8-K: Security Midwest Bancorp Engages Agent for Stock Offering

Security Midwest Bancorp, Inc. and Security Bank, s.b. have engaged Performance Trust Capital Partners, LLC as a marketing agent for their upcoming common stock offering in connection with the Bank's mutual-to-stock conversion.

Summary

• Security Midwest Bancorp, Inc. (the Company) and Security Bank, s.b. (the Bank) entered into an Agency Agreement with Performance Trust Capital Partners, LLC (Performance Trust) on May 14, 2025.
• Performance Trust will serve as the exclusive marketing agent for the Company's common stock offering, which is part of the Bank's mutual-to-stock conversion.
• The offering includes a Subscription Offering for certain depositors, employee benefit plans, employees, officers, and directors, a Community Offering for the general public (with preference to Sangamon County, Illinois residents), and potentially a Syndicated Offering for any unsubscribed shares.
• Performance Trust will receive a $25,000 management fee, credited against a success fee. The success fee is the greater of $250,000 or 1.00% of subscription offering sales and 2.00% of community offering sales (excluding certain shares).
• An additional 5.00% success fee applies to shares solicited by Performance Trust and sold to accredited institutional investors in the community offering.
• If a syndicated community offering occurs, Performance Trust will receive a 5.00% fee on the aggregate dollar amount of common stock sold in that offering.
• Performance Trust will also receive a $35,000 fee for records agent services and stock information center management, plus reimbursements for out-of-pocket and legal expenses.
• Up to 1,150,000 shares of common stock are being offered, with a potential increase up to 1,322,500 shares based on the pro forma market value.
• The conversion plan involves the Bank amending its articles of incorporation, the Company purchasing all capital stock issued by the Bank, and the Company issuing the Securities.
• The Plan of Conversion requires approval by at least a majority of the total votes cast by the Bank's voting members.

Sentiment

Score: 7

Explanation: The filing outlines a clear and structured plan for a significant capital raise through a mutual-to-stock conversion, which is a positive strategic step for long-term growth and financial flexibility. The engagement of a specialized agent and the detailed regulatory compliance efforts are favorable. However, the 'best efforts' nature of the offering and the substantial associated fees introduce some execution risk and cost considerations.

Positives

• Engagement of an experienced and specialized marketing agent, Performance Trust Capital Partners, LLC, for the complex mutual-to-stock conversion and stock offering.
• The structured offering process, including Subscription, Community, and potential Syndicated Offerings, aims to maximize the distribution and success of the capital raise.
• The fee structure for the marketing agent includes a success-based component, aligning Performance Trust's incentives with the successful completion and size of the offering.

Negatives

• Significant fees and expenses are associated with the conversion and stock offering, including management fees, success fees, records agent fees, and reimbursements for legal and out-of-pocket expenses, which will reduce net proceeds.
• The offering is on a 'best efforts basis,' meaning Performance Trust is not obligated to purchase any securities, introducing execution risk and uncertainty regarding the total amount of capital to be raised.
• The success fee structure could result in substantial payments to the agent, depending on the aggregate purchase price of shares sold.

Risks

• Performance Trust, as the agent, is not obligated to act as a Selected Dealer or to take or purchase any Securities, indicating a 'best efforts' offering with inherent sales risk.
• The Agency Agreement will terminate if the Company is unable to sell at least the total minimum number of Securities, potentially leading to a failed conversion and offering.
• Material adverse changes in financial markets, outbreaks of hostilities, or other calamities could make it impracticable to market the Securities or enforce sales contracts.
• Suspension of trading on major stock exchanges (Nasdaq, NYSE MKT, New York Stock Exchange) or a banking moratorium declared by federal or Illinois authorities could halt the offering.
• The Agent may terminate the agreement if, in its good faith opinion, the aggregate price for the Securities established by the Appraiser is not reasonable or equitable under prevailing market conditions.
• The Conversion must be consummated on or prior to September 30, 2025; failure to meet this deadline could lead to termination of the agreement.
• Indemnification provisions are subject to limitations under Section 23A of the Federal Reserve Act and Section 18(k) of the Federal Deposit Insurance Act, potentially limiting the Company's ability to fully indemnify the Agent.

Future Outlook

The Bank intends to convert from a mutual form of organization to a stock form, with the Company purchasing all capital stock issued by the Bank and subsequently issuing common stock in the offering. Upon completion of the conversion, the Company will become a registered bank holding company and will initially conduct its material business indirectly through the Bank. The Company plans to maintain the effectiveness of its Exchange Act Registration Statement for at least three years and will use its best efforts to effect and maintain the quotation of its Common Stock on the OTCQB Market.

Management Comments

• Stephan P. Antonacci, President and Chief Executive Officer, signed the report on behalf of Security Midwest Bancorp, Inc. and Security Bank, s.b.

Industry Context

The engagement of Performance Trust Capital Partners, LLC for a mutual-to-stock conversion and stock offering by Security Midwest Bancorp, Inc. and Security Bank, s.b. aligns with a common strategic trend in the banking industry. Many mutual institutions undertake such conversions to raise capital, enhance financial flexibility, and provide liquidity to their members. This move positions the Bank to potentially expand its capital base, support growth initiatives, and gain access to public markets, which is a standard practice for community banks seeking to evolve their corporate structure and funding sources.

Comparison to Industry Standards

• NA

Corporate Governance

Related Party Transactions

• Shares sold to the employee stock ownership plan (ESOP) and to the Bank's directors, officers, and employees and their immediate family members are excluded from certain success fee calculations for Performance Trust.
• The Company intends to make a loan to the Bank's ESOP to enable it to purchase Securities in an amount up to 7.0% of the shares of Common Stock sold in the Offerings.

Stakeholder Impact

• **Shareholders**: Existing and prospective shareholders will be impacted by the stock offering, which provides an opportunity to invest in the Company's common stock and potentially benefit from increased liquidity and market valuation post-conversion.
• **Depositors**: Certain depositors of the Bank will be granted rights to subscribe for Securities in the subscription offering, and eligible account holders will have a liquidation account established for their benefit upon conversion.
• **Employees, Officers, and Directors**: These individuals will have rights to subscribe for Securities and may participate in the employee stock ownership plan (ESOP), potentially increasing their ownership stake and alignment with company performance.
• **Regulatory Authorities**: The conversion and offering are subject to extensive approvals and ongoing compliance requirements from the Federal Reserve Board (FRB), Federal Deposit Insurance Corporation (FDIC), Illinois Department of Financial and Professional Regulation, Division of Banking (Division), and the Securities and Exchange Commission (SEC), ensuring regulatory oversight and adherence to legal frameworks.

Next Steps

• The Bank will amend and restate its articles of incorporation to authorize the issuance of capital stock.
• The Company will purchase all of the capital stock issued by the Bank in connection with its conversion.
• The Company will issue the Securities sold in the Offerings.
• The Plan of Conversion is subject to approval by at least a majority of the Bank's voting members.
• The Company and Bank will prepare and file any required amendments or supplements to the Registration Statement, Prospectus, Conversion Applications, and Holding Company Application.
• The Company will make earnings statements generally available to its security holders within 60 days after the close of the period covered.
• The Company will furnish annual and quarterly financial reports to stockholders and the Agent for three years following the closing.
• The Company will maintain the effectiveness of the Exchange Act Registration Statement for not less than three years.
• The Company will use its best efforts to effect and maintain the quoting of the Common Stock on the OTCQB Market and comply with applicable maintenance standards.
• The Company and Bank will comply with all conditions imposed by or agreed to with the FRB, Division, and FDIC in connection with their approvals.

Key Dates

Recommendation

The filing details a procedural step in a planned mutual-to-stock conversion and associated stock offering. While this strategic move is generally positive for long-term capital flexibility and growth, the 'best efforts' nature of the offering and the significant fees introduce some execution risk. Without specific pricing details or a full prospectus, a 'hold' recommendation is appropriate, awaiting further financial disclosures and market reception of the offering.

Keywords

Security Midwest Bancorp, Security Bank, mutual-to-stock conversion, stock offering, Performance Trust Capital Partners, financial services, banking, equity raise, 8-K filing, capital markets