branches thereof, as opportunities arise, or for general corporate purposes. We currently have no specific plans, understandings or agreements to establish a new branch or loan production office, or to acquire any financial institution or branch thereof.

 

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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 Eagle Savings Bank with aggregate balances of at least $50 at the close of business on December 31, 2015.

 

(ii)Second, to our tax-qualified employee benefit plans (including Eagle Savings Bank’s 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 and contributed to the charitable foundation. We expect our employee stock ownership plan to purchase up to 8% of the shares of common stock issued in the conversion, including shares contributed to the charitable foundation.

 

(iii)Third, to depositors with accounts at Eagle Savings Bank with aggregate balances of at least $50 at the close of business on [SERD].

 

(iv)Fourth, to depositors of Eagle Savings Bank at the close of business on [vrd].

 

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 Hamilton County, 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 whole or in part, 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.

 

To ensure proper allocation of stock, each eligible depositor must list on his or her stock order form all deposit accounts in which he or she had an ownership interest at December 31, 2015, [SERD] or [vrd] as applicable. Failure to list an account or providing incorrect information could result in the loss of all or part of a subscriber’s stock allocation. We will attempt to identify your ownership in all accounts but cannot guarantee we will identify all accounts in which you had an ownership interest. Our interpretations of the terms and conditions of the stock issuance plan and of the acceptability of the order forms will be final.

 

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 in accordance with our plan of conversion. 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.”

 

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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 exercising subscription rights through a single qualifying account held jointly, may purchase more than the greater of: (i) 20,000 shares ($200,000) of common stock; (ii) 0.10% of the total number of shares of common stock issued in the offering, or (iii) 15 times the number of shares offered multiplied by a fraction of which the numerator is the depositor’s total deposit balance (as of the eligibility record date or supplemental eligibility record date, as applicable) and the denominator is the aggregate of all deposits (as of the eligibility record date or supplemental eligibility record date, as applicable). 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 40,000 shares ($400,000) 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 40,000 shares ($400,000). 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.”

 

Subject to regulatory 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 Eagle Financial Bancorp, Inc.; or

 

·authorizing us to withdraw available funds (without any early withdrawal penalty) from the types of Eagle Savings Bank deposit accounts identified on the stock order form.

 

Please do not submit cash or wire transfers. Eagle Savings Bank 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 an Eagle Savings Bank 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 Eagle Savings Bank 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 Eagle Savings Bank and will earn interest at ____% per annum until completion or termination of the offering. You may not authorize direct withdrawal from an Eagle Savings Bank retirement account. See “—Using Retirement Account Funds to Purchase Shares of Common Stock in the Subscription and Community Offerings.”

 

You may subscribe for shares of common stock in the offering by delivering a signed and completed stock order form, together with full payment payable to Eagle Financial Bancorp, Inc. or

 

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authorization to withdraw funds from one or more of your Eagle Savings Bank deposit accounts, provided that the stock order form is received before 2:00 p.m., Eastern Time, on [expire date]. 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 Eagle Savings Bank’s office, located at 6415 Bridgetown Road, Cincinnati, Ohio. Please do not mail stock order forms to Eagle Savings Bank. Once submitted, your order will be irrevocable unless the offering is terminated or is extended beyond [extension date], or the number of shares of common stock to be sold is increased to more than 2,208,250 shares or decreased to less than 1,405,000 shares.

 

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 Eagle Savings Bank, 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 [expire date] offering deadline, for assistance with purchases using funds in your IRA or other retirement account held at Eagle Savings Bank 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 and state 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 203,000 shares ($2.0 million) of common stock in the offering, representing 14.8% of shares to be sold at

 

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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 purchase limitations as other participants in the offering set forth under “—Limits on How Much Common Stock You May Purchase.”

 

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 [expire date], unless we extend 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.

 

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 [expire date], 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—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 1,405,000 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 [extension date].

 

If we extend the offering past [extension date], 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 ____% per annum from the date the stock order was processed. If one or more purchase limitations are increased, subscribers in the subscription offering who ordered the maximum amount will be and, in our sole discretion, other subscribers may be, given the opportunity to increase their subscriptions up to the newly applicable limit.

 

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Conditions to Completion of the Conversion

 

The board of directors of Eagle Savings Bank has approved the plan of conversion. In addition, the FDIC has issued its intent to approve the conversion subject to certain conditions, the ODFI has authorized the use of this prospectus and the proxy materials to be sent to members, and the Federal Reserve Board has 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 Eagle Savings Bank (depositors of Eagle Savings Bank) as of [vrd];

 

·The proposed amendments to the articles of incorporation and constitution of Eagle Savings Bank to become a stock institution are approved by at least two-thirds of the votes cast by members;

 

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

 

·We receive all required final regulatory approvals, including approval from the ODFI of the conversion application and holding company application, and the final approval from the FDIC to complete the conversion and offering.

 

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

 

Our Dividend Policy

 

Following completion of the stock offering, our board of directors will have the authority to declare dividends on our common stock, subject to statutory and regulatory requirements. However, no decision has been made with respect to the amount, if any, and timing of any dividend payments. 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” for additional information regarding our dividend policy.

 

Market for Common Stock

 

We have never issued capital stock and there is no established market for our common stock. We anticipate that the common stock sold in the offering will be listed on the Nasdaq Capital Market under the symbol “EFBI” following the completion of the stock offering. 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. Due to the small size of the offering, an active and liquid market for our common stock is not expected to develop. See “Market for the Common Stock.”

 

Delivery of Shares of Common Stock

 

All shares of common stock sold will be issued in book entry form. Stock certificates will not be issued. A statement reflecting ownership of shares of common stock issued in the subscription and community offerings will be mailed by our transfer agent to the persons entitled thereto at the registration address noted by them on their stock order forms as soon as practicable following consummation of the conversion and offering. 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

 

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stock to begin on the day of completion of the conversion and offering or the next business day. The conversion and offering are expected to be completed as soon as practicable following satisfaction of the conditions described above in “—Conditions to Completion of the Conversion.” Until a statement reflecting ownership of shares of common stock is available and delivered to purchasers, purchasers might not be able to sell the shares of common stock that they purchased, even though the common stock will have begun trading. Your ability to sell your shares of common stock before receiving your statement will depend on arrangements you may make with a brokerage firm.

 

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 2,208,250 shares in the offering without further notice to you. If our pro forma market value at that time is either below $14.5 million or above $22.5 million, then, after consulting with the ODFI and the FDIC, we may:

 

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

 

·set a new offering range; or

 

·take such other actions as may be permitted by the ODFI, the FDIC, 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 ____% 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 Eagle Savings Bank that is being called to vote on the conversion, and at any time after member approval with the concurrence of the ODFI and the FDIC. If we terminate the offering, we will promptly return funds, as described above.

 

Our Contribution of Shares of Common Stock to the Charitable Foundation

 

To further our commitment to our local community, we intend to establish and fund a charitable foundation as part of the conversion and offering. Assuming we receive regulatory approval, we intend to contribute to the charitable foundation $400,000 of our common stock (based on $10 per share) and $100,000 of cash. As a result of the contribution, we expect to record an after-tax expense of approximately $330,000 during the quarter in which the conversion and offering is completed.

 

The charitable foundation will be dedicated exclusively to supporting charitable causes and community development activities in the communities in which we operate. The contribution of common stock and cash to the charitable foundation will:

 

·with respect to the contribution of shares of common stock, dilute the voting interests of purchasers of shares of our common stock in the offering; and

 

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·result in an expense, and a reduction in capital, during the quarter in which the contribution is made, equal to the full amount of the contribution to the charitable foundation, offset in part by a corresponding tax benefit.

 

The amount of common stock that we would offer for sale would be greater if the offering were to be completed without the establishment and funding of the charitable foundation. For a further discussion of the financial impact of the charitable foundation, including its effect on those who purchase shares in the offering, see “Risk Factors—The contribution to the charitable foundation will dilute your ownership interest and adversely affect net income in 2017”, “Risk Factors—Our contribution to the charitable foundation may not be tax deductible, which could reduce our profits”, “Comparison of Valuation and Pro Forma Information With and Without the Charitable Foundation” and “Eagle Savings Bank Charitable Foundation.”

 

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 issue in the conversion, including shares that we contribute to the charitable foundation. If we receive orders in the subscription offering for more shares of common stock than would permit the employee stock ownership plan’s subscription order to be filled in whole in the subscription offering, then the employee stock ownership plan may, with prior regulatory approval, purchase shares to fill, in whole or in part, its order in the open market following completion of the conversion. 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, and regardless of whether shares are available for purchase by the employee stock ownership plan in the subscription offering, the employee stock ownership plan may 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 one or more stock-based benefit plans no earlier than six months after completion of the conversion. Stockholder approval of these plans will be required, and the stock-based benefit plans cannot be implemented until at least six months after the completion of the conversion pursuant to applicable FDIC regulations. If adopted within 12 months following the completion of the conversion, the FDIC conversion regulations would allow for the stock-based benefit plans to reserve a number of shares of common stock equal to not more than 4% of the shares sold in the offering and contributed to the charitable foundation, or up to 78,200 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 plans will also reserve a number of shares equal to not more than 10% of the total shares of common stock sold in the offering and contributed to the charitable foundation, or up to 195,500 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 plans are adopted after one year from the date of the completion of the conversion, the 4% and 10% limitations described above may no longer apply, and we may adopt stock-based benefit plans encompassing more than 273,700 shares of our common stock assuming the maximum of the offering range, subject to any applicable regulatory approvals. We have not yet determined whether we will present these plans for stockholder approval within 12 months following the completion of the conversion or whether we will present these plans for stockholder approval more than 12 months after the completion of the conversion.

 

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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 one or more stock-based benefit plans if such plans are adopted within one year following the completion of the conversion and the offering and Eagle Savings Bank 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
 
                   (In thousands) 
                         
Employee stock ownership plan   115,600    156,400    8.00%   n/a(3)  $1,156,000   $1,564,000 
Stock awards   57,800    78,200    4.00    3.85%   578,000    782,000 
Stock options   144,500    195,500    10.00    9.09%   348,245    471,155 
Total   317,900    430,100    22.00%   12.28%  $2,082,245   $2,817,155 

 

 

(1)The stock-based benefit plans may award a greater number of options and shares, respectively, if the plans are 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 plans that we may adopt, upon completion of the conversion and subject to regulatory approval, Eagle Financial Bancorp, Inc. and Eagle Savings Bank intend to enter into employment agreements with Gary J. Koester, our President and Chief Executive Officer, Kevin Schramm, our Vice President, Chief Financial Officer & Treasurer, and our two other executive officers. See “Management—Executive Compensation” in this prospectus for a further discussion of the agreements with Messrs. Koester and Schramm, including their terms and potential costs, as well as a description of other benefits arrangements.

 

Tax Consequences

 

Eagle Savings Bank and Eagle Financial Bancorp, Inc. have received an opinion of counsel, Luse Gorman, PC, regarding the material federal income tax consequences of the conversion, including an 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. Eagle Savings Bank and Eagle Financial Bancorp, Inc. have also received an opinion of BKD, LLP 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 Eagle Savings Bank, Eagle Financial Bancorp, Inc. or persons eligible to subscribe in the subscription offering. See the section of this prospectus entitled “Taxation” for additional information regarding taxes.

 

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Emerging Growth Company Status

 

The Jumpstart Our Business Startups Act (the “JOBS Act”), which was signed into law on April 5, 2012, has made numerous changes to the federal securities laws to facilitate access to capital markets. Under the JOBS Act, a company with total annual gross revenues of less than $1.0 billion during its most recently completed fiscal year qualifies as an “emerging growth company.” We qualify as an “emerging growth company” and believe that we will continue to qualify as an “emerging growth company” for five years from the completion of the stock offering.

 

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.

 

Additionally, we are in the process of evaluating the benefits of relying on the reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company”, we choose to rely on such exemptions we may not be required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Act, (iii) hold non-binding stockholder votes regarding annual executive compensation or executive compensation payable in connection with a merger or similar corporate transaction, (iv) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (v) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

 

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.

 

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 [sic phone]. The Stock Information Center is open Monday through Friday between 10:00 a.m. and 4:00 p.m., Eastern Time. The Stock Information Center will be closed on weekends and bank holidays.

 

Delivery of Prospectus

 

To ensure that each person receives a prospectus at least 48 hours before the deadline for orders for common stock, we may not mail prospectuses any later than five days prior to such date or hand-deliver prospectuses later than two days prior to that date. Stock order forms may only be delivered if accompanied or preceded by a prospectus. We are not obligated to deliver a prospectus or order form by any means other than U.S. mail.

 

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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

 

Our business strategy includes significant growth of our assets and liabilities, including increasing and diversifying our lending operations, which will increase our fixed expenses. Our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively.

 

Our strategic plan contemplates significant growth in assets and liabilities over the next several years. Specifically, we intend to increase our commercial real estate loans, commercial business loans, construction loans and home equity loans and lines of credit, while attracting favorably priced deposits to fund our increased lending. In addition, we intend to significantly grow our mortgage banking operations. We have incurred, and will continue to incur, additional expenses due to the implementation of our strategic plan, including salaries and occupancy expense related to new lending officers and related support staff. Many of these increased expenses are considered fixed expenses. Unless we can successfully implement our strategic plan, our financial condition and results of operations will be negatively affected by increased costs.

 

The successful implementation of our strategic plan will require, among other things, that we increase our market share by attracting both new borrowers and new deposit customers that currently bank at other financial institutions in our market area. In addition, our ability to successfully grow will depend on several factors, including continued favorable market conditions, the competitive responses from other financial institutions in our market area, and our ability to maintain high asset quality as we increase our commercial real estate loans, commercial business loans, construction loans and home equity loans and lines of credit. While we believe we have the management resources and internal systems in place to successfully manage our future growth, growth opportunities may not be available and we may not be successful in implementing our business strategy. Further, our new strategic plan, even if successfully implemented, may not ultimately produce positive results.

 

An increase in interest rates or a change in market conditions could reduce our mortgage banking revenues, which would negatively impact our non-interest income.

 

We sell residential mortgage loans in the secondary market, which provides a significant portion of our non-interest income. We generate mortgage revenues primarily from gains on the sale of mortgage loans to investors on a servicing-released basis. For the year ended December 31, 2016, loan sales made up approximately 64.2% of our non-interest income and 29.9% of our revenue. We also earn interest on loans held for sale while they are awaiting delivery to our investors. We intend to increase our mortgage banking operations, including adding up to six additional commission-based mortgage lenders. In a rising or higher interest rate environment, our originations of mortgage loans may decrease, resulting in fewer loans that are available to be sold to investors. This would result in a decrease in mortgage banking revenues. In addition, our results of operations are affected by the amount of non-interest expenses associated with mortgage banking activities, such as salaries and employee benefits, occupancy, equipment and data processing expense and other operating costs. During periods of reduced loan demand, our results of operations may be adversely affected to the extent that we are unable to reduce expenses commensurate with the decline in mortgage loan origination activity.

 

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If there are higher than expected losses on loans that we have previously sold, or if we are forced to repurchase such loans, it would negatively affect our earnings.

 

One of our primary business operations is our mortgage banking, which involves originating residential mortgage loans for sale in the secondary market, primarily to the FHLB-Cincinnati through the Mortgage Purchase Program (“MPP”). Under the terms of the MPP, we are required to maintain a Lender Risk Account (“LRA”). The LRA consists of amounts withheld from the loan sale proceeds by the FHLB-Cincinnati for absorbing inherent losses that are probable on the loans we sell. These withheld funds are an asset to the Company as they are scheduled to be paid to the Company in future years, net of any credit losses on the loans sold. If there are higher than estimated losses on the loans we have sold to the FHLB-Cincinnati through the MPP, the amount of the LRA would be reduced through a charge to earnings, which would reduce our earnings and capital. For a further discussion of the MPP, see Note 4 to the Notes to Financial Statements included in this prospectus.

 

In addition, our loans sold in the secondary market have agreements that contain representations and warranties related to, among other things, the origination and characteristics of the mortgage loans.  We may be required to repurchase mortgage loans that we have sold in cases of borrower default or breaches of these representations and warranties.  If we are required to repurchase mortgage loans or provide indemnification or other recourse, this could significantly increase our costs and thereby affect our future earnings.

 

Our business may be adversely affected by credit risk associated with residential property.

 

At December 31, 2016, $47.7 million, or 53.2%, of our total loan portfolio was secured by one- to four-family real estate. One- to four-family residential mortgage lending is generally sensitive to regional and local economic conditions that significantly impact the ability of borrowers to meet their loan payment obligations, making loss levels difficult to predict. A decline in current residential real estate values could reduce the value of the real estate collateral securing these types of loans. As a result, we have increased risk that we could incur losses if borrowers default on their loans because we may be unable to recover all or part of the defaulted loans by selling the real estate collateral. In addition, if borrowers sell their homes, they may be unable to repay their loans in full from the sale proceeds. For these reasons, we may experience higher rates of delinquencies, defaults and losses on our residential mortgage loans.

 

We have a high concentration of loans secured by real estate in our market area, which makes our business highly susceptible to downturns in the local economy and could adversely affect our financial condition and results of operations.

 

Unlike larger financial institutions that are more geographically diversified, we are a community banking franchise located in Cincinnati, Ohio. At December 31, 2016, a substantial amount of our mortgage loans were secured by real estate located in Hamilton County, Ohio and, to a lesser extent, the adjoining counties in Ohio, Kentucky and Indiana. As a result, we have a greater risk of loan defaults and losses in the event of economic weakness in this area, which may have a negative effect on the ability of our borrowers to timely repay their loans. A deterioration in economic conditions in the market area we serve could result in, among other things: (i) an increase in loan delinquencies, problem assets and foreclosures; (ii) a decrease in the demand for loans by creditworthy borrowers; and (iii) a decline in the value of the collateral securing our loans. Consequently, a deterioration in economic conditions in the local economy could have a material adverse effect on our business, financial condition and results of operations. For additional information on our market area, see “Business of Eagle Savings Bank—Market Area.”

 

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A portion of our one- to four-family residential mortgage loans is comprised of non-owner occupied properties which increases the credit risk on this portion of our loan portfolio.

 

At December 31, 2016, of the $47.7 million of one- to four-family residential mortgage loans in our portfolio, $5.7 million, or 12.1% of this amount, was comprised of non-owner occupied properties. We do not intend to make such loans in the future. Our non-owner occupied residential loans are secured primarily by single family properties, and to a much lesser extent, by two- to four-unit properties. We believe that there is a greater credit risk inherent in investor-owner and non-owner occupied properties than in owner occupied single family properties since, similar to commercial real estate and multi-family loans, the repayment of these loans may depend, in part, on the successful management of the property and/or the borrower’s ability to lease the units of the property. In addition, the physical condition of non-owner occupied properties is often below that of owner occupied properties due to lax property maintenance standards, which has a negative impact on the value of the collateral properties. Furthermore, some of our non-owner occupied borrowers may have more than one loan outstanding with us, which may expose us to a greater risk of loss compared to residential and commercial borrowers with only one loan. A downturn in the real estate market or the local economy could adversely affect the value of properties securing these loans or the revenues derived from these properties which could affect the borrower’s ability to repay the loan. At December 31, 2016, none of our non-owner occupied one- to four-family loans were delinquent 30 days or more.

 

Commercial real estate and land loans and commercial business loans generally carry greater credit risk than loans secured by owner occupied one- to four-family real estate, and these risks will increase if we succeed in our plan to increase this type of lending.

 

Given the larger balances and/or the higher complexity of the underlying collateral, commercial real estate and land loans and commercial business loans generally expose a lender to greater credit risk than loans secured by owner occupied one- to four-family real estate. Also, many of our borrowers have more than one of these types of loans outstanding. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential real estate loan. Commercial real estate and land loans and commercial business loans have greater credit risk than one- to four-family residential real estate loans because repayment is generally dependent on income generated in amounts sufficient to cover operating expenses and debt service. If the associated business deteriorates or does not generate sufficient business for the borrower to make required payments, we may not collect the outstanding loan amount owed to us.

 

A key component of our strategy is to increase our origination of commercial business loans and commercial real estate and land loans to diversify our loan portfolio and increase our returns or yields on our loan portfolio. This increase will significantly increase our exposure to the risks inherent in these types of loans.

 

We intend to grow our portfolio of home equity loans and lines of credit, which will increase our credit risk.

 

As part of our strategic business plan, we intend to increase our home equity lines of credit. At December 31, 2016, home equity loans and lines of credit totaled $14.6 million, or 16.3%, of our total loans. Most of our home equity loans and lines of credit are secured by real estate in Hamilton County, Ohio and contiguous counties. We generally originate home equity lines of credit with loan-to-value ratios of up to 90% when combined with the principal balance of the existing first mortgage loan. Declines in real estate values in our market area could cause some of our home equity loans to be

 

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inadequately collateralized, which would expose us to a greater risk of loss in the event that we seek to recover on defaulted loans by selling the real estate collateral.

 

We make construction loans which are considered to have greater credit risk than other types of residential loans made by financial institutions.

 

We originate construction loans for one- to four-family residential properties and, to a lesser extent, commercial properties. We intend to increase the amount of such loans that we originate. While we believe we have established adequate allowances in our financial statements to cover the credit risk of our construction loan portfolio, there can be no assurance that losses will not exceed our allowances, which could adversely impact our future earnings.

 

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

 

Lending is inherently risky and we are exposed to the risk that our borrowers may default on their obligations. A borrower’s default on a loan may result in lost principal and interest income and increased operating expenses as a result of the allocation of management’s time and resources to the collection and work-out of the loan. In certain situations, where collection efforts are unsuccessful or acceptable work-out arrangements cannot be reached, we may have to charge-off the loan in whole or in part. In such situations, we may acquire real estate or other assets, if any, that secure the loan through foreclosure or other similar available remedies, and the amount owed under the defaulted loan may exceed the value of the assets acquired.

 

At December 31, 2016, our allowance for loan losses as a percentage of total loans was 1.27%. 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 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 other factors including, among other things, current economic conditions. If our assumptions are incorrect, or if delinquencies or non-performing loans increase, our allowance for loan losses may not be sufficient to cover probable losses inherent in our loan portfolio, which would require additions to our allowance and thereby decrease our net income.

 

In addition, bank regulators periodically review our allowance for loan losses and, based on their judgments and information available to them at the time of their review, may require us to increase our allowance for loan losses or recognize further loan charge-offs. An increase in our allowance for loan losses or loan charge-offs as required by these regulatory authorities may reduce our net income and our capital, which may have a material adverse effect on our financial condition and results of operations.

 

Future changes in market interest rates may reduce our profits.

 

Our profitability, like that of most financial institutions, depends to a large extent on our net interest income, which is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and our interest expense on interest-bearing liabilities, such as deposits and borrowed funds. Accordingly, our results of operations depend largely on movements in market interest rates and our ability to manage our interest-rate-sensitive assets and liabilities in response to these movements. Factors such as inflation, recession and instability in financial markets, among other factors beyond our control, may affect interest rates.

 

If interest rates rise, and if rates on our deposits reprice upwards faster than the rates on our long-term loans and investments, we would experience compression of our interest rate spread, which would

 

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have a negative effect on our net interest income and profitability. Furthermore, increases in interest rates may adversely affect the ability of our borrowers to make loan repayments on adjustable-rate loans, as the interest owed on such loans would increase as interest rates increase. Conversely, decreases in interest rates can result in increased prepayments of loans and mortgage-related securities, as borrowers refinance to reduce their borrowing costs. Under these circumstances, we are subject to reinvestment risk as we may have to redeploy such loan or securities proceeds into lower-yielding assets, which would also negatively impact our interest income.

 

Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our financial condition, liquidity and results of operations. Changes in the level of interest rates also may negatively affect our ability to originate loans, the value of our assets and our ability to realize gains from the sale of our assets, all of which ultimately affect our earnings.

 

At December 31, 2016, our “rate shock” analysis indicates that our net portfolio value would decrease by $3.2 million, or 10.1%, if there were an instantaneous 200 basis point increase in market interest rates. However, 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 or projected operating results. For further discussion of how changes in interest rates could impact us, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management of Market Risk.”

 

If our non-performing assets increase, our earnings will be adversely affected.

 

At December 31, 2016, our non-performing assets, which consist of non-performing loans and other real estate owned, were $838,000, or 0.7% of total assets.  Our non-performing assets adversely affect our net income in various ways:

 

·we record interest income only on the cash basis or cost-recovery method for non-accrual loans and we do not record interest income for other real estate owned;

 

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

 

·non-interest expense increases when we write down the value of properties in our other real estate owned portfolio to reflect changing market values;

 

·there are legal fees associated with the resolution of problem assets, as well as carrying costs, such as taxes, insurance, and maintenance fees; and

 

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

 

In addition, the funds that are invested in non-performing assets cannot be reinvested in other assets until the non-performing assets are resolved. If additional borrowers become delinquent and do not pay their loans and we are unable to successfully manage our non-performing assets, our losses and troubled assets could increase significantly, which would have a material adverse effect on our financial condition and results of operations.

 

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Our small size makes it more difficult for us to compete.

 

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 one of our primary sources of income is the net interest income we earn on our loans and investments, less the interest we pay 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 and investment portfolios. 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 customer base makes it difficult to generate meaningful non-interest income. Finally, as a smaller institution, we are disproportionately affected by the ongoing increased costs of compliance with banking and other regulations.

 

Strong competition within our market area 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 can, which could affect our ability to grow and remain profitable on a long-term basis. Our profitability depends upon our continued ability to successfully compete in our market area. If competition causes us to 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 Eagle Savings BankMarket Area” and “Competition.”

 

The financial services industry could become even more competitive as a result of new legislative, regulatory and technological changes and continued industry 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 structures than we do. 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 than we can as well as better pricing for those products and services.

 

Changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations and/or increase our costs of operations.

 

Eagle Savings Bank is subject to extensive regulation, supervision and examination by the ODFI and the FDIC, and Eagle Financial Bancorp, Inc. will be subject to extensive regulation, supervision and examination by the Federal Reserve Board. Such regulation and supervision governs the activities in which an institution and its holding company may engage and are intended primarily for the protection of the federal deposit insurance fund and the depositors and borrowers of the bank, rather than for stockholders. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for loan losses. These regulations, along with existing tax, accounting, securities, insurance and monetary laws, rules, standards, policies, and interpretations, control the methods by which financial institutions conduct business, implement strategic initiatives and tax

 

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compliance, and govern financial reporting and disclosures. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations. Further, changes in accounting standards can be both difficult to predict and involve judgment and discretion in their interpretation by us and our independent accounting firms. These changes could materially impact, potentially even retroactively, how we report our financial condition and results of operations.

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) has significantly changed the regulation of banks and savings institutions and affects the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and reports for Congress. The federal agencies have been given significant discretion in drafting the implementing rules and regulations, many of which are not in final form. As a result, we cannot at this time predict the full extent to which the Dodd-Frank Act will impact our business, operations or financial condition. However, compliance with the Dodd-Frank Act and its implementing regulations and policies has already resulted in changes to our business and operations, as well as additional costs, and has diverted management’s time from other business activities, all of which have adversely affected our financial condition and results of operations.

 

Cyber-attacks or other security breaches could adversely affect our operations, net income or reputation.

 

We regularly collect, compile, process, transmit and store significant amounts of confidential information regarding our customers, employees and others and concerning our business, operations, plans and strategies. In some cases, this confidential or proprietary information is collected, compiled, processed, transmitted or stored by third parties on our behalf.

 

Information security risks have generally increased in recent years because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial and other transactions and the increased sophistication and activities of perpetrators of cyber-attacks and mobile phishing. Mobile phishing, a means for identity thieves to obtain sensitive personal information through fraudulent e-mail, text or voice mail, is an emerging threat targeting the customers of popular financial entities. A failure in or breach of our operational or information security systems, or those of our third-party service providers, as a result of cyber-attacks or information security breaches or due to employee error, malfeasance or other disruptions, could adversely affect our business, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our operating costs or cause losses.

 

If this confidential or proprietary information were to be mishandled, misused or lost, we could be exposed to significant regulatory consequences, reputational damage, civil litigation and financial loss.

 

Physical, procedural and technological safeguards designed to protect confidential and proprietary information from mishandling, misuse or loss, do not provide absolute assurance that mishandling, misuse or loss of information will not occur, and if mishandling, misuse or loss of information does occur, that those events will be promptly detected and addressed. Similarly, when confidential or proprietary information is collected, compiled, processed, transmitted or stored by third parties on our behalf, our policies and procedures require that the third party agree to maintain the confidentiality of the information, establish and maintain policies and procedures designed to preserve the confidentiality of the information, and permit us to confirm the third party’s compliance with the terms of the agreement. As information security risks and cyber threats continue to evolve, we may be required to

 

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expend additional resources to continue to enhance our information security measures and/or to investigate and remediate any information security vulnerabilities.

 

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. We have established policies and procedures to prevent or limit the impact of system failures, interruptions, and security breaches, but such events may still occur and may not be adequately addressed if they do occur. In addition, any compromise of our systems could deter customers from using our products and services. Although we rely on security systems to provide the 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 the majority of our data processing to 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 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, interruptions, or breaches 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 rely on our senior management to implement our business strategy and execute successful operations. We have recently added to our management team and could be harmed by the failure to successfully integrate the new members of our management team or by the loss of any of our senior management.

 

We depend upon the services of the members of our senior management team to implement our business strategy and execute our operations. Our management team is comprised of experienced executives, with our top four executives possessing an average of 22 years of financial institution experience. Members of our senior management team and lending personnel who have expertise and key business relationships in our markets could be difficult to replace. In addition, some of the members of our senior management team have been recently added. The loss of members of our management team, the failure to successfully integrate the new members of our management team, or our inability to hire additional qualified personnel, could impact our ability to implement our business strategy and could have a material adverse effect on our results of operations and our ability to compete. See “Management.”

 

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 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 of 2002 (the “Sarbanes Oxley Act”) requires annual management assessments of the

 

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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 are subject to stringent capital requirements, which may adversely impact our return on equity, require us to raise additional capital, or limit our ability to pay dividends or repurchase shares.

 

The federal banking agencies have adopted a final rule implementing 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 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 calculating regulatory capital requirements unless a one-time opt-out is exercised. Eagle Savings Bank has elected to opt out of the requirement under the final rule to include certain “available-for-sale” securities holdings for calculating its 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 began being phased in beginning in January 2016 at 0.625% of risk-weighted assets and will 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, Eagle Savings Bank would meet all of these new requirements, including the full 2.5% capital conservation buffer, as if these new requirements were in full effect.

 

The application of more stringent capital requirements likely will result in lower returns on equity, and could require raising additional capital in the future, or result in regulatory actions if we are 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, change our business models, and/or increase our holdings of liquid assets. The 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 dividends or repurchasing our shares. Specifically, beginning in 2017, Eagle Savings Bank’s ability to pay dividends to Eagle Financial Bancorp, Inc. will be limited if it does not have the capital conservation buffer required by the new capital rules, which may further limit Eagle Financial Bancorp, Inc.’s ability to pay dividends to stockholders. See “Regulation and Supervision—Federal Bank Regulation—Capital Requirements.”

 

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Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions.

 

The USA PATRIOT and Bank Secrecy Act require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions, including restrictions on conducting acquisitions or establishing new branches. During the last year, several banking institutions have received large fines for non-compliance with these laws and regulations. The policies and procedures we have adopted that are designed to assist in compliance with these laws and regulations may not be effective in preventing violations of these laws and regulations.

 

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

 

A new accounting standard will likely require us to increase our allowance for loan losses and may have a material adverse effect on our financial condition and results of operations.

 

The Financial Accounting Standards Board has adopted a new accounting standard that will be effective for Eagle Financial Bancorp, Inc. and Eagle Savings Bank for fiscal year 2021.  This standard, referred to as Current Expected Credit Loss, or CECL, will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for loan losses.  This will change the current method of providing allowances for loan losses that are probable, which would likely require us to increase our allowance for loan losses, and to greatly increase the types of data we would need to collect and review to determine the appropriate level of the allowance for loan losses.  Any increase in our allowance for loan losses or expenses incurred to determine the appropriate level of the allowance for loan losses may have a material adverse effect on our financial condition and results of operations.

 

If our risk management framework does not effectively identify or mitigate our risks, we could suffer losses.

 

Our risk management framework seeks to mitigate risk and appropriately balance risk and return. We have established processes and procedures intended to identify, measure, monitor and report the types of risk to which we are subject, including credit risk, operations risk, compliance risk, reputation risk, strategic risk, market risk and liquidity risk. We seek to monitor and control our risk exposure through a framework of policies, procedures and reporting requirements. Management of our risks in some cases depends upon the use of analytical and/or forecasting models. If the models used to mitigate these risks

 

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are inadequate, we may incur losses. In addition, there may be risks that exist, or that develop in the future, that we have not appropriately anticipated, identified or mitigated. If our risk management framework does not effectively identify or mitigate our risks, we could suffer unexpected losses and could be materially adversely affected.

 

We are subject to environmental liability risk associated with lending activities.

 

A significant portion of our loan portfolio is secured by real estate, and we could become subject to environmental liabilities with respect to one or more of these properties. During the ordinary course of business, we may foreclose on and take title to properties securing defaulted loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous conditions or toxic substances are found on these properties, we may be liable for remediation costs, as well as for personal injury and property damage, civil fines and criminal penalties, regardless of when the hazardous conditions or toxic substances first affected any particular property. Environmental laws may require us to incur substantial expenses to address unknown liabilities and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. Our loan foreclosure policy, which requires us to perform an environmental review before initiating any foreclosure action on non-residential real property, may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on us.

 

If our real estate owned is not properly valued our earnings could be reduced.

 

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

 

Liquidity risk could impair our ability to fund operations and jeopardize our financial condition, growth and prospects.

 

Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity. We rely on customer deposits and advances from the FHLB-Cincinnati and other borrowings to fund our operations.  At December 31, 2016, we had $28,000 of FHLB-Cincinnati advances outstanding with an additional $39.8 million of available borrowing capacity, including $10.0 million available under a line of credit agreement.  Although we have historically been able to replace maturing deposits and advances if desired, we may not be able to replace such funds in the future if, among other things, our financial condition, the financial condition of the FHLB-Cincinnati, or market conditions change. Our access to funding sources in amounts adequate to finance our activities or the terms of which are acceptable could be impaired by factors that affect us specifically or the financial services industry or economy in general. Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity as a result of a downturn in the markets where our loans are concentrated, or adverse

 

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regulatory action against us.  Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry in light of the recent turmoil faced by banking organizations and the continued deterioration in credit markets.

 

Our financial flexibility will be severely constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. Although we consider our sources of funds adequate for our liquidity needs, we may seek additional debt in the future to achieve our long-term business objectives. Additional borrowings, if sought, may not be available to us or, if available, may not be available on reasonable terms. If additional financing sources are unavailable, or are not available on reasonable terms, our financial condition, results of operations, growth and future prospects could be materially adversely affected.  Finally, if we are required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs.  In this case, our operating margins and profitability would be 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 Eagle Savings Bank, pursuant to federal banking regulations and subject to review and approval by the ODFI and the FDIC. 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.

 

You may not receive dividends on our common stock.

 

Holders of our common stock are only entitled to receive such dividends as our board of directors may declare out of funds legally available for such payments. We have made no decision with respect to the payment of dividends after the offering. The declaration and payment of future 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 “Regulation and Supervision—Federal Banking Regulation—Capital Requirements”; “—New Capital Rule”; “—Capital Distributions”; and “—Holding Company Regulation—Dividends.”

 

Eagle Financial Bancorp, Inc. will be dependent primarily upon the earnings of Eagle Savings Bank for funds to pay dividends on our common shares. The payment of dividends by Eagle Savings

 

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Bank is subject to certain regulatory restrictions. Federal law generally prohibits a depository institution from making any capital distributions (including payment of a dividend) to its parent holding company if the depository institution would hereafter be or continue to be undercapitalized, and dividends by a depository institution are subject to additional limitations.

 

In addition to any regulatory restrictions on the payment of dividends from Eagle Savings Bank to Eagle Financial Bancorp, Inc., U.S. tax laws applicable to Eagle Savings Bank could cause a taxable recapture of accumulated bad debt reserves of up to $559,000 to the extent that Eagle Savings Bank makes a distribution to Eagle Financial Bancorp, Inc. if Eagle Savings Bank does not have sufficient taxable earnings and profits at the time of such distribution. The income tax liability resulting from such a distribution could be as great as $190,000. No deferred tax liability has been recorded for this potential recapture liability. Eagle Savings Bank does not intend to make any distribution to Eagle Financial Bancorp, Inc. that would create such a federal tax liability even if Eagle Savings Bank is otherwise permitted or able to make a dividend to Eagle Financial Bancorp, Inc. Taxable earnings and profits are generally increased by taxable income and tax-exempt income and decreased by income taxes payable and non-deductible expenses.

 

As a result, any payment of dividends in the future by Eagle Financial Bancorp, Inc. will be dependent, in large part, on Eagle Savings Bank’s ability to satisfy these regulatory restrictions and its earnings, capital requirements, financial condition and other factors.

 

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

 

We have never issued capital stock and there is no established market for our common stock. We expect that our common stock will be traded on the Nasdaq Capital Market, subject to completion of the offering and compliance with certain conditions. Keefe, Bruyette & Woods, Inc. has advised us that it intends to make a market in our common stock following the offering, but it is under no obligation to do so or to continue to do so once it begins. 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, is likely to be quite limited. As a result, it is 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. 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 a statement reflecting ownership of shares, which will affect your ability to take advantage of changes in the stock price immediately following the offering.

 

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

 

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may not be able to take advantage of fluctuations in the price of the common stock immediately following the offering.

 

The capital we raise in the stock offering may negatively impact our return on equity until we can fully implement our business plan. This could negatively affect the trading price of our shares of common stock.

 

Net income divided by average equity, known as “return on equity,” is a ratio many investors use to compare the performance of a financial institution to its peers. We expect our return on equity to be relatively low until we are able to implement our business plan and leverage the additional capital we receive from the stock offering. Although we anticipate increasing net interest income using proceeds of the stock offering, our return on equity will be reduced by the capital raised in the stock offering, higher expenses from the costs of being a public company, and added expenses associated with our employee stock ownership plan and the stock-based benefit plans we intend to adopt. Until we can implement our business plan and successfully invest the proceeds of the offering, we expect our return on equity to remain relatively low compared to our peer group, which may reduce the value of our shares.

 

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 and contributed to the charitable foundation with funds borrowed from Eagle Financial Bancorp, Inc. The cost of acquiring the shares of common stock for the employee stock ownership plan will be between $1.2 million at the minimum of the offering range and $1.8 million at the adjusted maximum of the offering range. We will record annual employee stock ownership plan expense in an amount equal to the average 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.

 

We also intend to adopt one or more stock-based benefit plans 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 and contributed to the charitable foundation, 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 after-tax expense associated with the stock options in the first year after the offering would be approximately $99,200 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 $180,000 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.

 

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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 Eagle Financial Bancorp, Inc.) 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 $578,000 at the minimum of the offering range and $899,000 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 stock-based benefit plans will dilute your ownership interest.

 

We intend to adopt one or more stock-based benefit plans, 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 these stock-based benefit plans are funded from the issuance of authorized but unissued shares of common stock, stockholders would experience a reduction in ownership interest up to 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 stock-based benefit plans 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 could increase our costs and the dilution to other stockholders.

 

If we adopt stock-based benefit plans 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 plans for up to 4% and 10%, respectively, of our total outstanding shares. The amount of stock awards and stock options available for grant under the stock-based benefit plans 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 plans 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 the amount described in “—The implementation of stock-based benefit plans will dilute your ownership interest.

 

We intend to enter into employment agreements with certain of our officers, which may increase our compensation costs upon the occurrence of certain events or increase the cost of acquiring us.

 

Upon completion of the conversion, and subject to the receipt of any necessary regulatory approvals, we intend to enter into employment agreements with our President and Chief Executive Officer, our Vice President, Chief Financial Officer & Treasurer, and two other executive officers. 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 proposed employment agreements, the agreements would provide for cash severance benefits that would cost us up to $1.6 million in the aggregate based on information as of December 31, 2016. These amounts may be reduced, if necessary, to an amount that would not qualify

 

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the payments to be deemed an “excess parachute payment” under Section 280G of the Internal Revenue Code of 1986, as amended. For additional information see “Management—Benefit Plans and Agreements—Proposed Employment Agreements.”

 

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 $6.4 million and $9.0 million of the net proceeds of the offering in Eagle Savings Bank. 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. Eagle Savings Bank intends to use the 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 for other general corporate purposes. However, with the exception of the loan to the employee stock ownership plan and the cash to be contributed to the charitable foundation, 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, paying dividends and repurchasing common stock, may require the approval of the ODFI, the FDIC 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 Eagle Financial Bancorp, Inc., Eagle Savings Bank or our stockholders. For additional information see “How We Intend To Use The Proceeds From The Offering.”

 

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 Eagle Financial Bancorp, Inc., which could negatively affect our stock value.

 

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

 

·restrictive requirements regarding eligibility for service on the board of directors, including 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 stockholder proposals and director nominations;

 

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

 

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·a prohibition on cumulative voting;

 

·a requirement that the calling of a special meeting by our stockholders 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 Eagle Financial Bancorp, Inc. to issue preferred stock without stockholder approval, any series of which may have rights and privileges senior to the common stock being offered in the offering; 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 Eagle Financial Bancorp, Inc.—Eagle Financial Bancorp, Inc.’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 Eagle Savings Bank or Eagle Financial Bancorp, Inc. without the prior approval of the FDIC. In addition, the business corporation law of Maryland, the state where Eagle Financial Bancorp, Inc. is incorporated, provides for certain restrictions on acquisition of Eagle Financial Bancorp, Inc. See “Restrictions on Acquisitions of Eagle Financial Bancorp, Inc.—Maryland Corporate Law,” “—Eagle Savings Bank’s Stock Constitution” and “—Change in Control Regulations.”

 

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 14.4% and 10.6% of our common stock at the minimum and maximum of the offering range, respectively. In addition, we intend to establish an employee stock ownership plan that will purchase an amount of shares equal to 8% of the common stock sold in the offering and contributed to our charitable foundation. As a result, upon consummation of the offering and the issuance of shares to our charitable foundation, a total of up to 22.7% and or 18.8% of our outstanding shares will be held by our directors and executive officers and our employee stock ownership plan at the minimum and maximum of the offering range, respectively. Additional shares will be held by management following the implementation of a stock-based benefit plan, which we intend to implement more than 12 months following the completion of the offering. The ownership by executive officers, directors and our stock plans could result in actions being taken that are not in accordance with other stockholders’ wishes, and could prevent any action requiring a supermajority vote under our articles of incorporation and bylaws (including the amendment or elimination 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, FDIC regulations prohibit any person from acquiring or offering to acquire more than 10% of our common stock without the prior written approval of the FDIC, or successor regulator. See “Restrictions on Acquisition of Eagle Financial Bancorp, Inc.” for a discussion of applicable FDIC 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

 

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or Eagle Savings Bank 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 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, 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. Taking advantage of any of these exemptions may adversely affect the value and trading price of our common stock.

 

We will remain an “emerging growth company” for 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. As a result, our stockholders may not have access to certain information they may deem important.

 

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.

 

Risks Related to the Charitable Foundation

 

The contribution to the charitable foundation will dilute your ownership interest and adversely affect net income in 2017.

 

We intend to establish and fund a new charitable foundation in connection with the conversion and offering. We intend to contribute to the foundation $400,000 of our common stock (based on $10.00 per share) and $100,000 of cash. The contribution will have an adverse effect on our net income for the quarter and year in which we make the issuance and contribution to the charitable foundation. The after-tax expense of the contribution is expected to reduce net income in fiscal 2017 by approximately $330,000. Our fiscal 2016 net income was $1.5 million. In addition, persons purchasing shares in the offering will have their ownership and voting interests in Eagle Financial Bancorp, Inc. diluted by 2.69% at the minimum of the offering range (1.75% at the adjusted maximum of the offering range) due to the contribution of shares of common stock to the charitable foundation.

 

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Our contribution to the charitable foundation may not be tax deductible, which could reduce our profits.

 

We may not have sufficient profits to be able to fully use the tax deduction from our contribution to the charitable foundation. Under the Internal Revenue Code, an entity is permitted to deduct up to 10% of its taxable income (generally income before federal income taxes and charitable contributions expense) in any one year for charitable contributions. Any contribution in excess of the 10% limit may be deducted for federal income tax purposes over each of the five years following the year in which the charitable contribution is made. Accordingly, a charitable contribution could, if necessary, be deducted over a six-year period.

 

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SELECTED FINANCIAL AND OTHER DATA
OF EAGLE SAVINGS BANK

 

The following tables set forth selected historical financial and other data of Eagle Savings Bank for the periods and at the dates indicated. The information at and for the years ended December 31, 2016 and 2015 is derived in part from, and should be read together with, the audited financial statements and notes thereto of Eagle Savings Bank 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 December 31, 
   2016   2015 
   (In thousands) 
Selected Financial Condition Data:          
           
Total assets  $115,973   $109,696 
Cash and due from banks   19,589    19,012 
Interest-bearing time deposits in banks   346    842 
Loans held for sale   2,732    2,439 
Loans, net   83,048    76,638 
Premises and equipment, net   4,340    4,410 
Bank-owned life insurance   1,865    2,362 
FHLB lender risk account receivable   2,698    2,212 
Deposits   100,044    92,450 
FHLB advances   28    3,052 
Total retained earnings   13,477    12,017 

 

   For the Years Ended
December 31,
 
   2016   2015 
   (In thousands) 
Selected Operations Data:          
           
Interest and dividend income  $3,803   $3,784 
Interest expense   722    766 
Net interest income   3,081    3,018 
Provision for loan losses   83    75 
Net interest income after provision for loan losses   2,998    2,943 
Noninterest income   3,318    1,802 
Noninterest expense   4,591    3,786 
Income before income taxes   1,725    959 
Income taxes   265    335 
Net Income  $1,460   $624 

 

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   At or For the Years Ended
 December 31,
 
   2016   2015 
         
Selected Financial Ratios and Other Data:          
           
Performance Ratios:          
Return on average assets   1.30%   0.58%
Return on average retained earnings   11.29%   5.28%
Interest rate spread (1)   2.94%   3.00%
Net interest margin (2)   3.02%   3.06%
Efficiency ratio (3)   71.75%   78.55%
Non-interest expense to average total assets   4.08%   3.51%
Average interest-earning assets to average  interest-bearing liabilities   109.68%   108.42%
Average retained earnings to average total assets   11.49%   10.96%
           
Asset Quality Ratios:          
Non-performing assets to total assets   0.72%   1.27%
Non-performing loans to total loans   0.87%   1.09%
Non-performing assets excluding accruing troubled debt restructurings to total assets   0.09%   0.44%
Non-performing loans excluding accruing troubled debt restructurings to total loans   0.06%   0.00%
Allowance for loan losses to non-performing loans   145.21%   113.35%
Allowance for loan losses to total loans   1.27%   1.23%
           
Capital Ratios:          
Total capital (to risk-weighted assets)   14.11%   14.09%
Common equity Tier 1 capital (to risk-weighted assets)   13.02%   12.98%
Tier 1 capital (to risk-weighted assets)   13.02%   12.98%
Tier 1 capital (to average assets)   11.67%   11.19%
           
Other Data:          
Number of full service offices   3    3 

 

 

(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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CAUTIONARY NOTE REGARDING 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 continue to manage our operations successfully;

 

·our ability to successfully implement our business plan of managed growth, diversifying our loan portfolio and increasing mortgage banking operations to improve profitability;

 

·our success in increasing our commercial business, commercial real estate, construction and home equity lending;

 

·adverse changes in the financial industry, securities, credit and national 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;

 

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

 

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·our ability to maintain our asset quality even as we increase our commercial real estate and multi-family and commercial business lending;

 

·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 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 saving 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 16.

 

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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 $12.8 million and $17.9 million, or $20.8 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 
   1,405,000 shares   1,660,000 shares   1,915,000 shares   2,208,250 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  $14,050        $16,600        $19,150        $22,083      
Less offering expenses   1,250         1,250         1,250         1,250      
Net offering proceeds (2)  $12,800    100.0%  $15,350    100.0%  $17,900    100.0%  $20,833    100.0%
                                         
Distribution of net proceeds:                                        
To Eagle Savings Bank  $6,400    50.0%  $7,675    50.0%  $8,950    50.0%  $10,417    50.0%
To fund loan to employee stock ownership plan  $1,156    9.0%  $1,360    8.9%  $1,564    8.7%  $1,799    8.6%
Cash contribution to the charitable foundation  $100    0.8%  $100    0.7%  $100    0.6%  $100    0.5%
Retained by Eagle Financial Bancorp, Inc.  $5,144    40.2%  $6,215    40.4%  $7,286    40.7%  $8,517    40.9%

 

 

(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 Eagle Savings Bank’s deposits. The net proceeds may vary because total expenses relating to the offering may be more or less than our estimates. For example, our expenses would increase if a syndicated community offering were used to sell shares of common stock not purchased in the subscription and community offerings.

 

Eagle Financial Bancorp, Inc. intends to fund a loan to the employee stock ownership plan to purchase shares of common stock in the stock offering. Eagle Financial Bancorp, Inc. 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;

 

·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 and the contribution of cash to the charitable foundation, Eagle Financial Bancorp, Inc. 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 securities consistent with our investment policy.

 

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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 appropriate Federal regulator) or tax qualified employee stock benefit plans.

 

We anticipate that Eagle Financial Bancorp, Inc. will invest, at the minimum, midpoint, maximum and adjusted maximum of the offering range, approximately $6.4 million, $7.7 million, $9.0 million and $10.4 million, respectively, of the net proceeds from the stock offering in Eagle Savings Bank. Eagle Savings Bank intends to use the net proceeds it receives from the stock offering:

 

·to fund an expansion of our mortgage banking operations and our loan portfolio, specifically, new commercial real estate, commercial business and construction loans and home equity loans and lines of credit;

 

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

 

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

 

·to expand our retail banking franchise, including possibly establishing a new branch or loan production office, or acquiring other financial institutions or branches thereof, as opportunities arise. We currently have no specific plans, understandings or agreements to establish a new branch or loan production office, or to acquire a financial institution or branch thereof; and

 

·for other general corporate purposes.

 

Eagle Savings Bank 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 will be invested in securities issued by U.S. Government agencies and mortgage-backed securities issued by 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 currently have no understandings or agreements to acquire other banks, thrifts, branches thereof or other financial services companies. There can be no assurance that we would be able to consummate any acquisition. We are considering the possibility of opening a new branch office during the next several years. However, we have no specific arrangements or understandings nor have we identified a location for such branch, and there can be no assurance that such branch expansion will be implemented. If we do open an additional branch, that would result in increased overhead expense.

 

OUR DIVIDEND POLICY

 

Following completion of the stock offering, our board of directors will have the authority to declare dividends on our shares of common stock, subject to statutory and regulatory requirements. Specifically, the Federal Reserve Board has issued a policy statement providing that dividends should be paid only out of current earnings and only if our prospective rate of earnings retention is consistent with our capital needs, asset quality and overall financial condition. Regulatory guidance also provides for

 

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prior regulatory consultation with respect to capital distributions in certain circumstances such as where the holding company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the holding company’s overall rate or earnings retention is inconsistent with its capital needs and overall financial condition. No decision has been made with respect to the payment of dividends. In determining whether to pay a cash dividend and the amount of such cash dividend, the board of directors is expected to take into account a number of factors, including regulatory 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. In connection with the FDIC’s conditional approval of the conversion, we made a commitment to the FDIC that Eagle Financial Bancorp, Inc. will not declare any distributions of capital to stockholders, including cash dividends or returns of capital, during the 12-month period following the closing of the conversion, except with the written approval of the Federal Reserve Board. In addition, Eagle Savings Bank’s ability to pay dividends will be limited if Eagle Savings Bank does not have the capital conservation buffer required by the new capital rules, which may limit our ability to pay dividends to stockholders. See “Regulation and Supervision—Federal Banking Regulation—New Capital Rule.” No assurances can be given that any dividends will be paid or that, if paid, will not be reduced or eliminated in the future. Special cash dividends, stock dividends or returns of capital, to the extent permitted by regulations and policies of the Federal Reserve Board, the ODFI and the FDIC, may be paid in addition to, or in lieu of, regular cash dividends.

 

We will file a consolidated federal tax return with Eagle Savings Bank. 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 Eagle Financial Bancorp, Inc.—Common Stock.” Dividends we can declare and pay will depend, in part, upon receipt of dividends from Eagle Savings Bank, because initially we will have no source of income other than dividends from Eagle Savings Bank and earnings from the investment of the net proceeds from the sale of shares of common stock retained by Eagle Financial Bancorp, Inc. and interest payments received in connection with the loan to the employee stock ownership plan. Regulations of the ODFI, the FDIC and the Federal Reserve Board impose limitations on “capital distributions” by savings institutions. See “Regulation and Supervision—Federal Bank Regulation—Capital Requirements.”

 

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

 

MARKET FOR THE COMMON STOCK

 

Eagle Financial Bancorp, Inc. is a newly formed company and has never issued capital stock. Eagle Savings Bank, as a mutual institution, has never issued capital stock. Accordingly, there is no established market for our common stock. Eagle Financial Bancorp, Inc. expects that that its common stock will be traded on the Nasdaq Capital Market under the symbol “EFBI.” Keefe, Bruyette & Woods, Inc.

 

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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.

 

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, is likely to be quite limited. As a result, it is 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.

 

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HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE

 

At December 31, 2016, Eagle Savings Bank exceeded all of the applicable regulatory capital requirements and was considered “well capitalized.” The table below sets forth the historical equity capital and regulatory capital of Eagle Savings Bank at December 31, 2016, and the pro forma equity capital and regulatory capital of Eagle Savings Bank after giving effect to the sale of shares of common stock at $10.00 per share. The table assumes the receipt by Eagle Savings Bank of $6.4 million, $7.7 million, $9.0 million and $10.4 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.”

 

   Eagle Savings Bank
Historical at
   Pro Forma at December 31, 2016, Based Upon the Sale in the Offering of (1) 
   December 31, 2016   1,405,000 shares   1,660,000 shares   1,915,000 shares   2,208,250 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  $13,477    11.6%  $18,143    14.8%  $19,112    15.5%  $20,081    16.1%  $21,196    16.8%
                                                   
Tier 1 leverage capital  $13,477    11.7%  $18,143    14.9%  $19,112    15.5%  $20,081    16.1%  $21,196    16.8%
Tier 1 leverage capital requirement (4)   5,775    5.0    6,095    5.0    6,159    5.0    6,222    5.0    6,296    5.0 
Excess  $7,702    6.7%  $12,048    9.9%  $12,953    10.5%  $13,859    11.1%  $14,900    11.8%
                                                   
Tier 1 risk-based
capital (5)
  $13,477    13.0%  $18,143    17.3%  $19,112    18.2%  $20,081    19.1%  $21,196    20.1%
Risk-based requirement   8,283    8.0    8,385    8.0    8,406    8.0    8,426    8.0    8,450    8.0 
Excess  $5,194    5.0%  $9,758    9.3%  $10,706    10.2%  $11,655    11.1%  $12,746    12.1%
                                                   
Total risk-based
capital (5)
  $14,614    14.1%  $19,280    18.4%  $20,249    19.3%  $21,218    20.1%  $22,333    21.1%
Risk-based requirement   10,354    10.0    10,482    10.0    10,507    10.0    10,533    10.0    10,562    10.0 
Excess  $4,260    4.1%  $8,798    8.4%  $9,742    9.3%  $10,685    10.1%  $11,771    11.1%
                                                   
Common equity Tier 1 risk-based capital (4)  $13,477    13.0%  $18,143    17.3%  $19,112    18.2%  $20,081    19.1%  $21,196    20.1%
Risk-based requirement   6,730    6.5    6,813    6.5    6,830    6.5    6,846    6.5    6,865    6.5 
Excess  $6,747    6.5%  $11,330    10.8%  $12,282    11.7%  $13,235    12.6%  $14,331    13.6%
                                                   
Reconciliation of capital infused into Eagle Savings Bank:                                                  
Net offering proceeds            $12,800        $15,350        $17,900        $20,833      
Proceeds to Eagle Savings Bank            $6,400        $7,675        $8,950        $10,417      
Less: Common stock acquired by employee stock ownership plan             (1,156)        (1,360)        (1,564)        (1,799)     
Less: Common stock acquired by stock-based incentive plan             (578)        (680)        (782)        (899)     
Pro forma increase            $4,666        $5,635        $6,604        $7,719      

 

 

(1)Pro forma capital levels assume that the employee stock ownership plan purchases 8% of the shares of common stock issued in the conversion, including shares contributed to the charitable foundation, 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 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)The current tier 1 leverage capital requirement is 3% of total adjusted assets for financial institutions that receive the highest supervisory rating for safety and soundness and a 4% to 5% tier 1 leverage capital ratio requirement for all other financial institutions.
(5)Pro forma amounts and percentages assume net proceeds are invested in assets that carry a 20% risk weighting.

 

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CAPITALIZATION

 

The following table presents the historical capitalization of Eagle Savings Bank at December 31, 2016 and the pro forma consolidated capitalization of Eagle Financial Bancorp, Inc. after giving effect to the conversion and offering, based upon the assumptions set forth in the “Pro Forma Data” section.

 

   Eagle Savings
Bank at
   Pro Forma at December 31, 2016
Based upon the Sale in the Offering at $10.00 per Share of
 
   December 31,
2016
   1,405,000
Shares
   1,660,000
Shares
   1,915,000
Shares
   2,208,250
Shares (1)
 
   (Dollars in thousands, except per share amounts) 
Deposits (2)  $100,044   $100,044   $100,044   $100,044   $100,044 
Borrowings   28    28    28    28    28 
Total deposits and borrowings  $100,072   $100,072   $100,072   $100,072   $100,072 
                          
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)       14    17    20    22 
Additional paid-in capital (4)       12,786    15,333    17,880    20,811 
Retained earnings (5)   13,477    13,477    13,477    13,477    13,477 
Shares issued to the foundation       400    400    400    400 
                          
Less:                         
Expense of stock contribution to the charitable foundation (tax adjusted)       264    264    264    264 
Expense of cash contribution to the charitable foundation (tax adjusted)       66    66    66    66 
Common stock held by employee stock ownership plan (6)       1,156    1,360    1,564    1,799 
Common stock to be acquired by stock-based benefit plan (7)       578    680    782    899 
Total stockholders’ equity  $13,477   $24,613   $26,857   $29,101   $31,682 
                          
Pro Forma Shares Outstanding                         
Total shares issued       1,445,000    1,700,000    1,955,000    2,248,250 
Shares issued to charitable foundation       40,000    40,000    40,000    40,000 
Shares sold in the offering       1,405,000    1,660,000    1,915,000    2,208,250 
                          
Total stockholders’ equity as a percentage of total assets (2)   11.62%   19.36%   20.76%   22.14%   23.10%
Tangible equity as a percentage of tangible assets (2)   11.62%   19.36%   20.76%   22.14%   23.10%
Tangible book value per share  $   $17.04   $15.81   $14.88   $14.09 

 

 

(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 Eagle Financial Bancorp, Inc. common stock pursuant to the exercise of options under one or more stock-based benefit plans. If the plans are implemented within the first year after the closing of the offering, an amount up to 10% of the shares of Eagle Financial Bancorp, Inc. common stock sold in the offering and contributed to the charitable foundation will be reserved for issuance upon the exercise of options under the plans.
(4)On a pro forma basis, common stock and additional paid-in capital have been revised to reflect the number of shares of Eagle Financial Bancorp, Inc. common stock to be outstanding.
(5)The retained earnings of Eagle Savings Bank will be substantially restricted after the conversion. See “The Conversion and Offering—Liquidation Rights” and “Regulation and Supervision.”
(6)Assumes that 8% of the shares issued in the conversion, including shares contributed to the charitable foundation, will be acquired by the employee stock ownership plan financed by a loan from Eagle Financial Bancorp, Inc. The loan will be repaid principally from Eagle Savings Bank’s contributions to the employee stock ownership plan. Since Eagle Financial Bancorp, Inc. will finance the employee stock ownership plan debt, this debt will be eliminated through consolidation and no liability will be reflected on Eagle Financial Bancorp, Inc.’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.

 

 45 

 

(7)Assumes a number of shares of common stock equal to 4% of the shares of common stock to be sold in the offering and contributed to the charitable foundation will be purchased for grant by one or more stock-based benefit plans in open market purchases by Eagle Financial Bancorp, Inc. 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 Eagle Financial Bancorp, Inc. 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.

 

 46 

 

PRO FORMA DATA

 

The following tables summarize historical data of Eagle Savings Bank and pro forma data of Eagle Financial Bancorp, Inc. at and for the year ended December 31, 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 and community offering;

 

·our employee stock ownership plan will purchase 8% of the shares of common stock issued in the conversion, including shares contributed to the charitable foundation, with a loan from Eagle Financial Bancorp, Inc. 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; and

 

·Eagle Financial Bancorp, Inc. will contribute $100,000 in cash to the charitable foundation at the minimum, midpoint, maximum and adjusted maximum of the offering range;

 

·expenses of the stock offering, including fees and expenses to be paid to Keefe, Bruyette & Woods, Inc., will be $1.25 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 2.38% for the year ended December 31, 2016. This represents the five-year U.S. Treasury Note rate as of December 31, 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 ODFI and the FDIC. The pro forma after-tax yield on the net proceeds from the offering is also assumed to be 1.57% for the year ended December 31, 2016 based on an assumed effective tax rate of 34.0%.

 

We calculated historical and pro forma per share amounts by dividing historical and pro forma amounts of consolidated net loss 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 in the open market 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 plans 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

 

 47 

 

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 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 34.0%) 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 one or more stock-based benefit plans in excess of 10% and 4%, respectively, of our total outstanding shares if the stock-based benefit plans are adopted more than one year following the stock offering, subject to any applicable regulatory approvals. 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 $6.4 million, $7.7 million, $9.0 million and $10.4 million, respectively, of the net proceeds from the stock offering to Eagle Savings Bank, 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 U.S. generally accepted accounting principles. 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.

 

 48 

 

   At or for the year ended December 31, 2016
 Based upon the Sale at $10.00 Per Share of
 
  

1,405,000

Shares

  

1,660,000

Shares

  

1,915,000

Shares

  

2,208,250

Shares (1)

 
   (Dollars in thousands, except per share amounts) 
                 
Gross proceeds of offering  $14,050   $16,600   $19,150   $22,083 
Plus: market value of shares issued to charitable foundation   400    400    400    400 
Pro forma market capitalization  $14,450   $17,000   $19,550   $22,483 
                     
Gross proceeds of offering  $14,050   $16,600   $19,150   $22,083 
Less: Expenses   (1,250)   (1,250)   (1,250)   (1,250)
Estimated net proceeds   12,800    15,350    17,900    20,833 
Less: Cash contribution to charitable foundation   (100)   (100)   (100)   (100)
Less: Common stock acquired by ESOP (2)   (1,156)   (1,360)   (1,564)   (1,799)
Less: Common stock acquired by stock-based benefit plans (3)   (578)   (680)   (782)   (899)
Estimated net cash proceeds as adjusted  $10,966   $13,210   $15,454   $18,035 
                     
For the year ended December 31, 2016                    
Consolidated net earnings (loss):                    
Historical  $1,460   $1,460   $1,460   $1,460 
Pro forma adjustments:                    
Income on adjusted net proceeds   172    208    243    283 
Employee stock ownership plan (2)   (38)   (45)   (52)   (59)
Stock awards (3)   (76)   (90)   (103)   (119)
Stock options (4)   (64)   (75)   (86)   (99)
Pro forma net income (6)  $1,454   $1,458   $1,462   $1,466 
                     
Earnings per share:                    
Historical  $1.09   $0.93   $0.81   $0.70 
Pro forma adjustments:                    
Income on adjusted net proceeds   0.13    0.13    0.13    0.13 
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 (4)   (0.05)   (0.05)   (0.05)   (0.05)
Pro forma earnings per share (6)  $1.08   $0.92   $0.80   $0.69 
                     
Offering price to pro forma net earnings per share   9.18x   10.77x   12.36x   14.17x
Number of shares used in earnings per share calculations   1,335,180    1,570,800    1,806,420    2,077,383 
                     
At December 31, 2016                    
Stockholders’ equity:                    
Historical  $13,477   $13,477   $13,477   $13,477 
Estimated net proceeds   12,800    15,350    17,900    20,833 
Plus: market value of shares issued to charitable foundation   400    400    400    400 
Less: after tax expense of contribution to charitable foundation   (330)   (330)   (330)   (330)
Less: Common stock acquired by ESOP (2)   (1,156)   (1,360)   (1,564)   (1,799)
Less: Common stock acquired by stock-based benefit plans (3)   (578)   (680)   (782)   (899)
Pro forma stockholders’ equity (5)   24,613    26,857    29,101    31,682 
Intangible assets                
Pro forma tangible equity  $24,613   $26,857   $29,101   $31,682 
                     
Stockholders’ equity per share:                    
Historical  $9.33   $7.93   $6.89   $5.99 
Estimated net proceeds   8.86    9.03    9.16    9.27 
Plus: market value of shares issued to charitable foundation   0.28    0.24    0.20    0.18 
Less: after tax expense of stock contribution to charitable foundation   (0.23)   (0.19)   (0.17)   (0.15)
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)   (0.40)   (0.40)   (0.40)   (0.40)
Pro forma stockholders’ equity per share (5)   17.04    15.81    14.88    14.09 
Intangible assets                
Pro forma tangible equity  $17.04   $15.81   $14.88   $14.09 
                     
Pro forma price to book value   58.71%   63.30%   67.18%   70.96%
Number of shares outstanding for pro forma book value per share calculations   1,445,000    1,700,000    1,955,000    2,248,250 

 

(Footnotes begin on following page)

 

 49 

 

(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 issued in the conversion, including shares contributed to the charitable foundation, will be purchased by the employee stock ownership plan. For purposes of this table, the funds used to acquire these shares are assumed to have been borrowed by the employee stock ownership plan from Eagle Financial Bancorp, Inc. Eagle Savings Bank intends to make annual contributions to the employee stock ownership plan in an amount at least equal to the required principal and interest payments on the debt. Eagle Savings Bank’s total annual payments on the employee stock ownership plan debt are based upon 20 equal annual installments of principal and interest. Financial Accounting Standards Board Accounting Standards Codification 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 employee stock ownership plan shares are allocated in equal annual installments based on the number of loan repayment installments assumed to be paid by Eagle Savings Bank, the fair value of the common stock remains equal to the subscription price and the employee stock ownership plan expense reflects an effective tax rate of 34.0%. The unallocated employee stock ownership plan shares are reflected as a reduction of stockholders’ equity. No reinvestment is assumed on proceeds contributed to fund the employee stock ownership plan. The pro forma net income further assumes that 5,780, 6,800, 7,820 and 8,993 shares were committed to be released during the year ended December 31, 2016, respectively, at the minimum, midpoint, maximum, and adjusted maximum of the offering range, respectively, and in accordance with ASC 718-40, only the employee stock ownership plan shares committed to be released during the period were considered outstanding for purposes of income per share calculations.
(3)If approved by Eagle Financial Bancorp, Inc.’s stockholders, one or more stock-based benefit plans may purchase an aggregate number of shares of common stock equal to 4% of the shares to be sold in the offering and contributed to the charitable foundation (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 Eagle Savings Bank 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 plans, 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 Eagle Financial Bancorp, Inc. or through open market purchases. The funds to be used by the stock-based benefit plans to purchase the shares will be provided by Eagle Financial Bancorp, Inc. The table assumes that (i) the stock-based benefit plans acquire the shares through open market purchases at $10.00 per share, (ii) 20% of the amount contributed to the stock-based benefit plans is amortized as an expense during the year, and (iii) the stock-based benefit plans expense reflects an effective tax rate of 34.0%. Assuming stockholder approval of the stock-based benefit plans and that shares of common stock equal to 4% of the shares sold in the offering and contributed to the charitable foundation 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)If approved by Eagle Financial Bancorp, Inc.’s stockholders, one or more stock-based benefit plans 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 and contributed to the charitable foundation (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 plans 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 stock-based benefit plans, 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 pro forma calculation includes a tax benefit of 25% of the amortization expense for the portion related to non-qualified options granted to directors. The actual expense of the stock options to be granted under the stock-based benefit plans 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 plans 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 plans and that shares of common stock used to fund stock options (equal to 10% of the shares sold in the offering and contributed to the charitable foundation) 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%.
(5)The retained earnings of Eagle Savings Bank 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.
(6)Does not give effect to the non-recurring expense that will be recognized during fiscal 2017 as a result of the contribution to the charitable foundation. The following table shows the estimated after-tax expense associated with the

 

 50 

 

contribution to the charitable foundation, as well as pro forma net income and pro forma net income per share assuming the contribution to the charitable foundation had been expensed during the year ended December 31, 2016.

 

   For the Year December 31, 2016 Based upon the Sale at $10.00 Per Share of: 
  

1,405,000
Shares

  

1,660,000

Shares

  

1,915,000

Shares

  

2,208,250

Shares

 
   (In thousands, except per share amounts) 
After-tax expense of stock and cash contribution to charitable foundation  $330   $330   $330   $330 
Pro forma net income, adjusted for foundation contribution   1,124    1,128    1,132    1,136 
Pro forma net income per share   0.84    0.72    0.63    0.55 

 

The pro forma data assume that we will realize 100% of the income tax benefit as a result of the contribution to the charitable foundation based on a 34.0% combined federal and state tax rate. The realization of the tax benefit is generally limited annually to 10% of our annual taxable income. However, for federal and state tax purposes, we can carry forward any unused portion of the deduction for five years following the year in which the contribution is made.

 

 51 

 

COMPARISON OF VALUATION AND PRO FORMA INFORMATION
WITH AND WITHOUT THE CHARITABLE FOUNDATION

 

As reflected in the table below, if the charitable foundation is not established and funded as part of the stock offering, Keller & Company, Inc. estimates that our pro forma valuation would be greater and, as a result, a greater number of shares of common stock would be issued in the stock offering. At the minimum, midpoint, maximum and adjusted maximum of the valuation range, the pro forma value of our stock is $14.1 million, $16.6 million, $19.2 million and $22.1 million with the charitable foundation, as compared to $14.5 million, $17.0 million, $19.6 million and $22.5 million, respectively, without the charitable foundation. There is no assurance that in the event the charitable foundation were not formed, the appraisal prepared at that time would conclude that our pro forma market value would be the same as that estimated in the table below. Any appraisal prepared at that time would be based on the facts and circumstances existing at that time, including, among other things, market and economic conditions.

 

For comparative purposes only, set forth below are certain pricing ratios and financial data and ratios at and for the year ended December 31, 2016 at the minimum, midpoint, maximum and adjusted maximum of the offering range, assuming the stock offering were completed at the beginning of the six-month period, with and without the charitable foundation.

 

  

Minimum of Offering Range

   Midpoint of Offering Range   Maximum of Offering Range   Adjusted Maximum of
Offering Range
 
   With
Foundation
   Without
Foundation
   With
Foundation
   Without
Foundation
   With
Foundation
   Without
Foundation
   With
Foundation
   Without
Foundation
 
   (Dollars in thousands, except per share amounts) 
     
Estimated stock offering amount  $14,050   $14,450   $16,600   $17,000   $19,150   $19,550   $22,083   $22,483 
Estimated full value   14,450    14,450    17,000    17,000    19,550    19,550    22,483    22,483 
Total assets   127,109    127,439    129,353    129,683    131,427    131,927    137,178    134,508 
Total liabilities   102,796    102,496    102,496    102,496    102,326    102,496    105,496    102,496 
Pro forma stockholders’ equity   24,313    24,943    26,857    27,187    29,101    29,431    31,682    32,012 
Pro forma net income (1)   1,454    1,462    1,458    1,466    1,462    1,470    1,466    1,474 
Pro forma stockholders’ equity per share   17.04    17.26    15.81    15.99    14.88    15.05    14.09    14.23 
Pro forma net income per share   1.08    1.08    0.92    0.93    0.80    0.81    0.69    0.69 
                                         
Pro forma pricing ratios:                                        
Offering price as a percentage of pro forma stockholders’ equity per share   58.71%   57.94%   63.30%   62.54%   67.18%   66.45%   70.96%   70.27%
Offering price to pro forma net income per share   9.18X   9.26X   10.77X   10.75X   12.36X   12.35X     14.17X     14.29X  
                                         
Pro forma financial ratios:                                        
Return on assets   1.15%   1.15%   1.13%   1.13%   1.11%   1.12%   1.07%   1.09%
Return on equity   5.48%   5.86%   5.43%   5.39%   5.03%   5.00%   4.63%   4.61%
Equity to assets   19.13%   19.57%   20.76%   20.96%   22.14%   22.31%   23.10%   23.80%
Total Shares Issued   1,445,000    1,445,000    1,700,000    1,700,000    1,955,000    1,955,000    2,248,250    2,248,250 

 

(footnotes on following page)

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(1)The following table shows the estimated after-tax expense associated with the contribution to the charitable foundation, as well as pro forma net income, pro forma net income per share, pro forma return on assets and pro forma return on stockholders’ equity assuming the contribution to the charitable foundation was expensed during the year ended December 31, 2016.

 

   Minimum of
Offering Range
   Midpoint of
Offering Range
   Maximum of
Offering Range
   Adjusted
Maximum of
Offering Range
 
   (Dollars in thousands, except per share amounts) 
                 
After-tax expense of stock and cash contribution to foundation  $330   $330   $330   $330 
Pro forma net income  $1,124   $1,128   $1,132   $1,136 
Pro forma net income per share  $0.84   $0.72   $0.63   $0.55 
Offering price to pro forma net income per share   11.90    13.89    15.87    18.18 
Pro forma return on assets   0.88%   0.81%   0.86%   0.83%
Pro forma return on equity   4.62%   4.20%   3.89%   3.59%

 

 

* Not meaningful.

 

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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 Eagle Savings Bank provided in this prospectus.

 

Overview

 

Eagle Savings Bank provides financial services to individuals and businesses from our main office and two branch offices in Cincinnati, Ohio. Our primary deposit-taking market includes the local communities surrounding our bank offices. Our primary lending market is Hamilton County, Ohio, and the adjoining counties of Butler, Warren and Clermont Counties in Ohio, Boone, Kenton and Campbell Counties in Kentucky, and Dearborn County in Indiana.

 

Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations and borrowings, in one- to four-family residential real estate loans, commercial real estate and land loans, home equity loans and lines of credit and construction loans. To a lesser extent, we also make commercial business loans, multi-family real estate loans and other consumer loans. At December 31, 2016, $47.7 million, or 53.2% of our total loan portfolio, was comprised of one- to four-family residential real estate loans. At that same date, $13.6 million, or 15.2% of our total loan portfolio, was comprised of commercial real estate and land loans, and $14.6 million, or 16.3% of our total loan portfolio, was comprised of consumer loans, all but $32,000 of which were home equity loans and lines of credit.

 

During the past year, we have hired new senior officers and credit support staff to support the managed growth of our lending operations using the proceeds of the offering. In May 2016 we hired W. Raymond McCleese, our Vice President of Commercial Lending, with seven years of commercial lending experience in our market. Mr. McCleese joins our President and Chief Executive Officer, Gary J. Koester, with 40 years of experience with the Bank, including commercial and residential real estate lending in our market. In early 2017, we also hired an additional commercial lending underwriter with 30 years of experience. He joins our credit administrator with 10 years of experience with the Bank and over 30 years of experience in the banking industry, including service with regulatory agencies where he was an examination specialist with respect to commercial business, retail, consumer, agriculture and commercial real estate lending. In addition, in July 2016 we added Patricia L. Walter, our Executive Vice President, who has 12 years of experience in the banking industry, including accounting and financial reporting. We intend to increase our commercial real estate, construction and home equity lending. We consider these areas to be part of our core competencies and historical strengths.

 

We also emphasize mortgage banking with three mortgage loan officers. Our revenue from gain on sales of loans was $2.1 million and $1.6 million for the years ended December 31, 2016 and 2015, respectively. We intend to expand our mortgage lending business, including the addition of up to six new commission-based mortgage lenders over the next three years.

 

We offer a variety of deposit accounts, including checking accounts, savings accounts, money market demand accounts and certificate of deposit accounts. We utilize advances from the FHLB-Cincinnati for liquidity and for asset/liability management purposes. At December 31, 2016, we had $28,000 in advances outstanding with the FHLB-Cincinnati.

 

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Our results of operations depend primarily on our net interest income and our non interest income, including from our mortgage banking operations. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provisions for loan losses, non-interest income and non-interest expense.

 

Our non-interest income currently consists primarily of gain on sale of mortgage loans, checking account service fee income, interchange fees from debit card transactions and income from bank owned life insurance. Non-interest expense currently consists primarily of expenses related to compensation and employee benefits, occupancy and equipment, data processing, legal and other professional expenses, franchise taxes, advertising expense, federal deposit insurance premiums, prepayment penalties on FHLB-Cincinnati advances, impairment losses on foreclosed real estate and other operating expenses.

 

We invest in bank-owned life insurance to provide us with a funding source to offset some of the costs of our supplemental retirement plan obligations. Bank owned life insurance provides us with non-interest income that is nontaxable. Federal regulations generally limit our investment in bank owned life insurance to 25% of our Tier 1 capital plus our allowance for loan losses. At December 31, 2016, this limit was $3.7 million, and we had invested $1.9 million in bank-owned life insurance.

 

Business Strategy

 

Our current business strategy is to operate as a well-capitalized and profitable community bank dedicated to serving the needs of our consumer and business customers, and offering 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. Following the conversion and offering, we will focus on increasing our portfolio of shorter term, higher yielding loans, continuing to grow our mortgage banking operations and increasing our “core” deposit base. Highlights of our business strategy include:

 

·Continuing to expand our mortgage banking operations. Since 2001, we have expanded our mortgage banking operations, and are in the process of further increasing this part of our business. In 2016, we originated $94.4 million of one- to four-family residential loans, of which we sold $81.7 million to the secondary market, compared to $79.1 million of such loans originated in fiscal 2015, of which $69.0 million were sold. We currently employ three residential mortgage loan originators. We intend to hire up to six new loan officers over the next three years, as well as additional support staff, in order to continue to increase our mortgage banking operations. These loans are currently primarily sold to the FHLB-Cincinnati, although we are approved for sale of loans to Freddie Mac and expect to increase our sale of residential mortgage loans to other third parties in the future. Although we have no specific plans to do so at this time, we may seek to add one or more loan production offices in attractive areas in our lending market should the opportunity arise in the future.

 

·Growing our portfolios of shorter term, higher yielding loans, including commercial business loans, commercial real estate loans, construction loans and home equity loans and lines of credit. Following the conversion, we intend to leverage our existing lending capabilities to grow our portfolios of commercial real estate, commercial business and construction loans and home equity loans and lines of credit. These types of loans generally have shorter terms and higher yields than loans secured by one- to four-family residential properties. Increasing the percentage of such loans in our portfolio will help increase our net interest income and assist us in managing interest rate risk. Commercial

 

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real estate, construction and home equity lending are part of our core competencies and historical strengths. During the past year, we have hired an experienced commercial business lender and an experienced commercial lending underwriter and credit manager, who are assisted by our credit administrator with 10 years of experience with the Bank and over 30 years of experience in the banking industry. The additional capital raised in the stock offering will also allow us to leverage our existing infrastructure and lending team to increase our commercial real estate, commercial business, construction and home equity lending. See “Business of Eagle Savings Bank—Lending Activities.

 

·Increasing our “core” deposit base. We are seeking to increase our core deposit base, particularly checking accounts. Core deposits include all deposit account types except certificates of deposit. Core deposits are our least costly source of funds and our least rate sensitive deposits, and improve our interest rate spread and interest rate risk. These deposits also represent our best opportunity to develop customer relationships that enable us to cross-sell our full complement of products and services. In addition, core deposits contribute non-interest income from account-related fees and services and are generally less sensitive to withdrawal when interest rates fluctuate. In recent years, we have significantly expanded and improved the products and services we offer our retail and business deposit customers who maintain core deposit accounts and have improved our infrastructure for electronic banking services, including online banking, mobile banking, bill pay, and e-statements. The deposit infrastructure we have established can accommodate significant increases in retail and business deposit accounts without additional capital expenditure. We expect that our increased commercial lending will help us increase our business deposit customers.

 

·Implementing a managed growth strategy while maintaining high asset quality. We emphasize a disciplined credit culture based on sound underwriting standards and credit administration, market knowledge, close ties to our customers and experienced loan officers. At December 31, 2016, our nonperforming assets equaled 0.72% of total assets. We intend to pursue a managed growth strategy for the foreseeable future, with the goal of improving the profitability of our business through increased net interest income and non-interest income from our mortgage banking operations. However, we intend to maintain strict, quality-oriented loan underwriting and credit monitoring processes as we grow our operations.

 

·Remaining a community-oriented institution. We were organized in 1882 and have been operating continuously in and around our market since that time. We have trained our employees to focus on high quality service in order to maintain and build a loyal customer base. We believe that the establishment and funding of The Eagle Savings Bank Charitable Foundation will further promote our relationships and exposure in our market area through our support of charitable organizations operating in our local community now and in the future.

 

These strategies are intended to guide our investment of the net proceeds of the offering. We intend to continue to pursue our business strategy after the conversion and offering, subject to changes necessitated by future market conditions, regulatory restrictions and other factors.

 

Anticipated Increase in Noninterest Expense

 

Following the completion of the conversion and stock offering, our noninterest expense is expected to increase because of the increased costs associated with operating as a public company, and

 

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the increased compensation expenses associated with the purchase of shares of common stock by our employee stock ownership plan and the possible implementation of one or more stock-based benefit plans, if approved by our stockholders, no earlier than six months after the completion of the conversion and stock offering. For further information, see “Summary—Our Officers, Directors and Employees Will Receive Additional Benefits and Compensation After the Conversion and Offering;” “Risk Factors—Risks Related to the Offering—Our stock-based benefit plans will increase our costs, which will reduce our income;” and “Management—Benefits to be Considered Following Completion of the Stock Offering.” See “Risks Factors—Risks Related to Our Business.” Finally, after the conversion and stock offering, we expect that we will add additional staff to meet the demands of being a public company, which will increase our compensation costs.

 

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 U.S. generally accepted accounting principles. 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 our 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.

 

On April 5, 2012, the JOBS Act was signed into law. 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 represents our critical accounting policies:

 

Allowance for Loan Losses. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

 

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers nonclassified loans and is based on historical charge-off experience for the last three years and expected loss given default derived from our internal risk rating process. Other qualitative adjustments are made to the

 

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allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

 

A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

 

Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans.

 

FHLB-Cincinnati Lender Risk Account Receivable. Certain loan sale transactions with the FHLB-Cincinnati provide for establishment of a Lender Risk Account (“LRA”). The LRA consists of amounts withheld from loan sale proceeds by the FHLB-Cincinnati for absorbing inherent losses that are probable on those sold loans. These withheld funds are an asset as they are scheduled to be paid to us in future years, net of any credit losses on those loans sold. The receivables are initially measured at fair value. The fair value is estimated by discounting the cash flows over the life of each master commitment contract. The accretable yield is amortized over the life of the master commitment contract. Expected cash flows are re-evaluated at each measurement date. If there is an adverse change in expected cash flows, the accretable yield would be adjusted on a prospective basis and the asset would be evaluated for impairment.

 

Comparison of Financial Condition at December 31, 2016 and December 31, 2015

 

Total Assets. Total assets were $116.0 million at December 31, 2016, an increase of $6.3 million, or 5.7%, over the $109.7 million at December 31, 2015. The increase was primarily comprised of an increase in net loans of $6.4 million, which was partially offset by a decrease in interest-bearing time deposits in other banks of $496,000.

 

Net Loans. Net loans increased by $6.4 million, or 8.4%, to $83.0 million at December 31, 2016 from $76.6 million at December 31, 2015. During the year ended December 31, 2016, we originated $115.6 million of loans, $94.4 million of which were one- to four-family residential real estate loans, and sold $81.7 million of loans in the secondary market. During the year ended December 31, 2016, one- to four-family residential real estate loans increased $1.7 million, or 3.6%, to $47.7 million at December 31, 2016, from $46.0 million at December 31, 2015; multi-family loans decreased $482,000, or 16.1%, to $2.5 million at December 31, 2016; commercial real estate loans and land loans increased $692,000, or 5.3%, to $13.6 million at December 31, 2016; construction loans increased $1.6 million, or 20.2%, to $9.5 million at December 31, 2016; home equity and other consumer loans increased $1.7 million, or 13.0% to $14.6 million at December 31, 2016; and commercial loans increased $585,000, or 49.0% to $1.8 million at December 31, 2016. Increases in loan balances reflect our strategy to grow and diversify our loan portfolio, with an emphasis on increasing commercial and multi-family residential loans, as a shift in strategy from our traditional portfolio focus on one- to four-family residential loans. Such growth has

 

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been achieved amid strong competition for commercial real estate and one- to four-family residential mortgage loans in our market area in the current low interest rate environment. We have sold loans on primarily a servicing released and, to a lesser extent, servicing retained basis, in transactions with the FHLB-Cincinnati, through its mortgage purchase program, and other investors. We sold $81.8 million of loans in fiscal 2016. Loans serviced for these investors were $1.9 million at December 31, 2016. Management intends to continue this sales activity in future periods.

 

Interest-Bearing Deposits in Other Banks. The Bank’s investment in certificates of deposit in other banks decreased by $496,000, or 58.9%, to a total of $346,000 at December 31, 2016, compared $842,000 at December 31, 2015.

 

Foreclosed Assets. Foreclosed assets decreased $423,000, or 88.5%, to $55,000 at December 31, 2016 from $478,000 at December 31, 2015, as we sold $432,000 of foreclosed properties. There were no additions during the year ended December 31, 2016 to foreclosed real estate. At December 31, 2016, our foreclosed assets were comprised of two plots of land.

 

Deposits. Deposits increased by $7.6 million, or 8.2%, to $100.0 million at December 31, 2016 from $92.5 million at December 31, 2015. Our core deposits increased $7.2 million, or 13.9%, to $58.7 million at December 31, 2016 from $51.6 million at December 31, 2015. Certificates of deposit increased $430,000, or 1.1%, to $41.3 million at December 31, 2016 from $40.9 million at December 31, 2015. During the year ended December 31, 2016, management continued its strategy of pursuing growth in demand accounts and other lower cost core deposits. Management intends to continue its efforts to increase core deposits, with a special emphasis on growth in consumer and business demand deposits.

 

Federal Home Loan Bank Advances. FHLB-Cincinnati advances decreased $3.0 million, or 99.1%, to $28,000 at December 31, 2016 from $3.1 million at December 31, 2015. During the year ended December 31, 2016, we prepaid a $3.0 million FHLB-Cincinnati advance and incurred a prepayment penalty of $121,000. The aggregate cost of these advances was 3.33% at December 31, 2016, compared to our cost of deposits of 0.67% at that same date.

 

Retained Earnings. Retained earnings increased $1.5 million, or 12.1%, to $13.5 million at December 31, 2016 from $12.0 million at December 31, 2015. The increase resulted from net income of $1.5 million during the year ended December 31, 2016.

 

Comparison of Operating Results for the Years Ended December 31, 2016 and December 31, 2015

 

General. Our net income for the year ended December 31, 2016 was $1.5 million, compared to a net income of $624,000 for the year ended December 31, 2015, an increase of $836,000, or 134.0%. The increase in net income was primarily due to a $1.5 million increase in noninterest income, which was partially offset by an $805,000 increase in noninterest expense.

 

Interest Income. Interest income increased $19,000, or 0.5%, to $3.8 million for the year ended December 31, 2016 from $3.8 million for the year ended December 31, 2015. This increase was primarily attributable to a $39,000 increase in interest income on other interest-earning deposits and a decrease of $20,000 in interest on loans receivable. The average balance of loans during the year ended December 31, 2016 increased by $996,000, or 1.2%, from the average balance for the year ended December 31, 2015, while the average yield on loans decreased by eight basis points to 4.41% for the year ended December 31, 2016 from 4.49% for the year ended December 31, 2015. The decrease in average yield on loans was due to the declining interest rate environment, as well as an increase in payoffs of higher interest rate loans as customers refinanced loans at lower interest rates. Interest income on other interest-bearing deposits, including certificates of deposit in other financial institutions, increased $39,000, or 105.4%, for

 

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the year ended December 31, 2016, as a result of an increase in the average balance of $2.6 million and by an increase in the average yield of 15 basis points, to 0.57% for the year ended December 31, 2016.

 

Interest Expense. Total interest expense decreased $44,000, or 5.7%, to $722,000 for the year ended December 31, 2016 from $766,000 for the year ended December 31, 2015. Interest expense on deposit accounts increased $67,000, or 10.8%, to $689,000 for the year ended December 31, 2016 from $622,000 for the year ended December 31, 2015. The increase was primarily due to an increase in the average balance on interest-bearing deposits of $6.5 million and an increase in the average cost on such deposits of three basis points to 0.75% for the year ended December 31, 2016.

 

Interest expense on FHLB advances decreased $111,000, or 77.1%, to $33,000 for the year ended December 31, 2016 from $144,000 for the year ended December 31, 2015. The average balance of advances decreased by $4.2 million to $777,000 for the year ended December 31, 2016, compared to $5.0 million for the year ended December 31, 2015, while the average cost of these advances increased by 137 basis points to 4.25% from 2.88%. The decrease in the average balance of advances resulted from the Bank prepaying a $3.0 million FHLB-Cincinnati advance during the year ended December 31, 2016. The increase in the weighted average rate is due to the repayment in 2015 of one $3.0 million FHLB-Cincinnati advance with a relatively low rate of 0.65%.

 

Net Interest Income. Net interest income increased $63,000, or 2.1%, to $3.1 million for the year ended December 31, 2016, compared to $3.0 million for the year ended December 31, 2015. The increase reflected an increase in total interest and dividend income of $19,000 and a decrease in total interest expense of $44,000. Our net interest margin decreased to 3.02% for the year ended December 31, 2016 from 3.06% for the year ended December 31, 2015. The interest rate spread and net interest margin were impacted by a continuation of a low interest rate environment.

 

Provision for Loan Losses. Based on our analysis of the factors described in “Critical Accounting Policies—Allowance for Loan Losses,” we recorded a provision for loan losses of $83,000 for the year ended December 31, 2016 and $75,000 for the year ended December 31, 2015. The allowance for loan losses was $1.1 million, or 1.27% of total loans, at December 31, 2016, compared to $1.0 million, or 1.23% of total loans, at December 31, 2015. The provisions for loan losses in 2016 and 2015 were due primarily to increases in our total loan portfolio and changes in the composition of the portfolio. Total nonperforming loans were $783,000 at December 31, 2016, compared to $914,000 at December 31, 2015. Classified and special mention loans declined to $1.8 million at December 31, 2016, compared to $1.9 million at December 31, 2015. Total loans past due 30 days or more were $830,000 and $58,000 at December 31, 2016 and 2015, respectively. Net recoveries totaled $18,000 for the year ended December 31, 2016, compared to $258,000 of net loans charged off for the year ended December 31, 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 December 31, 2016 and 2015. While we believe the estimates and assumptions used in our determination of the adequacy of the allowance are reasonable, such estimates and assumptions could be proven incorrect in the future, and 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. In addition, bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision for possible loan losses or the recognition of further loan charge-offs, based on judgments different than those of management.

 

Non-Interest Income. Non-interest income increased $1.5 million, or 84.1%, to $3.3 million for the year ended December 31, 2016 from $1.8 million for the year ended December 31, 2015. The increase was primarily due to death benefit proceeds in excess of the cash surrender value of bank-owned life insurance of $940,000 and the increase in the net gain on loan sales of $546,000. The increase in the gain

 

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on sale of loans resulted from an increase in loans sold in the secondary market from $69.0 million during the year ended December 31, 2015 to $81.7 million during the year ended December 31, 2016.

 

Non-Interest Expense. Non-interest expense increased $805,000, or 21.3%, to $4.6 million for the year ended December 31, 2016, compared to $3.8 million for the year ended December 31, 2015. The increase was due primarily to a $410,000 death benefit obligation payout, an increase of $250,000 in compensation and benefits compared to 2015 and a $121,000 FHLB-Cincinnati advance prepayment penalty, partially offset by a decrease of $74,000 in foreclosed real estate impairments and expenses. The increase in compensation and benefits resulted from an increase in personnel during the year ended December 31, 2016 to 28 full-time equivalent employees from 21 full-time equivalent employees at December 31, 2015. We expect that expenses will continue to increase in 2017 due to the increase in employees during 2016 because the new employees will be working for a full year in 2017 compared to just part of the year in 2016.

 

Non-interest expense can be expected to increase compared to historical expense levels because of costs associated with operating as a public company and increased compensation costs related to possible implementation of one or more stock-based benefit plans, if approved by our stockholders.

 

Federal Income Taxes. Federal income taxes decreased by $70,000 to $265,000 for the year ended December 31, 2016, compared to $335,000 for the year ended December 31, 2015. The decrease in income taxes resulted from non-taxable proceeds from life insurance.

 

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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. Non-accrual 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
December
   For the Year Ended December 31, 
   31, 2016     2016     2015  
   Yield/ Cost   Average
Outstanding
Balance
   Interest   Yield/
Rate (1)
   Average
Outstanding
Balance
   Interest   Yield/
Rate (1)
 
   (Dollars in thousands) 
Interest-earning assets:                                   
Loans, net   4.39%  $83,854   $3,698    4.41%  $82,858   $3,718    4.49%
Other interest-earning assets   0.73    18,293    105    0.57    15,679    66    0.42 
Total interest-earning assets   3.68    102,147    3,803    3.72    98,537    3,784    3.84 
Noninterest-earning assets        10,382              9,265           
Total assets       $112,529             $107,802           
                                    
Interest-bearing liabilities:                                   
Interest-bearing checking   0.16%  $15,733    41    0.26   $13,971    22    0.16 
Savings   0.14    14,152    21    0.15    13,115    19    0.14 
Money market demand   2.60    20,587    65    0.32    19,038    42    0.22 
Certificates of deposit   1.33    41,879    562    1.34    39,762    539    1.36 
Total interest-bearing deposits   1.22    92,351    689    0.75    85,886    622    0.72 
FHLB advances   3.33    777    33    4.25    5,000    144    2.88 
Total interest-bearing liabilities   1.22    93,128    722    0.78    90,886    766    0.84 
Other non-interest bearing liabilities        6,473              5,105           
Total liabilities        99,601              95,991           
Retained earnings        12,928              11,811           
Total liabilities and retained earnings       $112,529             $107,802           
                                    
Net interest income            $3,081             $3,018      
Net interest rate spread (1)   2.46              2.94%             3.00%
Net interest-earning assets (2)       $9,019             $7,651           
Net interest margin (3)                  3.02%             3.06%
Average of interest-earning assets to interest-bearing liabilities        109.68%             108.42%          

 

 

(1)Interest rate 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 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 total 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.

 

   Years Ended December 31,
2016 vs. 2015
 
   Increase (Decrease) Due to   Total
Increase
 
   Volume   Rate   (Decrease) 
   (In thousands) 
             
Interest-earning assets:               
Loans  $44   $(64)  $(20)
Other interest-earning assets   8    31    39 
                
Total interest-earning assets   52    (33)   19 
                
Interest-bearing liabilities:               
Interest-bearing checking   3    16    19 
Savings   2        2 
Money market demand   2    21    23 
Certificates of deposit   31    (8)   23 
Total deposits   38    29    67 
                
FHLB advances   (159)   48    (111)
                
Total interest-bearing liabilities   (121)   77    (44)
                
Change in net interest income  $173   $(110)  $63 

 

Management of Market Risk

 

General. A 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 commercial real estate and multi-family, commercial business and construction loans and home equity loans and lines of credit, all of which tend to have shorter terms to maturity or repricing and higher interest rates than one- to four-family residential real estate loans, and can generate non-interest bearing checking accounts;

 

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·selling substantially all of our newly-originated longer-term fixed-rate one- to four-family residential real estate loans and retaining the shorter-term fixed-rate and adjustable-rate one- to four-family residential real estate loans that we originate, subject to market conditions and periodic review of our asset/liability management needs; and

 

·increasing core deposits, including checking accounts, money market accounts and savings accounts, which are less interest rate sensitive than certificates of deposit.

 

Our board of directors is responsible for the review and oversight of our Asset/Liability Committee, which is comprised of our executive management team and other essential operational staff. This committee is charged with developing and implementing an asset/liability management plan, and meets at least monthly to review pricing and liquidity needs and assess our interest rate risk. We look at two types of simulations impacted by changes in interest rates, which are net portfolio value analysis and net interest income analysis.

 

Net Portfolio Value. We compute amounts by which the net present value of our cash flow from assets, liabilities and off-balance sheet items (net portfolio value or “NPV”) would change in the event of a range of assumed changes in market interest rates. We measure our interest rate risk and potential change in our NPV through the use of an internal financial model integrated with our core service provider. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. Historically, the model estimated the economic value of each type of asset, liability and off-balance sheet contract under the assumption that the United States Treasury yield curve increases or decreases instantaneously by 100 to 300 basis points in 100 basis point increments. However, given the current low level of market interest rates, an NPV calculation for an interest rate decrease of greater than 100 basis points has not been prepared. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. 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.

 

The table below sets forth, as of December 31, 2016, the calculation of the estimated changes in our net portfolio value that would result from the specified immediate changes in interest rates.

 

               NPV as a Percentage of 
         Present Value of Assets (3) 
Change in
Interest Rates
  Estimated   Estimated Increase
(Decrease) in NPV
   NPV   Increase
(Decrease)
 
(basis points) (1)  NPV (2)   Amount   Percent   Ratio (4)   (basis points) 
       (Dollars in thousands)         
+300  $26,673   $(4,556)   (14.59)%   23.71%   (316)
+200   28,077    (3,152)   (10.09)%   24.68%   (219)
+100   29,559    (1,670)   (5.35)%   25.71%   (116)
  —   31,229            26.87%    
-100   28,828    (2,401)   (7.69)%   24.51%   (236)

 

 

(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 December 31, 2016, in the event of an instantaneous parallel 100 basis point decrease in interest rates, we would experience a 7.7% decrease in net portfolio value. In the

 

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event of an instantaneous 100 basis point increase in interest rates, we would experience a 5.4% decrease in net portfolio value.

 

Net Interest Income Analysis. We analyze our sensitivity to changes in interest rates through our net interest income simulation model. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings. We estimate what our net interest income would be for a one-year period based on current interest rates. We then calculate what the net interest income would be for the same period under different interest rate assumptions. The following table shows the estimated impact on net interest income for the one-year period beginning December 31, 2016 resulting from potential changes in interest rates, expressed in basis points. These estimates require certain assumptions to be made, including loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturities and decay rates. These assumptions are inherently uncertain. As a result, no simulation model can precisely predict the impact of changes in interest rates on our net interest income.

 

Although the net interest income table below provides an indication of our interest rate risk exposure at a particular point in time, such estimates 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.

 

 

Rate Shift (1)

 

Net Interest Income

Year 1 Forecast

  

Year 1 Change

from Level

 
   (Dollars in thousands)     
           
+400  $2,965    (12.28)%
+300   3,077    (8.96)%
+200   3,189    (5.65)%
+100   3,286    (2.78)%
Level   3,380     
-100   3,181    (5.89)%

 

 

(1)The calculated changes assume an immediate shock of the static yield curve.

 

Depending on the relationship between long-term and short-term interest rates, market conditions and consumer preference, we may place greater emphasis on maximizing our net interest margin than on strictly matching the interest rate sensitivity of our assets and liabilities. We believe that the increased net income which may result from an acceptable mismatch in the actual maturity or re-pricing of our assets and liabilities can, during periods of declining or stable interest rates, provide sufficient returns to justify an increased exposure to sudden and unexpected increases in interest rates.

 

We do not engage in hedging activities, such as engaging in futures, options or swap transactions, or investing in high-risk mortgage derivatives, such as collateralized mortgage obligation residual interests, real estate mortgage investment conduit residual interests or stripped mortgage backed securities.

 

Liquidity and Capital Resources

 

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and proceeds from the sale of loans. We also have the ability to

 

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borrow from the FHLB-Cincinnati. At December 31, 2016, we had the capacity to increase our borrowings by approximately $29.8 million from the FHLB-Cincinnati and an additional $10.0 million on a line of credit with the FHLB-Cincinnati. At December 31, 2016, we had $28,000 outstanding in advances from the FHLB-Cincinnati.

 

While maturities and scheduled amortization of loans are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments including interest-bearing 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 $150,000 for the year ended December 31, 2016, while net cash used in operating activities was $756,000 for the year ended December 31, 2015, respectively. Net cash used in investing activities, which consists primarily of disbursements for loan originations, offset by principal collections on loans, was $4.2 million for the year ended December 31, 2016, while the net cash provided by investing activities was $5.9 million for the year ended December 31, 2015, respectively. Net cash provided by financing activities, consisting primarily of the activity in deposit accounts and FHLB-Cincinnati advances, was $4.6 million and $337,000 for the years ended December 31, 2016 and 2015, respectively, resulting from our strategy of borrowing at lower interest rates to fund loan originations.

 

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.

 

At December 31, 2016, we exceeded all of our regulatory capital requirements with a Tier 1 leverage capital level of $13.5 million, or 11.7% of adjusted total assets, which is above the well-capitalized required level of $5.8 million, or 5.0%; and total risk-based capital of $14.6 million, or 14.1% of risk-weighted assets, which is above the well-capitalized required level of $10.4 million, or 10.0%. Accordingly, Eagle Savings Bank was categorized as well capitalized at December 31, 2016 and 2015. Management is not aware of any conditions or events since the most recent notification that would change our category.

 

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

 

Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At December 31, 2016, we had outstanding commitments to originate loans of $6.0 million, including undisbursed funds on construction loans and funds available on undrawn lines of credit. We anticipate that we will have sufficient funds available to meet our current lending commitments. Certificates of deposit that are scheduled to mature within one year from December 31, 2016 totaled $16.5 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.

 

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Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities.

 

Recent Accounting Pronouncements

 

Please refer to Note 16 to the Financial Statements for the years ended December 31, 2016 and 2015 beginning on page F-1 for a description of recent accounting pronouncements that may affect our financial condition and results of operations.

 

Impact of Inflation and Changing Price

 

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.

 

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BUSINESS OF EAGLE FINANCIAL BANCORP, INC.

 

Eagle Financial Bancorp, Inc. is incorporated in the State of Maryland, and has not engaged in any business to date. Upon completion of the conversion, Eagle Financial Bancorp, Inc. will own all of the issued and outstanding stock of Eagle Savings Bank. We intend to contribute at least 50% of the net proceeds from the stock offering to Eagle Savings Bank. Eagle Financial Bancorp, Inc. 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 pay dividends to stockholders and 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, Eagle Financial Bancorp, Inc, as the holding company of Eagle Savings Bank, will be authorized to pursue other business activities permitted by applicable laws and regulations, which may include the acquisition of banking and financial services companies. See “Regulation and Supervision—Holding Company Regulation” for a discussion of the activities that are permitted for savings and loan holding companies. We currently have no understandings or agreements to acquire other financial institutions although we may determine to do so in the future. We may also borrow funds for reinvestment in Eagle Savings Bank.

 

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 Eagle Savings Bank. Eagle Savings Bank is subject to regulatory limitations on the amount of dividends that it may pay. See “Regulation and Supervision—Federal Bank Regulation—Dividends.” Initially, Eagle Financial Bancorp, Inc. will neither own nor lease any property, but will instead pay a fee to Eagle Savings Bank for the use of its premises, equipment and furniture. At the present time, we intend to employ only persons who are officers of Eagle Savings Bank to serve as officers of Eagle Financial Bancorp, Inc. We will, however, use the support staff of Eagle Savings Bank from time to time. We will pay a fee to Eagle Savings Bank for the time devoted to Eagle Financial Bancorp, Inc. by employees of Eagle Savings Bank; however, these persons will not be separately compensated by Eagle Financial Bancorp, Inc. Eagle Financial Bancorp, Inc. may hire additional employees, as appropriate, to the extent it expands its business in the future.

 

BUSINESS OF EAGLE SAVINGS BANK

 

General

 

Eagle Savings Bank is an Ohio chartered mutual savings and loan association with our main office in the community of Bridgetown, Ohio, located in the western portion of Cincinnati. We were originally organized in 1882 under the name The Price Hill Eagle Loan and Building Company No. 1 for the purposes of promoting savings and home ownership. We changed our name to Eagle Savings Bank in 1996. We provide financial services to individuals, families and small to mid-size businesses through our three full-service banking offices located in Hamilton County, Ohio.

 

Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations and borrowings, in one- to four-family residential real estate loans, commercial real estate and land loans, construction loans and home equity loans and lines of credit. To a lesser extent, we also make commercial business loans, multi-family real estate loans and other consumer loans. At December 31, 2016, $47.7 million, or 53.2% of our total loan portfolio, was comprised of one- to four-family residential real estate loans. At that same date, $13.6 million, or 15.2% of our total loan portfolio, was comprised commercial real estate and land loans, and $14.6

 

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million, or 16.3% of our total loan portfolio, was comprised of consumer loans, of which all but $32,000 were home equity loans and lines of credit.

 

We also emphasize our mortgage banking operations. Our revenue from gain on sales of one- to four-family mortgage loans was $2.1 million and $1.6 million for the years ended December 31, 2016 and 2015, respectively. We intend to expand our one- to four-family mortgage lending business, and plan to add up to six new mortgage lenders over the next three years.

 

We offer a variety of deposit accounts, including checking accounts, savings accounts, money market demand accounts and certificate of deposit accounts. We utilize advances from the FHLB-Cincinnati for asset/liability management purposes and, from time to time, for additional funding for our operations. At December 31, 2016, we had $28,000 in advances outstanding with the FHLB-Cincinnati.

 

Market Area

 

We conduct our operations from our three full-service offices in Cincinnati, Ohio. Our main office is located in the Bridgetown area of Cincinnati, Ohio, and our two branch offices are in Delhi Township and the Hyde Park neighborhood of Cincinnati. Our primary deposit-taking market includes the local communities surrounding our bank offices. Our primary lending market is Hamilton County, Ohio, and the adjoining counties of Butler, Warren and Clermont Counties in Ohio, Boone, Kenton and Campbell Counties in Kentucky, and Dearborn County in Indiana.

 

Our primary market area is a part of the Cincinnati metropolitan statistical area (“MSA”) and is both urban and suburban in nature. According to the U.S. Census Bureau, the Cincinnati MSA had a total population of approximately 2.1 million in 2010. Our primary market area economy is comprised of a number of employment sectors including business and professional services, healthcare, wholesale/retail, government, and finance/insurance/real estate. Based on data from the U.S. Bureau of Labor Statistics, for December 2016, unemployment rates were 4.4%, 4.9% and 4.9% in Hamilton County, the State of Ohio and the United States as a whole, respectively.

 

According to SNL Financial LC, the number of households in Hamilton County, the Cincinnati MSA, Ohio and the United States increased by 0.2%, 0.4%, 0.3% and 0.8%, respectively, from 2010 to 2017. Between 2017 and 2022, the number of households in Hamilton County, the Cincinnati MSA, Ohio and the United States are projected to increase by 0.3%, 0.4%, 0.3% and 0.8%, 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, 2016, based on the most recent available FDIC data, our market share of deposits represented 0.11% of FDIC-insured deposits in Hamilton County, ranking us 19th in market share of deposits.

 

Lending Activities

 

General. Our principal lending activity is originating one- to four-family residential real estate loans, commercial real estate loans, construction loans and home equity loans and lines of credit. To a lesser extent, we also originate commercial business loans, multi-family real estate loans and other consumer loans. Following the offering we plan to grow and diversify our loan portfolio by increasing

 

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our commercial business lending, our commercial real estate lending and our home equity loans and lines of credit.

 

Beginning in 2001, we began to increase the number of loans that we originate for sale to the secondary market. We currently originate most of our fixed-rate one- to four-family residential real estate loans for sale to the FHLB-Cincinnati through the Mortgage Purchase Program (“MPP”). During 2016 we originated $94.4 million of fixed-rate one- to four-family residential real estate loans, and sold $66.8 million of such loans to the FHLB-Cincinnati through the MPP. See “— Loan Originations, Participations, Purchases and Sales” below for more information regarding our sale of loans through the MPP. Following the completion of the offering, we expect to increase our mortgage banking activity. We currently employ three residential mortgage loan originators, and we intend to hire up to six new commission-based mortgage lenders over the next three years, as well as additional support staff as needed. Our mortgage banking infrastructure and risk management systems will allow us to safely manage a significantly larger volume of loans.

 

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

 

   At December 31, 
   2016   2015 
   Amount   Percent   Amount   Percent 
   (Dollars in thousands) 
                 
One- to four-family residential:                    
Owner occupied   $41,914    46.75%  $39,376    46.94%
Non-owner occupied    5,743    6.41    6,603    7.87 
Commercial real estate and land    13,631    15.21    12,939    15.42 
Home equity and other consumer (1)    14,593    16.28    12,912    15.39 
Residential construction   9,468    10.56    7,877    9.39 
Multi-family real estate    2,513    2.80    2,995    3.57 
Commercial    1,779    1.99    1,194    1.42 
                     
Total gross loans receivable    89,641    100.00%   83,896    100.00%
                     
Deferred loan costs    98         113      
Loans in process    (5,554)        (6,335)     
Allowance for loan losses    (1,137)        (1,036)     
                     
Total loans receivable, net   $83,048        $76,638      

 

 

(1)At December 31, 2016, other consumer loans totaled $32,000.

 

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Contractual Maturities. The following table summarizes the scheduled repayments, based on scheduled principal amortization, of our loan portfolio at December 31, 2016. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in the year ending December 31, 2017. Maturities do not reflect the impact of prepayments.

 

   One- to
four-family
residential,
owner
occupied
   One- to four
family
residential,
non-owner
occupied
   Commercial
real estate
and land
   Home
equity and
other
consumer
   Residential
construction
   Multi-
family real
estate
   Commercial   Total 
   (In thousands) 
Due During the Years
Ending December 31,
                                        
2017  $727   $100   $320   $1,188   $9,468   $52   $266   $12,121 
2018   827    105    335    1,241        55    277    2,840 
2019   863    111    350    1,297