As filed with the Securities and Exchange Commission
on October 9, 1997
Registration No. 333-
_________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
(INCLUDING EXHIBITS)
PSB BANCORP, INC.
(Exact name of registrant in its charter)
Pennsylvania 6035 applied for
(State or other (Primary SIC No.) (I.R.S. Employer
jurisdiction of Identification
incorporation or No.)
organization)
Eleven Penn Center, Suite 2601
1835 Market Street
Philadelphia, PA 19103
(215) 979-7900
(Address and telephone number of principal executive
offices and place of business)
Anthony DiSandro
President and Chief Operating Officer
11 Penn Center, Suite 2601
1835 Market Street
Philadelphia, PA 19103
(215) 979-7900
(Name, address and telephone number of agent for service)
Copies of all communications to:
Jeffrey P. Waldron, Esquire Aaron M. Kaslow, Esquire
Stevens & Lee Breyer & Agriggia
One Glenhardie Corporate Center 1300 I Street, N.W.
1275 Drummers Lane Suite 470 East
P.O. Box 236 Washington, DC 20005
Wayne, PA 19087 (202) 737-7900
(610) 964-1480
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this
registration statement becomes effective.
If this Form is filed to register additional securities for
an offering pursuant to Rule 426(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 delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. [ ]
Calculation of Registration Fee
Title
of Each Proposed Proposed Amount
Class of Maximum Maximum of
Securities Amount Proposed Aggregate Regis-
Being Being Offering Offering tration
Registered Registered Price Price Fee
Common Stock, 1,507,650(1) $10.00(1) $15,076,500(1) $ 4,711.41
no Par
Value
Common Stock 1,389,435(2) $25.75(2) 35,777,951(2) 11,180.61
no Par
Value
Total 2,897,085 -- $50,854,451 $15,892.02
Participation _______ -- -- (3)
interests
(1)As to the shares of Common Stock to be issued in the
Conversion Offerings, the Purchase Price has been estimated
solely for purposes of calculating the registration fee
pursuant to Rule 457(a) of the Securities Act of 1933 (the
"1933 Act"). The actual number of shares to be issued and
sold is subject to adjustment based upon the estimated pro
forma market value of the registrant and market and
financial conditions.
(2)The offering price of shares of Common Stock issued to
security holders in exchange for shares of Savings Bank
Common Stock for purposes of the filing fee shall be
calculated pursuant to Rule 457(f)(1) and Rule 457(c) of the
1933 Act based on the average of the bid and asked price of
Savings Bank Common Stock on October 6, 1997.
(3)The securities of PSB Bancorp, Inc. to be purchased by
Pennsylvania Savings Bank 401(k) Plan are included in the
amount shown for Common Stock. Accordingly, pursuant to
Rule 457(h) of the Act, no separate fee is required for the
participation interests. Pursuant to such rule, the amount
being registered 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 as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically
states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act
of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
PROSPECTUS
PSB BANCORP, INC.
(Proposed Holding Company for Pennsylvania Savings Bank)
Up to 2,519,202 Shares of Common Stock
$10.00 Purchase Price Per Share
PSB Bancorp, Inc. (the "Holding Company"), a Pennsylvania
corporation, is offering up to 2,519,202 shares (subject to
adjustment to 2,897,085 shares, see footnote 4 below) of its
common stock, no par value per share (the "Common Stock"), in
connection with (i) the Exchange Offering, described below, to
effect the reorganization of Pennsylvania Savings Bank (the
"Savings Bank") as a wholly-owned subsidiary of the Holding
Company and (ii) the Conversion Offerings, described below, to
effect the conversion of PSB Mutual Holding Company (the "MHC")
from a mutual holding company to a stock holding company. The
Holding Company, Savings Bank and MHC are collectively referred
to herein as the "Primary Parties." The transactions
contemplated by the Exchange Offering and the Conversion
Offerings, which are collectively referred to herein as the
"Conversion and Reorganization," are undertaken pursuant to a
Plan of Conversion from Mutual Holding Company to Stock Holding
Company and Agreement and Plan of Reorganization (the "Plan of
Conversion") adopted by the Boards of Directors or Trustees of
the Primary Parties.
The Exchange Offering. Pursuant to the Plan of Conversion,
each share of common stock, par value $1.00 per share, of the
Savings Bank (the "Savings Bank Common Stock") held by the MHC
(615,250 shares, or 51.5% of the outstanding shares, as of the
date of this Prospectus) will be canceled and each share of
Savings Bank Common Stock held by the Savings Bank's public
shareholders (the "Public Savings Bank Shares" and "Public
Shareholders," respectively) (579,390 shares, or 48.5% of the
outstanding shares, as of the date of this Prospectus) will be
exchanged for shares of Common Stock (the "Exchange Shares")
pursuant to a ratio (the "Exchange Ratio") that will result in
the Public Shareholders' aggregate ownership of approximately
47.96% of the outstanding shares of Common Stock determined
without regard to (i) payment of cash in lieu of issuing
fractional Exchange Shares and (ii) Conversion Shares (as defined
below) that may be purchased by the Public Shareholders and by
the Savings Bank's employee stock ownership plan, a tax-qualified
employee benefit plan (the "ESOP"), in the Conversion Offerings
or thereafter. The final Exchange Ratio will be based on the
Public Shareholders' ownership interest and not on the market
value of the Public Savings Bank Shares. See "THE CONVERSION AND
REORGANIZATION -- Independent Valuation."
FOR INFORMATION ON HOW TO SUBSCRIBE FOR
SHARES OF COMMON STOCK,
CALL THE STOCK INFORMATION CENTER AT (___) ___ - _____.
FOR A DISCUSSION OF CERTAIN RISKS THAT
SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" ON PAGE 16
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS
OR ACCOUNTS AND WILL NOT BE INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"),
THE BANK INSURANCE FUND ("BIF"),
THE SAVINGS ASSOCIATION INSURANCE FUND ("SAIF")
OR ANY OTHER GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION ("SEC"), THE FDIC OR ANY OTHER
FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SEC, THE FDIC OR ANY
OTHER AGENCY OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is October 9, 1997.
Estimated
Underwriting
Commissions
and Other Estimated
Purchase Fees and Net
Price(1) Expenses(2) Proceeds(3)
Minimum Price Per Share $10.00 $0.49 $9.51
Midpoint Price Per Share 10.00 0.42 9.58
Maximum Price Per Share 10.00 0.36 9.64
Maximum Price Per Share, 10.00 0.32 9.68
as adjusted(4)
Minimum Total(5) $ 9,690,000 $475,000 $ 9,215,000
Midpoint Total(6) 11,400,000 475,000 10,925,000
Maximum Total(7) 13,110,000 475,000 12,635,000
Maximum Total,
as adjusted(4)(8) 15,076,500 475,000 14,601,500
(1)Determined by the Board of Directors of the Holding Company
based upon an independent appraisal prepared by RP
Financial, LC., Arlington, Virginia ("RP Financial"). See
"THE CONVERSION AND REORGANIZATION -- Stock Pricing,
Exchange Ratio and Number of Shares to be Issued."
(2)Includes estimated expenses to the Holding Company and the
Savings Bank arising from the Conversion and Reorganization,
including fees to be paid to Charles Webb & Company ("Webb")
in connection with the Conversion Offerings. Webb's fee
amounts to a $25,000 management fee and a success fee of
1.5% of the aggregate Purchase Price of Conversion Shares
sold in the Subscription Offering and Community Offering
(subject to certain excluded Common Stock purchases). The
success fee is not to exceed $100,000 and the management fee
shall be applied against the success fee, which may be
deemed to be an underwriting fee. Webb may be deemed to be
an underwriter. Expenses, other than fees to be paid to
Webb, are estimated to total approximately $375,000 at each
of the minimum, midpoint, maximum and 15% above the
Estimated Valuation Range. Actual expenses may be more or
less than estimated amounts. The Holding Company and the
Savings Bank have agreed to indemnify Webb against certain
liabilities, including liabilities that might arise under
the Securities Act of 1933, as amended ("Securities Act").
See "USE OF PROCEEDS" and "THE CONVERSION AND
REORGANIZATION -- Plan of Distribution for the Subscription,
Direct Community and Syndicated Community Offerings."
(3)Actual net proceeds can vary substantially from the
estimated amounts depending upon actual expenses and the
number of shares sold in the Conversion Offerings. See "USE
OF PROCEEDS" and "PRO FORMA DATA."
(4)Gives effect to an increase in the number of shares that
could be sold in the Conversion Offerings resulting from an
increase in the pro forma market value of the MHC and the
Savings Bank, as converted, up to 15% above the maximum of
the Estimated Valuation Range, without the resolicitation of
subscribers or any right of cancellation. The ESOP shall
have a first priority right to subscribe for such additional
shares up to an aggregate of 8% of the Common Stock issued
in the Conversion. The issuance of such additional shares
will be conditioned on a determination by RP Financial that
such issuance is compatible with its determination of the
estimated pro forma market value of the MHC and the Savings
Bank, as converted. See "THE CONVERSION AND
REORGANIZATION -- Stock Pricing, Exchange Ratio and Number
of Shares to be Issued."
(5)Assumes the issuance of 969,000 Conversion Shares at $10.00
per share.
(6)Assumes the issuance of 1,140,000 Conversion Shares at
$10.00 per share.
(7)Assumes the issuance of 1,311,000 Conversion Shares at
$10.00 per share.
(8)Assumes the issuance of 1,507,650 Conversion Shares at
$10.00 per share.
CHARLES WEBB & COMPANY
A DIVISION OF KEEFE, BRUYETTE & WOODS, INC.
The Conversion Offerings. Pursuant to the Plan of
Conversion, nontransferable rights to subscribe (the
"Subscription Rights") for up to 1,311,000 shares (which may be
increased to 1,507,650 shares under circumstances described in
footnote 4 of the table appearing on the cover page of this
Prospectus) of Common Stock (the "Conversion Shares") have been
granted, in order of priority, to (i) depositors with $50.00 or
more on deposit at the Savings Bank as of June 30, 1996 (the
"Eligible Account Holders"), (ii) the ESOP, and (iii) depositors
with $50.00 or more on deposit at the Savings Bank as of
_____________________, 1997 (the "Supplemental Eligible Account
Holders"), subject to the priorities and purchase limitations set
forth in the Plan of Conversion (the "Subscription Offering").
Subscription Rights are nontransferable. Persons selling or
otherwise transferring their Subscription Rights or subscribing
for Common Stock on behalf of another person will be subject to
forfeiture of such Subscription Rights and possible further
sanctions and penalties imposed by agencies of the U.S.
Government and the Commonwealth of Pennsylvania. Concurrently,
but subject to the prior rights of Subscription Rights holders,
the Holding Company is offering the Conversion Shares for sale to
members of the general public through a direct community offering
(the "Direct Community Offering") with preference given first to
Public Shareholders who are not Eligible Account Holders (or
Supplemental Eligible Account Holders) and then to natural
persons and trusts of natural persons who are permanent residents
of Philadelphia and Montgomery Counties of the Commonwealth of
Pennsylvania (the "Local Community"). It is anticipated that any
Conversion Shares not subscribed for in the Subscription Offering
or purchased in the Direct Community Offering will be offered to
eligible members of the general public on a best efforts basis by
Webb in a syndicated community offering (the "Syndicated
Community Offering"). The Subscription Offering, the Direct
Community Offering and the Syndicated Community Offering are
referred to collectively as the "Conversion Offerings." The
Primary Parties reserve the right, in their absolute discretion,
to accept or reject, in whole or in part, any or all orders in
the Direct Community Offering or the Syndicated Community
Offering either at the time of receipt of an order or as soon as
practicable following the termination of the Conversion
Offerings. If an order is rejected in part, the purchaser does
not have the right to cancel the remainder of the order.
The Subscription Offering will expire at _______, Eastern
Time, on ____________________, 1997 unless extended by the
Primary Parties for up to _____ days to ______________, 1997 (the
"Expiration Date"). Such extension may be granted without
additional notice to subscribers. The Direct Community Offering
is also expected to terminate on the Expiration Date or at a date
thereafter, however, in no event later than _________________,
1997. The Holding Company must receive at an office of the
Savings Bank by the Expiration Date the accompanying original
Stock Order Form and a fully executed Certification Form
(collectively, the "Stock Order Form") (facsimile copies and
photocopies will not be accepted), along with full payment (or
appropriate instructions authorizing a withdrawal from a deposit
account at the Savings Bank) of $10.00 per share (the "Purchase
Price") for all Conversion Shares subscribed for or ordered.
Payment by wire transfer will not be accepted. Funds so received
will be placed in segregated accounts created for this purpose at
the Savings Bank, and interest will be paid at the Savings Bank's
passbook rate from the date payment is received until the
Conversion and Reorganization is consummated or terminated.
Payments authorized by withdrawals from deposit accounts will
continue to earn interest at their contractual rate until the
Conversion and Reorganization is consummated or terminated
although such funds will be unavailable for withdrawal until the
Conversion and Reorganization is consummated or terminated.
Orders submitted are irrevocable until the consummation or
termination of the Conversion and Reorganization. If the
Conversion and Reorganization is not consummated within 45 days
after the last day of the Subscription and the Direct Community
Offering (which date will be no later than _________________,
1997) and the Pennsylvania Department of Banking (the "PDOB") and
FDIC consents to an extension of time to consummate the
Conversion and Reorganization, subscribers will be notified in
writing of the time period within which the subscriber must
notify the Primary Parties of his or her intention to increase,
decrease or rescind his or her subscription. If an affirmative
response to any such resolicitation is not received by the
Primary Parties from subscribers, such orders will be rescinded
and all funds will be returned promptly with interest. If such
period is not extended or, in any event, if the Conversion and
Reorganization is not consummated by ______________, 1997, all
subscription funds will be promptly returned, together with
accrued interest and all withdrawal authorizations terminated.
Such extensions may not go beyond ____________________________,
1999.
The Primary Parties have engaged Webb as their financial
advisor and to assist the Holding Company in the sale of the
Conversion Shares in the Conversion Offerings. Webb is a
division of Keefe, Bruyette & Woods, Inc. ("KB&W"), a registered
broker-dealer and member of the National Association of
Securities Dealers, Inc. ("NASD"). Neither KB&W nor any other
registered broker-dealer is obligated to take or purchase any
Conversion Shares in the Conversion Offerings. See "THE
CONVERSION AND REORGANIZATION - Plan of Distribution for the
Subscription, Direct Community and Syndicated Community
Offerings."
Independent Valuation. Pennsylvania law and FDIC
regulations require that the offering of Conversion Shares in the
Conversion Offerings be based on an independent valuation of the
pro forma market value of the Savings Bank and the MHC, as
converted. RP Financial, LC ("RP Financial") has prepared an
independent appraisal that states that the estimated pro forma
market value of the Conversion Shares and Exchange Shares was
$21,906,226 as of September 19, 1997 (the "Appraisal"). The
Appraisal was multiplied by the MHC's percentage interest in the
Savings Bank (i.e., 51.5%) to determine a midpoint of the
offering range ($11,400,000), and the minimum and maximum of the
range were set at 15% below and above the midpoint, respectively,
resulting in a range of $9,690,000 to $13,110,000 (the "Estimated
Valuation Range").
The Board of Directors of the Holding Company determined
that the Conversion Shares would be sold at $10.00 per share (the
"Purchase Price"), resulting in a range of 969,000 to 1,311,000
Conversion Shares being offered. Upon consummation of the
Conversion and Reorganization, the Conversion Shares and the
Exchange Shares will represent approximately 52.04% and 47.96%,
respectively, of the Holding Company's total outstanding shares.
Based upon the Estimated Valuation Range, the Exchange Ratio is
expected to range from 1.5413 to 2.0853 resulting in a range of
893,014 Exchange Shares to 1,208,202 Exchange Shares to be issued
in the Conversion and Reorganization. The 2,519,202 Common
Shares offered hereby include up to 1,311,000 Conversion Shares
(subject to adjustment up to 1,507,650 Conversion Shares as
described herein) and up to 1,208,202 Exchange Shares (subject to
adjustment up to 1,389,435 shares as described herein). The
Estimated Valuation Range may be increased or decreased to
reflect changes in market and economic conditions prior to
completion of the Conversion and Reorganization, and under
certain circumstances specified herein subscribers will be
resolicited and given the right to modify or cancel their orders.
See "The CONVERSION AND REORGANIZATION -- Stock Pricing, Exchange
Ratio and Number of Shares to be Issued."
Purchase Limitations on Conversion Shares. Except for the
ESOP, which is expected to subscribe for 8% of the Conversion
Shares issued in the Conversion Offerings, the Plan of Conversion
provides for the following purchase limitations: (i) the maximum
number of Conversion Shares that may be subscribed for or
purchased in all categories in the Conversion Offerings by any
person, when combined with any Exchange Shares received, shall
not exceed 1% of the Conversion Shares issued in the Conversion
Offerings, and (ii) the maximum number of Conversion Shares that
may be subscribed for or purchased in all categories in the
Conversion Offerings by any person, together with all associates
or any group of persons acting in concert, when combined with any
Exchange Shares received, shall not exceed 2% of the Conversion
Shares issued in the Conversion Offerings. The minimum order is
25 Conversion Shares. See "THE CONVERSION AND REORGANIZATION --
The Subscription, Direct Community and Syndicated Community
Offerings," "-- Procedure for Purchasing Conversion Shares in the
Subscription and Direct Community Offerings" and "-- Limitations
on Purchase of Conversion Shares."
Market for the Common Stock. [The Holding Company has
received conditional approval to list the Common Stock on the
Nasdaq National Market under the symbol "PSBI." Prior to the
Conversion and Reorganization, the Public Savings Bank Shares
have been traded on the OTC Bulletin Board under the same trading
symbol.] There can be no assurance that an active and liquid
trading market for the Common Stock will develop or, if
developed, will be maintained. See "RISK FACTORS -- Absence of
Prior Market for the Common Stock" and "MARKET FOR COMMON STOCK."
<PAGE>
PENNSYLVANIA SAVINGS BANK
PHILADELPHIA, PENNSYLVANIA
[Map to be filed by amendment]
THE CONVERSION AND REORGANIZATION IS CONTINGENT UPON APPROVAL OF
THE PLAN OF CONVERSION BY AT LEAST A MAJORITY OF THE TOTAL NUMBER
OF VOTES ELIGIBLE TO BE CAST BY THE MHC'S MEMBERS (THE "MEMBERS")
AS OF ____________, 1997 (THE "VOTING RECORD DATE"), BY THE
HOLDERS OF A MAJORITY OF THE PUBLIC SAVINGS BANK SHARES AS OF THE
VOTING RECORD DATE AND BY HOLDERS OF 2/3 OF THE SAVINGS BANK
COMMON STOCK (INCLUDING THE MHC), THE SALE OF AT LEAST 969,000
CONVERSION SHARES PURSUANT TO THE PLAN OF CONVERSION, AND THE
RECEIPT OF ALL APPLICABLE REGULATORY APPROVALS.
<PAGE>
CAPSULE SUMMARY
PSB Bancorp, Inc. The Holding Company was organized
on October 3, 1997 under
Pennsylvania law at the direction
of the Savings Bank. The Holding
Company initially is a subsidiary
of the Savings Bank but has been
formed to acquire the Savings Bank
as a wholly-owned subsidiary upon
consummation of the Conversion and
Reorganization. The Holding
Company has only engaged in
organizational activities to date.
PSB Mutual Holding CompanyThe MHC is the Pennsylvania-
chartered mutual holding company
for the Savings Bank formed in
October 1995 to act as the mutual
holding company for the Savings
Bank (the "MHC Reorganization").
As part of the Conversion and
Reorganization, the MHC will
convert to a Pennsylvania-chartered
interim stock savings bank and
simultaneously merge with and into
the Savings Bank, with the Savings
Bank as the surviving entity.
Pennsylvania Savings Bank The Savings Bank is a Pennsylvania-
chartered savings bank,
headquartered in Philadelphia,
Pennsylvania.
The Conversion and Under the Plan of Conversion,
Reorganization (i) the MHC will convert to an
interim state stock savings bank
("Interim A") and simultaneously
merge with and into the Savings
Bank, pursuant to which the MHC
will cease to exist and the
outstanding shares of Savings Bank
Common Stock held by the MHC
(615,520 shares or 51.5% of the
outstanding Savings Bank Common
Stock as of the date of this
Prospectus) will be canceled, and
(ii) an interim state stock savings
bank ("Interim B") will be formed
as a wholly-owned subsidiary of the
Holding Company and will merge with
and into the Savings Bank,
resulting in the Savings Bank
becoming a wholly-owned subsidiary
of the Holding Company and the
outstanding Public Savings Bank
Shares (579,390 shares or 48.5% of
the outstanding Savings Bank Common
Stock as of the date of this
Prospectus) will be converted into
the Exchange Shares at the rate
specified by Exchange Ratio. The
Exchange Ratio will result in the
holders of the outstanding Public
Savings Bank Shares owning, in the
aggregate, approximately 47.96% of
the Common Stock to be outstanding
upon the completion of the
Conversion and Reorganization,
determined without regard to any
(i) payment of cash in lieu of
issuing fractional Exchange Shares
and (ii) Conversion Shares that may
be purchased by Public Shareholders
(including the ESOP) in the
Conversion Offerings.
The Subscription, Direct The Holding Company is offering up
Community and Syndicated to 1,311,000 Conversion Shares in
Community Offerings the Subscription, Direct Community
and Syndicated Community Offerings.
Conversion Shares are first being
offered in the Subscription
Offering through the exercise of
Subscription Rights issued, in
order of priority, to (i) Eligible
Account Holders; (ii) the ESOP; and
(iii) Supplemental Eligible Account
Holders. Subject to the prior
rights of Subscription Rights
holders, Conversion Shares not
subscribed for in the Subscription
Offering are being offered in the
Direct Community Offering to
members of the general public with
preference given first to Public
Shareholders (who are not Eligible
Account Holders or Supplemental
Eligible Account Holders) and then
to natural persons and trusts of
natural persons who are permanent
residents of the Local Community.
It is anticipated that shares not
subscribed for in the Subscription
Offering and Direct Community
Offering may be offered to the
general public in the Syndicated
Community Offering.
Potential Benefits of The Board of Directors of the
Conversion and Holding Company, the Board of
Reorganization to ManagementTrustees of the Savings Bank, and
executive officers and employees of
the Holding Company and the Savings
Bank will receive certain
additional benefits as a result of
the Conversion and Reorganization.
See "MANAGEMENT - Compensation of
Officers, Directors and Trustees
Through Benefit Plans."
Purchase Limitations Except for the ESOP, (i) the
maximum number of Conversion Shares
that may be subscribed for or
purchased in all categories in the
Conversion Offerings by any person,
when combined with any Exchange
Shares received, shall not exceed
1% of the Conversion Shares issued
in the Conversion Offerings, and
(ii) the maximum number of
Conversion Shares that may be
subscribed for or purchased in all
categories in the Conversion
Offerings by any person, together
with all associates or any group of
persons acting in concert, when
combined with any Exchange Shares
received, shall not exceed 2% of
the Conversion Shares issued in the
Conversion Offerings. The minimum
order is 25 Conversion Shares.
Stock Pricing and Number Pennsylvania law and FDIC regula-
of Shares to be Issued tions require that the aggregate
in the Conversion and purchase price of the Conversion
Reorganization Shares be based upon an independent
valuation of the pro forma market
value of the MHC and the Savings
Bank, which was estimated by RP
Financial to be $21,906,226 as of
September 19, 1997 (the
"Appraisal"). The Appraisal was
multiplied by the MHC's percentage
interest in the Savings Bank (i.e.
51.5%) to determine the midpoint of
the valuation range or $11,400,000.
This was multiplied by 15% to
determine the Estimated Valuation
Range which ranges from
$9.69 million to $13.11 million, or
from 969,000 Conversion Shares to
1,311,000 Conversion Shares based
on the Purchase Price as determined
by the Board of Directors and
Boards of Trustees of the Primary
Parties. The maximum of the
Estimated Valuation Range may be
increased by up to 15% and the
number of Conversion Shares may be
increased to 1,507,650 shares.
Based on the 579,390 Public Savings
Bank Shares outstanding at the date
of this Prospectus, and assuming a
minimum of 969,000 and a maximum of
1,311,000 Conversion Shares are
issued in the Conversion Offerings,
the Exchange Ratio is expected to
range from approximately 1.513
Exchange Shares to 2.0853
Exchange Shares for each Public
Savings Bank Share issued and
outstanding immediately prior to
the consummation of the Conversion
and Reorganization.
Use of Proceeds The net proceeds from the sale of
the Conversion Shares are estimated
to range from $9.22 million to
$12.64 million, or $14.60 million
if the Estimated Valuation Range is
increased by 15%. The Holding
Company has received conditional
FDIC, PDOB and the Board of
Governors of the Federal Reserve
System (the "Federal Reserve")
approval to purchase all of the
capital stock of the Savings Bank
to be issued in the Conversion and
Reorganization in exchange for 50%
of the net proceeds of the
Conversion Offerings. This will
result in the Holding Company
retaining, for general corporate
purposes, approximately
$4.61 million to $6.32 million of
the net proceeds, or up to
$7.30 million if the Estimated
Valuation Range is increased by
15%. See "PRO FORMA DATA" and "USE
OF PROCEEDS."
Market for Common Stock The Holding Company has received
conditional approval to have the
Common Stock listed on the Nasdaq
National Market under the symbol
"PSBI" (the current symbol for the
Public Savings Bank Shares, which
are traded on the OTC Bulletin
Board). See "RISK FACTORS --
Absence of Prior Market for the
Common Stock" and "MARKET FOR
COMMON STOCK."
Dividend Policy Following consummation of the
Conversion and Reorganization, the
Holding Company's Board of
Directors will consider adopting a
policy of paying regular cash
dividends on the Common Stock.
There can be no assurance that any
dividends will be paid on the
Common Stock or that if paid, such
dividends will not be reduced or
eliminated in future periods. See
"DIVIDEND POLICY."
Officers', Directors' and In addition to an aggregate of
Trustees' Common Stock 493,548 Exchange Shares to be
Purchases and Beneficial received by officers and trustees
Ownership of the Savings Bank in the Exchange
Offering based on an Exchange Ratio
of 1.8133, officers and trustees
are expected to subscribe for an
aggregate of approximately
___ Conversion Shares, or _____ of
the Conversion Shares based on both
the minimum and the maximum of the
Estimated Valuation Range,
respectively. See "COMMON STOCK TO
BE PURCHASED OR RECEIVED BY
MANAGEMENT."
Risk Factors See "RISK FACTORS" for a discussion
of certain risks related to the
Conversion Offerings that should be
considered by all prospective
investors.
<PAGE>
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR ACCOUNTS
AND WILL NOT BE INSURED OR GUARANTEED BY THE FDIC, THE BIF
OR ANY OTHER GOVERNMENT AGENCY.
PROSPECTUS SUMMARY
The information set forth below should be read in
conjunction with and is qualified in its entirety by the more
detailed information and Consolidated Financial Statements
(including the Notes thereto) presented elsewhere in this
Prospectus. The purchase of Common Stock is subject to certain
risks. See "RISK FACTORS.
This Prospectus contains forward-looking statements that
involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these
forward-looking statements as a result of certain factors,
including those set forth under "RISK FACTORS" and elsewhere in
this Prospectus.
PSB Bancorp, Inc.
The Holding Company was organized on October 3, 1997 under
Pennsylvania law at the direction of the Savings Bank. The
Holding Company initially is a subsidiary of the Savings Bank but
has been formed to acquire the Savings Bank as a wholly-owned
subsidiary upon consummation of the Conversion and
Reorganization. The Holding Company has only engaged in
organizational activities to date. The Holding Company has
received conditional approval from the Federal Reserve to become
a bank holding company through the acquisition of 100% of the
capital stock of the Savings Bank. Immediately following the
Conversion, the only significant assets of the Holding Company
will be the outstanding capital stock of the Savings Bank, 50% of
the net investable proceeds of the Conversion Offerings (see "PRO
FORMA DATA") and a note receivable from the ESOP evidencing a
loan to enable the ESOP to purchase 8% of the Conversion Shares
issued in the Conversion and Reorganization. Funds retained by
the Holding Company will be used for general business activities.
See "USE OF PROCEEDS." Upon consummation of the Conversion and
Reorganization, the Holding Company will be classified as a bank
holding company subject to Federal Reserve regulation. See
"REGULATION -- Bank Holding Company Regulations." The main
office of the Holding Company is located at Eleven Penn Center,
Suite 2601, 1835 Market Street, Philadelphia, Pennsylvania 19103
and its telephone number is (215) 979-7900.
PSB Mutual Holding Company
The MHC is the Pennsylvania-chartered mutual holding company
for the Savings Bank. The MHC was formed in October 1995 to act
as the holding company for the Savings Bank, a Pennsylvania-
chartered capital stock savings bank (the "MHC Reorganization").
The members of the MHC consist of depositors of the Savings Bank.
Currently, the MHC's sole business activity is holding the
615,250 shares of Savings Bank Common Stock, which represents
51.5% of the outstanding shares as of the date of this
Prospectus. As part of the Conversion and Reorganization, the
MHC will convert to a Pennsylvania-chartered interim stock
savings bank and simultaneously merge with and into the Savings
Bank, with the Savings Bank as the surviving entity. The MHC's
main office is located at Eleven Penn Center, Suite 2601, 1835
Market Street, Philadelphia, Pennsylvania 19103 and its telephone
number is (215) 979-7900.
Pennsylvania Savings Bank
The Savings Bank is a Pennsylvania-chartered savings bank,
headquartered in Philadelphia, Pennsylvania. The Savings Bank's
deposits are insured by the FDIC up to applicable legal limits
under the BIF, however, it also pays SAIF insurance premiums with
respect to the deposits that it assumed in the MHC
Reorganization. The Savings Bank is regulated by the PDOB and
the FDIC. At June 30, 1997, the Savings Bank had total assets of
$124.3 million, total deposits of $104.4 million, and total
shareholders' equity of $14.9 million, on a consolidated basis.
The Savings Bank maintains six full-service offices in Montgomery
and Philadelphia Counties, Pennsylvania. Five full-service
offices are located in South Philadelphia and the Savings Bank's
main office is located at Eleven Penn Center, Suite 2601,
1835 Market Street, Philadelphia, Pennsylvania 19103 and its
telephone number is (215) 979-7900. The Savings Bank also has an
office in Glenside, Montgomery County, Pennsylvania.
The Savings Bank's predecessor, Pennsylvania Savings
Association, converted from a state-chartered mutual savings
association to a state-chartered mutual savings bank in 1990.
Effective on October 20, 1995, this state-chartered mutual
savings bank reorganized into a mutual savings bank holding
company and transferred substantially all of its assets and
liabilities to the Savings Bank, a newly-formed stock savings
bank (referred to herein as the "MHC Reorganization.") The
Savings Bank is now majority-owned by the MHC. References in
this Prospectus to the Savings Bank include the Savings Bank's
predecessors as the context requires.
On October 20, 1995, when the MHC Reorganization was
consummated, the Savings Bank completed its initial stock
offering by issuing 1,173,250 shares of Savings Bank Common
Stock, of which 558,000 shares were purchased by the Public
Shareholders and 615,250 shares were issued to the MHC. Awards
under the Savings Bank 1995 Management Recognition Plan
subsequent to the initial public offering have increased the
total shares issued and outstanding to 1,194,640 as of the date
of this Prospectus, of which 579,390 shares are held by the
Public Shareholders and 615,250 shares are held by the MHC.
The Savings Bank's strategy is to maximize profitability by
providing quality deposit and loan products in an efficient
manner as a well-capitalized and independent savings bank.
Generally, the Savings Bank has sought to implement this strategy
by emphasizing retail deposits as its primary source of funds and
maintaining a substantial part of its assets in locally
originated residential first mortgage loans, commercial real
estate loans, commercial business loans, construction loans and
consumer loans, mortgage-backed securities and other liquid
investment securities.
The Savings Bank started an expansion of its branch network
by opening a branch in Center City Philadelphia on June 14, 1996.
The Savings Bank plans further expansion of its branch network in
areas contiguous to its current market and then into the suburbs
of Philadelphia by opening branch offices or acquiring the
branches of other institutions.
As part of this strategy, the Savings Bank continues to
expand the operations of TransNational Mortgage Corp. ("TNMC"),
its mortgage banking subsidiary. TNMC currently maintains a
staff of six commissioned sales people to solicit mortgage loans
throughout the Philadelphia metropolitan area and surrounding
counties of Pennsylvania, New Jersey and Delaware. In addition,
TNMC is processing and servicing loans for other mortgage
companies and conducting telemarketing origination programs for
originating mortgages for sale in the secondary market that do
not meet the Savings Bank's underwriting requirements. See
"SUBSIDIARIES."
The Savings Bank also plans to increase loan origination
through its existing office network and is expanding other loan
products such as commercial real estate loans, commercial
business loans, construction loans and consumer loans. For the
six months ended June 30, 1997 loan originations other than
residential first mortgage loans totalled $14.94 million or
23.76% of originations during the period.
The Conversion and Reorganization
Purposes of the Conversion and Reorganization. The Boards
of Directors of the Primary Parties believe that the Conversion
and Reorganization is in the best interests of the MHC and its
members, the Savings Bank and its shareholders, and the
communities served by the MHC and the Savings Bank. In their
decision to pursue the Conversion and Reorganization, the Boards
of Directors considered the various regulatory uncertainties
associated with the mutual holding company structure. See "RISK
FACTORS." In addition, the Primary Parties' Boards of Directors
considered the various advantages of the stock holding company
form of organization, including: (i) the Holding Company's
ability to repurchase Common Stock without adverse tax
consequences, unlike the Savings Bank; (ii) the Holding Company's
greater flexibility under current law and regulations relative to
the MHC to acquire other financial institutions and diversify its
operations; (iii) the larger capital base of the Holding Company
relative to the Savings Bank that will result from the Conversion
Offerings; and (iv) the potential increased liquidity in the
Common Stock relative to the Public Savings Bank Shares because
of the larger number of shares of Common Stock to be outstanding
upon consummation of the Conversion and Reorganization.
Currently, the Boards of Directors of the Primary Parties have no
specific plans, arrangements or understandings, written or oral,
regarding any stock repurchases or acquisitions. See "THE
CONVERSION AND REORGANIZATION -- Purposes of Conversion and
Reorganization."
Description of the Conversion and Reorganization. The
Conversion and Reorganization are being undertaken pursuant to
the Plan of Conversion that was adopted by the Boards of Trustees
of the Savings Bank and the MHC on July 17, 1997 and as amended
on September 25, 1997 and by the Board of Directors of the
Holding Company on _______________, 1997. Under the Plan of
Conversion, (i) the MHC will convert to an interim federal stock
savings bank ("Interim A") and simultaneously merge with and into
the Savings Bank, pursuant to which the MHC will cease to exist
and the outstanding shares of Savings Bank Common Stock held by
the MHC (615,250 shares or 51.5% of the outstanding Savings Bank
Common Stock as of the date of this Prospectus) will be canceled,
and (ii) an interim federal stock savings bank ("Interim B") will
be formed as a wholly-owned subsidiary of the Holding Company and
will merge with and into the Savings Bank, resulting in the
Savings Bank becoming a wholly-owned subsidiary of the Holding
Company and the outstanding Public Savings Bank Shares
(579,390 shares or 48.5% of the outstanding Savings Bank Common
Stock as of the date of this Prospectus) will be converted into
the Exchange Shares at the rate specified by the Exchange Ratio.
The Exchange Ratio will result in the holders of the outstanding
Public Savings Bank Shares owning, in the aggregate,
approximately 47.96% of the Common Stock, determined without
regard to any (i) payment of cash in lieu of issuing fractional
Exchange Shares and (ii) Conversion Shares that may be purchased
by Public Shareholders (including the ESOP) in the Conversion
Offerings.
The following diagram outlines the current organizational
structure of the Primary Parties and their ownership interests:
MHC Public
Shareholders
51.5% 48.5%
Savings Bank
100%
Holding Company
100%
Interim B
(in formation)
The following diagram reflects the post-Conversion and
Reorganization organizational structure of the Holding Company
and the Savings Bank and their ownership interests. The
ownership interests presented assumes no fractional
Exchange Shares are issued, and does not give effect to purchases
of any Conversion Shares by the Public Shareholders (including
the ESOP) or the exercise of outstanding stock options. In
accordance with FDIC policy, the Public Shareholders will receive
only 47.96% of the Common Stock, which is slightly less than
their 48.5% ownership in the Savings Bank, to reflect the
contribution to the Holding Company on a consolidated basis, of
the assets of the MHC.
Purchasers of Former Public
Conversion Shares Shareholders
52.04% 47.96%
Holding Company
100%
Savings Bank
Required Approvals. The PDOB and the Federal Reserve have
approved, and the FDIC has issued its letter of nonobjection with
respect to, the Plan of Conversion subject to (i) the approval of
the holders of at least a majority of the total number of votes
eligible to be cast by the members of the MHC as of the close of
business on the Voting Record Date at a special meeting of
members called for the purpose of considering the Plan of
Conversion (the "Members' Meeting"), (ii) the approval of the
holders of at least two-thirds of the outstanding shares of
Savings Bank Common Stock (including those shares held by the
MHC) as of the close of business on the Voting Record Date at a
meeting of shareholders called for the purpose of considering the
Plan of Conversion (the "Shareholders' Meeting"), and (iii) the
approval of the holders of at least a majority of votes cast by
the Public Savings Bank Shares as of the close of business on the
Voting Record Date present in person or by proxy at the
Shareholders' Meeting. The MHC intends to vote its shares of
Savings Bank Common Stock, in favor of the Plan of Conversion at
the Shareholders' Meeting. In addition, as of June 30, 1997,
directors and executive officers of the Primary Parties as a
group (13 persons) owned of record 272,182, or 22.21%, of the
outstanding shares of Savings Bank Common Stock, that they intend
to vote in favor of the Plan of Conversion at the Shareholders'
Meeting. Shareholders of the Savings Bank are entitled to
dissent with respect to the Plan of Conversion and to obtain
payment of the "fair value" of their Savings Bank Common Stock if
the Plan of Conversion is consummated. See the Savings Bank
Proxy Statement "Dissenters' Rights."
The Conversion Offerings
The Conversion Offerings are being undertaken pursuant to
the Plan of Conversion. The Holding Company is offering up to
1,311,000 Conversion Shares in the Conversion Offerings.
Conversion Shares are first being offered in the Subscription
Offering through the exercise of Subscription Rights issued, in
order of priority, to (i) Eligible Account Holders; (ii) the
ESOP; and (iii) Supplemental Eligible Account Holders. The
Subscription Offering will expire on the Expiration Date, unless
extended by the Board of Directors of the Holding Company.
Subject to the prior rights of Subscription Rights holders,
Conversion Shares not subscribed for in the Subscription Offering
are being offered in the Direct Community Offering to members of
the general public with preference given first to Public
Shareholders (who are not Eligible Account Holders or
Supplemental Eligible Account Holders) and then to natural
persons and trusts of natural persons who are permanent residents
of the Local Community. It is anticipated that shares not
subscribed for in the Subscription Offering and Direct Community
Offering may be offered to the general public in the Syndicated
Community Offering. The Primary Parties reserve the absolute
right to reject or accept any orders in the Direct Community
Offering or the Syndicated Community Offering (if any), in whole
or in part, either at the time of receipt of an order or as soon
as practicable following the Expiration Date. The closing with
respect to all shares sold in the Conversion Offerings will occur
simultaneously, and all Conversion Shares will be sold at the
Purchase Price.
The Primary Parties have retained Webb as their consultant
and advisor in connection with the Conversion Offerings and to
assist in soliciting subscriptions in the Conversion Offerings on
a best efforts basis. See "The CONVERSION AND REORGANIZATION --
The Subscription, Direct Community and Syndicated Offerings."
Potential Benefits of Conversion and Reorganization to Management
1997 Stock Options. The Board of Directors of the Holding
Company intends to implement the 1997 PSB Bancorp, Inc. Stock
Option Plan (the "1997 Option Plan"), at a meeting of its
shareholders (which is expected to be held in 1998), contingent
upon receipt of shareholder approval. Assuming 1,311,000
Conversion Shares are issued in the Conversion and Reorganization
and receipt of the required approvals, the Holding Company may
grant options to purchase 131,100 shares of the Common Stock to
executive officers and directors as a group (13 persons) under
the 1997 Option Plan in the year following the Conversion and
Reorganization. The exercise price of the options, which would
be granted at no cost to the recipient thereof, would be the fair
market value of the Common Stock subject to the option on the
date the option is granted.
1997 PSB Bancorp, Inc. Management Recognition Plan. The
Board of Directors of the Holding Company intends to implement
the 1997 PSB Bancorp, Inc. Management Recognition Plan (the "1997
MRP") at a meeting of the Holding Company's shareholders to be
held no earlier than six months following the Conversion and
Reorganization and contingent upon the receipt of shareholder
approval. Subject to such approval, the 1997 MRP will purchase
an amount of shares after the Conversion and Reorganization equal
to up to 4% of the shares issued in the Conversion and
Reorganization (52,440 shares at the maximum of the Estimated
Valuation Range), which are expected to be issued to executive
officers and directors of the Holding Company and its
subsidiaries in the year following the Conversion and
Reorganization. Under the 1997 MRP, the shares issued to
directors and employees could be newly-issued shares or shares
purchased in the open market. No shares will be awarded under
the 1997 MRP prior to receipt of shareholder approval. Awards
under the 1997 MRP would be granted at no cost to the recipient
thereof.
Prospectus Delivery and Procedure for Purchasing
Conversion Shares
To ensure that each prospective purchaser receives a
Prospectus at least 48 hours prior to the Expiration Date as
required by Rule 15c2-8 under the Securities Exchange Act of
1934, as amended ("Exchange Act"), no Prospectus will be mailed
later than five days or hand delivered later than two days prior
to the Expiration Date. Execution of the Stock Order Form will
confirm receipt or delivery of a Prospectus as required by
Rule 15c2-8. Stock Order Forms will be distributed only with a
Prospectus.
To ensure that Eligible Account Holders and Supplemental
Eligible Account Holders are properly identified, such parties
must list all deposit accounts on the Stock Order Form giving all
names on each deposit account and the account balance at the
applicable eligibility date.
Full payment by check, cash (only if delivered in person at
an office of the Savings Bank), money order, bank draft or
withdrawal authorization must accompany an original Stock Order
Form (facsimile copies and photocopies will not be accepted) and
a fully executed separate Certification Form. Payment by wire
transfer will not be accepted. Orders cannot and will not be
accepted without execution of the Certification Form appearing on
the reverse side of the Stock Order Form. See "THE CONVERSION
AND REORGANIZATION -- Procedure for Purchasing Conversion Shares
in the Subscription and Direct Community Offering."
Purchase Limitations
Except for the ESOP, which is expected to subscribe for 8%
of the Conversion Shares issued in the Conversion and
Reorganization, the Plan of Conversion provides for the following
purchase limitations: (i) the maximum number of
Conversion Shares that may be subscribed for or purchased in all
categories in the Conversion Offerings by any person, when
combined with any Exchange Shares received, shall not exceed 1%
of the Conversion Shares issued in the Conversion Offerings, and
(ii) the maximum number of Conversion Shares that may be
subscribed for or purchased in all categories in the Conversion
Offerings by any person, together with all associates or any
group of persons acting in concert, when combined with any
Exchange Shares received, shall not exceed 2% of the
Conversion Shares issued in the Conversion Offerings. The
minimum order is 25 Conversion Shares. At any time during the
Conversion Offerings, and without further approval by the MHC
Members or the Public Shareholders, the Primary Parties, in their
sole discretion, may increase any of the purchase limitations to
up to 5% of the Conversion Shares issued in the Conversion and
Reorganization. Under certain circumstances, subscribers may be
resolicited in the event of such an increase and given the
opportunity to increase, decrease or rescind their orders. If
there is an oversubscription in the Conversion Offerings,
Conversion Shares will be allocated as set forth in the Plan of
Conversion. See "THE CONVERSION AND REORGANIZATION -- The
Subscription, Direct Community and Syndicated Community
Offerings," "-- Procedure for Purchasing Conversion Shares in the
Subscription and Direct Community Offerings" and "-- Limitations
on Purchases of Conversion Shares." Because the purchase
limitations set forth in the Plan of Conversion take into account
the Exchange Shares to be issued to the Public Shareholders for
their Public Savings Bank Shares, certain Public Shareholders,
including members of management of the Savings Bank, may be
limited or have no ability to purchase Conversion Shares in the
Conversion Offerings. See "COMMON STOCK TO BE PURCHASED OR
RECEIVED BY MANAGEMENT."
Stock Pricing and Number of Shares to be Issued in the Conversion
and Reorganization
Pennsylvania law and FDIC regulations require the aggregate
purchase price of the Conversion Shares be consistent with the
appraisal of the estimated pro forma market value of the MHC and
the Savings Bank, which was converted by multiplying the
Appraisal by the MHC's percentage interest in the Savings Bank
(51.5%); this calculation ensures that the Public Shareholders
will continue to hold approximately the same aggregate percentage
ownership interest in the Holding Company as they held in the
Savings Bank before the Conversion and Reorganization (before
giving effect to the payment of cash in lieu of issuing
fractional Exchange Shares and any Conversion Shares purchased by
the Public Shareholders or the ESOP in the Conversion Offerings
or thereafter). The resulting figure represents the midpoint of
the Estimated Valuation Range. This amount is $1.14 million, or
1,140,000 Conversion Shares based on the Purchase Price.
Therefore, RP Financial estimated the pro forma market value
range from $9.69 million to $13.11 million as of September 12,
1997, and upon the Board of Directors and Boards of Trustees of
the Primary Parties choosing a purchase price of $10.00 the
number of Conversion Shares issued shall range from 969,000
Conversion Shares to 1,311,000 Conversion Shares based on the
Purchase Price.
The full text of the independent appraisal describes the
procedures followed, the assumptions made, limitations on the
review undertaken and matters considered, which included but did
not depend on the trading market for the Savings Bank Common
Stock. See "MARKET FOR COMMON STOCK". The appraisal will be
updated or confirmed at the completion of the Conversion
Offerings. The maximum of the Estimated Valuation Range may be
increased by up to 15% and the number of Conversion Shares may be
increased to 1,507,650 shares due to material changes in the
financial condition or results of operations of the Savings Bank
or changes in market conditions or general financial, economic or
regulatory conditions. No resolicitation of subscribers will be
made and subscribers will not be permitted to modify or cancel
their subscriptions unless the gross proceeds from the sale of
the Conversion Shares are less than the minimum or more than 15%
above the maximum of the current Estimated Valuation Range. All
Conversion Shares will be sold at the Purchase Price, which was
established by the Board of Directors of the Holding Company.
Any increase or decrease in the number of Conversion Shares will
result in a corresponding change in the number of
Exchange Shares, so that upon consummation of the Conversion and
Reorganization, the Conversion Shares and the Exchange Shares
will represent approximately 52.04% and 47.96%, respectively, of
the total outstanding shares of Common Stock. Nevertheless,
Exchange Shares may represent a lesser percentage of the total
outstanding shares of Common Stock if there are insufficient
shares for the ESOP to purchase 8.0% of the Conversion Shares
issued in the Conversion and Reorganization, and the Holding
Company issues authorized but unissued shares to the ESOP to
satisfy its order. See "PRO FORMA DATA," "RISK FACTORS --
Possible Dilutive Effect of Benefit Programs" and "THE CONVERSION
AND REORGANIZATION - Stock Pricing, Exchange Ratio and Number
of Shares to be Issued." The appraisal is not intended to be and
should not be construed as a recommendation of any kind as to the
advisability of purchasing Common Stock in the Conversion
Offerings nor can assurance be given that purchasers of the
Common Stock in the Conversion Offerings will be able to sell
such shares after consummation of the Conversion and
Reorganization at a price that is equal to or above the Purchase
Price. Furthermore, the pro forma shareholders' equity is not
intended to represent the fair market value of the Common Stock
and may be greater than amounts that would be available for
distribution to shareholders in the event of liquidation. A
complete copy of the appraisal is available upon request. See
"ADDITIONAL INFORMATION."
Based on the 579,390 Public Savings Bank Shares outstanding
at the date of this Prospectus, and assuming a minimum of 969,000
and a maximum of 1,311,000 Conversion Shares are issued in the
Conversion Offerings, the Exchange Ratio is expected to range
from approximately 1.5413 Exchange Shares to 2.0853
Exchange Shares for each Public Savings Bank Share issued and
outstanding immediately prior to the consummation of the
Conversion and Reorganization. The Exchange Ratio will be
affected if any stock options to purchase shares of Savings Bank
Common Stock are exercised after the date of this Prospectus and
before the consummation of the Conversion and Reorganization. If
any stock options are outstanding immediately before the
consummation of the Conversion and Reorganization, they will be
converted into options to purchase shares of Common Stock, with
the number of shares subject to the option and the exercise price
per share to be adjusted based upon the Exchange Ratio so that
the aggregate exercise price remains unchanged. The duration of
the options also will be unchanged. As of the date of this
Prospectus, there were outstanding options to purchase
36,859 shares of Savings Bank Common Stock at a weighted-average
exercise price of $12.12 per share. The Savings Bank has no
plans to grant additional stock options before the consummation
of the Conversion and Reorganization.
<TABLE>
<CAPTION>
Shares
of Common
Conversion Shares Exchange Stock to Stock to
to Be Issued Be Issued be Out- Exchange
Amount Percent Amount Percent standing Ratio
<S> <C>> <C> <C> <C> <C> <C>
Minimum 969,000 52.04% 893,014 47.96% 1,862,014 1.5413
Midpoint 1,140,000 52.04% 1,050,608 47.96% 2,190,608 1.8133
Maximum 1,311,000 52.04% 1,208,202 47.96% 2,519,202 2.0853
15% above
Maximum 1,507,650 52.04% 1,389,435 47.96% 2,897,085 2.3981
</TABLE>
Use of Proceeds
The net proceeds from the sale of the Conversion Shares are
estimated to range from $9.22 million to $12.64 million, or
$14.60 million if the Estimated Valuation Range is increased by
15%. The Holding Company has received conditional FDIC and PDOB
approval to purchase all of the capital stock of the Savings Bank
to be issued in the Conversion and Reorganization in exchange for
50% of the net proceeds of the Conversion Offerings. This will
result in the Holding Company retaining approximately $4.61
million to $6.32 million of the net proceeds, or up to $7.30
million if the Estimated Valuation Range is increased by 15%.
See "PRO FORMA DATA."
Receipt of 50% of the net proceeds of the sale of the Common
Stock will increase the Savings Bank's capital and will support
the expansion of the Savings Bank's existing business activities.
The Savings Bank will use the funds contributed to it for general
corporate purposes, including, initially, lending and investment
in short-term U.S. Government and agency obligations.
A portion of the net proceeds retained by the Holding
Company will be used for a loan by the Holding Company to the
ESOP to enable it to refinance its existing third party loan used
to purchase shares of Savings Bank Common Stock in the MHC
Reorganization ($331,000 outstanding balance at June 30, 1997)
and to purchase 8% of the shares of Conversion Shares issued in
the Conversion and Reorganization ($1.05 million at the maximum
of the Estimated Valuation Range). Such loan would be repaid
principally from the Savings Bank's contributions to the ESOP and
from dividends payable on the Common Stock held by the ESOP. The
remaining proceeds retained by the Holding Company initially will
be invested primarily in short-term U.S. Government and agency
obligations or in a deposit account at the Savings Bank or
another financial institution. Such proceeds will be available
for additional contributions to the Savings Bank in the form of
debt or equity, to support future diversification or acquisition
activities, as a source of dividends to the shareholders of the
Holding Company and for future repurchases of Common Stock
(including possible repurchases to fund the 1997 MRP or to
provide shares to be issued upon exercise of stock options) to
the extent permitted under Pennsylvania and federal law. The
Holding Company will consider exploring opportunities to use such
funds to expand operations through acquiring or establishing
additional branch offices or acquiring other financial
institutions. Currently, there are no specific plans,
arrangements, agreements or understandings, written or oral,
regarding any diversification activities. See "Use of Proceeds."
Market for Common Stock
The Holding Company has never issued capital stock to the
public and, consequently, there is no existing market for the
Common Stock. The Holding Company has received conditional
approval to have the Common Stock listed on the Nasdaq National
Market under the symbol "PSBI" (the current symbol for the Public
Savings Bank Shares, which are traded on the OTC Bulletin Board).
KB&W has agreed to act as a market maker for the Common Stock
following consummation of the Conversion and Reorganization. No
assurance can be given that an active and liquid trading market
for the Common Stock will develop or, if developed, will be
maintained. Further, no assurance can be given that purchasers
will be able to sell their shares at or above the Purchase Price
after the Conversion and Reorganization. See "RISK FACTORS --
Absence of Prior Market for the Common Stock" and "MARKET FOR
COMMON STOCK."
Dividend Policy
The Savings Bank is not currently paying dividends.
Following consummation of the Conversion and Reorganization, the
Holding Company's Board of Directors will consider adopting a
policy of paying regular cash dividends on the Common Stock.
Declarations of dividends (regular and special) by the Holding
Company's Board of Directors will depend upon a number of
factors, including the amount of the net proceeds from the
Conversion Offerings retained by the Holding Company, investment
opportunities available to the Holding Company or the Savings
Bank, capital requirements, regulatory limitations, the Holding
Company's and the Savings Bank's financial condition and results
of operations, tax considerations, capital requirements, industry
standards, economic conditions, and other factors, including the
regulatory restrictions that affect the payment of dividends by
the Savings Bank to the Holding Company. Consequently, there can
be no assurance that any dividends will be paid on the Common
Stock or that if paid, such dividends will not be reduced or
eliminated in future periods. See "DIVIDEND POLICY."
Officers' and Directors' Common Stock Purchases and Beneficial
Ownership
At June 30, 1997, officers and trustees of the Savings Bank
(thirteen persons) beneficially owned 272,182 shares of Savings
Bank Common Stock. See "MANAGEMENT OF THE SAVINGS BANK --
Beneficial Owners of Savings Bank Common Stock." In addition to
an aggregate of 493,548 Exchange Shares to be received by
officers and trustees of the Savings Bank in the Exchange
Offering based on an Exchange Ratio of 1.8133, officers and
trustees are expected to subscribe for an aggregate of
approximately __________ Conversion Shares, or ________________
of the shares based on both the minimum and the maximum of the
Estimated Valuation Range, respectively. See "COMMON STOCK TO BE
PURCHASED OR RECEIVED BY MANAGEMENT" and "RISK FACTORS -- Anti-
takeover Considerations -- Voting Control by Insiders."
Risk Factors
See "RISK FACTORS" for a discussion of certain risks related
to the Conversion and Reorganization that should be considered by
all prospective investors.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth certain information
concerning the consolidated financial position and results of
operations of the Savings Bank and its subsidiaries at the dates
and for the periods indicated. This information is qualified in
its entirety by reference to the detailed information contained
in the Consolidated Financial Statements and Notes thereto
presented elsewhere in this Prospectus. After the end of the
Savings Bank's fiscal year ended September 30, 1995, the Savings
Bank elected to change its fiscal year end to December 31.
<TABLE>
<CAPTION>
At or for the At or for the
six months ended year ended At or for the year ended
June 30, December 31, September 30,
1997 1996 1996 1995 1994 1993 1992
(unaudited) (Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $124,298 $120,703 $118,434 $113,232 $99,696 $96,261 $91,255
Cash and cash equivalents 29,024 34,752 31,622 29,777 21,371 30,680 33,620
Total loans net 62,140 56,268 57,183 52,253 51,097 52,816 48,863
Investment securities 22,543 18,418 18,973 22,064 16,362 3,209 1,050
Mortgage-backed securities 5,718 6,284 5,942 5,578 7,382 6,289 5,126
Deposits 104,437 102,427 100,574 94,588 89,429 85,804 81,858
Retained earnings (1)
and shareholders' equity 14,526 14,151 14,168 9,491 8,339 8,304 7,376
Book value per share 12.16 12.06 11.94 - - - -
SUMMARY STATEMENT OF OPERATIONS:
Interest income 4,223 3,867 7,939 7,190 6,714 6,543 6,675
Interest expense 2,184 2,027 4,082 3,443 3,045 3,160 4,030
Net interest income 2,039 1,840 3,857 3,747 3,669 3,383 2,645
Provision for possible loan losses -- -- 133 27 21 - 24
Net interest income after
provision for loan losses 2,039 1,840 3,724 3,720 3,648 3,383 2,621
Noninterest income 569 509 1,015 956 674 1,018 1,120
Noninterest expense 2,081 1,639 4,399 3,584 3,211 2,899 2,570
Income before income taxes 527 710 340 1,092 1,111 1,502 1,171
Income tax provision 166 232 201 433 470 610 498
Cumulative effect of prior years of
a change in accounting principle -- -- - - - 36 -
Net income (2) $ 361 $ 478 $ 139 $ 659 $ 641 $ 928 $ 673
Earnings per share(3) $ 0.30 $ 0.41 $ 0.12 $ - $ - $ - $ -
PERFORMANCE RATIOS:
Return on average assets 0.30% 0.41% 0.12% 0.60% 0.63% 1.08% 0.76%
Return on average equity 2.51% 3.39% 0.98% 6.94% 7.24% 11.42% 9.17%
Interest rate spread 3.00% 2.66% 2.88% 3.24% 3.61% 3.55% 2.77%
ASSET QUALITY RATIOS:
Nonperforming loans to total loans 4.63% 4.67% 4.84% 4.41% 4.20% 2.85% 3.71%
Nonperforming assets to total assets 2.70% 2.56% 2.74% 2.47% 2.49% 2.07% 2.53%
Allowance for loan losses to total loans 0.33% 0.37% 0.36% 0.39% 0.41% 0.35% 0.38%
Allowance for loan losses to
nonperforming loans 7.18% 7.82% 7.45% 8.91% 9.65% 12.38% 10.28%
Allowance for loan losses to
nonperforming assets 6.18% 6.69% 6.38% 7.38% 8.37% 9.36% 9.43%
Net charge-offs as a percentage of
total loans - - 0.23% 0.05% - - -
Loans past due 90 days or more as to
interest or principal and accruing
interest 1,461 1,993 2,009 1,645 1,565 1,417 1,167
Nonaccrual loans 1,424 667 770 607 770 738 344
Total nonperforming loans 2,885 2,660 2,779 2,335 2,155 1,511 1,819
Real estate owned (REO) 467 449 465 482 330 486 486
Total nonperforming assets 3,352 3,109 3,244 2,817 2,485 1,997 2,305
<FN>
(1)Includes only retained earnings prior to the MHC Reorganization completed on October 20, 1995.
(2)The Savings Bank was assessed a one-time fee of $567,000 in 1996 to recapitalize the SAIF.
(3)Represents earnings per share for the Savings Bank.
</TABLE>
<PAGE>
RISK FACTORS
Before investing in shares of the Common Stock offered
hereby, prospective investors should carefully consider the Risk
Factors presented below, in addition to matters discussed
elsewhere in this Prospectus.
Ability to Execute Strategy; Cost of Expansion
The Savings Bank's business strategy is to maintain its core
customer base in South Philadelphia and to expand its market to
include other segments of the metropolitan Philadelphia market.
As a component of the Savings Bank's regional expansion strategy,
the Savings Bank intends to continue its expansion of and develop
nonresidential real estate lending, commercial lending, and
mortgage banking operations throughout the metropolitan
Philadelphia area and the adjacent counties in Pennsylvania, New
Jersey and Delaware.
The Savings Bank's expansion strategy, including its
mortgage banking activities, has materially increased operating
expenses associated with leasing additional office space, related
equipment expense and salary and benefit expenses for additional
personnel, and operating expenses are expected to continue to
increase. Increased revenues from the expansion of the Savings
Bank's territory and services has and will continue to lag behind
the expenses incurred by implementing the expansion strategy for
the foreseeable future. Purchasers should be aware that this
expansion strategy will adversely affect the Savings Bank's
earnings and earnings per share. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
Business Strategy."
Commercial Lending; Nonresidential Loans
In addition to the increased expenses of the Savings Bank's
expansion strategy, there are risks attendant to adding
nonresidential real estate lending and commercial lending to the
business of the Savings Bank. Commercial loans are generally
more interest rate sensitive and carry higher yields than do
residential loans, and are generally believed to carry a higher
level of credit risk than do residential loans. In addition,
nonresidential loans are generally more expensive to administer
than are residential loans.
The nonresidential real estate lending that the Savings Bank
engages in typically involves larger loans to a single obligor
and is generally viewed as exposing the lender to a greater risk
of loss than residential one-to-four family lending.
Nonresidential real estate property values are also generally
subject to greater volatility than residential property values.
The liquidation values of commercial properties may be adversely
affected by risks generally incident to interests in real
property, including changes or continued weakness in general or
local economic conditions and/or specific industry segments;
declines in real estate values; declines in rental, room or
occupancy rates; increases in interest rates, real estate and
personal property tax rates and other operating expenses
(including energy costs); the availability of refinancing;
changes in governmental rules, regulations and fiscal policies,
including rent control ordinances, environmental legislation and
taxation; and other factors beyond the control of the borrower or
the lender. It should also be noted that the resale market for
nonresidential real estate loans is less liquid than the well
established secondary market for residential real estate loans,
which could result in the Savings Bank recognizing losses upon
any such sales. For a more detailed discussion of the specific
characteristics of the Savings Bank's real estate loan portfolio,
see "BUSINESS -- Business of the Savings Bank -- Lending
Activities."
Mortgage Banking
Through its subsidiary, TNMC, the Savings Bank has conducted
a mortgage banking operation since 1989. Mortgage banking
consists primarily of the origination, purchase, sale and
servicing of first mortgage loans secured by one- to four-family
homes. Such loans are sold either as individual loans, as
mortgage-backed securities, or as participation certificates
issued or guaranteed by FNMA or FHLMC.
Because mortgage originations fluctuate significantly with
the level of interest rates and other economic conditions,
mortgage banking revenues are very cyclical. In addition,
mortgage banking entails certain different and sometimes greater
risks than the risks borne by a portfolio lender such as the
Savings Bank. To the extent TNMC revenues and profits become a
significant component of the Savings Bank's consolidated revenues
and net income, which is currently planned, an investor should be
aware that earnings of the Savings Bank could fluctuate
materially.
Interest Rate Risk
Like all financial institutions, the Savings Bank's
financial condition and results of operations are influenced
significantly by general economic conditions, the related
monetary and fiscal policies of the federal government and
government regulations. Deposit flows and the cost of funds are
influenced by interest rates of competing investments and general
market interest rates. Lending activities are affected by the
demand for mortgage financing and for consumer and other types of
loans, which in turn is affected by the interest rates at which
such financing may be offered and by other factors affecting the
supply of housing and the availability of funds. The Savings
Bank's profitability, like that of most financial institutions,
depends largely on its net interest income, which is the
difference between the interest income received from its
interest-earning assets and the interest expense incurred its
interest-bearing liabilities. The Savings Bank's results of
operations would be adversely affected by a material prolonged
increase in market interest rates. Changes in the level of
interest rates also affect the volume of loans originated or
purchased by the Savings Bank and, thus, the amount of loan and
commitment fees, as well as the market value of the Savings
Bank's investment securities and other interest-earning assets.
Changes in interest rates also can affect the average life of
loans. Decreases in interest rates may result in increased
prepayments of loans, as borrowers refinance to reduce borrowing
costs. Under these circumstances, the Savings Bank is subject to
reinvestment risk to the extent that it is not able to reinvest
such prepayments at rates that are comparable to the rates on the
maturing loans or securities. Moreover, volatility in interest
rates also can result in disintermediation, or the flow of funds
away from savings institutions into direct investments, such as
U.S. Government and corporate securities and other investment
vehicles that, because of the absence of federal insurance
premiums and reserve requirements, generally pay higher rates of
return than savings institutions.
Competition
The Savings Bank has faced, and will continue to face,
strong competition both in making loans and attracting deposits.
The Savings Bank's primary market has a high concentration of
financial institutions, many of which are branches of large bank
holding companies that have greater financial resources than the
Savings Bank and all of which compete with the Savings Bank in
varying degrees. Competition for loans principally comes from
commercial banks, thrift institutions, credit unions and mortgage
banking companies. Historically, commercial banks, thrift
institutions and credit unions have been the Savings Bank's most
direct competition for deposits. The Savings Bank also competes
with short-term money market mutual funds and with other
financial institutions, such as brokerage firms and insurance
companies, for deposits. In competing for loans, the Savings
Bank may be forced to offer lower loan interest rates
periodically. Conversely, in competing for deposits, the Savings
Bank may be forced to offer higher deposit interest rates
periodically. Either case or both cases could adversely affect
net interest income. See "BUSINESS OF THE SAVINGS BANK --
Competition."
Dependence Upon Key Personnel
The success of the Savings Bank and the Holding Company will
depend heavily on the expertise and guidance of the Chief
Executive Officer and Chairman of the Board of the Holding
Company and the Savings Bank, Vincent J. Fumo, and the President
and Chief Operating Officer of the Holding Company and the
Savings Bank, Anthony DiSandro, as well as certain other senior
executive officers. The loss of the services of any of these key
individuals would have a material adverse effect on the Savings
Bank and the Holding Company. Neither the Savings Bank nor the
Holding Company maintains key-man life insurance with respect to
any of these individuals. See "MANAGEMENT."
Return on Equity After Conversion and Reorganization
Return on equity (net income for a given period divided by
average equity during that period) is a ratio used by many
investors to compare the performance of a particular financial
institution to its peers. The Savings Bank's return on equity
for the six months ended June 30, 1997 was 2.51% and for year
ended December 31, 1996 it was .98% and the Holding Company's
post-Conversion and Reorganization return on equity will be less
than the average return on equity for publicly traded thrift
institutions and their holding companies. In order for the
Holding Company to achieve a return on equity comparable to the
return on equity of other publicly traded companies, the Savings
Bank will have to materially increase net income or reduce
shareholders' equity, or both, commensurate with the increase in
equity resulting from the Conversion and Reorganization.
Reductions in equity could be achieved by, among other things,
the payment of regular or special cash dividends (although no
assurances can be given as to their payment or, if paid, their
amount and frequency), the repurchase of shares of Common Stock
subject to applicable regulatory restrictions, or the acquisition
of branch offices, other financial institutions or related
businesses (neither the Holding Company nor the Savings Bank has
any present plans, arrangements, or understandings, written or
oral, regarding any repurchase or acquisitions). See "DIVIDEND
POLICY" and "USE OF PROCEEDS." Achievement of increased net
income levels will depend on several important factors outside
management's control, such as general economic conditions,
including the level of market interest rates, competition and
related factors, among others. In addition, the expenses
associated with the ESOP and the 1997 MRP (see "-- New Expenses
Associated with ESOP and 1997 MRP"), along with other
post-Conversion and Reorganization expenses are expected to
contribute initially to reduced earnings levels. Subject to
market conditions, initially the Savings Bank intends to deploy
the net proceeds of the Conversion Offerings to support its
lending activities to increase earnings per share and book value
per share, with the goal of achieving a return on equity
comparable to the average for publicly traded thrift institutions
and their holding companies. This goal will likely take a number
of years to achieve and no assurances can be given that this goal
can be attained. Consequently, for the foreseeable future,
investors should not expect a return on equity that will meet or
exceed the average return on equity for publicly traded thrift
institutions.
<PAGE>
Expenses Associated With ESOP and 1997 MRP
The Savings Bank will recognize material employee
compensation and benefit expenses assuming the ESOP and the 1997
MRP are implemented. The amount of these new expenses cannot be
predicted because applicable accounting practices require that
they be based on the fair market value of the shares of Common
Stock when the expenses are recognized. Such expenses are
recognized when shares are committed to be released in the case
of the ESOP and over the vesting period of awards made to
recipients in the case of the 1997 MRP. These expenses have been
reflected in the pro forma financial information under "PRO FORMA
DATA" assuming the Purchase Price as fair market value. Actual
expenses, however, will be based on the fair market value of the
Common Stock at the time of recognition, which may be higher or
lower than the Purchase Price. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
Impact of Accounting Pronouncements and Regulatory Policies --
Accounting for Employee Stock Ownership Plans," "- Accounting for
Stock-Based Compensation," "MANAGEMENT -- Management of the
Savings Bank -- Benefits -- Employee Stock Ownership Plan" and
"-- Benefits -- Management Recognition Plan."
Certain Anti-takeover Provisions
The Holding Company's Articles of Incorporation and Bylaws
contain certain provisions that may have the effect of
discouraging a non-negotiated tender or exchange offer for the
Common Stock, a proxy contest for control of the Holding Company,
the assumption of control of the Holding Company by a holder of a
large block of Common Stock or the removal of the Holding
Company's management, all of which certain shareholders might
deem to be in their best interests. These provisions include,
among other things (i) the classification of the terms of the
members of the Board of Directors, (ii) supermajority provisions
for the approval of certain business combinations and amendments
of the Articles of Incorporation or Bylaws of the Holding
Company, and (iii) elimination of cumulative voting in the
election of directors. The provisions in the Holding Company's
Articles of Incorporation requiring a supermajority vote for the
approval of certain business combinations provide that the
supermajority voting requirements and voting restrictions do not
apply to business combinations meeting the Holding Company's
Board of Director approval requirements. The Holding Company's
Articles of Incorporation also authorize the issuance of
5,000,000 shares of preferred stock as well as 15,000,000 shares
of Common Stock. These shares could be issued without
shareholder approval on terms or in circumstances that could
deter a future takeover attempt.
In addition, the PBCL provides for certain restrictions on
acquisition of the Holding Company.
The Holding Company's Articles of Incorporation and Bylaws
and statutory provisions, as well as certain other provisions of
state and federal law, may have the effect of discouraging or
preventing a future takeover attempt not supported by the Holding
Company's Board of Directors in which shareholders of the Holding
Company otherwise might receive a substantial premium for
their shares over then-current market prices. For a detailed
discussion of those provisions, see "MANAGEMENT -- Certain
Benefits Plans and Agreements," "CERTAIN RESTRICTIONS ON
ACQUISITION OF THE HOLDING COMPANY," "CERTAIN ANTI-TAKEOVER
PROVISIONS IN THE ARTICLES OF INCORPORATION AND BYLAWS" AND
"DESCRIPTION OF CAPITAL STOCK."
Voting Control by Insiders. In addition to an aggregate of
493,548 Exchange Shares to be received by trustees or directors,
as the case may be, and officers of the Savings Bank and the
Holding Company in the Exchange Offering based on an Exchange
Ratio of 1.8133, directors and officers expect to subscribe for
__________ Conversion Shares. Directors and officers are also
expected to control indirectly the voting of approximately 8% of
the shares of Common Stock issued in the Conversion and
Reorganization to the ESOP. Under the terms of the ESOP, the
unallocated shares will be voted by the ESOP trustees in the same
proportion as the votes cast by participants with respect to the
allocated shares. Mr. Fumo and Mr. DiSandro serve as the ESOP
trustees.
At a meeting of shareholders to be held no earlier than six
months following the consummation of the Conversion and
Reorganization, the Holding Company expects to seek approval of
the 1997 MRP. The Holding Company expects to acquire Common
Stock on behalf of the 1997 MRP in an amount equal to 4% of the
Common Stock issued in the Conversion and Reorganization, or
38,760 and 52,440 Conversion Shares at the minimum and the
maximum of the Estimated Valuation Range, respectively.
These shares will be acquired either through open market
purchases or from authorized but unissued shares of Common Stock.
In addition, the Holding Company intends to reserve for future
issuance pursuant to the 1997 Stock Option Plan a number of
authorized shares of Common Stock equal to 10% of the Conversion
Shares issued in the Conversion and Reorganization (96,900 and
131,100 Conversion Shares at the minimum and the maximum of the
Estimated Valuation Range, respectively). The Holding Company
also intends to seek approval of the 1997 Stock Option Plan at a
meeting of shareholders to be held no earlier than six months
following the consummation of the Conversion and Reorganization.
Assuming (i) the receipt of Exchange Shares and the purchase
of Conversion Shares by the directors and officers described
above, (ii) the implementation of the 1997 MRP and the 1997 Stock
Option Plan, (iii) the open market purchase of shares on behalf
of the 1997 MRP, (iv) the purchase by the ESOP of 8% of the
Conversion Shares sold in the Conversion Offerings, and (v) the
grant of stock options equal to 10% of the number of shares of
Conversion Shares issued in the Conversion and Reorganization,
directors, officers and employees of the Holding Company and the
Savings Bank would have voting control, on a fully diluted basis,
of _____% and ___% of the Common Stock, based on the issuance of
the minimum and maximum of the Estimated Valuation Range,
respectively. Management's potential voting control might
preclude or make more difficult takeover attempts that certain
shareholders may deem to be in their best interest and might tend
to perpetuate existing management.
Provisions of Employment and Severance Agreements and
Severance Plan. The employment agreements of Vincent J. Fumo and
Anthony DiSandro provide for cash severance payments and/or the
continuation of health, life and disability benefits in the event
of their termination of employment following a change in control
of the Holding Company or the Savings Bank. Assuming a change of
control occurred as of December 31, 1997, the aggregate value of
the severance benefits available to these executive officers
under the agreements would have been approximately $4.6 million
excluding the value of health insurance, life insurance and
disability benefits. These agreements and plans may have the
effect of increasing the costs of acquiring the Holding Company,
thereby discouraging future attempts to take over the Holding
Company or the Savings Bank. See "MANAGEMENT -- Management of
the Savings Bank -- Benefits," "RESTRICTIONS ON ACQUISITION OF
THE HOLDING COMPANY" and "DESCRIPTION OF CAPITAL STOCK OF THE
HOLDING COMPANY."
Possible Dilutive Effect of Benefit Programs
The 1997 MRP intends to acquire an amount of Common Stock
equal to 4% of the Conversion Shares issued in the Conversion and
Reorganization. Such shares of Common Stock may be acquired by
the Holding Company in the open market or from authorized but
unissued shares of Common Stock. If the 1997 MRP acquires
authorized but unissued shares of Common Stock from the Holding
Company, the voting interests of existing shareholders will be
diluted and net income per share and shareholders' equity per
share will be decreased. See "PRO FORMA DATA" and "MANAGEMENT --
Management of the Savings Bank -- Benefits - Management
Recognition Plan." The 1997 MRP is subject to approval by the
Holding Company's shareholders.
The 1997 Stock Option Plan will provide for options to
acquire up to a number of shares of Common Stock of the Holding
Company equal to 10% of the Conversion Shares issued in the
Conversion and Reorganization. Upon exercise of the options,
Shares may be issued from authorized but unissued shares and this
will result in the dilution of the voting interests of existing
shareholders and may decrease net income per share and
shareholders' equity per share. See "MANAGEMENT -- Management
of the Savings Bank -- Benefits -- 1997 Stock Option Plan." The
1997 Stock Option Plan is subject to approval by the Holding
Company's shareholders.
The Savings Bank maintains a 1995 Stock Option Plan that was
implemented in connection with the MHC Reorganization. As of the
date of this Prospectus, no shares of Savings Bank Common Stock
remain reserved for issuance under the 1995 Stock Option Plan and
options for 35,859 shares have been granted to optionees but
remain unexercised. Upon consummation of the Conversion and
Reorganization, the 1995 Stock Option Plan will be assumed by the
Holding Company and shares of Common Stock will be issued in lieu
of shares of Savings Bank Common Stock pursuant to the terms of
the 1995 Stock Option Plan.
If the ESOP is not able to purchase 8% of the shares of
Conversion Shares issued in the Conversion Offerings, the ESOP
may acquire newly issued shares from the Holding Company. In
such event, the voting interests of existing shareholders will be
diluted and net income per share and shareholders' equity per
share will be decreased. See "MANAGEMENT -- Management of the
Savings Bank - Benefits -- Employee Stock Ownership Plan."
Absence of Prior Market for the Common Stock
The Holding Company has never issued capital stock and,
consequently, there is no existing market for the Common Stock.
Prior to the Conversion and Reorganization, the Public Savings
Bank Shares have been traded on the OTC Bulletin Board under the
symbol "PSBI." [Although the Holding Company has received
conditional approval to list the Common Stock on the Nasdaq Stock
Market also under the symbol "PSBI," there can be no assurance
that an active and liquid market for the Common Stock will
develop or, if developed, will continue.] Furthermore, there can
be no assurance that purchasers will be able to sell their shares
at or above the Purchase Price. See "MARKET FOR COMMON STOCK."
Possible Increase in Estimated Valuation Range and Number
of shares Issued
The Estimated Valuation Range may be increased up to 15% to
reflect material changes in the financial condition or results of
operations of the Savings Bank, market conditions or general
financial, economic or regulatory conditions following the
commencement of the Conversion Offerings. If the Estimated
Valuation Range is increased, it is expected that the Holding
Company would increase the Estimated Price Range so that up to
1,507,650 Conversion Shares at the Purchase Price would be issued
for an aggregate price of up to $15,076,500. This increase in
the number of shares would decrease a subscriber's pro forma net
income per share and shareholders' equity per share, increase the
Holding Company's pro forma consolidated shareholders' equity and
net earnings, and increase the Purchase Price as a percentage of
pro forma shareholders' equity per share and net income per
share. See "PRO FORMA DATA."
Possible Adverse Income Tax Consequences of the Distribution of
Subscription Rights
If the Subscription Rights granted to Eligible Account
Holders and Supplemental Eligible Account Holders of the Savings
Bank are deemed to have an ascertainable value, receipt of such
rights may be a taxable event to those Eligible Account Holders
or Supplemental Eligible Account Holders who receive and/or
exercise the Subscription Rights. Additionally, the Savings Bank
could be required to recognize a gain for tax purposes on such
distribution. Whether Subscription Rights are considered to have
ascertainable value is an inherently factual determination. The
Savings Bank has been advised by RP Financial that such rights
have no value; however, RP Financial's conclusion is not binding
on the Internal Revenue Service ("IRS"). See "THE CONVERSION AND
REORGANIZATION -- Effects of Conversion and Reorganization on
Depositors and Borrowers of the Savings Bank -- Tax Effects."
<PAGE>
PSB BANCORP, INC.
The Holding Company was organized on October 3, 1997 under
the PBCL at the direction of the Savings Bank. The Holding
Company initially is a subsidiary of the Savings Bank but has
been formed to become the holding company for the Savings Bank
upon consummation of the Conversion and Reorganization. The
Holding Company has received conditional approval from the
Federal Reserve to become a bank holding company and acquire 100%
of the capital stock of the Savings Bank. Prior to the
Conversion and Reorganization, the Holding Company will not
engage in any material operations. After the Conversion and
Reorganization, the Holding Company will be subject to regulation
by the Federal Reserve, and its principal business will be the
ownership of the Savings Bank. Immediately following the
Conversion and Reorganization, the only significant assets of the
Holding Company will be the capital stock of the Savings Bank,
50% of the net proceeds of the Conversion Offerings and a note
receivable from the ESOP evidencing a loan to enable the ESOP to
purchase 8% of the Common Stock issued in the Conversion and
Reorganization. See "PRO FORMA DATA" and "BUSINESS -- Business
of the Holding Company."
The holding company structure will permit the Holding
Company to expand the financial services currently offered
through the Savings Bank. Management believes that the holding
company structure and retention of a portion of the proceeds of
the Conversion Offerings will facilitate the expansion and
diversification of its operations. The holding company structure
will also enable the Holding Company to repurchase its stock
without adverse tax consequences, subject to applicable
regulatory restrictions, including waiting periods. There are no
present plans, arrangements, agreements, or understandings,
written or oral, regarding any such activities or repurchases.
See "REGULATION -- Regulation of the Holding Company."
PENNSYLVANIA SAVINGS BANK
The Savings Bank is a Pennsylvania-chartered savings bank,
founded in 1923 and headquartered in Philadelphia, Pennsylvania.
The Savings Bank's deposits are insured by the FDIC up to
applicable legal limits under the BIF. The Savings Bank has been
a member of the FHLB system since 1937. The Savings Bank is
regulated by the PDOB and the FDIC. At June 30, 1997, the
Savings Bank had total assets of $124.3 million, total deposit
accounts of $104.4 million, and total shareholders' equity of
$14.5 million, on a consolidated basis.
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock offered
hereby are estimated to range from $9.22 million to $12.64
million, or up to $14.60 million if the Estimated Valuation Range
is increased by 15%. See "PRO FORMA DATA" for the assumptions
used to arrive at such amounts. The Holding Company has received
conditional Federal Reserve approval to purchase all of the
capital stock of the Savings Bank to be issued in the Conversion
and Reorganization in exchange for 50% of the net proceeds of the
Conversion Offerings. This will result in the Holding Company
retaining approximately $4.61 million to $6.32 million of net
proceeds, or up to $7.3 million if the Estimated Valuation Range
is increased by 15%. See "PRO FORMA DATA."
Receipt of 50% of the net proceeds of the sale of the
Conversion Shares will increase the Savings Bank's capital and
will support the expansion of the Savings Bank's existing
business activities. The Savings Bank will use the funds
contributed to it for general corporate purposes, including,
initially, lending and investment in short-term U.S. Government
and agency obligations.
In connection with the Conversion and Reorganization and the
ESOP, the Holding Company intends to loan the ESOP the amount
necessary to refinance the ESOP's existing third party loan used
to purchase shares of Savings Bank Common Stock in the MHC
Reorganization ($331,000 outstanding balance at June 30, 1997)
and to purchase 8% of the shares of Common Stock sold in the
Conversion Offerings ($6.05 million at the maximum of the
Estimated Valuation Range). The Holding Company's loan to fund
the ESOP's purchase of shares of Common Stock in the Conversion
Offerings may range from $387,600 to $524,400 based on the sale
of 38,760 Conversion Shares to the ESOP (at the minimum of the
Estimated Valuation Range) and 52,440 Conversion Shares (at the
maximum of the Estimated Valuation Range), respectively, at the
Purchase Price. If 15% above the maximum of the Estimated
Valuation Range, or 1,507,650 Conversion Shares, are sold in the
Conversion and Reorganization, the Holding Company's loan to the
ESOP would be approximately $1.2 million (based on the sale of
120,612 Conversion Shares to the ESOP). It is anticipated that
the ESOP loan will have a ten-year term with interest payable at
the prime rate as published in The Wall Street Journal on the
closing date of the Conversion and Reorganization. The loan will
be repaid principally from the Savings Bank's contributions to
the ESOP and from any dividends paid on shares of Common Stock
held by the ESOP.
The net proceeds retained by the Holding Company initially
will be invested primarily in short-term U.S. Government and
agency obligations or in a deposit account either at the Savings
Bank or another financial institution. Such proceeds will be
available for additional contributions to the Savings Bank in the
form of debt or equity, to support future diversification or
acquisition activities, as a source of dividends to the
shareholders of the Holding Company and for future repurchases of
Common Stock to the extent permitted under Pennsylvania law and
federal regulations. The Holding Company will consider exploring
opportunities to use such funds to expand operations through
acquiring or establishing additional branch offices or acquiring
other financial institutions. Currently, there are no specific
plans, arrangements, agreements or understandings, written or
oral, regarding any diversification activities.
Following consummation of the Conversion and Reorganization,
the Holding Company's Board of Directors will have the authority
to adopt plans for repurchases of Common Stock, subject to
statutory and regulatory requirements. Facts and circumstances
upon which the Holding Company's Board of Directors may determine
to repurchase stock in the future would include but are not
limited to: (i) market and economic factors such as the price at
which the Common Stock is trading in the market, the volume of
trading, the attractiveness of other investment alternatives, the
ability to increase the book value and/or earnings per share of
the remaining outstanding shares, and the ability to improve the
Holding Company's return on equity; (ii) the avoidance of
dilution to shareholders by not issuing additional shares to
cover the exercise of stock options or to fund employee stock
benefit plans; and (iii) any other circumstances in which
repurchases would be in the best interests of the Holding Company
and its shareholders. Any stock repurchases will be subject to a
determination by the Holding Company's Board of Directors that
both the Holding Company and the Savings Bank will be capitalized
in excess of all applicable regulatory requirements and tax and
other regulatory considerations. For a discussion of the
regulatory limitations applicable to stock repurchases and
current Federal Reserve and FDIC policy with respect thereto, see
"THE CONVERSION AND REORGANIZATION -- Restrictions on Repurchase
of Stock."
DIVIDEND POLICY
General
The Savings Bank currently does not pay dividends. Upon
completion of the Conversion and Reorganization, the Holding
Company's Board of Directors will have the authority to declare
dividends on the Common Stock, subject to statutory and
regulatory requirements. Following consummation of the
Conversion and Reorganization, the Board of Directors of the
Holding Company will consider adopting a policy of paying regular
cash dividends on the Common Stock. In addition, the Board of
Directors may determine to pay periodic special cash dividends in
addition to, or in lieu of, regular cash dividends. Declarations
or payments of any dividends (regular and special) will be
subject to determination by the Board of Directors, which will
take into account the amount of the net proceeds retained by the
Holding Company, the Holding Company's and the Savings Bank's
financial condition and results of operations, investment
opportunities available to the Holding Company or the Savings
Bank, tax considerations, capital requirements, industry
standards, economic conditions and other factors, including the
regulatory restrictions that affect the payment of dividends by
the Savings Bank to the Holding Company. See "Regulation of the
Holding Company -- Restrictions on Dividends." No assurances can
be given that any dividends, either regular or special, will be
declared or, if declared, what the amount of dividends will be or
whether such dividends, if commenced, will continue.
MARKET FOR COMMON STOCK
The Holding Company has never issued capital stock and,
consequently, there is no existing market for the Common Stock.
[Although the Holding Company has received conditional approval
to list the Common Stock on the Nasdaq National Market under the
symbol "PSBI," there can be no assurance that the Holding Company
will meet Nasdaq National Market listing requirements, which
include market capitalization, at least three market makers and a
minimum number of record holders.] KB&W has agreed to make a
market for the Common Stock following consummation of the
Conversion and Reorganization and will assist the Holding Company
in seeking to encourage at least one additional market maker to
establish and maintain a market in the Common Stock. Making a
market involves maintaining bid and ask quotations and being
able, as principal, to effect transactions in reasonable
quantities at those quoted prices, subject to various securities
laws and other regulatory requirements. The Holding Company
anticipates that prior to the completion of the Conversion and
Reorganization it will be able to obtain the commitment from at
least two additional broker-dealers to act as market makers for
the Common Stock. Additionally, the development of a liquid
public market depends on the existence of willing buyers and
sellers, the presence of which is not within the control of the
Holding Company, the Savings Bank or any market maker. There can
be no assurance that an active and liquid trading market for the
Common Stock will develop or that, if developed, it will
continue. The number of active buyers and sellers of the Common
Stock at any particular time may be limited. Under such
circumstances, investors in the Common Stock could have
difficulty disposing of their shares on short notice and should
not view the Common Stock as a short-term investment.
Furthermore, there can be no assurance that purchasers will be
able to sell their shares at or above the Purchase Price.
Since the MHC Reorganization the Public Savings Bank Shares
have been traded on the OTC Bulletin Board under the symbol
"PSBI." The following table sets forth the high and low trading
prices, as reported by the OTC Bulletin Board, and cash dividends
paid for each quarter during the 1996 and 1997 fiscal years.
However, there is no relation between the Purchase Price of the
Common Stock and the trading prices of the Savings Bank Shares.<PAGE>
Cash
Dividend
Fiscal Year Ended December 31, 1995 High Low Declared
Quarter Ended December 31, 1995 $12.50 $11.25 $ 0
Fiscal Year Ended December 31, 1996
Quarter Ended March 31, 1996 $12.38 $11.50 $ 0
Quarter Ended June 30, 1996 11.63 11.00 0.0375
Quarter Ended September 30, 1996 11.75 10.50 0
Quarter Ended December 31, 1996 13.75 13.00 0
Fiscal Year Ended December 31, 1997
Quarter Ended March 31, 1997 $15.00 $14.00 $ 0
Quarter Ended June 30, 1997 15.00 13.00 0
Quarter Ended September 30, 1997 25.00 14.50 0
CAPITALIZATION
The following table presents the historical capitalization
of the Savings Bank at June 30, 1997, and the pro forma
consolidated capitalization of the Holding Company after giving
effect to the assumptions set forth under "PRO FORMA DATA," based
on the sale of the number of shares of Common Stock at the
minimum, midpoint, maximum and maximum, as adjusted, of the
Estimated Valuation Range. The shares that would be issued at
the maximum, as adjusted, of the Estimated Valuation Range would
be subject to receipt of PDOB and FDIC approval of an updated
appraisal confirming such valuation. A change in the number
of shares to be issued in the Conversion and Reorganization would
materially affect pro forma consolidated capitalization.
<TABLE>
<CAPTION>
Holding Company Pro Forma Consolidated Capitalization
Based Upon the Sale of
Capitalization 969,000 1,140,000 1,311,000 1,507,650
of Savings Bank shares at shares at shares at shares at
at $10.00 $10.00 $10.00 $10.00
June 30, 1997 Per Share(1) Per Share(1) Per Share(1) Per Share(2)
(In thousands)
<S> <C> <C> <C> <C>
Deposits(3) $104,437 $104,437 $104,437 $104,437 $104,437
Borrowings -- -- -- -- --
Total deposits
and borrowed funds $104,437 $104,437 $104,437 $104,437 $104,437
======== ======== ======== ======== ========
Shareholders' equity:
Savings Bank Common
Stock:
10,000,000 shares,
$1.00 par value per
share authorized;
1,194,640 issued
or outstanding $ 1,194 $ 0 $ 0 $ 0 $ 0
Common Stock:
15,000,000 shares,
No par value per
share, authorized;
specified number
of shares assumed
to be issued and
outstanding(4) -- -- -- -- --
Additional paid-in
capital 13,563 23,972 25,682 27,392 29,359
Retained earnings(5) 199 443 443 443 443
Unrealized loss on
securities available-
for-sale, net of tax (99) (99) (99) (99) (99)
Less:
Common Stock acquired
by ESOP(6) (331) (1,106) (1,243) (1,380) (1,537)
Common Stock to be
acquired by 1997
MRP(7) 0 (388) (456) (524) (603)
Total shareholders' equity $14,526 $22,822 $24,327 $25,832 $27,563
======= ======= ======== ======== ========
</TABLE>
____________________
(1)Does not reflect the possible increase in the Estimated
Valuation Range or the issuance of additional shares under
the 1997 Stock Option Plan.
(2)Represents the pro forma capitalization of the Holding
Company if the aggregate number of Conversion Shares issued
in the Conversion and Reorganization is 15% above the
maximum of the Estimated Valuation Range. See "PRO FORMA
DATA."
(3)Withdrawals from deposit accounts for the purchase of
Conversion Shares are not reflected. Such withdrawals will
reduce pro forma deposits.
(4)The Savings Bank's authorized capital will consist solely of
10,000,000 shares of common stock, par value $1.00 per
share, 1,000 shares of which will be issued to the Holding
Company, and 5,000,000 shares of preferred stock, par value
to be determined by the Savings Bank's Board of Trustees,
none of which will be issued in connection with the
Conversion and Reorganization.
(5)Retained earnings are substantially restricted by applicable
regulatory capital requirements. Additionally, the Savings
Bank will be prohibited from paying any dividend that would
reduce its regulatory capital below the amount in the
liquidation account that will be established for the benefit
of Eligible Account Holders and Supplemental Eligible
Account Holders at the consummation of the Conversion and
Reorganization. See "THE CONVERSION AND REORGANIZATION --
Effects of Conversion and Reorganization on Depositors and
Borrowers of the Savings Bank -- Liquidation Account."
(6)Assumes that 8% of the Conversion Shares sold in the
Conversion and Reorganization will be acquired by the ESOP
with funds borrowed from the Holding Company. Under
generally accepted accounting principles ("GAAP"), the
amount of Conversion Shares to be purchased by the ESOP
represents unearned compensation and is, accordingly,
reflected as a reduction of capital. As shares are released
to ESOP participant accounts, a corresponding reduction in
the charge against capital will occur. Because the funds
are borrowed from the Holding Company, the borrowing will be
eliminated in consolidation and no liability will be
reflected in the consolidated financial statements of the
Holding Company. See "MANAGEMENT -- Management of the
Savings Bank -- Benefits -- Employee Stock Ownership Plan."
(7)Assumes the purchase in the open market at the Purchase
Price, pursuant to the proposed 1997 MRP, of a number
of shares equal to 4% of the shares of Conversion Shares
issued in the Conversion and Reorganization at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range. The issuance of such additional Conversion
Shares to the 1997 MRP from authorized but unissued shares
of Common Stock would dilute the ownership interest of
shareholders by 2.04%. The shares are reflected as a
reduction of shareholders' equity. See "RISK FACTORS --
Possible Dilutive Effect of Benefit Programs," "PRO FORMA
DATA" and "MANAGEMENT -- Management of the Savings Bank --
Benefits -- Management Recognition Plan." The 1997 MRP is
subject to shareholder approval, which is expected to be
sought at a meeting to be held no earlier than six months
following consummation of the Conversion and Reorganization.
<PAGE>
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
The following table presents the Savings Bank's
historical and pro forma capital position relative to its capital
requirements at June 30, 1997. The amount of capital infused
into the Savings Bank for purposes of the following table is 50%
of the net proceeds of the Conversion Offerings. For purpose of
the table below, the amount expected to be borrowed by the ESOP
and the cost of the shares expected to be acquired by the 1997
MRP are deducted from pro forma regulatory capital. For a
discussion of the assumptions underlying the pro forma capital
calculations presented below, see "USE OF PROCEEDS,"
CAPITALIZATION" and "PRO FORMA DATA." The definitions of the
terms used in the table are those provided in the FDIC capital
regulations as discussed under "REGULATION -- Regulation of the
Savings Bank -- Capital Requirements."
<TABLE>
<CAPTION>
PRO FORMA AT JUNE 30, 1997
15% Above
Minimum of Midpoint of Maximum of Maximum of
Estimated Estimated Estimated Estimated
Valuation Range Valuation Range Valuation Range Valuation Range
969,000 shares 1,140,000 shares 1,311,000 shares 1,507,650 shares
June 30, 1997 at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share
Percent Percent Percent Percent Percent
of of of of of
Adjusted Adjusted Adjusted Adjusted Adjusted
Total Total Total Total Total
Amount Assets(1) Amount Assets(1) Amount Assets(1) Amount Assets(1) Amount Assets(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital $14,526 13.86% $18,215 14.15% $18,865 14.56% $19,514 14.97% $20,262 15.44%
Leverage capital(2).. $14,617 13.97% $18,308 16.78% $18,956 17.25% $19,605 17.71% $20,353 18.24%
Leverage capital
requirement........ 6,280 6.00% 6,548 6.00% 6,595 6.00% 6,642 6.00% 6,696 6.00%
Excess............... $ 8,337 7.97% $11,758 10.78% $12,361 11.25% $12,963 11.71% $13,657 12.24%
Tier 1 risk-based
capital(3)......... $14,617 26.03% $18,306 32.09% $18,956 33.14% $19,606 34.18% $20,353 35.37%
Tier 1 capital
requirement(2)..... 2,246 4.00% 2,282 4.00% 2,288 4.00% 2,294 4.00% 2,302 4.00%
Excess............... $12,371 22.03% $16,024 28.09% $16,668 29.14% $17,311 30.18% $18,051 31.37%
Total risk-based
capital(4)......... $14,824 26.40% $18,513 32.46% $19,163 35.50% $19,812 34.54% $21,334 37.08%
Total risk-based
capital
requirement........ 4,492 8.00% 4,563 8.00% 4,576 8.00% 4,589 8.00% 4,603 8.00%
Excess............... $10,332 18.40% $13,950 24.46% $14,587 25.50% $15,223 26.54% $16,731 29.08%
</TABLE>
(1)Based upon historical total assets of the Savings Bank of
$124.3 million at June 30, 1997, and pro forma equity of
$23.15 million, $24.66 million, $26.16 million and
$27.89 million at the minimum, midpoint, maximum, and
maximum, as adjusted, of the Estimated Valuation Range,
respectively, for purposes of the leverage capital
requirement; and, for purposes of the risk-based capital
requirements, based upon historical risk-weighted assets of
$56.15 million at June 30, 1997 and $57.04 million,
$57.20 million, $57.36 million and of $57.54 million at the
minimum, midpoint, maximum, and maximum, as adjusted, of the
Estimated Valuation Range, respectively.
(2)The current FDIC leverage capital requirement for savings
banks is 6% of total adjusted assets.
(3)Percentage represents tier 1 capital divided by total risk-
weighted assets. Assumes net proceeds are invested in
assets that carry a 20% risk-weighting.
(4)Percentage represents total capital divided by total risk-
weighted assets. Assumes net proceeds are invested in
assets that carry a 20% risk-weighting.
<PAGE>
PRO FORMA DATA
Under the Plan of Conversion, the Conversion Shares
must be sold at an aggregate price equal to the estimated pro
forma market value of the MHC and the Savings Bank as determined
by an independent valuation and converted by multiplying the
Appraisal by the MHC's percentage interest in the Savings Bank
(51.5%). Based upon this calculation, the Estimated Valuation
Range as of September 19, 1997 is from a minimum of $9.69 million
to a maximum of $13.11 million with a midpoint of $11.40 million
or, at a price per share of $10.00, a minimum number of shares of
969,000, a maximum number of shares of 1,311,000 and a midpoint
number of shares of 1,140,000. The actual net proceeds from the
sale of the Conversion Shares cannot be determined until the
Conversion and Reorganization is completed. However, net
proceeds set forth in the following table are based upon the
following assumptions: (i) Webb will receive a fee not to exceed
$100,000 which consists of a $25,000 management fee and a success
fee of 1.5% of the aggregate Purchase Price of the Conversion
Shares sold in the Subscription and Direct Community Offerings
(see "THE CONVERSION AND REORGANIZATION -- Plan of Distribution
for the Subscription, the Direct Community and the Syndicated
Community Offerings); (ii) all of the Conversion Shares will be
sold in the Subscription and Direct Community Offerings; and
(iii) Conversion and Reorganization expenses, including the fees
paid to Webb, will total approximately $475,000 at each of the
minimum, midpoint, maximum and 15% above the Estimated Valuation
Range. Actual expenses may vary from this estimate, and the fees
paid will depend upon the percentages and total number of shares
sold in the Subscription, Direct Community and Syndicated
Community Offerings and other factors.
The pro forma consolidated net income of the Savings
Bank for the six months ended June 30, 1997 and for the year
ended December 31, 1996 has been calculated as if the Conversion
and Reorganization had been consummated at the beginning of each
period and the estimated net proceeds received by the Holding
Company and the Savings Bank had been invested at 5.88% and
5.83%, respectively, at the beginning of each period, which
represents the arithmetic average of the Savings Bank's yield on
interest-earning assets and interest-bearing deposits for the
year ended December 31, 1996 and for the six month period ended
June 30, 1997. As discussed under "USE OF PROCEEDS," the Holding
Company expects to retain 50% of the net proceeds of the
Conversion Offerings from which it will fund the ESOP loan. A
pro forma after-tax return of 3.88% and 3.85% is used for both
the Holding Company and the Savings Bank for the periods, after
giving effect to an incremental combined federal and state income
tax rate of 34.0%. Historical and pro forma per share amounts
have been calculated by dividing historical and pro forma amounts
by the number of shares of Common Stock indicated in the
footnotes to the table. Per share amounts have been computed as
if the Common Stock had been outstanding at the beginning of the
period or at December 31, 1996 or June 30, 1997, as applicable,
but without any adjustment of per share historical or pro forma
shareholders' equity to reflect the earnings on the estimated net
proceeds.
The following tables summarize the historical net
income and retained earnings of the Savings Bank and the pro
forma consolidated net income and shareholders' equity of the
Holding Company for the periods and at the date indicated, based
on the minimum, midpoint and maximum of the Estimated Valuation
Range and based on a 15% increase in the maximum of the Estimated
Valuation Range. No effect has been given to: (i) the shares to
be reserved for issuance under the 1997 Stock Option Plan, which
is expected to be voted upon by shareholders at a meeting to be
held no earlier than six months following consummation of the
Conversion and Reorganization; (ii) withdrawals from deposit
accounts for the purpose of purchasing Conversion Shares in the
Conversion Offerings; (iii) the issuance of shares from
authorized but unissued shares to the 1997 MRP, which is expected
to be voted upon by shareholders at a meeting to be held no
earlier than six months following consummation of the Conversion
and Reorganization; or (iv) the establishment of a liquidation
account for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders. See "MANAGEMENT OF THE
SAVINGS BANK -- Benefits -- 1997 Stock Option Plan" and "THE
CONVERSION AND REORGANIZATION -- Stock Pricing, Exchange Ratio
and Number of Shares Issued." Conversion Shares may be purchased
with funds on deposit at the Savings Bank, which will reduce
deposits by the amounts of such purchases. Accordingly, the net
amount of funds available for investment will be reduced by the
amount of deposit withdrawals used to fund such purchases.
The following pro forma information may not be
representative of the financial effects of the Conversion and
Reorganization at the date on which the Conversion and
Reorganization actually occurs and should not be taken as
indicative of future results of operations. Shareholders' equity
represents the difference between the stated amounts of
consolidated assets and liabilities of the Holding Company
computed according to GAAP. Shareholders' equity has not been
increased or decreased to reflect the difference between the
carrying value of loans and other assets and market value.
Shareholders' equity is not intended to represent fair market
value nor does it represent amounts that would be available for
distribution to shareholders in the event of liquidation.
<TABLE>
<CAPTION>
At or For the Six Month Period Ended June 30, 1997
15% Above
Minimum of Midpoint of Maximum of Maximum of
Estimated Estimated Estimated Estimated
Valuation Valuation Valuation Valuation
Range Range Range Range
969,000 1,140,000 1,311,000 1,507,650
shares shares shares shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share(1)
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds........... $ 9,690 $11,400 $13,110 $15,077
Less: estimated expenses. 475 475 475 475
Estimated net proceeds... 9,215 10,925 12,635 14,602
Less: Common Stock
acquired by ESOP....... (775) (912) (1,049) (1,206)
Less: Common Stock to be
acquired by 1997 MRP... (388) (456) (524) (603)
Add: Assets consolidated
from MHC............... 244 244 244 244
Net proceeds $ 8,296 $ 9,801 $11,306 $13,037
======= ======= ======= =======
Consolidated net income:
Historical............. $ 361 $ 361 $ 361 $ 361
Pro forma income on net
proceeds(2).......... 161 190 219 253
Pro forma ESOP
adjustments(3)....... (26) (30) (35) (40)
Pro forma 1997 MRP
adjustments(4)....... (26) (30) (35) (40)
Pro forma net income. $ 470 $ 491 $ 510 $ 534
======= ======= ======= =======
Consolidated net income
per share(5)(6):
Historical............. $ 0.20 $ 0.17 $ 0.15 $ 0.13
Pro forma income on net
proceeds............. 0.08 0.08 0.08 0.08
Pro forma ESOP
adjustments(3)....... (0.01) (0.01) (0.01) (0.01)
Pro forma 1997 MRP
adjustments(4)....... (0.01) (0.01) (0.01) (0.01)
Pro forma net income
per share.......... $ 0.26 $ 0.23 $ 0.21 $ 0.19
======= ======= ======= =======
Purchase Price as a
multiple of pro forma
net income per share(7) 19.23x 21.74x 23.81x 26.32x
Consolidated shareholders'
equity (book value):
Historical
combined(8)........... $14,770 $14,770 $14,770 $14,770
Estimated net proceeds. 9,215 10,925 12,635 14,602
Less: Common Stock
acquired by ESOP..... (775) (912) (1,049) (1,206)
Less: Common Stock to
be acquired by
1997 MRP(4).......... (388) (456) (524) (603)
Pro forma shareholders'
equity(9).......... $22,822 $24,327 $25,832 $27,563
======= ======= ======= =======
Consolidated shareholders'
equity per share(6)(10):
Historical(6)(7)....... $ 7.93 $ 6.74 $ 5.86 $ 5.10
Estimated net proceeds. 4.95 5.00 5.03 5.05
Less: Common Stock
acquired by ESOP..... (0.42) (0.42) (0.42) (0.42)
Less: Common Stock to
be acquired by 1997
MRP(4)............... (0.21) (0.21) (0.21) (0.21)
1997 Pro forma
shareholders' equity
per share(11)...... $ 12.25 $ 11.11 $10.26 $ 9.52
======= ======= ====== =======
Purchase Price as a
percentage of pro forma
shareholders' equity
per share............... 81.63% 90.01% 97.46% 105.42%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1996
15% Above
Minimum of Midpoint of Maximum of Maximum of
Estimated Estimated Estimated Estimated
Valuation Valuation Valuation Valuation
Range Range Range Range
969,000 1,140,000 1,311,000 1,507,650
shares shares shares shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share(1)
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds........... $ 9,690 $11,400 $13,110 $15,077
Less: estimated expenses. 475 475 475 475
Estimated net proceeds... 9,215 10,925 12,635 14,602
Less: Common Stock
acquired by ESOP....... (775) (912) (1,049) (1,206)
Less: Common Stock to be
acquired by 1997 MRP... (388) (456) (524) (603)
Add: Assets consolidated
from MHC............... 244 244 244 244
Net proceeds $ 8,296 $ 9,801 $11,306 $13,036
======= ======= ======= =======
Consolidated net income:
Historical............. $ 139 $ 139 $ 139 $ 139
Pro forma income on net
proceeds(2).......... 319 377 435 502
Pro forma ESOP
adjustments(3)....... (51) (60) (69) (80)
Pro forma 1997 MRP
adjustments(4)....... (51) (60) (69) (80)
Pro forma net income. $ 356 $ 618 $ 658 $ 703
======= ======= ======= =======
Consolidated net income
per share(5)(6):
Historical............. $ 0.08 $ 0.07 $ 0.06 $ 0.05
Pro forma income on net
proceeds............. 0.18 0.18 0.18 0.18
Pro forma ESOP
adjustments(3)....... (0.03) (0.03) (0.03) (0.03)
Pro forma 1997 MRP
adjustments(4)....... (0.03) (0.03) (0.03) (0.03)
Pro forma net income
per share.......... $ 0.20 $ 0.19 $ 0.18 $ 0.17
======= ======= ======= =======
Purchase Price as a
multiple of pro forma
net income per share(7) 50.00x 52.63x 55.56x 58.82x
Consolidated shareholders'
equity (book value):
Historical(8)...........$14,412 $14,412 $14,412 $14,412
Estimated net proceeds. 9,215 10,925 12,635 14,602
Less: Common Stock
acquired by ESOP..... (775) (912) (1,049) (1,206)
Less: Common Stock to
be acquired by
1997 MRP(4).......... (388) (456) (524) (603)
Pro forma shareholders'
equity(9)............ $22,464 $23,969 $25,474 $27,205
======= ======= ======= =======
Consolidated shareholders'
equity per share(6)(10):
Historical
combined(6)(7)......... $ 7.74 $ 6.58 $ 5.72 $ 4.97
Estimated net proceeds. 4.96 4.99 5.02 5.04
Less: Common Stock
acquired by ESOP..... (0.42) (0.42) (0.42) (0.42)
Less: Common Stock to
be acquired by
1997 MRP(4).......... (0.21) (0.21) (0.21) (0.21)
1997 Pro forma
shareholders'
equity(11)........... $ 12.07 $ 10.94 $ 10.11 $ 9.38
======= ======= ======= ======
Purchase Price as a
percentage of pro forma
shareholders' equity
per share............... 82.85% 91.41% 97.83% 106.61%
</TABLE>
(1)Gives effect to the sale of an additional 196,650 Conversion
Shares in the Conversion and Reorganization, which may be
issued to cover an increase in the pro forma market value of
the MHC and the Savings Bank, as converted, without the
resolicitation of subscribers or any right of cancellation.
The issuance of such additional shares will be conditioned
on a determination by RP Financial that such issuance is
compatible with its determination of the estimated pro forma
market value of the MHC and the Savings Bank, as converted.
See "THE CONVERSION AND REORGANIZATION -- Stock Pricing,
Exchange Ratio and Number of Shares to be Issued."
(2)No effect has been given to withdrawals from savings
accounts for the purpose of purchasing Conversion Shares.
Because funds on deposit at the Savings Bank may be
withdrawn to purchase shares of Common Stock (which will
reduce deposits by the amount of such purchases), the net
amount of funds available to the Savings Bank for investment
following receipt of the net proceeds of the Conversion
Offerings will be reduced by the amount of such withdrawals.
(3)It is assumed that 8% of the Conversion Shares issued in the
Conversion and Reorganization will be purchased by the ESOP.
The funds used to acquire such shares will be borrowed by
the ESOP (at an interest rate equal to the prime rate as
published in The Wall Street Journal on the closing date of
the Conversion and Reorganization) from the net proceeds
from the Conversion Offerings retained by the Holding
Company. The amount of this borrowing has been reflected as
a reduction from gross proceeds to determine estimated net
investable proceeds. The Savings Bank intends to make
contributions to the ESOP at least equal to the principal
and interest requirement of the debt. As the debt is
repaid, shareholders' equity will be increased. The Savings
Bank's payment of the ESOP debt is based upon equal
installments of principal over a 10-year period, assuming a
combined federal and state income tax rate of 34.0%.
Interest income earned by the Holding Company on the ESOP
debt offsets the interest paid by the Savings Bank on the
ESOP loan. No reinvestment is assumed on proceeds
contributed to fund the ESOP. The ESOP expense reflects
adoption of Statement of Position ("SOP") 93-6, which
requires recognition of expense based upon shares committed
to be released and the exclusion of unallocated shares from
earnings per share computations. The valuation of shares
committed to be released would be based upon the average
market value of the shares during the year, which, for
purposes of this calculation, was assumed to be equal to the
Purchase Price. See "MANAGEMENT -- Management of the
Savings Bank -- Benefits -- Employee Stock Ownership Plan."
(4)In calculating the pro forma effect of the 1997 MRP, it is
assumed that the required shareholder approval has been
received, that the shares were acquired by the 1997 MRP at
the beginning of the periods presented in open market
purchases at the Purchase Price, that the amount contributed
was amortized during such periods at the rate of 20% per
annum, that for purposes of this table, compensation expense
is recognized on a straight-line basis over each vesting
period, and that the combined federal and state income tax
rate is 34.0%. The issuance of authorized but
unissued shares of Common Stock instead of open market
purchases would dilute the voting interests of existing
shareholders by approximately 2.04% and pro forma net income
per share would be $.20, $.19, $.18 and $.17 at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range for the year ended December 31, 1996,
respectively, and $.26, $.23, $.21 and $.19 for the six
months ended June 30, 1997, respectively, at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range. Pro forma shareholders' equity per share
would be $12.21, $11.04, $10.25 and $9.52 at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range at December 31, 1996, respectively, and
$12.38, $11.23, $10.38 and $9.64 at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation
Range at June 30, 1997, respectively. In the event the fair
market value per share is greater than $10.00 per share on
the date shares are awarded under the 1997 MRP, total 1997
MRP expense would increase. SEE "RISK FACTORS -- Expenses
Associated with ESOP and 1997 MRP." No effect has been
given to the shares reserved for issuance under the proposed
1997 Stock Option Plan. If shareholders approve the 1997
Stock Option Plan following the Conversion and
Reorganization, the Holding Company will have reserved for
issuance under the 1997 Stock Option Plan authorized but
unissued shares of Common Stock representing an amount
of shares equal to 10% of the Conversion Shares sold in the
Conversion Offerings. If all of the options were exercised,
and shares were issued from authorized but unissued shares,
the voting and ownership interests of existing shareholders
would be diluted by approximately 4.94%. Assuming
shareholder approval of the 1997 Stock Option Plan and that
all options were exercised at the end of the year ended
December 31, 1996 at an exercise price of $10.00 per share,
pro forma net earnings per share would be $.21, $.20, $.19
and $.18, respectively, for the year ended December 31,
1996, and pro forma shareholders' equity per share would be
$12.14, $11.05, $10.24 and $9.54, respectively, for the year
ended December 31, 1996 at the minimum, midpoint, maximum
and 15% above the maximum of the Estimated Valuation Range.
Assuming shareholder approval of the 1997 Stock Option Plan
and that all options were exercised at the six months ended
June 30, 1997 at an exercise price of $10.00 per share, pro
forma net earnings per share would be $.26, $.23, $.21 and
$.19, respectively, for the six months ended June 30, 1997,
and pro forma shareholders' equity per share would be
$12.31, $11.19, $10.37 and $9.65, respectively, for the six
months ended June 30, 1997 at the minimum, midpoint, maximum
and 15% above the maximum of the Estimated Valuation Range.
See "MANAGEMENT -- Management of the Savings Bank --
Benefits -- 1997 Stock Option Plan" and "-- Benefits --
Management Recognition Plan" and "RISK FACTORS -- Possible
Dilutive Effect of Benefit Programs."
(5)Per share amounts are based upon shares outstanding of
1,862,029, 2,190,622, 2,519,215 and 2,897,098 for the year
ended December 31, 1996, and for the six months ended
June 30, 1997, in each case at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation
Range, respectively. Such amounts include the Conversion
Shares sold in the Conversion and Reorganization, less the
number of shares assumed to be held by the ESOP not
committed to be released within the first year following the
Conversion and Reorganization.
(6)Historical per share amounts have been computed as if the
Conversion Shares expected to be issued in the Conversion
and Reorganization had been outstanding at the beginning of
the periods or on the dates shown, but without any
adjustment of historical net income or historical retained
earnings to reflect the investment of the estimated net
proceeds of the sale of shares in the Conversion and
Reorganization, the additional ESOP expense or the proposed
1997 MRP expense, as described above.
(7)Per share amounts have been annualized.
(8)Historical book value includes $244,000 of assets held by
the MHC, that will be consolidated with the Savings Bank's
book value upon consummation of the Conversion and
Reorganization.
(9)"Book value" represents the difference between the stated
amounts of the Savings Bank's assets and liabilities. The
amounts shown do not reflect the liquidation account that
will be established for the benefit of Eligible Account
Holders and Supplemental Eligible Account Holders in the
Conversion and Reorganization, or the federal income tax
consequences of the restoration to income of the Savings
Bank's special bad debt reserves for income tax purposes
that would be required in the unlikely event of liquidation.
See "THE CONVERSION AND REORGANIZATION -- Effects of
Conversion and Reorganization to Stock Form on Depositors
and Borrowers of the Savings Bank" and "FEDERAL TAXATION."
The amounts shown for book value do not represent fair
market values or amounts distributable to shareholders in
the unlikely event of liquidation.
(10)Per share amounts are based upon shares outstanding of
1,862,029, 2,190,622, 2,519,215 and 2,897,098 at the
minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range, respectively.
(11)Does not represent possible future price appreciation or
depreciation of the Common Stock.
<PAGE>
COMMON STOCK TO BE PURCHASED
OR RECEIVED BY MANAGEMENT
The following table sets forth, for each director and
executive officer and for all of the directors and executive
officers as a group, (i) Exchange Shares to be held upon
consummation of the Conversion and Reorganization, based upon
their beneficial ownership of Savings Bank Common Stock as of
June 30, 1997, (ii) proposed purchases of Conversion Shares,
assuming shares available to satisfy their subscriptions, and
(iii) total shares of Common Stock to be held upon consummation
of the Conversion and Reorganization, in each case assuming that
1,140,000 Conversion Shares are sold at the midpoint of the
Estimated Valuation Range. No individual has entered into a
binding agreement with respect to such intended purchases, and,
therefore, actual purchases could be more or less than indicated
below. Directors and executive officers and their associates may
not purchase in excess of 33% of the shares sold in the
Conversion and Reorganization. Directors, officers and employees
will pay the Purchase Price for each share for which they
subscribe.
<TABLE>
<CAPTION>
Number of
Exchange Proposed Purchase of Total Common Stock
Shares to Conversion Shares to be Held
be Held Number Number Percentage
(1)(2)(3) Amount of shares of shares of Total
<S> <C> <C> <C> <C> <C>
Vincent J. Fumo(4) 184,305 $ 0 0 8.41%
Chief Executive Officer
and Chairman of the Board
Anthony DiSandro 84,155 0 0 3.80
President and Director
Sylvia M. DiBona 42,159 0 0 42,159 1.19
Director
James W. Eastwood 11,242
Director
P. Charles DeRita 9,066
Director
James F. Kenney 181
Director
Roseanne Pauciello 4,533
Director and Secretary
Thomas J. Finley 0
Director
S. Michael Palermo 0
Director
Jane Scaccetti Fumo(4) 184,305 0 0 8.41
Director
Alfonso Tumini 0
Director
Leonard A. Green 181
Director
Gary Polimeno 16,033
Vice President
All directors and executive 351,855
officers as a group
(13 persons)
</TABLE>
(1)Excludes shares that may be received upon the exercise of
outstanding stock options granted under the 1995 Stock
Option Plan. Based upon the Exchange Ratio of 1.8133
Exchange Shares for each Public Savings Bank Share at the
midpoint of the Estimated Valuation Range, the persons named
in the table would have options to purchase Common Stock as
follows: Mr. Fumo, 30,088 shares; Mr. DiSandro, 30,088
shares; and Mr. Polimeno, 4,847 shares.
(2)Excludes stock options that may be granted under the 1997
Stock Option Plan and awards that may be granted under 1997
MRP if such plans are approved by shareholders at an annual
or special meeting held at least six months following the
Conversion and Reorganization. See "MANAGEMENT OF THE
SAVINGS BANK -- Benefits."
(3)Excludes 76,666 Exchange Shares held by the ESOP as to which
Messrs. Fumo and DiSandro exercise voting control.
(4)Vincent Fumo and Jane Scaccetti Fumo are husband and wife.
Amount includes, based upon an Exchange Ratio of 1.8133
Exchange Shares for each Public Savings Bank Share at the
midpoint of the Estimated Valuation Range, 32,639 shares
held through the 401(k) Plan, 12,738 shares held through the
Profit Sharing Plan, 77,068 shares held in IRA accounts,
18,425 shares held by the 1995 MRP which have been awarded
to Mr. Fumo, 363 shares held by Mrs. Fumo and 544 shares
held on behalf of the daughter of Vincent and Jane Scaccetti
Fumo.
(*)Less than 1%.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Business Strategy of the Savings Bank
The Savings Bank's strategy is to maximize profitability by
providing quality deposit and loan products in an efficient
manner as a well-capitalized and independent savings bank.
Generally, the Savings Bank has sought to implement this strategy
by emphasizing retail deposits as its primary source of funds and
by maintaining a substantial part of its assets in locally-
originated residential first mortgage loans, commercial real
estate loans, commercial business loans, construction loans and
consumer loans, mortgage-backed securities and other liquid
investment securities. The Savings Bank started an expansion of
its branch network by opening a branch in Center City
Philadelphia on June 14, 1996. The Savings Bank plans further
expansion of its branch network in areas contiguous to its
current market and then into the suburbs of Philadelphia by
opening branch offices or acquiring the branches of other
institutions. The Savings Bank is also expanding the operations
of TNMC, its mortgage banking subsidiary. Retail mortgage
lending is being expanded by maintaining a staff of six
commissioned sales people to solicit mortgage loans throughout
the Philadelphia metropolitan area and surrounding counties in
Pennsylvania, New Jersey and Delaware; wholesale mortgage lending
is being expanded by originating, processing and servicing loans
for other mortgage companies; alternative mortgage lending is
being expanded through telemarketing origination programs for B
through D quality paper and FHA streamline programs. See
"SUBSIDIARIES." The Savings Bank is increasing loan origination
through its existing office network and is increasing origination
of other loan products separate from TNMC such as commercial real
estate loans, commercial business loans, construction loans and
consumer loans. During the six months ended June 30, 1997, loan
originations other than residential mortgage loans totalled
$14.94 million or 23.76% of originations during the period.
The Savings Bank's business strategy incorporates the
following elements: (1) maintaining the Savings Bank's core
customer base in South Philadelphia, (2) expanding its retail
banking activities to include other contiguous segments of the
metropolitan Philadelphia market; (3) as a component of its
regional expansion strategy, expanding its mortgage banking
operations through the metropolitan Philadelphia area and the
adjacent counties of Pennsylvania, New Jersey and Delaware,
(4) continuing the origination of residential mortgage loans and
emphasizing the origination of high quality commercial real
estate and business loans and consumer loans; (5) maintaining the
Savings Bank's commitment to strong asset quality; (6) managing
interest rate risk exposure; and (7) maintaining liquidity and
capital in excess of regulatory requirements. As expected, the
Savings Bank's expansion strategy has resulted in materially
increased operating expenses associated with the lease of the
Center City Philadelphia office space, related equipment expense
and salary and benefit expenses for personnel expansion. Also as
expected, the generation of increased revenues from the new
branch and the mortgage banking operation has lagged recognition
of these additional expenses.
In February 1996, the Board of Trustees of Pennsylvania
Savings Bank elected to change the Savings Bank's fiscal year
from September 30th to December 31st. The Savings Bank filed a
transition report pursuant to Section 13 of the Securities
Exchange Act of 1934 for the transition period from October 1,
1995 to December 31, 1995. Due to this change, a portion of the
following discussion compares the Savings Bank's results of
operations for its fiscal year ended December 31, 1996 to its
fiscal year ended September 30, 1995. Management of the Savings
Bank does not believe that this timing difference is material to
an understanding of the Savings Bank comparative results of
operations.
Financial Condition - June 30, 1997 Compared to December 31, 1996
The Savings Bank's total assets increased $5.87 million or
4.96% from $118.43 million at December 31, 1996 to
$124.30 million at June 30, 1997. The increase in assets was
primarily the result of higher levels of investment securities
and net loans that were partially offset by a decrease in cash
and cash equivalents.
Net loans increased to $62.14 million at June 30, 1997 from
$57.18 million at December 31, 1996. The increase of
$4.96 million, or 8.67%, was the result of modest loan demand for
new mortgage loan originations in the Savings Bank's market area
during the six month period ended June 30, 1997.
Total investment securities (including mortgage-backed
securities) increased $3.34 million, or 13.40%, to $28.26 million
at June 30, 1997, from $24.92 million at December 31, 1996. The
increase occurred because the Savings Bank transferred cash and
cash equivalents and new deposit funds into higher yielding, one
to five year maturity investment securities during the six month
period ended June 30, 1997.
Cash and cash equivalents, including interest-bearing
deposits with banks, decreased $2.6 million to $29.02 million at
June 30, 1997, from $31.62 million at December 31, 1996. This
decrease was the result of cash used for the purchase of
investments, capital expenditures and disbursements of loan
proceeds net of cash provided from new deposits, maturities of
investments and loan payments.
Total liabilities increased from $104.26 million at
December 31, 1996 to $109.77 million at June 30, 1997. This
increase of $5.51 million, or 5.28%, reflected an increase in the
Savings Bank's primary source of funds, saving deposits, which
aggregated $104.44 million at June 30, 1997, an increase of
$3.87 million, or 3.85%, from $100.57 million at December 31,
1996.
Shareholders' equity increased by $360,000, or 2.54%, from
$14.17 million at December 31, 1996 to $14.53 million at June 30,
1997. This increase reflects the Savings Bank's earnings for the
six months ended June 30, 1997 and an increase of $29,000 in
unrealized losses (net of taxes) on investment and mortgage-
backed securities held in the Savings Bank's available for sale
portfolio.
Results of Operations for the Six Month Period Ended June 30,
1997 and 1996
Average Balance Sheet
The following table provides an analysis on a monthly basis
of net interest income on a tax-equivalent basis, setting forth
for the periods (i) average assets, liabilities and shareholders'
equity, (ii) interest income earned on interest-earning assets
and interest expense paid on interest-bearing liabilities,
(iii) average yields earned on interest-earning assets and
average rates paid on interest-bearing liabilities, and (iv) the
Savings Bank's net interest margin (net interest income as a
percentage of average total interest-earning assets). The
Savings Bank's earnings have depended primarily upon its net
interest income, which is the difference between interest earned
on interest-earning assets and interest paid on interest-bearing
liabilities. Net interest income is affected by changes in the
mix of the volume and rates of interest-earning assets and
interest-earning liabilities.
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Interest-earning
deposits(1) $ 28,076 $ 655 4.67% $ 31,198 $ 667 4.28%
Investment securities 21,089 743 7.05% 16,501 491 5.95%
Mortgage-backed
securities 5,956 197 6.62% 6,730 223 6.63%
Net loans 59,298 2,628 8.86% 55,026 2,486 9.04%
Total interest-earning
assets 114,419 4,223 7.38% 109,455 3,867 7.07%
Noninterest-earning
assets 5,911 5,792
Total assets $120,330 $115,247
LIABILITIES
Interest-bearing liabilities:
Savings deposits $ 39,086 580 2.97% $ 38,151 520 2.73%
Certificates 60,579 1,604 5.30% 53,732 1,507 5.61%
Total deposits 99,665 2,184 4.38% 91,883 2,027 4.41%
Borrowed money - - - -
Total interest-
bearing liabilities 99,665 2,184 4.38% 91,883 2,027 4.41%
Non-interest-bearing
liabilities 6,261 9,266
Total liabilities 105,926 101,149
Shareholders' equity 14,404 14,098
Total liabilities and
shareholders' equity $120,330 $115,247
Net interest income $ 2,039 $ 1,840
Interest rate spread(2) 3.00% 2.66%
Net yield on interest-
earning assets(3) 3.56% 3.36%
Ratio of interest-
earning assets to
interest-bearing
liabilities 1.15X 1.19X
_____________________________
</TABLE>
(1)Includes interest-earning deposits with the Federal Home
Loan Bank of Pittsburgh.
(2)Represents the difference between the average yield on
interest-earning assets and the average cost of interest-
bearing liabilities.
(3)Represents net interest earnings divided by average
interest-earning assets.
(4)Yield/rate data is annualized.
Rate/Volume Analysis
Net interest income is affected by changes in the mix of the
volume and sales of interest-earning assets and interest-earning
liabilities. The following table represents the extent to which
changes in interest rates and changes in the volume of interest-
earning assets and interest-bearing liabilities have affected the
Savings Bank's interest income and interest expense during the
periods indicated.
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 vs. 1996
Increase/(Decrease)
Volume Rate Total
(In Thousands)
<S> <C> <C> <C>
Interest-earning assets:
Investments(1).............. $ 178 $ 62 $ 240
Mortgage-backed securities.. (51) 25 (26)
Loans(2).................... 378 (236) 142
Total interest-earning
assets.................. 505 (149) 356
Interest-bearing liabilities:
Deposits.................... 391 (234) 157
Borrowings.................. - - -
Total interest-bearing
liabilities............. 391 (234) 157
Net change in net interest
income.................. $ 114 $ 85 $ 199
_____________________
</TABLE>
(1)Includes interest-earning deposits and investment
securities.
(2)Includes non-accrual loans and loans held for resale.
General
The Savings Bank's net income is primarily dependent on its
net interest income, which is the difference between interest
income earned on its investments and mortgage-backed securities,
other investment securities and loans, and its cost of funds
consisting of interest paid on deposits. Although the Savings
Bank had no outstanding borrowings from the FHLB of Pittsburgh,
at June 30, 1997, the Savings Bank has credit available that it
may access in the future. The Savings Bank's net income also is
affected by its provisions for loan losses, as well as by the
amount of noninterest income, including income from fees and
service charges, net gains and losses on sales of mortgage-backed
securities and other investments, and noninterest expense such as
employee compensation and benefits, deposit insurance premiums,
occupancy and equipment costs, and income taxes. Earnings of the
Savings Bank also are affected significantly by general economic
and competitive conditions, particularly changes in market
interest rates, government policies and actions of regulatory
authorities, which events are beyond the control of the Savings
Bank. In particular, the general level of market interest rates
tends to be highly cyclical. In periods of high interest rates,
earnings of the Savings Bank are likely to be depressed, which in
turn would be likely to have a detrimental effect on the market
value of any investment in the Common Stock.
Net Income. The Savings Bank's net income totaled $361,000
and $478,000 for the six months ended June 30, 1997 and 1996,
respectively. This decrease in net income was the result of
substantially higher noninterest expense associated with the
expansion of the Savings Bank's Center City branch and mortgage
banking operations and was partially offset by higher net
interest income.
Interest Income. Total interest income increased by
$350,000, or 9.04%, to $4.22 million for the six months ended
June 30, 1997, from $3.87 million for the six months ended
June 30, 1996. The increase in interest income resulted largely
from an increase of $142,000 in interest earned on loans and a
$226,000 increase in income earned on mortgage-backed and
investment securities, which were partially offset by a decrease
in income earned on deposits. Higher interest income on
mortgage-backed and investment securities resulted from an
increase in the average balance of investments and the yield on
such investments for the six months ended June 30, 1997 compared
to the six months ended June 30, 1996.
Interest Expense. Total interest expense increased to
$2.18 million for the six months ended June 30, 1997, from
$2.03 million for the six months ended June 30, 1996,
representing an increase of $150,000 or 7.40% This increase was
due to an increase in average deposits of $7.79 million for the
six months ended June 30, 1997 as compared to the same period in
1996.
Provision for Loan Losses. The Savings Bank makes a
provision to its allowance for loan losses to protect the Savings
Bank against possible but not yet identified losses inherent in
the Savings Bank's loan portfolio. This provision is recognized
for financial reporting purposes as a reduction of income. In
making such provision, management of the Savings Bank considers
among other factors, economic trends within its market area,
concentration of credit risk and trends affecting the valuation
of collateral for the Savings Bank's loan. During the six months
ended June 30, 1997 and 1996, the Savings Bank did not have any
charge-offs against the allowance for loan losses or provide for
any possible loan losses.
Net Interest Income. Net interest income after the
provision for possible loan losses for the six months ended
June 30, 1997, increased to $2.04 million from $1.84 million for
the six months ended June 30, 1996, an increase of $200,000, or
10.87%. The Savings Bank's interest rate spread for the six
months ended June 30, 1997 was 3.00% as compared to 2.66% for the
six months ended June 30, 1996 because the Savings Bank was able
to achieve a 31 basis point increase in average yield in the 1997
period compared to the 1996 period while lowering the average
rate for the same comparative periods by 3 basis points.
Noninterest Income. Noninterest income consists of loan
fees, service charges, rental income, net gains and losses on
sales of investment and mortgage-backed securities and other
income. Noninterest income increased by $60,000, or 11.79%, to
$569,000 for the six months ended June 30, 1997, from $509,000
for the six months ended June 30, 1996. The principal reason for
the increase is a $134,000 increase in loan fees to $351,000 in
1997 from $217,000 in 1996 due to a higher loan origination
volume. These loan fees arise as the result of the sale of TNMC-
originated mortgages in the secondary market which was offset by
a $38,000 decrease in service charges attributable to a major
customer of the Savings Bank discontinuing services where its
daily excess cash was sent to the Savings Bank and the customer
was charged a fee per $1,000. This service began in the last
quarter of 1995 and was discontinued in the second quarter of
1996, therefore there were no fees charged for the six months
ended June 30, 1997. Noninterest income also was affected by a
$38,000 decrease in other income from $60,000 for the six months
ended June 30, 1996 to $22,000 for the six months ended June 30,
1997.
Noninterest Expense. Noninterest expense principally
consists of employees' compensation and benefits, deposit
insurance premiums and premises and occupancy costs. Noninterest
expense increased by $440,000, or 26.83%, to $2.08 million for
the six months ended June 30, 1997, from $1.64 million for the
six months ended June 30, 1996. The principal reasons for the
increase were a $172,000 increase in premises and occupancy
costs, a $247,000 increase in compensation and employee benefits,
a $31,000 increase in directors' fees, a $17,000 increase in
stationery, printing and postage and a $53,000 increase in other
expenses, which were partially offset by an $82,000 decrease in
federal deposit insurance premiums. Noninterest expense has
increased due to costs associated with the Savings Bank's
expansion strategy and management expects that noninterest
expense will continue to increase as this strategy is
implemented.
Income Taxes. Income tax provisions for the six months
ended June 30, 1997 and 1996 of $166,000 and $232,000,
respectively, generally reflect the Savings Bank's pre-tax income
at rates then in effect.
Financial Condition - December 31, 1996 Compared to September 30,
1995
The Savings Bank's total assets increased $5.2 million, or
4.59%, from $113.23 million at September 30, 1995 to
$118.43 million at December 31, 1996. The increase in assets was
primarily the result of higher levels of cash and cash
equivalents, office properties and equipment and net loans which
were partially offset by a decrease in investment securities.
Net loans increased by $4.93 million from $52.25 million at
September 30, 1995 to $57.18 million at December 31, 1996. The
increase of 9.35% was the result of modest demand for new
mortgage loan origination in the Savings Bank's market area.
Total investment securities (including mortgage-backed
securities) decreased $2.73 million, or 9.88%, to $24.91 million
at December 31, 1996, from $27.64 million at September 30, 1995.
The decrease in investment securities was the result of certain
investment securities being called and a U.S. Treasury security
maturing during this period.
Cash and cash equivalents, including interest-bearing
deposits with banks, increased $1.84 million to $31.62 million at
December 31, 1996, from $29.78 million at September 30, 1995.
This increase was the result of cash provided from new deposits,
maturities of investments and loan repayments net of cash used
for the purchase of investments, capital expenditures and
disbursements of loan proceeds.
Office properties and equipment, net of accumulated
depreciation, increased to $1.27 million at December 31, 1996,
from $775,000 at September 30, 1995. This increase of $495,000
or 63.87%, is the result of the purchase of furniture and
equipment for the new branch and executive offices in Center City
Philadelphia.
Total liabilities increased from $103.74 million at
September 30, 1995 to $104.26 million at December 31, 1996. This
$520,000, or .50%, increase resulted primarily from an increase
of $5.99 million in total deposits, an increase of $720,000 in
securities purchased under agreements to sell and an increase of
$356,000 in ESOP debt which was offset by an elimination of a
$6.26 million liability for advances for the Savings Bank's stock
offering, which was completed on October 20, 1995. The Savings
Bank's increase in total deposits was the result of higher levels
of certificates of deposit (a 6.18% increase from $52.60 million
at September 30, 1995 to $56.21 million at December 31, 1996) and
a 5.64% increase in savings accounts to $44.36 million at
December 31, 1996 from $41.99 million at September 30, 1995.
As a result of the MHC Reorganization, the Savings Bank's
retained earnings decreased $9.45 million to ($163,000) at
December 31, 1996 from $9.61 million at September 30, 1995.
Retained earnings were retained by the MHC and not passed through
to the Savings Bank after the MHC Conversion. Also, the Savings
Bank had $1.19 million, $13.56 million and $14.52 million in
common stock, additional paid-in capital and shareholders'
equity, respectively, at December 31, 1996. At September 30,
1995, prior to the Savings Bank's conversion, the Savings Bank
did not have common stock, paid-in capital, or shareholder's
equity.
Results of Operations for the Years Ended December 31, 1996 and
September 30, 1995
Average Balance Sheet
The following table sets forth on a monthly basis the
Savings Bank's net interest income on a tax equivalent basis for
the periods indicated.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended September 30,
1996 1995
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Interest-earning
deposits(1) $ 27,803 $1,207 4.34% $ 24,782 $ 818 3.30%
Investment securities 18,880 1,183 6.27 21,063 1,134 5.38
Mortgage-backed
securities 6,494 431 6.64 6,884 493 7.16
Net loans 56,048 5,118 9.13 51,259 4,745 9.26
Total interest-earning
assets 109,225 7,939 7.27 103,988 7,190 6.91%
Noninterest-earning
assets 6,777 5,756
Total assets $116,002 $109,744
LIABILITIES
Interest-bearing liabilities:
Savings deposits $ 40,677 1,122 2.76% $ 44,277 1,206 2.72%
Certificates 52,253 2,960 5.66 49,416 2,237 4.53
Total deposits 92,930 4,082 4.39 93,693 3,443 3.67
Borrowed money - - - - - -
Total interest-
bearing liabilities 92,930 4,082 4.39% 93,693 3,443 3.67%
Noninterest-bearing
liabilities 8,904 6,560
Total liabilities 101,834 100,253
Retained earnings or
shareholders' equity 14,168 9,491
Total liabilities and
retained earnings or
shareholders' equity $116,002 $109,744
Net interest income $3,857 $3,747
Interest rate spread(2) 2.88% 3.24%
Net yield on interest-
earning assets(3) 3.53% 3.60%
Ratio of interest-
earning assets to
interest-bearing
liabilities 1.18x 1.11x
_____________________________
</TABLE>
(1)Includes interest-earning deposits with the Federal Home
Loan Bank of Pittsburgh.
(2)Represents the difference between the average yield on
interest-earning assets and the average cost of interest-
bearing liabilities.
(3)Represents net interest earnings divided by average
interest-earning assets.
<PAGE>
Rate/Volume Analysis
The following table represents the extent to which changes
in interest rates and changes in the volume of interest-earning
assets and interest-bearing liabilities have affected the Savings
Bank's interest income and interest expense during the periods
indicated.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, September 30,
1996 vs. 1995
Increase/(Decrease)
Volume Rate Total
(In Thousands)
<S> <C> <C> <C>
Interest-earning assets:
Investments(1).............. $ (6) $444 $438
Mortgage-backed securities.. (26) (36) (62)
Loans(2).................... 437 (64) 373
Total interest-earning
assets.................. 405 344 749
Interest-bearing liabilities:
Deposits.................... 39 600 639
Borrowings................ - - -
Total interest-bearing
liabilities............. 39 600 639
Net change in net interest
income.................. $366 ($256) $110
_____________________
</TABLE>
(1)Includes interest-earning deposits and investment
securities.
(2)Includes non-accrual loans and loans held for sale.
Net Income
The Savings Bank's net income totaled $139,000 and $659,000
for the years ended December 31, 1996 and September 30, 1995,
respectively. The decrease in net income was the result of
substantially higher non-interest expense associated with the
federal deposit insurance assessment to recapitalize the SAIF,
the Savings Bank's Center City branch expansion, the move of the
executive offices from South Philadelphia to Center City,
Philadelphia and the expansion of the mortgage banking operations
and was partially offset by higher net interest income and
noninterest income.
Interest Income. Total interest income increased by
$750,000, or 10.43%, to $7.94 million for the year ended
December 31, 1996, from $7.19 million for the year ended
September 30, 1995. This reflected a $5.24 million, or 5.04%
increase in average interest-earning assets, and 36 basis point
increase in average yield on interest-earning assets. The
increase in average interest-earning assets was comprised of a
$3.02 million increase in average interest-earning deposits and a
$4.79 million increase in average net loans. The increase in net
loans resulted from modest loan demand in the Savings Bank's
market area. The increase in interest-earning assets generally
reflected management's strategy of pursuing moderate growth while
maintaining adequate margins over minimum required capital
levels.
Interest Expense. Total interest expense increased to
$4.08 million for the year ended December 31, 1996, from $3.44
million for the year ended September 30, 1995, representing an
increase of $640,000, or 18.6%. Higher interest expense resulted
from a $760,000 decrease in average-interest bearing liabilities
but a shift in deposit composition including a $2.84 million
increase in average certificates of deposit and a $3.60 million
decrease in average savings deposits. Customers indicated a
preference for the certificates of deposit, which had an average
yield increase of 113 basis points, over savings accounts, which
had an average yield increase of only 4 basis points. As a
result, the yield on all interest-bearing liabilities increased
72 basis points. Despite the decline in savings account
deposits, the Savings Bank attracts a significant portion of its
deposits from its passbook product. Management's experience is
that its customer base still finds the traditional passbook
savings account attractive even though higher yields may be
available from alternative deposit products. Accordingly, the
Savings Bank prices its passbook product above its large
commercial bank competitors. As a result, the Savings Bank has
been able to fund operations with a significant percentage of
passbook savings accounts and thereby achieve a comparatively low
cost of funds. However, in 1996 as market interest rates rose
and alternative deposit products began to pay higher yields, the
relative price inelasticity of the Savings Bank's passbook
accounts diminished. Accordingly, the Savings Bank was forced to
increase rates on passbook accounts which resulted in compression
of its interest rate spread from 3.24% for the year ended
September 30, 1995 to 2.88% for the year ended December 31, 1996.
Provision for Loan Losses. The Savings Bank makes a
provision to its allowance for loan losses to protect the Savings
Bank against possible but not yet identified losses inherent in
the Savings Bank's loan portfolio. This provision is recognized
for financial reporting purposes as a reduction of income. In
making such provision, management of the Savings Bank considers,
among other factors, economic trends within its market area,
concentrations of credit risk and trends affecting the valuation
of collateral for the Savings Bank's loans. For the years ended
December 31, 1996 and September 30, 1995, the Savings Bank had
charge-offs against the allowance for loan losses of $133,000 and
$27,000, reflecting write-offs on several different loans. During
such period, the Savings Bank provided $133,000 and $27,000,
respectively, for possible loan losses in order to protect
against possible future losses.
Net Interest Income. Net interest income after the
provision for possible loan losses for the year ended
December 31, 1996, of $3.72 million remained unchanged compared
to the year ended September 30, 1995.
Noninterest Income. Noninterest income consists of fees and
charges and net gains and losses on sales of investment and
mortgage-backed securities. Noninterest income increased by
$54,000, or 5.65%, to $1.01 million for the year ended
December 31, 1996 from $956,000 for the year ended September 30,
1995. The principal reasons for the increase in noninterest
income were a $16,000 increase in rental income and a $300,000
increase in service charges attributable to a major customer of
the Savings Bank requiring additional services where its daily
excess cash is sent to the Savings Bank and the customer is
charged a fee per $1,000. This service began in the last
calendar quarter of 1995; therefore there were no fees charged
prior to September 30, 1995. The increase in noninterest income
was offset by a decrease in other income of $245,000.
Noninterest Expense. Noninterest expense principally
consists of employees' compensation and benefits, deposit
insurance premiums and occupancy and equipment costs. Non-
interest expense increased by $820,000, or 22.90%, to
$4.40 million for the year ended December 31, 1996, from $3.58
million for the year ended September 30, 1995. The principal
reasons for the increase were a $534,000 increase in federal
insurance premiums due to the FDIC's one-time assessment to
recapitalize the SAIF, a $128,000 increase in premises and
occupancy costs due to the opening of the new Center City Branch
and relocation of the executive offices in June 1996 and a
$107,000 increase in expenses of real estate owned and a $71,000
increase in noninterest expense.
Income Taxes. Income tax provisions for the years ended
December 31, 1996 and September 30, 1995 of $201,000 and
$433,000, respectively, generally reflect the Savings Bank's pre-
tax income at rates then in effect, except that a $59,000 and
$33,000 deferred tax expense as a result of timing differences in
the recognition of revenue and expenses for tax and financial
statement purposes were realized in the December 31, 1996 and
September 30, 1995 period, respectively.
Liquidity and Capital Resources
The Savings Bank is required to maintain a sufficient level
of liquid assets, as determined by management and defined and
reviewed for adequacy by the FDIC during its regular
examinations. The FDIC, however, does not prescribe by
regulation a minimum amount or percentage of liquid assets. The
FDIC allows any marketable security, whose sale would not impair
the capital adequacy of the Savings Bank, to be eligible for
liquidity. The Savings Bank's liquidity is quantified through
the use of a standard liquidity ratio of liquid assets (cash and
cash equivalents, investment securities available-for-sale,
mortgage-backed securities available-for-sale and Federal Home
Loan Bank stock) to short-term borrowings plus deposits. Using
this formula, the Savings Bank's liquidity ratio was 36.44% as of
June 30, 1997. The Savings Bank adjusts its liquidity levels in
order to meet funding needs of deposit outflows and loan
commitments. The Savings Bank also adjusts liquidity as
appropriate to meet its asset/liability management objectives.
The Savings Bank's primary source of funds are deposits, the
amortization and prepayment of loans and mortgage-backed
securities, maturities of investments securities and earnings
provided from operations. While scheduled principal repayments
on loans and mortgage-backed securities are a relatively
predictable source of funds, deposit flows and loan prepayments
are greatly influenced by general interest rate levels, economic
conditions and competition. The Savings Bank manages the pricing
of its deposits to maintain a desired deposit balance. In
addition, the Savings Bank invests excess funds in short-term,
interest-earning assets and other assets that provide liquidity
to meet lending requirements and interest rate risk management
objectives. Short-term, interest-earning deposits with the FHLB
of Pittsburgh amounted to $27.60 million at June 30, 1997. For
additional information about cash flows from the Savings Bank's
operating, financing and investment activities, see "CONSOLIDATED
FINANCIAL STATEMENTS."
A major portion of the Savings Bank's liquidity consists of
cash and cash equivalents, which are a product of its operating
investment and financing activities. The primary sources of cash
were net income, principal repayments on loans and mortgage-
backed securities and increases in deposit accounts.
Asset/Liability Management and Interest Rate Sensitivity Analysis
Interest rate risk may be analyzed by examining the extent
to which an institution's assets and liabilities are "interest
rate sensitive" and by monitoring an institution's interest rate
sensitivity "gap." An asset or liability is said to be interest
rate sensitive within a specific time period if it will mature or
re-price within that time period. The interest rate sensitivity
gap is defined as the difference between the amount of interest-
earning assets maturing or re-pricing within a specific time
period and the amount of interest-bearing liabilities maturing or
re-pricing within that time period. A gap is considered positive
when the amount of interest rate sensitive assets exceeds the
amount of interest rate sensitive liabilities. A gap is
considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets.
During a period of rising interest rates, a negative gap would
tend to adversely affect net interest income while a positive gap
would tend to positively affect net interest income. Conversely,
during a period of falling interest rates, a negative gap would
tend to positively affect net interest income while a positive
gap would tend to adversely affect net interest income.
The Savings Bank's portfolio of adjustable rate loans
constituted only 9.98% of the total loan portfolio at June 30,
1997. Accordingly, the Savings Bank's policy in recent years has
been to reduce its exposure to interest rate risk by maintaining
high asset liquidity through the purchase of short-term or
adjustable-rate investment securities and mortgage-backed
securities. Although this requires the Savings Bank to accept
lower yields on these assets, it permits the Savings Bank to
frequently reinvest proceeds of repayments and maturing
securities to take advantage of changing interest rates. As part
of its strategy to expand commercial, commercial real estate and
consumer lending, the Savings Bank has also experienced growth in
short-term loans that re-price more frequently and therefore more
closely match the market interest rates.
Of the Savings Bank's $104.4 million in deposits at June 30,
1997, $45.0 million consisted of deposit accounts that are
immediately withdrawable. The Savings Bank nevertheless believes
that, based upon historical experience, a substantial portion of
these deposits represent inelastic deposits and are not likely to
be withdrawn because of changes in interest rates, nor are they
likely to re-price as rapidly as changes in market interest
rates.
The following table sets forth the amounts of interest-
earning assets and interest-bearing liabilities outstanding at
June 30, 1997, that are expected to re-price or mature, based
upon certain assumptions, in each of the future time periods
shown. Except as stated below, the amounts of assets and
liabilities shown that re-price or mature during a particular
period were determined in accordance with the earlier of the term
of re-pricing or the contractual term of the asset or liability.
Management believes that these assumptions approximate the
standards used in the savings industry and considers them
appropriate and reasonable.
<TABLE>
<CAPTION>
More than More Than More Than More Than
One Year Two Years Three Five Years
Within One To Two To Three Years To To Ten More Than
Year Years Years Five Years Years Ten Years Total
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans (1)(2)
Mortgage loans:
Residential................ $ 2,395 $ 115 $ 365 $ 1,563 $ 3,794 $32,970 $ 41,202
Commercial................. 663 826 920 5,005 841 1,553 9,808
Land and construction
loans.................... 2,406 2,406
Consumer loans............. 226 114 428 188 85 - 1,041
Other loans................ 1,285 1,285
Total loans.............. 6,975 1,055 1,713 6,756 4,720 34,523 55,742
Mortgage-backed
securities(3)............ 576 509 451 954 3,075 _ 5,565
Mortgage loans held for
sale..................... 5,620 5,620
Investment securities(4)... 19,183 1,000 _ _ _ _ 20,183
Other interest-earning
assets................... 26,220 26,220
Total interest-earning
assets.................. $ 58,574 $ 2,564 $ 2,164 $ 7,710 $ 7,795 $ 34,523 $113,330
Interest-bearing liabilities:
Transaction accounts......... $ 5,363 $ 5,363
Money market accounts........ 7,710 7,710
Other savings accounts....... 772 772
Passbook accounts(5)......... 3,897 3,313 2,816 4,787 11,170 - 25,983
Certificate of deposit over
100,000................... 8,277 531 103 400 - - 9,311
Certificate of deposit under
100,000................... 40,994 5,951 2,074 1,204 520 9 50,752
Repurchase agreement......... 1,824 956 173 - - - 2,953
Total interest-bearing
liabilities.............. $ 68,837 $ 10,751 $ 5,166 $ 6,391 $ 11,690 $ 9 $102,844
Interest-bearing assets net of
interest-bearing liabilities. (10,263) (8,187) (3,002) 1,319 (3,895) 34,514 10,486
Cumulative excess (deficiency)
interest-bearing assets over
interest-bearing liabilities. (10,263) (18,450) (21,452) (20,133) (24,028) 10,486
Cumulative excess (deficiency)
of interest-earning assets
over interest-bearing
liabilities as a percentage
of total assets.............. -8.26% -14.84% -17.26% -16.20% -19.33% 8.44%
_____________________
</TABLE>
(1)Net of deferred loan fees and the allowance for loan losses.
(2)Adjustable-rate loans are included in the period in which
interest rates are next scheduled to adjust rather than in
the period in which they are contractually due to mature.
Fixed-rate loans are included in the period in which they
are contractually due to mature.
(3)Reflects the repricing of the underlying loans and/or the
expected average life of the mortgage-backed security.
(4)Reflects repricing or contractual maturity.
(5)For passbook accounts, which totalled $25.98 million, or
24.88% of total deposits at June 30, 1997, assumes an annual
decay rate of 15% through the fifth year, based upon
historical trends.
Significant shortcomings are inherent in the analysis
presented by the foregoing table. For example, although certain
assets and liabilities may have similar maturities or periods to
re-pricing, they may react in different degrees to changes in
market interest rates. Also, interest rates on certain types of
assets and liabilities may fluctuate in advance of or lag behind
changes in market interest rates. Additionally, certain assets,
such as some adjustable rate loans, have features that restrict
changes in interest rates on a short term basis and over the life
of the asset. Moreover, in the event of a change in interest
rates, prepayment and early withdrawal levels would likely
deviate significantly from those assumed in calculating the
table.
Impact of Accounting Pronouncements and Regulatory Policies
Accounting for Employee Stock Ownership Plans. In November
1993 the American Institute of Certified Public Accountants
issued SOP 93-6, which requires an employer to record
compensation expense in an amount equal to the fair value
of shares committed to be released to employees from an employee
stock ownership plan and to exclude unallocated shares from
earnings per share computations. The effect of SOP 93-6 on net
income and book value per share in future periods cannot be
predicted due to the uncertainty of the fair value of the shares
at the time they will be committed to be released. See "PRO
FORMA DATA."
Accounting for Stock-Based Compensation. In October 1995,
FASB issued SFAS No. 123. This statement encourages all entities
to adopt a fair value-based method of accounting for employee
stock compensation plans, whereby compensation cost is measured
at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting
period. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value-based
method of accounting prescribed by Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," whereby compensation cost is the excess, if any, of
the quoted market price of the stock at the grant date (or other
measurement date) over the amount an employee must pay to acquire
the stock. Entities electing to remain with the accounting in
APB Opinion No. 25 must make pro forma disclosures of net income
and earnings per share, as if the fair value-based method of
accounting had been applied.
Generally, stock options issued under the 1995 Stock Option
Plan have no intrinsic value at the grant date, and under APB
Opinion No. 25, no compensation cost is recognized for them. The
accounting requirements of this statement are generally effective
for transactions entered into in fiscal years that begin after
December 15, 1995. The disclosure requirements of this statement
are generally effective for financial statements for fiscal years
beginning after December 15, 1995. It is anticipated that the
Savings Bank will continue its current accounting treatment for
stock options and will make the pro forma disclosures prescribed
by this Statement.
Earnings Per Share. SFAS No. 128, "Earnings Per Share,"
issued in February 1997, establishes standards for computing and
presenting earnings per share ("EPS") and applies to entities
with publicly-held common stock or potential common stock. It
replaces the presentation of primary EPS with a presentation of
basic EPS and requires the dual presentation of basic and diluted
EPS on the face of the income statement. SFAS No. 128 is
effective for the financial statements for the periods ending
after December 15, 1997. SFAS No. 128 requires restatement of
all prior period EPS data presented. The impact of its adoption
is not expected to be material to the Savings Bank.
Disclosure of Information About Capital Structure. SFAS
No. 129, "Disclosure of Information About Capital Structure,"
establishes standards for disclosing information about an
entity's capital structure and applies to all entities. SFAS
No. 129 continues the previous requirements to disclose certain
information about an entity's capital structure found in APB
Opinions No. 10, "Omnibus Opinion - 1966," and No. 15, "Earnings
Per Share," and SFAS No. 47, "Disclosure of Long-Term
Obligations," for entities that were subject to those standards.
SFAS No. 129 is effective for financial statements for periods
ending after December 15, 1997. SFAS No. 129 contains no change
in disclosure requirements for entities that were previously
subject to the requirements of APB Opinions Nos. 10 and 15 and
SFAS No. 47. The adoption of the provisions of SFAS No. 129 is
not expected to have a material impact on the Savings Bank.
Disclosure About Comprehensive Income. SFAS No. 130,
"Reporting Comprehensive Income," issued in July 1997,
establishes standards for reporting and presentation of
comprehensive income and its components (revenues, expenses,
gains, and losses) in a full set of general-purpose financial
statements. It requires that all items that are required to be
recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is
presented with the same prominence as other financial statements.
SFAS No. 130 requires that companies (i) classify items of other
comprehensive income by their nature in a financial statement and
(ii) display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in
capital in the equity section of the statement of financial
condition. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comprehensive
purposes is required.
Effect of Inflation and Changing Prices
The consolidated financial statements and related financial
data presented herein have been prepared in accordance with GAAP,
which require the measurement of financial position and operating
results in terms of historical dollars without considering the
change in the relative purchasing power of money over time due to
inflation. The primary impact of inflation is reflected in the
increased cost of the Savings Bank's operations. Unlike most
industrial companies, virtually all the assets and liabilities of
a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on a
financial institution's performance than do general levels of
inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and
services.
<PAGE>
BUSINESS
Business of the Holding Company
General. The Holding Company was organized as a
Pennsylvania business corporation at the direction of the Savings
Bank on October 3, 1997 for the purpose of becoming a holding
company for the Savings Bank upon completion of the Conversion
and Reorganization. As a result of the Conversion and
Reorganization, the Savings Bank will be a wholly-owned
subsidiary of the Holding Company and all of the issued and
outstanding capital stock of the Savings Bank will be owned by
the Holding Company.
Business. Prior to the Conversion and Reorganization, the
Holding Company has not and will not engage in any significant
activities other than that of an organizational nature. Upon
completion of the Conversion and Reorganization, the Holding
Company's primary business activity will be the ownership of the
outstanding capital stock of the Savings Bank. In the future,
the Holding Company may acquire or organize other operating
subsidiaries, although there are no current plans, arrangements,
agreements or understandings, written or oral, to do so.
Initially, the Holding Company will neither own nor lease
any property but will instead use the premises, equipment and
furniture of the Savings Bank.
Because the Holding Company will only hold the outstanding
capital stock of the Savings Bank upon consummation of the
Conversion and Reorganization, the competitive conditions
applicable to the Holding Company will be the same as those
confronting the Savings Bank. See "BUSINESS -- Business of the
Savings Bank -- Competition."
Business of the Savings Bank
General. The Savings Bank is a Pennsylvania-chartered stock
savings bank headquartered in Philadelphia, Pennsylvania. The
Savings Bank is a community-oriented institution offering
traditional deposit and loan products and which operates six
full-service offices. Five of these offices are located in
Philadelphia, Pennsylvania and one of these offices is located in
Glenside, Montgomery County, Pennsylvania.
In February 1996, the Board of Trustees of Pennsylvania
Savings Bank elected to change the Savings Bank's fiscal year
from September 30th to December 31st. The Savings Bank filed a
Transition report pursuant to Section 13 of the Securities
Exchange Act of 1934 for the transition period from October 1,
1995 to December 31, 1995.
At June 30, 1997, the Savings Bank had total assets of
$124.30 million, total deposits of $104.44 million and
shareholders' equity of $14.53 million.
The Savings Bank is primarily engaged in the business of
attracting deposits from the general public in the Savings Bank's
market area and investing such deposits in loans secured by one-
to four-family residential real estate, commercial real estate
loans, commercial business loans, construction loans and
investment and mortgage-backed securities. The Savings Bank's
deposits are insured by the SAIF of the FDIC to the extent that
such deposits were assumed from the mutual savings bank in the
MHC Reorganization. Deposits accepted by the Savings Bank after
the MHC Reorganization are insured by the FDIC's BIF, up to
applicable limits.
The Savings Bank has focused its lending activities
primarily on the origination of loans secured by first mortgages
on owner-occupied, one-to four-family residences for retention in
the Savings Bank's portfolio. The Savings Bank has expanded
origination of one-to four-family residential mortgage loans for
resale in the secondary market through expansion of its mortgage
banking operations. The Savings Bank also originates
construction loans, commercial real estate loans, commercial
business loans, and multifamily real estate loans which together
totalled 21.81% of the Savings Bank's total loans at June 30,
1997. To a lesser extent, the Savings Bank and its subsidiaries
originate consumer loans, including home equity, second mortgage,
and other consumer loans.
The Savings Bank's principal sources of funds are deposits
and the principal and interest payments on loans, investment
securities and mortgage-backed securities. The Savings Bank has
available credit with the FHLB of Pittsburgh which it may draw
upon in the future. The principal source of income is interest
received from loans, investment securities and mortgage-backed
securities. The Savings Bank's principal expenses are the
interest paid on deposits and operating expenses such as employee
compensation and benefits, occupancy expenses and deposit
insurance premiums.
Lending Activities
General. Historically, the principal lending activity of
the Savings Bank has been the origination, for retention in its
portfolio, of fixed-rate and, to a much lesser extent,
adjustable-rate mortgage loans secured by one-to four-family
residential real estate located in its market area. The Savings
Bank and its subsidiaries also originate loans secured by
multifamily residential and commercial real estate, construction
loans, commercial business loans and consumer loans.
One-to four-family residential mortgage loans originated for
resale in the secondary market are underwritten according to
standards that conform to FNMA and/or FHLMC guidelines. One-to
four-family residential mortgage loans originated and held in
portfolio are generally underwritten to conform to secondary
market standards but from time to time the Savings Bank does
originate non-conforming loans if, in the Savings Bank's
judgment, the borrower does not present an unreasonable risk of
default. The Savings Bank and TNMC, its mortgage banking
subsidiary, have sold residential mortgage loans in the secondary
market. The Savings Bank has begun to expand its mortgage
banking capabilities through TNMC and anticipates that its
origination of loans for sale in the secondary market in
Southeastern Pennsylvania, Southern New Jersey and Northern
Delaware will increase significantly.
Analysis of Loan Portfolio. Set forth below is selected
data relating to the composition of the Savings Bank's loan
portfolio by type of loan as of the dates indicated, including
data regarding the portion of the Savings Bank's loans that bear
fixed and adjustable interest rates, respectively. TNMC has
originated and sold mortgage loans to third party investors
within the Savings Bank's financial reporting periods. Such
mortgage loans are not reflected in the financial tables and
financial statements pertaining to a particular period to the
extent that such loans were sold prior to any period end.
<TABLE>
<CAPTION>
At June 30, At December 31, At September 30,
1997 1996 1996 1995 1994 1993
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Real Estate Loans:
One-to-four family $47,932 76.24% $48,074 84.35% $49,616 85.71% $44,074 83.27% $43,290 84.34% $45,802 86.40%
Construction loans 2,128 3.38 1,085 1.90 661 1.14 829 1.57 339 0.66 651 1.23
Five or more family
residence 711 1.13 665 1.17 654 1.13 508 0.96 405 0.79 412 0.78
Nonresidential 9,688 15.41 5,609 9.84 5,575 9.63 5,940 11.22 5,819 11.34 5,192 9.79
Commercial Loans 1,190 1.89 594 1.04 368 0.64 602 1.14 780 1.52 236 0.45
Consumer loans(1) 1,218 1.95 964 1.70 1,016 1.75 977 1.84 696 1.36 720 1.36
Total loans(2) $62,867 100.00% $56,991 100.00% $57,890 100.00% $52,930 100.00% $51,329 100.00% $53,013 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ====== ======= ======
Less:
Unearned fees and
discounts $ 456 $ 502 $ 495 $ 464 $ - $ -
Undisbursed
loan proceeds 64 13 5 5 24 10
Allowance for
loan losses 207 208 207 208 208 187
Net Loans $62,140 $56,268 $57,183 $52,253 $51,097 $52,816
Total loans with:
Fixed rates $56,594 90.02% $52,291 91.75% $53,298 92.07% $48,673 91.96% $46,925 91.42% $48,673 91.81%
Adjustable rate 6,273 9.98 4,700 8.25 4,592 8.36 4,257 8.04 4,404 8.58 4,340 8.19
Total loans(2) $62,867 100.00% $56,991 100.00% $57,890 100.00% $52,930 100.00% $51,329 100.00% $53,013 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ====== ======= ======
_____________________
</TABLE>
(1)Consists of both secured and unsecured personal loans.
(2)Includes loans originated and held by the Savings Bank's
subsidiaries, which amount to $4.6 million at December 31,
1996.
One-to Four-Family Residential Real Estate Loans. The
primary lending activity of the Savings Bank has consisted of the
origination for retention in the Savings Bank's portfolio of
owner-occupied one-to four-family residential mortgage loans
secured by properties located in the Savings Bank's market area.
At June 30, 1997, $47.93 million, or 76.24%, of the Savings
Bank's total loan portfolio consisted of one-to four-family
residential mortgage loans.
The Savings Bank currently offers one- to four-family
residential mortgage loans with terms typically ranging from 10
to 30 years, with either adjustable or fixed interest rates.
Originations of fixed-rate mortgage loans versus adjustable-rate
mortgage loans are affected by such things as interest rate risk
policies, customer preferences and competition. In the Savings
Bank's market area borrowers strongly prefer fixed-rate mortgage
loans as opposed to adjustable-rate mortgage loans.
The Savings Bank's fixed-rate loans are generally originated
and underwritten according to standards that permit sale in the
secondary mortgage market. Secondary mortgage market loans
typically conform to FNMA and/or FHLMC guidelines. The Savings
Bank has, from time to time, originated loans that do not conform
to such secondary market standards. Such nonconforming loans
include loans exceeding the maximum loan amounts acceptable to
FNMA and FHLMC and loans as to which the Savings Bank's
underwriting indicates that the particular borrower does not
present an unreasonable risk of default in view of underwriting
criteria that differ from secondary mortgage market standards.
Whether the Savings Bank can or will sell fixed-rate loans in the
secondary market, however, depends on a number of factors
including the yield and the term of the loan, market conditions,
and the Savings Bank's current interest rate risk position. The
Savings Bank has primarily been a portfolio lender, and at any
one time the Savings Bank holds only a nominal amount of loans
for immediate sale.
The Savings Bank's one-to four-family mortgage loans are
amortized on a monthly basis with principal and interest due each
month. One- to four-family residential real estate loans often
remain outstanding for significantly shorter periods than their
contractual terms because borrowers may refinance or prepay loans
at their option.
The Savings Bank currently offers adjustable-rate mortgage
loans with initial interest rate adjustment periods of one and
three years, based on changes in a designated market index.
After the initial interest rate adjustment, each adjustable-rate
mortgage loan adjusts either annually or every third year within
a periodic interest rate adjustment limit of 200 basis points and
within a maximum interest rate adjustment limit of 600 basis
points above the initial rate. Adjustable-rate mortgage loans
are currently priced at a fixed margin above the weekly average
yield on United States Treasury securities adjusted to a constant
term to maturity of one year (or three years in the case of loans
with three year interest rate adjustment periods), as published
by the Federal Reserve. The Savings Bank originates adjustable-
rate mortgage loans with initially discounted rates, which vary
depending upon market conditions and whether the initial rate
adjustment period is one or three years. Adjustable-rate loans
represented 9.98% of the Savings Bank's total loan portfolio at
June 30, 1997 due to the difficulty of originating adjustable
rate mortgage loans in the Savings Bank's primary market.
The Savings Bank's one- to four-family residential first
mortgage loans customarily include due-on-sale clauses, which are
provisions giving the Savings Bank the right to declare a loan
immediately due and payable in the event, among other things,
that the Borrower sells or otherwise disposes of the underlying
real property serving as security for the loan. Due-on-sale
clauses are an important means of adjusting the rates on the
Savings Bank's fixed-rate mortgage loan portfolio, and the
Savings Bank has usually exercised its rights under these
clauses.
Regulations limit the amount that a savings bank may lend
relative to the appraised value of the real estate securing the
loan, as determined by an appraisal at the time of loan
origination. Appraisals are performed by appraisers approved by
the Savings Bank's Board of Trustees. Such regulations permit a
maximum loan-to-value ratio of 95% for residential property and
80% for all other real estate loans. The Savings Bank's lending
policies limit the maximum loan-to-value ratio on both fixed-rate
and adjustable-rate mortgage loans without private mortgage
insurance to 80% of the lesser of the appraised value or the
purchase price of the real estate that serves as collateral for
the loan. For one- to four-family real estate loans with loan-
to-value ratios in excess of 80%, the Savings Bank requires the
borrower to obtain private mortgage insurance. The Savings Bank
requires fire and casualty insurance, as well as title insurance
on all properties securing real estate loans made by the Savings
Bank.
Construction Loans. The Savings Bank's loan portfolio
included $2.13 million of construction loans at June 30, 1997,
which amounted to 3.38% of the Savings Bank's total loan
portfolio. The Savings Bank offers fixed and adjustable rate
residential construction loans primarily for the construction of
owner-occupied one-to four-family residences in the Savings
Bank's market area to builders or to owners who have a contract
for construction. Construction loans to owners are generally
structured to become permanent loans, and are originated with
terms up to 30 years with an allowance of up to one year for
construction.
Construction lending generally involves a greater degree of
credit risk than other one- to four-family residential mortgage
lending. The repayment of the construction loan is often
dependent upon the successful completion of the construction
project. Construction delays or the inability of the borrower to
sell the property once construction is completed may impair the
borrower's ability to repay the loan.
Five or More Family Residential Real Estate Loans. Loans
secured by five or more family residential real estate
constituted approximately $711,000, or 1.13%, of the Savings
Bank's total loan portfolio at June 30, 1997. The Savings Bank's
five or more family residential real estate loans are secured by
residence buildings with over 4 family units, which are generally
rental properties. At June 30, 1997, all of the Savings Bank's
five or more family residential real estate loans were secured by
properties located within the Savings Bank's market area. The
Savings Bank's largest five or more family residential real
estate loan at June 30, 1997, had a principal balance of
approximately $200,000.
Five or more family residential real estate loans are
offered with both adjustable interest rates and fixed interest
rates. The terms of each five or more family residential real
estate loan are negotiated on a case-by-case basis. The Savings
Bank generally makes five or more family residential real estate
loans up to 80% of the lesser of property cost or the appraised
value of the mortgaged property. Loans secured by five or more
family residential real estate generally involve a greater degree
of credit risk than one-to four-family residential mortgage
loans. This increased credit risk is a result of several
factors, including the concentration of larger balances in a
limited number of loans and borrowers, the effects of general
economic conditions on income producing properties, and the
increased difficulty of evaluating and monitoring these types of
loans. Furthermore, the repayment of loans secured by five or
more family residential real estate is typically dependent upon
the successful operation of related real estate property. If the
cash flow from the project is reduced, the borrower's ability to
repay the loan may be impaired.
Nonresidential Real Estate Loans. Loans secured by
nonresidential real estate constituted approximately
$9.69 million, or 15.41%, of the Savings Bank's total loan
portfolio at June 30, 1997. The Savings Bank's nonresidential
real estate loans are secured by nonresidential properties such
as retail establishments, office buildings, and industrial
buildings. The Savings Bank also originates nonresidential real
estate loans through its subsidiary, PSA Financial Corp. See
"SUBSIDIARIES." A significant portion of the Savings Bank's
nonresidential real estate loans are secured by properties
located within the Savings Bank's market area. The Savings
Bank's largest nonresidential real estate loan had a principal
balance of approximately $1.20 million at June 30, 1997, and was
secured by a business property in the Savings Bank's market area.
Nonresidential real estate loans are offered with both
adjustable interest rates and fixed interest rates. The terms of
each nonresidential real estate loan are negotiated on a case-by-
case basis. The Savings Bank generally makes nonresidential real
estate loans up to 75% of the lesser of property cost or the
appraised value of the mortgaged property. As in the case of
five or more family loans, nonresidential real estate loans
generally involve a greater degree of credit risk than one-to
four-family residential mortgage loans and carry larger loan
balances. This increased credit risk results from the
concentration of principal in a more limited number of loans and
borrowers, the effects of general economic conditions on income
producing properties, and the increased difficulty of evaluating
and monitoring nonresidential loans. The repayment of loans
secured by nonresidential real estate is typically dependent upon
the success of the related business operation. If the cash flow
from the business is impaired, the borrower's ability to repay
the loan may also be impaired.
Commercial Loans. The Savings Bank currently offers
commercial loans to finance various activities in the
Philadelphia metropolitan area, some of which are secured in part
by additional real estate collateral, such as business property
and/or personal residences. The Savings Bank originates
commercial loans through its subsidiary, PSA Financial Corp. See
"SUBSIDIARIES." At June 30, 1997, commercial loans totalled
approximately $1.19 million or 1.89% of the total loan portfolio.
Commercial loans are offered with either adjustable or fixed
interest rates. Adjustable rates are tied to the Savings Bank's
prime rate plus a margin.
Underwriting standards employed by the Bank for commercial
loans include a determination of the applicant's ability to met
existing obligations and payments on the proposed loan from
normal cash flows generated by the applicant's business. The
financial strength of each applicant also is assessed through a
review of financial statements provided by the applicant.
Commercial loans generally bear higher interest rates than
residential loans, but they also may involve a higher risk of
default since their repayment is generally dependent on the
successful operation of the borrower's business. The Savings
Bank generally obtains personal guarantees from the borrower or a
third party as a condition to originating its commercial loans.
Consumer Loans. As of June 30, 1997, consumer loans
totalled $1.22 million, or 1.95%, of the Savings Bank's total
loan portfolio. The principal types of consumer loans offered by
the Savings Bank are home equity loans and lines of credit,
unsecured personal loans, and loans secured by deposit accounts.
The Savings Bank's subsidiary, PSA Consumer Discount Company,
offers secured and unsecured personal loans. See "SUBSIDIARIES."
Consumer loans are offered with maturities generally of less than
ten years. The Savings Bank's home equity loans and lines of
credit are secured by the borrower's principal residence with a
maximum loan-to-value ratio, including the principal balances of
both the first and second mortgage loans, of 80% in the case of
home equity loans and 70% in the case of lines of credit. Such
loans are offered on both a fixed-rate and an adjustable-rate
basis with terms of up to fifteen years.
The underwriting standards employed by the Savings Bank for
consumer loans include a determination of the applicant's credit
history and an assessment of ability to meet existing obligations
and payments on the proposed loan. The stability of the
applicant's monthly income may be determined by verification of
gross monthly income from primary employment, and additionally
from any verifiable secondary income. Creditworthiness of the
applicant is of primary consideration; however, the underwriting
process also includes a comparison of the value of the collateral
in relation to the proposed loan amount, and in the case of home
equity loans or lines of credit, the Savings Bank either obtains
title insurance or obtains a title search report, depending on
the particular loan.
Consumer loans entail greater credit risk than do
residential first mortgage loans, particularly in the case of
consumer loan that are unsecured or secured by assets that
depreciate rapidly. In such cases, repossessed collateral for a
defaulted consumer loan may not provide an adequate source of
repayment for the outstanding loan and the remaining deficiency
often does not warrant further substantial collection efforts
against the borrower. See "-- Delinquencies and Classified
Assets - Nonperforming Assets," "-- Loans Past Due and
Nonperforming Assets," and "-- Classification of Assets" for
information regarding the Savings Bank's loan loss experience and
reserve policy.
Mortgage Banking Operations
Through its subsidiary, TNMC, the Savings Bank has conducted
a mortgage banking operation since 1989. Mortgage banking
consists primarily of the origination, purchase, sale and
servicing of first mortgage loans secured by one-to-four family
homes. Such loans are sold either as individual loans, as
mortgage-backed securities, or as participation certificates
issued or guaranteed by FNMA or FHLMC. Loans may be sold either
on a servicing retained or servicing released basis.
As of June 30, 1997, the Savings Bank's equity investment in
TNMC totaled ($89,000). For the six months ended June 30, 1997,
TNMC's loan originations totaled $6.4 million and net loss
totaled ($66,000).
The Savings Bank plans to expand into the Philadelphia
metropolitan market, including counties of New Jersey and
Delaware, because management believes this market is more
accustomed to obtaining mortgages from mortgage brokers as well
as directly from banks and thrifts. The Savings Bank has
implemented a strategy in this area to expand TNMC's operations
in order to increase the origination of loans for sale in the
secondary market and for its own portfolio and the expansion of
its servicing portfolio.
The Savings Bank expects that it will serve as the principal
funding source for TNMC pursuant to a credit arrangement between
the parties. TNMC originates loans in accordance with FNMA and
FHLMC underwriting criteria or the criteria of private investors.
In the past, TNMC has sold loans on a servicing released
basis, but, as origination volume increases, the Savings Bank is
establishing loan servicing capabilities and TNMC expects to sell
servicing to the Savings Bank. Loan servicing income provides a
predictable source of fee income and servicing values are
generally countercyclical to the origination side of the mortgage
banking business.
Because mortgage originations fluctuate significantly with
economic conditions, mortgage banking revenues are very cyclical.
To the extent TNMC revenues and profits become, as expected, a
significant component of the Savings Bank's consolidated revenues
and net income, earnings of the Savings Bank could fluctuate
materially.
Loan Maturity and Re-pricing Schedule. The following table
set forth the maturity or period of re-pricing of the Savings
Bank's loan portfolio at June 30, 1997. Demand loans and loans
having no stated schedule of repayments and no stated maturity
are reported as due in one year or less. Adjustable and
floating-rate loans are included in the period in which interest
rates are next scheduled to adjust rather than the period in
which they contractually mature, and fixed-rate loans are
included in the period in which the final contractual repayment
is due.
<TABLE>
<CAPTION>
Amounts at June 30, 1997
Multi- Consumer
One to Family and and
Four Commercial Construc- Commercial Total
Family Real Estate tion Business Loans
(In thousands)
<S> <C> <C> <C> <C> <C>
Amounts due:
Non-accrual $ 1,111 $ 313 $ - $ - $ 1,424
Within one year 8,015 941 2,128 1,594 12,678
After one year:
1-3 years 479 1,746 - 541 2,766
3 to 5 years 1,563 5,005 - 188 6,756
5 to 10 years 3,794 841 - 85 4,720
Over 10 years 32,970 1,553 - - 34,523
Total due after one
year 38,806 9,145 - 814 48,765
Total amount $47,932 $10,399 $2,128 $2,408 $62,867
</TABLE>
Loan Origination, Purchase and Sale Schedule. The following table shows
total loans originated, purchased, sold and repaid during the periods
indicated.
<TABLE>
<CAPTION>
For the six months ended For the year ended For the years ended
June 30, December 31, September 30,
1997 1996 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Total net loans receivable
at beginning of period $57,183 $54,318 $54,791 $51,097 $52,815
Originations
Real estate loans 12,850 10,135 20,062 8661 14041
Consumer and commercial
business loans 1,234 402 1,033 951 398
Total loan originations 14,084 10,537 21,095 9,822 14,439
Loans purchased 0 0 0 0 0
Principal repayments
and sales of loans (9,166) (8,587) (18,872) (8,447) (16,193)
Increase (decrease)
in loans in process 59 (31) (19) 14
Increase (decrease) in
allowance for loan losses 0 0 0 0 21
Net increase (decrease)
in loans 4,957 1,950 2,392 1,156 (1,718)
Total net loans receivable
at end of period $62,140 $56,268 $57,183 $52,253 $51,097
</TABLE>
Loans-to-One Borrower. Savings banks are subject to the
same loans-to-one borrower limits as those applicable to national
banks, which under current regulations restrict loans to one
borrower to an amount equal to 15% of unimpaired capital and
unimpaired surplus on an unsecured basis, and an additional
amount equal to 10% of unimpaired capital and unimpaired surplus
if the loan is secured by readily marketable collateral
(generally, financial instruments and bullion, but not real
estate). As of June 30, 1997, the Savings Bank's largest loan to
one borrower consisted of six loans to one borrower. Of the six
loans, three loans were commercial loans which had an aggregate
outstanding balance of $607,000, one loan was a consumer loan
with an outstanding balance of $26,000 and two loans were
construction loans with an aggregate outstanding balance of
$1.3 million at June 30, 1997.
Delinquencies and Classified Assets
Collection Procedures. The Savings Bank's collection
procedures provide that when a mortgage loan is unpaid within its
grace period (either ten or fifteen days depending on the loan),
a late notice will be sent to the borrower requesting payment.
If delinquency continues for approximately fifteen days, then a
second notice may be sent and contact efforts are attempted to
strengthen the collection process and obtain reasons for the
delinquency. Plans to arrange a repayment plan may be made. If
a loan becomes two months delinquent, the property is inspected
in anticipation of foreclosure, a collection letter is sent,
personal contact may be attempted, and the loan becomes subject
to possible legal action if suitable arrangements to repay have
not been made. In addition, the borrower is given information
regarding consumer counseling services, to the extent required by
regulations of the PDOB, or the Pennsylvania Department of
Housing and Urban Development. When a loan continues in a
delinquent status for 60 to 90 days and a repayment schedule has
not been made or kept by the borrower, generally a notice of
intent to foreclose is sent to the borrower, giving 30 days to
cure the delinquency. If the default is not cured, foreclosure
proceedings are initiated.
Nonperforming Assets. Loans are reviewed on a regular basis
and are placed on a nonaccrual status when, in the opinion of
management, the collection of additional interest is doubtful.
Residential mortgage loans with a delinquency of 12 months are
placed on nonaccrual status unless the value of the mortgaged
property well exceeds the loan balance. Similarly, commercial
mortgage loans that are three months delinquent will be placed on
nonaccrual status unless the value of the collateral well exceeds
the loan balance and the loan is in the process of collection.
Consumer and unsecured loans are placed on nonaccrual upon
becoming three months delinquent. No adjustment is made for
interest accrued and unpaid at the time a loan is placed on
nonaccrual status. Interest is discontinued and income is
subsequently recognized only to the extent that cash payments are
received, or until in management's judgment, the borrower's
ability to make periodic interest and principal payments is back
to normal, in which case the loan is returned to accrual status.
Real estate acquired by the Savings Bank as a result of
foreclosure or by deed in lieu of foreclosure is classified as
REO until such time as it is sold. In addition to REO acquired
in the above described manner, the Savings Bank includes in REO
loans that qualify as "in-substance foreclosures." In order to
qualify as an in-substance foreclosure, the debtor must have
little or no equity in the collateral considering its fair value,
proceeds for repayment can be expected to come only from the
operation or sale of the collateral, and the debtor has either
abandoned control of the collateral or has retained control but
cannot be expected to rebuild equity in the collateral in the
foreseeable future. When real estate is acquired through
foreclosure, by deed in lieu of foreclosure, or through
in-substance foreclosure, it is recorded at its fair value, less
estimated costs of disposal. If the value of the property is
less than the loan, less any related specific loan loss
provisions, the difference is charged against the allowance for
loan losses. Any subsequent write-down of REO is charged against
earnings. At June 30, 1997, the Savings Bank had approximately
$467,000 of property acquired as a result of foreclosure.
At June 30, 1997, the Savings Bank had nonperforming loans
of $2.89 million, and a ratio of nonperforming loans to total
loans of 4.63%. Of the total nonperforming loans, $2.1 million
are single-family residential mortgage loans. At June 30, 1997,
the Savings Bank had nonperforming assets of $3.35 million and a
ratio of nonperforming assets to total assets of 2.70%.
Loans Past Due and Nonperforming Assets. The following
table sets forth information regarding the Savings Bank's loans
90 days or more past due, loans 90 days or more past due and
accruing interest, and real estate acquired or deemed acquired by
foreclosure at the dates indicated. For all the dates indicated,
the Savings Bank did not have any material restructured loans
within the meaning of SFAS No. 15.
<TABLE>
<CAPTION>
At June 30, At December 31, At September 30,
1997 1996 1996 1995 1995 1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans past due 90 days or more as to
interest or principal and
accruing interest $1,461 $1,993 $2,009 $1,645 $1,565 $1,417 $1,167 $1,174
Nonaccrual loans(1) 1,424 667 770 607 770 738 344 645
Loans restructured to provide a reduction
or deferral of interest principal - - - - - - - -
Total nonperforming loans 2,885 2,660 2,779 2,252 2,335 2,155 1,511 1,819
Real estate owned (REO) 467 449 465 528 482 330 486 163
Total nonperforming assets $3,352 $3,109 $3,244 $2,780 $2,817 $2,486 $1,997 $1,982
Nonperforming loans to total loans 4.63% 4.67% 4.84% 4.13% 4.41% 4.20% 2.85% 3.71%
Nonperforming assets to total assets 2.70 2.56 2.74 2.43 2.47 2.49 2.07 2.17
Allowance for loan losses to total loans 0.33 0.37 0.36 0.38 0.39 0.41 0.35 0.38
Allowance for loan losses to nonperforming
loans 7.18 7.82 7.45 9.24 8.91 9.65 12.38 10.28
Allowance for loan losses to nonperforming
assets 6.18 6.69 6.38 7.48 7.38 8.37 9.36 9.43
Net charge-offs as a percentage of total
loans - - 0.23 0.19 0.05 - - -
</TABLE>
(1)Except in the case of residential and commercial real estate
loans, the Savings Bank classifies as nonperforming all
loans three months or more delinquent.
During the six months ended June 30, 1997 and the years
ended December 31, 1996 and 1995 and for the year ended
September 30, 1995, gross interest income of approximately
$220,000, $175,000, $158,000, and $157,000, respectively, would
have been recorded on loans accounted for on a nonaccrual basis
if the loans had been current throughout the related periods. No
interest income on nonaccrual loans was included in income during
such periods.
In May 1993, the FASB issued SFAS No. 114 "Accounting by
Creditors for Impairment of a Loan." SFAS No. 114 requires that
certain impaired loans be measured based on the present value of
expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if
the loan is collateral dependent. In October 1994, the FASB
issued SFAS No. 118 "Accounting by Creditors for Impairment of a
Loan--Income Recognition and Disclosure," that amends SFAS
No. 114 and eliminates its provision regarding how a creditor
should report income on an impaired loan. Originally, SFAS
No. 114 would have required creditors to apply one of two
allowable methods. As a result of the amendment, creditors may
now continue to use existing methods for recognizing income on
impaired loans, including methods that are required by certain
industry regulators. SFAS No. 114 and SFAS No. 118 were adopted
by Savings Bank beginning January 1, 1996. The effect of SFAS
No. 114 and SFAS No. 118 on the Savings Bank was not significant.
Classification of Assets. The Savings Bank's policies,
consistent with regulatory guidelines, provide for the
classification of loans and other assets such as debt and equity
securities, considered to be of lesser quality as "substandard,"
"doubtful," or "loss" assets. An asset is considered
"substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or by the collateral
pledged, if any. "Substandard" assets include those
characterized by the "distinct possibility" that the savings
institution will sustain "some loss" if the deficiencies are not
corrected. Assets classified as "doubtful" have all of the
weaknesses inherent in those classified "substandard" with the
added characteristic that the weaknesses present make "collection
or liquidation in full," on the basis of currently existing
facts, conditions, and values, "highly questionable and
improbable." Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance
as assets without the establishment of a specific loss reserve is
not warranted. Assets that do not expose the savings institution
to risk sufficient to warrant classification in one of the
aforementioned categories, but which possess some weaknesses, are
required to be designated "special mention" by management. At
June 30, 1997, the Savings Bank had $1.4 million of substandard
loans and $1.7 million of "special mention" loans.
When a savings bank classifies problem assets as either
substandard or doubtful, it is required to establish general
valuation allowances or "loss reserves" in an amount deemed
prudent by management. General allowances represent loss
allowances that have been established to recognize the inherent
risk associated with lending activities, but which, unlike
specific allowances, have not been allocated to particular
problem assets. When a savings bank classifies problem assets as
"loss," it is required either to establish a specific allowance
for losses equal to 100% of the amount of the assets so
classified, or to charge off such amount. A savings bank's
determination as to the classification of its assets and the
amount of its valuation allowance is subject to review by its
regulatory agencies, which can order the establishment of
additional general or specific loss allowances. The Savings Bank
regularly reviews its asset portfolio to determine whether any
assets require classification in accordance with applicable
regulations.
At June 30, 1997, the Savings Bank had no foreign loans and
no loan concentrations exceeding 10% of total loans in the table
"Analysis of Loan Portfolio." Loan concentrations are considered
to exist when there are amounts loaned to a multiple number of
borrowers engaged in similar activities that would cause them to
be similarly impacted by economic or other conditions.
Potential problem loans consist of loans that are included
in performing loans, but for which potential credit problems of
the borrowers have caused management to have serious doubts as to
the ability of such borrowers to continue to comply with present
repayment terms. At June 30, 1997, loans past due between 30 and
89 days that are not included in the preceding table totalled
$121,000.
Allowance for Loan Losses. The allowance for loan losses is
established through a provision for loan losses based on
management's evaluation of the known and inherent risks in its
loan portfolio and current economic conditions. Accordingly, the
Savings Bank consistently applies a methodology to determine both
the adequacy of the allowance for loan losses and the necessary
provision for loan losses to be charged against earnings. This
methodology includes:
- a detailed review of all classified assets to determine
if any specific reserve allocations (which includes
impaired loans) are required on an individual loan
basis.
- the application of reserve allocations to all
criticized and classified assets, based upon allocation
percentages, with an "olem" (other loans especially
mentioned), substandard or doubtful rating.
- the application of reserve allocations to installment
and mortgage loans based upon historical charge-off
experience for those loan types.
- the application of reserve allocations to all
performing loans based upon historical actual losses
incurred from all loan review categories.
The Savings Bank provided $0, $132,000 and $27,000 to its
allowance for loan losses for the six months ended June 30, 1997
and for the years ended December 31, 1996 and September 30, 1995,
respectively. At June 30, 1997, the total allowance was
$207,000, which amounted to 6.18% of nonperforming assets. The
Savings Bank will continue to monitor and modify the level of its
allowance for loan losses in order to maintain it at a level that
management considers adequate to provide for potential loan
losses. As the Savings Bank continues to diversify its loan
portfolio and thereby its methodology the allowance for loan
losses may increase. For the six months ended June 30, 1997 and
the years ended December 31, 1996 and September 30, 1995,
respectively, the Savings Bank had $0, $133,000 and $27,000 in
charge-offs against this allowance.
Analysis of the Allowance For Loan Losses. The following
table sets forth the analysis of the allowance for loan losses
for the periods indicated.
<TABLE>
<CAPTION>
Six Months Year Ended Years Ended
Ended June 30, December 31, September 30,
1997 1996 1996 1995 1994 1993
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Allowance, beginning of
period $207 $208 $208 $208 $187 $187
Total charge-offs -- -- 133 27 - -
Total recoveries -- -- - - - -
Net charge-offs
(recoveries) -- -- 133 27 - -
Provision charged to
operations -- -- 132 27 21 -
Allowance, end of period $207 $208 $207 $208 $208 $187
Charge-offs (recoveries) to
average loans 0.00% 0.00% 0.23% 0.05% 0.00% 0.00%
Allowance for loan losses
as a percentage of
period-end loans 0.33% 0.37% 0.36% 0.39% 0.41% 0.35%
</TABLE>
Allocation of Allowance for Loan Losses. The following
table sets forth the allocation of allowance for loan losses by
loan category for the periods indicated.
<TABLE>
<CAPTION>
At June 30, At December 31, At September 30,
1997 1996 1996 1995 1995
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential including
multifamily real estate $105 80.75% $139 87.42% $150 87.98% $152 85.01% $150 85.80%
Commercial real estate
and commercial business 97 17.3 56 10.88 44 10.27 39 13.10 39 12.36
Consumer 5 1.95 13 1.70 13 1.75 17 1.89 16 1.84
Unallocated - - - - 3 -
Total $207 100% $208 100% $207 100.00% $208 100.00% $208 100.00%
_____________________
</TABLE>
(1)Represents percentage in each category to total loans.
Investment Activities
The Savings Bank's investment portfolio is comprised of
mortgage-backed securities, investment securities, and cash and
cash equivalents. The carrying value of the Savings Bank's
investment securities and mortgaged-backed securities portfolio
totalled $28.26 million at June 30, 1997 compared to $24.92
million at December 31, 1996. The Savings Bank's cash and cash
equivalents, consisting of cash and due from banks, and interest-
earning deposits with other financial institutions, totalled
$29.02 million at June 30, 1997 compared to $31.62 million at
December 31, 1996, an increase of $2.6 million or 8.96%. The
majority of the Savings Bank's mortgage-backed securities are
issued or guaranteed by the United States Government or agencies
thereof. At June 30, 1997, mortgage-backed securities totalled
$5.72 million. The majority of this amount represents securities
that were issued or guaranteed by either FNMA, FHLMC or the
Government National Mortgage Association ("GNMA"). The Savings
Bank historically maintains high levels of interest-earning
deposits as part of its strategy for meeting liquidity
requirements and improving interest sensitivity.
The Savings Bank is required under federal regulations to
maintain a minimum amount of liquid assets that may be invested
in specified short term securities and certain other investments.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources."
The Bank generally has maintained a portfolio of liquid assets
that exceeds regulatory requirements. Liquidity levels may be
increased or decreased depending upon the yields on investment
alternatives and upon management's judgment as to the
attractiveness of the yields then available in relation to other
opportunities and its expectation of the level of yield that will
be available in the future, as well as management's projections
as to the short-term demand for funds to be used in the Savings
Bank's loan origination and other activities.
Pursuant to SFAS No. 115, which the Savings Bank adopted in
1994, the Savings Bank classifies its investment securities and
mortgage-backed securities as either held-to-maturity, available
for sale or trading. Available for sale and trading securities
are carried at market value, while held-to-maturity securities
are carried at amortized cost. At June 30, 1997, $19.79 million
of the Savings Bank's investment securities and mortgaged-backed
securities were classified held-to-maturity and $8.47 million of
the Savings Bank's investment securities and mortgaged-backed
securities were classified available for sale. The Savings Bank
did not carry any trading securities at June 30, 1997.
The Savings Bank's Board of Trustees has also adopted an
investment policy which identifies acceptable types of
investments for the Savings Bank and establishes criteria to
guide management in classifying investments as prescribed by SFAS
No. 115. The policy also authorizes the Savings Bank's
investment officer to make single investments of up to
$1 million. Under the investment policy the Savings Bank may
invest in certain AAA rated derivative securities. As of
June 30, 1997, the fair value of collateralized mortgage
obligations held by the Savings Bank was $176,000. The Savings
Bank may not invest in high-risk collateralized mortgage
obligations ("CMOs") and the Savings Bank's investment officer
must periodically analyze the risk of any CMO held by the Savings
Bank to determine that such securities are not within the high-
risk category.
Carrying and Market Value of Investment and Mortgage-Backed
Securities. The following table sets forth certain information
regarding the carrying and market values of the Savings Bank's
investment securities and mortgage-backed securities in the
Savings Bank's held-to-maturity portfolio for the periods
indicated.
<TABLE>
<CAPTION>
Held to Maturity
At June 30,
1997
Gross Gross
Amor- Unreal- Unreal-
tized ized ized Fair
Cost Gains Losses Value
(In Thousands)
<S> <C> <C> <C> <C>
Investment Securities:
Investment in mutual funds $ -- $ -- $ -- $ --
Debt:
FHLB................................ 13,215 -- 36 13,179
FNMA................................ 3,000 3 -- 3,003
FHLMC............................... 1,000 -- -- 1,000
Total Debt Securities............. 17,215 3 36 17,182
Mortgage-backed securities:
GNMA................................ 2,272 91 -- 2,363
CMO................................. 177 -- 1 176
FHLMC............................... 125 12 - 137
Total mortgage-backed securities
held to maturity................ 2,574 103 1 2,676
Total securities held to maturity. $19,789 $106 $ 37 $19,858
<CAPTION>
Held to Maturity
At December 31,
1996
Gross Gross
Amor- Unreal- Unreal-
tized ized ized Fair
Cost Gains Losses Value
(In Thousands)
<S> <C> <C> <C> <C>
Investment Securities:
Investment in mutual funds $ -- $ -- $-- $ --
Debt:
FHLB................................ 8,000 -- 32 7,968
FNMA................................ 2,999 4 -- 3,003
FHLMC............................... 1,000 -- -- 1,000
Federal Farm Credit................. 657 -- -- 657
Total Debt Securities............. 12,656 4 32 12,628
Mortgage-backed securities:
GNMA................................ 2,355 90 -- 2,445
CMO................................. 227 -- 3 224
FHLMC............................... 166 16 -- 182
Total mortgage-backed securities
held to maturity................ 2,748 106 3 2,851
Total securities held to maturity. $15,404 $110 $35 $15,479
======= ==== === =======
</TABLE>
The following table presents the estimated fair value
of investment securities and mortgage-backed securities available
for sale and the net unrealized gain or loss at the periods
indicated:
<TABLE>
<CAPTION>
Available for Sale
June 30, 1997
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In thousands)
<S> <C> <C> <C> <C>
Investment Securities:
Equity:
Investment in mutual funds $ 2,354 $ 6 $ -- $2,360
Debt:
FHLB Notes 2,000 -- 10 1,990
SLMA 1,000 -- 22 978
Total debt securities
available for sale 3,000 -- 32 2,968
Mortgage-backed Securities
FNMA 2,497 -- 126 2,371
FHLMC 786 -- 13 773
Total mortgage-backed
securities available
for sale 3,283 -- 139 3,144
Total available-for-sale
securities $ 8,637 $ 6 $ 171 $8,472
<CAPTION>
Available for Sale
December 31, 1996
Amor- Gross Gross
tized Unrealized Unrealized Fair
Cost Gains Losses Value
(In thousands)
<S> <C> <C> <C> <C>
Investment Securities:
Equity:
Investment in mutual funds $2,305 $47 $ -- $2,352
Debt:
FHLB Notes 3,000 -- 15 2,985
SLMA 1,000 -- 21 979
Total debt securities
available for sale 4,000 -- 36 3,964
Mortgage-backed Securities:
FNMA 2,530 -- 110 2,420
FHLMC 792 -- 18 774
Total mortgage-backed
securities available
for sale 3,322 -- 128 3,194
Total available-for-sale
securities $9,627 $ 47 $164 $9,510
</TABLE>
Investment Portfolio Maturities. The following table sets
forth the scheduled maturities, carrying values, and weighted
average yields for the Savings Bank's investment securities and
mortgage-backed securities portfolios classified as being held to
maturity and available for sale at June 30, 1997. Adjustable-
rate, mortgage-backed securities are included in the period in
which interest rates are next scheduled to adjust.
<TABLE>
<CAPTION>
At June 30, 1997
In one year After one year After five years
or less to five years to ten years Over ten years
(Dollars in thousands)
No stated
Carrying Average Carrying Average Carrying Average Carrying Average Maturity
Value Yield Value Yield Value Yield Value Yield or Rate Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held to maturity:
Investment securities $16,215 7.49% $1,000 5.82% $ -- -- $ -- -- $ -- 17,215
Mortgage-backed securities 177 6.00 -- -% -- --% 2,397 8.36% -- 2,574
Total held to maturity $16,392 6.75% $1,000 5.82% $ -- --% $2,397 8.36% $ $19,789
======= ==== ====== ==== ====== ==== ====== ==== ====== =======
Available for sale:
Investment securities $ 3,000 6.06% $ -- -- $ -- -- $ -- -- $2,354 $5,354
Mortgage-backed securities -- -- 3,283 5.25% -- -- -- -- -- 3,283
Total held to maturity $ 3,000 6.06% $3,283 5.25% $ $ $2,354 $8,637
======= ==== ====== ==== ====== ==== ====== ==== ====== ======
</TABLE>
Sources of Funds
General. Deposits are the major source of the Savings
Bank's funds for lending and other investment purposes. In
addition to deposits, the Savings Bank derives funds from the
amortization and prepayment of loans and mortgage-backed
securities, the maturity of investment securities, operations
and, if needed, advances from the FHLB. Scheduled loan principal
repayments are a relatively stable source of funds, while deposit
inflows and outflows and loan prepayments are influenced
significantly by general interest rates and market conditions.
Borrowings may be used on a short-term basis to compensate for
reductions in the availability of funds from other sources or on
a longer term basis for general business purposes.
Deposits. Consumer and commercial deposits are attracted
principally from within the Savings Bank's market area through
the offering of a broad selection of deposit instruments
including checking accounts, passbook savings accounts, statement
savings accounts, money market deposit accounts, term certificate
accounts and individual retirement accounts. Deposit account
terms vary according to the minimum balance required, the period
of time during which the funds must remain on deposit, and the
interest rate, among other factors. The Savings Bank regularly
evaluates its internal cost of funds, surveys rates offered by
competing institutions, reviews the Savings Bank's cash flow
requirements for lending and liquidity, and executes rate changes
when deemed appropriate. The Savings Bank does not obtain
deposits through brokers, nor does it solicit funds outside its
market area.
The Savings Bank's deposit pricing strategy seeks to retain
passbook savings deposit accounts as an important funding source.
Management's experience is that its customer base finds the
traditional passbook savings account attractive even though
higher yields may be available from alternative deposit products.
Accordingly, the Savings Bank typically prices its passbook
product above its large commercial bank competitors whose pricing
strategy is designed for a larger and more diverse market.
The following table sets forth the savings account
activities for the Savings Bank for the periods indicated.
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31, Years Ended September 30,
1997 1996 1996 1995 1994 1993
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Increase before interest
credited $1,999 $4,180 $ 527 $3,187 $ 587 $ 794
Interest credited 1,863 1,771 3,571 3,437 3,038 3,152
Net deposit increase $3,862 $5,951 $4,098 $6,624 $3,625 $3,946
</TABLE>
The following tables set forth the composition of savings
deposits in the various types of savings accounts offered by the
Savings Bank between the dates indicated.
<TABLE>
<CAPTION>
At June 30,
1997 1996
Weighted Weighted
Average Average
% of Nominal % of Nominal
Balance Deposits Rate Balance Deposits Rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Savings deposit accounts $ 28,118 26.92% 2.49% $ 31,126 30.39% 2.50%
NOW accounts 9,176 8.79 1.09 12,151 11.86 0.66
Money market accounts 7,710 7.38 3.63 5,740 5.60 3.57
Retail certificate of deposit 54,147 51.85 5.41 49,683 48.51 5.31
Jumbo certificates of deposit(1) 5,286 5.06% 5.72% 3,727 3.64 5.52%
Total deposits $104,437 100.00% $102,427 100.00%
======== ====== ======== ======
<CAPTION>
At December 31, At September 30,
1996 1995
Weighted Weighted
Average Average
% of Nominal % of Nominal
Balance Deposits Rate Balance Deposits Rate
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Savings deposit accounts $ 28,992 28.83% 2.49% $33,263 34.63% 3.00%
NOW accounts 9,105 9.05 1.09 3,845 4.00 1.04
Money market accounts 6,266 6.23 3.63 4,884 5.08 3.61
Retail certificate of deposit 50,175 49.89 5.41 49,243 51.27 5.55
Jumbo certificates of deposit(1) 6,036 6.00 5.72% 4,818 5.02 5.62%
Total deposits $100,574 100.00% $96,053 100.00%
======== ====== ======= ======
</TABLE>
_____________________
(1)Includes only certificates of deposit of greater than
$100,000 bearing negotiated rates.
Time Deposit Maturities. The following table sets forth the
amount and maturities of time deposits at June 30, 1997.
<TABLE>
<CAPTION>
Period to Maturity from
June 30, 1997
Within One One to
Year Three Years Thereafter Total
(Dollars in thousands)
<S> <C> <C> <C> <C>
4.00% - Less $ 350 $ 246 $ 4 $ 600
4.001% - 6.000% 45,940 7,037 2,116 55,093
6.001% - 8.000% 2,064 1,306 284 3,654
8.001% - 10.000% 36 25 25 86
10.001% - 99.999% - - - -
Total $48,390 $8,614 $2,429 $59,433
======= ====== ====== =======
</TABLE>
Large Certificates of Deposit Maturities. The following
table indicates the amount of the Savings Bank's certificates of
deposit of $100,000 or more by time remaining until maturity at
June 30, 1997.
Certificates
Maturity Period of Deposit
(In thousands)
One year or less $8,277
Over one year though two years $ 530
Over two years through three years $ 104
Over three years through five years $ 400
Over five years through ten years $ --
Over ten years --
$9,311
Borrowings
Savings deposits are the primary source of funds for the
Savings Bank's lending and investment activities and for its
general business purposes. If the need arises, the Savings Bank
may rely upon advances from the FHLB to supplement its supply of
lendable funds and to meet deposit withdrawal requirements. At
June 30, 1997, the Savings Bank had no FHLB advances outstanding.
Market Area and Competition
The Savings Bank's market area includes the Philadelphia and
metropolitan area and all counties contiguous thereto as well as
counties of New Jersey and Delaware. This area has a large
concentration of financial institutions, many of which are
significantly larger and have greater financial resources than
the Savings Bank, and all of which are competitors of the Savings
Bank to varying degrees. As a result, the Savings Bank
encounters strong competition both in attracting deposits and in
originating real estate and other loans. Its most direct
competition for deposits has come historically from commercial
banks, brokerage houses, other savings associations and credit
unions in its market area, and the Savings Bank expects continued
strong competition from such financial institutions in the
foreseeable future. The Savings Bank's market area includes
branches of several commercial banks that are substantially
larger than the Savings Bank. The Savings Bank competes for
savings deposits by offering depositors a high level of personal
service.
The competition for real estate and other loans comes
principally from commercial banks, mortgage banking companies and
other savings institutions. This competition for loans has
increased substantially in recent years as a result of the large
number of institutions competing in the Savings Bank's market
area, as well as the increased efforts by commercial banks to
expand mortgage loan originations.
The Savings Bank competes for loans primarily through the
interest rates and loan fees it charges and the efficiency and
quality of services it provides borrowers, real estate brokers
and builders. Factors that affect competition include general
and local economic conditions, interest rate levels and
volatility of the mortgage markets.
Subsidiaries
The Savings Bank owns three direct subsidiaries and one
indirect subsidiary. See "Business of the Savings Bank --
Mortgage Banking Activities." TNMC is engaged in a mortgage
banking business. See "Business of the Savings Bank -- Mortgage
Banking Operations" and "RISK FACTORS -- Interest Rate Risk."
PSA Service Corp. conducts real estate appraisals, processes
credit applications and provides other services in connection
with the origination of loans. PSA Financial Corp. primarily
originates business loans and commercial real estate loans. Its
subsidiary, PSA Consumer Discount Company, primarily originates
consumer loans.
Personnel
As of June 30, 1997, the Savings Bank had 50 full-time and
no part-time employees. None of the Savings Bank's employees are
represented by a collective bargaining group. The Savings Bank
believes its relationship with its employees to be good.
Legal Proceedings
Periodically, there have been various claims and lawsuits
involving the Savings Bank, such as claims to enforce liens,
condemnation proceedings on properties in which the Savings Bank
holds security interests, claims involving the making and
servicing of real property loans and other issues incident to the
Savings Bank's business. The Savings Bank is not a party to any
pending legal proceedings that it believes would have a material
adverse effect on the financial condition or operations of the
Savings Bank.
Properties
As of June 30, 1997, the Savings Bank conducted operations
through an executive/administrative office, six, (6) full-service
offices and a branch administrative office. The Savings Bank
owns five (5) of the six (6) full-service offices and the branch
administrative office. The Savings Bank is leasing its Center
City Philadelphia full-service office and executive office for a
term of eleven years.
Environmental Matters
Environmental hazards have become a source of substantial
risk and potential liability in the loan portfolios of financial
institutions. If a property securing one or more of an
institutions loans is environmentally contaminated, the
institution may be adversely affected in several different ways.
The value of the collateral could be impaired, environmental
clean-up costs may impair the borrower's repayment ability, liens
held by the institution against the contaminated property may be
subordinated to state and/or federal liens securing clean-up
costs, and the institution against the contaminated property may
be subordinated to state and/or federal liens securing clean-up
costs if it has foreclosed on the property or if it is deemed to
have become involved in management of the borrower. To minimize
these risks, the Savings Bank may require an environmental
examination of the property of any borrower or prospective
borrower if consideration of the potential loss to the Savings
Bank in relation to the burdens to the borrower. The costs of
such examinations and reports are generally the responsibility of
the borrower. These costs may be substantial and may deter a
prospective borrower from entering into a loan transaction with
the Savings Bank. The Savings Bank is not aware of any borrower
who is currently subject to any environmental investigation or
clean-up proceeding which is likely to have a material adverse
impact on the financial condition or results of operations of the
Savings Bank. See "Business of the Savings Bank -- Mortgage
Banking Activities."
REGULATION
General
The Savings Bank is a Pennsylvania-chartered stock savings
bank and its deposit accounts are insured up to applicable limits
by the FDIC under the SAIF (to the extent such deposits were
assumed from the Savings Bank's mutual savings bank predecessor)
or the BIF (in the case of other insured deposits). The Savings
Bank is subject to extensive regulation by the PDOB, as its
chartering agency, and by the FDIC, as its primary federal
regulator and deposit insurer. The Savings Bank must file
reports with the PDOB and the FDIC concerning its activities and
financial condition in addition to obtaining regulatory approvals
prior to engaging in certain activities and transactions
including, but not limited to, mergers and acquisitions. The
PDOB and the FDIC periodically examine the Savings Bank to assess
its compliance with various regulatory requirements. State and
federal regulation and supervision create a framework within
which the Savings Bank must operate and are intended primarily
for the protection of the FDIC insurance funds and depositors
rather than shareholders.
The MHC, as a mutual savings bank holding company, is also
required to file certain reports with the FRB and to comply with
other rules and regulations of the FRB. Regulatory authorities
possess extensive discretion in connection with their supervisory
and enforcement activities and in connection with their
examination policies, including policies regarding the
classification of assets and the adequacy of loan loss reserves.
Any change in regulatory policy by the PDOB, the FRB, or the FDIC
could have a material adverse impact on the MHC, the Savings Bank
and their operations. Certain of the regulatory requirements
applicable to the Savings Bank and to the MHC are referred to
below or elsewhere herein.
Regulation of the Holding Company
General. The MHC is, and the Holding Company will be, a
bank holding company subject to supervision and regulation by the
Federal Reserve under the Bank Holding Company Act of 1956, as
amended. As a bank holding company, the Holding Company's
activities and those of its subsidiary are limited to the
business of banking and activities closely related or incidental
to banking, and the Holding Company may not directly or
indirectly acquire the ownership or control or more than 5% of
any class of voting shares or substantially all of the assets of
any company, including a bank, without the prior approval of the
Federal Reserve.
The Savings Bank is subject to supervision and examination
by applicable federal and state banking agencies. The Savings
Bank is a member of the Federal Reserve System, and therefore,
subject to the regulations of the Federal Reserve. The Savings
Bank is also a Pennsylvania-chartered bank subject to supervision
and regulation by the PDOB.
In addition, because the deposits of the Savings Bank are
insured by the FDIC, the Savings Bank is subject to regulation by
the FDIC. The Savings Bank is also subject to requirements and
restrictions under federal and state law, including requirements
to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that
may be charged thereon and imitations on the types of investments
that may be made and the types of services that may be offered.
Various consumer laws and regulations also affect the operations
of the Savings Bank. In addition to the impact of regulation,
commercial banks are affected significantly by the actions of the
Federal Reserve in attempting to control the money supply an
credit availability in order to influence the economy.
Holding Company Structure. The Savings Bank is subject to
restrictions under federal law which limit its ability to
transfer funds to the Holding Company, whether in the form of
loans, other extensions of credit, investments or asset
purchases. Such transfers by the Savings Bank to the Holding
Company are generally limited in amount to 10% of the Savings
Bank's capital and surplus. Furthermore, such loans and
extensions of credit are required to be secured in specific
amounts, and all transactions are required to be on an arm's
length basis. The Savings Bank has never made any loan or
extension of credit to the Holding Company nor has it purchased
any assets from the Holding Company.
Under Federal Reserve policy, a bank holding company is
expected to act as a source of financial strength to the Savings
Bank and to commit resources to support the Savings Bank, i.e.,
to downstream funds to the Savings Bank. This support may be
required at times when, absent such policy, the bank holding
company might not otherwise provide such support. Any capital
loans by a bank holding company to the Savings Bank are
subordinate in right of payment to deposits and to certain other
indebtedness of the Savings Bank. In the event of a bank holding
company's bankruptcy, any commitment by the bank holding company
to a federal bank regulatory agency to maintain the capital of
the Savings Bank will be assumed by the bankruptcy trustee and
entitled to a priority of payment.
Regulation of the Savings Bank
Pennsylvania Savings Bank Law. The Savings Bank is
incorporated under the Pennsylvania Banking Code of 1965, as
amended (the "Banking Code"). The Banking Code contains detailed
provisions governing the Bank's organization, the location of its
offices, the rights and responsibilities of its trustees,
officers, employees, depositors and shareholders, and its
savings, investment and other operations. The Banking Code
delegates extensive rulemaking power and administrative
discretion to the PDOB.
The PDOB generally examines each savings bank not less
frequently than once every two years. Although the PDOB may
accept the examinations and reports of the FDIC in lieu of the
PDOB's examination, the current practice is for the PDOB to
conduct individual examinations. The PDOB may order any savings
bank to discontinue any violation of law or unsafe or unsound
business practice and may direct any trustee, officer, employee
or attorney of a savings bank engaged in an objectionable
activity, after the PDOB has ordered the activity to be
terminated, to show cause at a hearing before the PDOB why such
person should not be removed.
Interstate Acquisitions. The Commonwealth of Pennsylvania
has enacted legislation regarding the acquisition of commercial
banks, bank holding companies, savings banks and savings and loan
associations located in Pennsylvania by institutions located
outside of Pennsylvania. The statute dealing with savings
institutions authorizes (i) a savings bank, savings and loan
association or holding company thereof located in another state
(a "foreign institution") to acquire the voting stock of, merge
or consolidate with, or purchase assets and assume liabilities
of, a Pennsylvania-chartered savings bank and (ii) the
establishment of branches in Pennsylvania by foreign
institutions, in each case subject to certain conditions
including (A) reciprocal legislation in the state in which the
foreign institution seeking entry into Pennsylvania is located
permitting comparable entry by Pennsylvania savings institutions
and (B) approval by the PDOB. Pennsylvania law also provides for
nationwide branching by Pennsylvania-chartered savings banks and
savings and loan associations, subject to the PDOB's approval and
certain other conditions.
On September 29, 1994, the United States Congress enacted
the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Interstate Banking Law"), which amended various
federal banking laws to provide for nationwide interstate
banking, interstate bank mergers and interstate branching. The
Interstate Banking Law currently allows the acquisition by a bank
holding company of a bank located in another state, interstate
bank mergers and branch purchase and assumption transactions.
Only a few states have "opted-out" of the merger and purchase and
assumption provisions by enacting laws that specifically prohibit
such interstate transactions.
Pursuant to the Interstate Banking Law, states may also
enact legislation to allow for de novo interstate branching by
out of state banks.
Capital Maintenance. FDIC regulations require FDIC-insured
state-chartered savings banks, such as the Savings Bank, to
maintain minimum levels of capital. The regulations establish a
minimum leverage capital requirement of not less than 3% Tier 1
capital to total assets for institutions in the strongest
financial and managerial condition, with a CAMEL rating of "1"
(the highest rating of the FDIC for banks). For all other banks,
the minimum leverage ratio is at least 4% to 5%. Tier I capital
consists principally of common shareholders' equity (including
retained earnings), noncumulative perpetual preferred stock and
related surplus, and minority interests in consolidated
subsidiaries, minus all intangible assets other than certain
supervisory goodwill, purchased mortgage servicing rights and
purchased credit card relationships.
The FDIC also requires that savings banks meet a risk-based
capital standard. The risk-based capital standard for savings
banks requires the maintenance of total capital (which is defined
as Tier 1 capital plus supplementary (Tier 2) capital) to risk-
weighted assets of 8%. In determining the amount of risk-
weighted assets, all assets, plus certain off balance sheet
assets, are multiplied by a risk weight of 0% to 100%, based on
the risks the FDIC believes are inherent in the type of asset or
item.
Tier 2 capital includes certain perpetual preferred stock,
hybrid capital instruments, including certain mandatory
convertible securities, certain subordinated debt and
intermediate preferred stock and a limited amount of the general
allowance for loan and lease losses. The amount of the allowance
for loan and lease losses includable in Tier 2 capital is limited
to a maximum of 1.25% of risk-weighted assets and 100% of Tier 1
capital. Overall, the amount of capital counted toward Tier 2
capital cannot exceed 100% of Tier 1 capital. At June 30, 1997,
the Savings Bank met its capital requirements.
FDICIA requires the Federal banking agencies to revise their
risk-based capital guidelines to, among other things, take
adequate account of interest rate risk, concentration of credit
risk, and risks of nontraditional activities. The agencies have
adopted a specific rule applicable to institutions whose
investment portfolio trading activity exceeds 10% of total assets
or $1 billion. The Savings Bank is not subject to this rule.
The agencies have stated that they will also consider the effects
of market and credit risk and nontraditional activities on a
case-by-case basis, and could impose higher capital requirements
on any institution.
Virtually identical capital requirements are imposed on the
Holding Company and enforced by the FRB. The Savings Bank is
also subject to PDOB capital guidelines. Although not adopted in
regulation form, the PDOB utilizes capital standards requiring a
minimum of 6% leverage capital and 10% risk-based capital. The
components of leverage and risk-based capital are substantially
the same as those defined by the FDIC.
Insurance of Deposit Accounts. The FDIC has implemented a
risk-related premium schedule for all insured depository
institutions that results in the assessment of premiums based on
capital and supervisory measures. Under the risk-related premium
schedule, the FDIC assigns, on a semiannual basis, each
institution to one of three capital groups (well-capitalized,
adequately capitalized or undercapitalized) and further assigns
such institution to one of three subgroups within a capital
group. The institution's subgroup assignment is based upon the
FDIC's judgment of the institution's strength in light of
supervisory evaluations, including examination reports,
statistical analyses and other information relevant to measuring
the risk posed by the institution. Only institutions with a
total capital to risk-adjusted assets ratio of 10.00% or greater,
a Tier 1 capital to risk-based assets ratio of 6% or greater, and
a Tier 1 leverage ratio of 5.0% or greater, are assigned to the
well-capitalized group. As of December 31, 1996, the Savings
Bank was well capitalized for purposes of calculating insurance
assessments.
On September 30, 1996, the President signed into law the
Omnibus Appropriations' Act that includes legislation to
capitalize the Savings Association Insurance Fund with a one-time
special assessment. The special assessment was paid on the
amount of SAIF-assessable deposits held by the institution as of
March 31, 1995 and the amount of any SAIF assessable deposits
acquired by the institution after that date. The Savings Bank
recognized an expense of $567,000 in the third quarter of 1996.
Since the SAIF was deemed recapitalized as of October 1, 1996,
the FDIC also set a new premium range for the fourth quarter of
1996. Consequently, the Savings Bank received a refund of
$58,000 for the fourth quarter of 1996. The FDIC approved a
final rule establishing a new range of premiums for SAIF and BIF
insured deposits effective January 1, 1997. The FDIC calculated
deposit insurance assessments at the rate of $0.00 for every $100
of deposits for banks in the lowest risk-based premium category
and $0.27 for every $100 of insured deposits for banks in the
highest risk-based category. The Savings Bank is presently in
the lowest premium category.
While the Savings Bank presently pays no premium for deposit
insurance, it is subject to assessments to pay the interest on
Financing Corporation ("FICO") bonds. FICO was created by
Congress in 1989 to issue bonds to finance the resolution of
failed thrift institutions. Prior to 1997, only thrift
institutions were subject to assessments to raise funds to pay
the FICO bonds. The Omnibus Budget Act also provided that the
BIF deposits would be subject to 1/5 of the assessment to which
SAIF deposits are subject for FICO bond payments through 1999.
Beginning in 2000, BIF and SAIF deposits will be subject to the
same assessment for FICO bonds. The FICO assessment for the
Savings Bank for 1997 is $.013 for each $100 of BIF deposits and
$.0648 for each $100 of SAIF deposits.
The Savings Bank was chartered as a BIF-insured institution;
however, it will continue to pay premiums to the SAIF at SAIF
rates with respect to the deposits that it assumed in the MHC
Reorganization. Therefore, substantially all of the Savings
Bank's deposits are assessed at SAIF rates.
Restrictions on Dividends. Dividend payments by the Savings
Bank are subject to the Banking Code. Under the Banking Code, no
dividends may be paid except from "accumulated net earnings"
(generally, undivided profits). Under the FDI Act, no dividends
may be paid by an insured bank if the bank is in arrears in the
payment of any insurance assessment due to the FDIC.
State and federal regulatory authorities have adopted
standards for the maintenance of adequate levels of capital by
banks. Adherence to such standards further limits the ability of
the Savings Bank to pay dividends.
Restrictions on Investment Authority of State-Chartered
Banks. Section 24 of the FDI Act, and the FDIC regulations
promulgated thereunder, generally limit the activities and equity
investments of FDIC insured savings banks and their subsidiaries
to those permissible for national banks and their subsidiaries,
unless such activities and investments are specifically exempted
or consented to by the FDIC. FDIC regulations governing the
equity investments of FDIC insured savings banks generally
prohibit equity investments by such banks and required the
divestiture of such investments by December 19, 1996, unless
certain conditions are met. The Savings Bank has no
impermissible investments and does not conduct impermissible
activities. Savings banks not engaging in such activities but
that desire to engage in other impermissible activates may apply
for approval from the FDIC to do so.
Transactions with Affiliates. Extensions of credit by the
Savings Bank to executive officers, trustees, and principal
shareholders and related interests of such persons are subject to
Sections 22(g) and 22(h) of the FRA and the Federal Reserve's
Regulation O. These rules limit the aggregate amount of loans to
any such individual and their related interests, and require that
all such loans be pre-approved by the full Board of the Holding
Company voting without such person being present. These rules
also provide that no institution shall make any loan or extension
of credit in any manner to any of such persons, unless such loan
or extension of credit is made on substantially the same terms,
including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons, does not
involve more than the normal risk of repayment or present other
unfavorable features, and the institution follows underwriting
procedures that are not less stringent than those applicable to
comparable transactions by the institution with persons who are
not executive officers, trustees, principal shareholders, or
employees of the institution. Loans can be made to employees,
including executives and trustees, on more favorable terms than
to the general public, if all employees are eligible for such
preferential terms. Regulation O also sets forth additional
limitations on extensions of credit by an institution to its
executive officers. Management believes that the Savings Bank is
in compliance with Sections 22(g) and 22(h) of the FRA and the
Federal Reserve's Regulation O.
Federal Reserve System. Under Federal Reserve regulations,
the Savings Bank is required to maintain noninterest-earning
reserves against its transaction accounts (primarily NOW and
regular checking accounts). The Federal Reserve regulations
generally require that reserves of 3% must be maintained against
net transaction accounts of $52 million or less (subject to
adjustment by the Federal Reserve) and $1.56 million plus 10% of
net transaction accounts in excess of $52 million. The Savings
Bank is in compliance with the foregoing requirements. Because
required reserves must be maintained in the form of either vault
cash, a noninterest-bearing account at a Federal Reserve Bank or
a pass-through account as defined by the Federal Reserve, the
effect of this reserve requirement is to reduce the Savings
Bank's interest-earning assets.
Federal Home Loan Bank System. As a condition of approval
to the Savings Bank's conversion from a state-chartered savings
association to a state-chartered savings bank in 1990, the
Savings Bank is required to retain its membership in the FHLB
System, which consists of 12 regional FHLBs. The FHLB provides a
central credit facility primarily for member institutions. The
Savings Bank, as a member of the FHLB of Pittsburgh, is required
to acquire and hold shares of capital stock in that FHLB in an
amount at least equal to 1% of the aggregate principal amount of
its unpaid residential mortgage loans and similar obligations at
the beginning of each year, or 1/20 of its advances
(borrowings) from the FHLB of Pittsburgh, whichever is greater.
The Savings Bank is in compliance with this requirement, with an
investment in FHLB of Pittsburgh stock at June 30, 1997 of
$560,000. FHLB advances must be secured by specified types of
collateral and may only be obtained for the purpose of providing
funds for residential housing finance.
The FHLBs are required to provide funds for the resolution
of insolvent thrifts and to contribute funds for affordable
housing programs. These requirements could reduce the amount of
dividends that the FHLBs pay to their members and could also
result in the FHLBs imposing a higher rate of interest on
advances to their members. If dividends were reduced, or
interest on future FHLB advances increased, the Savings Bank's
net interest income would likely also be reduced.
FEDERAL TAXATION
General. Upon consummation of the Conversion and
Reorganization, the Holding Company and the Savings Bank will
report their income on a fiscal year basis using the accrual
method of accounting and will be subject to federal income
taxation in the same manner as other corporations with some
exceptions, including particularly the Savings Bank's reserve for
bad debts discussed below. The following discussion of tax
matters is intended only as a summary and does not purport to be
a comprehensive description of the tax rules applicable to the
Savings Bank or the Holding Company.
Bad Debt Reserve. Historically, savings institutions such
as the Savings Bank which met certain definitional tests
primarily related to their assets and the nature of their
business ("qualifying thrift") were permitted to establish a
reserve for bad debts and to make annual additions thereto, which
may have been deducted in arriving at their taxable income. The
Savings Bank's deductions with respect to "qualifying real
property loans," which are generally loans secured by certain
interest in real property, were computed using an amount based on
the Savings Bank's actual loss experience, or a percentage equal
to 8% of the Savings Bank's taxable income, computed with certain
modifications and reduced by the amount of any permitted
additions to the non-qualifying reserve. Due to the Savings
Bank's loss experience, the Savings Bank generally recognized a
bad debt deduction equal to 8% of taxable income.
The provisions repealing the current thrift bad debt rules
were passed by Congress as part of "The Small Business Job
Protection Act of 1996, as amended by the Taxpayer Relief Act of
1997 (for qualifying thrifts which are S corporations)." The new
rules eliminate the 8% of taxable income method for deducting
additions to the tax bad debt reserves for all thrifts for tax
years beginning after December 31, 1995. These rules also
require that all institutions recapture all or a portion of their
bad debt reserves added since the base year (last taxable year
beginning before January 1, 1988). The Savings Bank has
previously recorded a deferred tax liability equal to the bad
debt recapture and as such the new rules will have no effect on
net income or federal income tax expense. For taxable years
beginning after December 31, 1995, the Savings Bank's bad debt
deduction will be determined under the experience method using a
formula based on actual bad debt experience over a period of
years or, if the Savings Bank is a "large" association (assets in
excess of $500 million) on the basis of net charge-offs during
the taxable year. The new rules allow an institution to suspend
bad debt reserve recapture for the 1996 and 1997 tax years if the
institution's lending activity for those years is equal to or
greater than the institutions average mortgage lending activity
for the six taxable years preceding 1996 adjusted for inflation.
For this purpose, only home purchase or home improvement loans
are included and the institution can elect to have the tax years
with the highest and lowest lending activity removed from the
average calculation. If an institution is permitted to postpone
the reserve recapture, it must begin its six year recapture no
later than the 1998 tax year. The unrecaptured base year
reserves will not be subject to recapture as long as the
institution continues to carry on the business of banking. In
addition, the balance of the pre-1988 bad debt reserves continue
to be subject to provisions of present law referred to below that
require recapture in the case of certain excess distributions to
shareholders.
Distributions. To the extent that the Savings Bank makes
"nondividend distributions" to the Holding Company, such
distributions will be considered to result in distributions from
the balance of its bad debt reserve as of December 31, 1987 (or a
lesser amount if the Savings Bank's loan portfolio decreased
since December 31, 1987) and then from the supplemental reserve
for losses on loans ("Excess Distributions"), and an amount based
on the Excess Distributions will be included in the Savings
Bank's taxable income. Nondividend distributions include
distributions in excess of the Savings Bank's current and
accumulated earnings and profits, distributions in redemption of
stock and distributions in partial or complete liquidation.
However, dividends paid out of the Bank's current or accumulated
earnings and profits, as calculated for federal income tax
purposes, will not be considered to result in a distribution from
the Savings Bank's bad debt reserve. The amount of additional
taxable income created from an Excess Distribution is an amount
that, when reduced by the tax attributable to the income, is
equal to the amount of the distribution. Thus, if, after the
Conversion, the Savings Bank makes a "nondividend distribution,"
then approximately one and one-half times the Excess Distribution
would be includable in gross income for federal income tax
purposes, assuming a 34% corporate income tax rate (exclusive of
state and local taxes). See "REGULATION" and "DIVIDEND POLICY"
for limits on the payment of dividends by the Savings Bank. The
Savings Bank does not intend to pay dividends that would result
in a recapture of any portion of its tax bad debt reserve.
Corporate Alternative Minimum Tax. The Code imposes a tax
on the alternative minimum taxable income ("AMTI") of certain
corporations at a rate of 20%. The excess of the tax bad debt
reserve deduction using the percentage of taxable income method
over the deduction that would have been allowable under the
experience method is treated as a preference item for purposes of
computing the AMTI. In addition, only 90% of AMTI can be offset
by net operating loss carryovers. AMTI is increased by an amount
equal to 75% of the amount by which the Savings Bank's adjusted
current earnings exceeds its OMIT (determined without regard to
this preference and prior to reduction for net operating losses).
For taxable years beginning after December 31, 1986, and before
January 1, 1996, an environment tax of 0.12% of the excess of
AMTI (with certain modification) over $2.0 million is imposed on
corporations, including the Savings Bank, whether or not an
Alternative Minimum Tax is paid.
Dividends-Received Deduction. The Holding Company may
exclude from its income 100% of dividends received from the
Savings Bank as a member of the same affiliated group of
corporations which elect to file a consolidated return. The
corporate dividends-received deduction is generally 70% in the
case of dividends received from unaffiliated corporations with
which the Holding Company and the Savings Bank will not file a
consolidated tax return, except that if the Holding Company or
the Savings Bank owns more than 20% of the stock of a corporation
distributing a dividend, then 80% of any dividends received may
be deducted assuming the applicable holding period has been
satisfied.
<PAGE>
MANAGEMENT
Management of the Holding Company
Directors will be elected by the shareholders of the Holding
Company for staggered three-year terms, or until their successors
are elected and qualified, at the first annual meeting of
shareholders following the consummation of the Conversion and
Reorganization. The Holding Company's Board of Directors
consists of four persons divided into three classes, each of
which contains approximately one third of the Board. One class,
consisting of Mr. DiSandro and Ms. Pauciello has a term of office
expiring at the first annual meeting of shareholders after their
election; a second class, consisting of Mrs. Fumo, has a term of
office expiring at the second annual meeting of shareholders
after her election; and a third class, consisting of Mr. Fumo,
has a term of office expiring at the third annual meeting of
shareholders after his election.
The executive officers of the Holding Company will be
elected annually by the Board of Directors and hold office until
their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors.
The executive officers of the Holding Company are:
Name Position
Vincent J. Fumo Chairman of the Board and
Chief Executive Officer
Anthony DiSandro President and Director
Gary Polimeno Treasurer and Vice President
Roseanne Pauciello Corporate Secretary and Director
Since the formation of the Holding Company, none of the
executive officers, directors or other personnel has received
remuneration from the Holding Company. For information
concerning the principal occupations, employment and compensation
of the directors and executive officers of the Holding Company
during the past five years, see "MANAGEMENT OF THE SAVINGS
BANK -- Biographical Information."
Management of the Savings Bank
Directors and Executive Officers. The Savings Bank's Bylaws
require that the Board of Trustees of the Savings Bank consist of
between seven and twenty members, and that the Board of Trustees
shall set the exact number from time to time. The Savings Bank's
Board of Trustees has fixed the number of trustees at twelve
members. Such Bylaws establish three classes of Trustees of
equal size. Trustees are elected for three year terms, with one
class to be elected each year.
The following table sets forth information, as of June 30,
1997, with respect to the directors and executive officers of the
Savings Bank.
Class I Trustee (Term expiring 2000)
Year
First
Elected Principal Occupation
Name/Position Age Trustee(1) During Past Five Years
Class I Trustees:
Sylvia M. DiBona, 42 1997 Chairman and Chief
Trustee Executive Officer of the
William Penn Agency
(insurance agency)
James W. Eastwood, 51 1995 President of Granary
Trustee Associates, Inc.
(hospital development and
consulting firm)
P. Charles DeRita, 86 1995 Vice President and
Trustee Manager of Hallmark
Abstract Co.
Vincent J. Fumo, 54 1995 Chairman and Chief
Chairman and Chief Executive Officer of
Executive Officer(2) Pennsylvania Savings Bank
and Pennsylvania State
Senator
Class II Trustees (Term expiring 1998):
James F. Kenney, 38 1995 City of Philadelphia
Trustee Councilman since 1992
Roseanne Pauciello, 53 1995 Corporate Secretary of
Trustee and Corporate Pennsylvania Savings
Secretary Bank; School District of
Philadelphia Home and
School Visitor
Thomas J. Finley, 76 1995 Retired
Jr., Trustee
S. Michael Palermo, 56 1995 Assistant Executive
Trustee Trustee of Pennsylvania
Turnpike Commission
Class III Trustees (Term expiring 1999):
Jane Scaccetti Fumo, 42 1995 Certified Public
Trustee(2)(3) Accountant, Drucker &
Scaccetti, P.C.
Alfonso Tumini, 47 1995 Attorney
Trustee
Leonard A. Green, 78 1995 Attorney
Trustee
Anthony DiSandro, 49 1995 President and Chief
Trustee, President Operating Officer of
and Chief Operating Pennsylvania Savings Bank
Officer
_____________________________
(1)Period indicated excludes service as a trustee of the Bank's
predecessors; each Trustee was selected as an initial
trustee of the Savings Bank in connection with its
incorporation on October 20, 1995.
(2)Vincent J. Fumo and Jane Scaccetti Fumo are husband and
wife.
(3)Jane Scaccetti Fumo also serves as a director of Nutrition
Management Corp., which has a class of securities registered
or subject to the Securities Exchange Act of 1934, as
amended ("Exchange Act").
Executive Officers Who Are Not Trustees
Principal Occupation
Name/Position Age During Past Five Years
Gary Polimeno, 44 Vice President of Pennsylvania Savings
Vice President and Savings Bank. Treasurer of
Treasurer Pennsylvania Savings Bank since 1994.
Stock Ownership of Management
Amount and Percent of
Nature of Outstanding
Name of Beneficial Shares of
Beneficial Owner Ownership Common Stock
P. Charles DeRita 5,000 0.42%
Sylvia M. DiBona 23,250 1.95%
Anthony DiSandro 105,283(1) 8.69%
James W. Eastwood 6,200 0.52%
Thomas J. Finley, Jr. 0 0%
Jane Scaccetti Fumo 160,514(2) 13.25%
Vincent J. Fumo 160,514(2) 13.25%
Leonard A. Green 100 (3)
James F. Kenney 100 (3)
S. Michael Palermo 0 0%
Gary Polimeno 11,515(4) 0.96%
Roseanne Pauciello 2,500 0.21%
Alfonso Tumini 0 0%
All executive officers
and trustees as a group
(13 persons) 272,182 22.21%
_____________________________
(1)Amount includes 19,636 shares held indirectly through the
401(k) Plan, 10,000 shares held through the Profit Sharing
Plan, 10,160 shares held by the 1995 MRP that have been
awarded to Mr. DiSandro, 6,114 shares held by Mr. DiSandro
directly and 16,593 shares subject to immediately
exercisable options. Also includes 42,280 shares held by
the ESOP of which Mr. DiSandro is a trustee.
(2)Vincent Fumo and Jane Scaccetti Fumo are husband and wife.
Amount includes 18,000 shares held through the 401(k) Plan,
7,205 shares held through the Profit Sharing Plan,
42,045 held in IRA accounts, 10,161 shares held by the 1995
MRP that have been awarded to Mr. Fumo, 200 shares held by
Jane Scaccetti Fumo, 300 shares held on behalf of the
daughter of Vincent and Jane Scaccetti Fumo and
16,593 shares subject to immediately exercisable options.
Also includes 42,280 shares held by the ESOP of which
Mr. Fumo is a trustee.
(3)Represents less than 1/2 of one percent of total shares
outstanding.
(4)Includes 7,773 shares held indirectly through the
401(k) Plan, 1,069 shares by the 1995 MRP, and 2,673 shares
subject to immediately exercisable options.
Meetings and Committees of the Board of Trustees
The business of the Savings Bank is conducted at regular and
special meetings of the full Board of Trustees and its standing
committees. The standing committees consist of the Executive,
Asset/Liability Management, Budget, Compensation, Loan,
Investment, Strategic Planning, Audit and Nominating Committees.
During 1996, the Board of Trustees met at twelve regular
meetings. No member of the Board or any committee thereof
attended less than 75% of said meetings.
The Executive Committee of the Board of Trustees consists of
Trustee DiSandro, who serves as Chairman, and Trustees Pauciello
and Palermo. The Executive Committee meets immediately prior to
meetings of the full Board. All significant actions of the
Executive Committee are reviewed by the entire Board; however,
the Executive Committee has decision-making authority as assigned
by the Board, such as loan approval authority up to $350,000.
The Executive Committee met twelve times during 1996.
The Asset/Liability Committee consists of Vincent J. Fumo,
who serves as Chairman, Trustees DiSandro, Eastwood, Jane
Scaccetti Fumo and Gary Polimeno, the Savings Bank's Treasurer.
This committee meets to review the maturity and repricing of the
Savings Bank's assets and liabilities in an effort to manage the
Savings Bank's interest rate risk in accordance with the Savings
Bank's interest rate risk policy and otherwise reviews the Bank's
strategies for interest rate risk management. This committee met
three times during 1996.
The Audit Committee of the Savings Bank consists of Trustee
James W. Eastwood, who serves as Chairman, and Trustees Kenney
and DiBona. The Audit Committee reviews the Bank's general
financial condition and the results of the annual audit. The
Audit Committee is authorized to retain the services of outside
independent auditors of the Savings Bank. The Audit Committee
met eight times in 1996.
The Nominating Committee consists of Trustee Vincent J.
Fumo, who serves as Chairman, and Trustees Anthony DiSandro,
Roseanne Pauciello and Jane Scaccetti Fumo. The Nominating
Committee, which met once in 1996, is responsible for selecting
and submitting nominees for trustees to the Board at its meeting
for the purpose of appointing trustees. Shareholder nominations
for trustee must be made in accordance with the Savings Bank's
Bylaws (see Nomination and Election of Trustees above).
The Budget Committee of the Savings Bank consists of Trustee
Tumini, who serves as Chairman, and Trustees Kenney and Jane
Scaccetti Fumo. The Budget Committee participates in the
formulation of the Savings Bank's budget and supervises the
Savings Bank's adherence to its budget. The Budget Committee met
eight times in 1996.
The Savings Bank's Strategic Planning Committee consists of
Trustee Jane Scaccetti Fumo, who serves as Chairperson, and
Trustees DiBona, Green and Pauciello. The Savings Bank's
Strategic Planning Committee conducts analyses of the Savings
Bank's status and performance to produce recommendations to the
Board for strategies for growth and profitability. The Strategic
Planning Committee met three times in 1996.
The Savings Bank's Loan Committee consists of Trustee
DiSandro, who serves as Chairman, together with officers Gary
Polimeno and Renee D'Orazio. The Loan Committee approves loans
of up to $200,000. It submits larger loans to the Executive
Committee or the Board of Trustees for approval. The Loan
Committee met at least once each month in 1996.
Trustee Eastwood serves as Chairman of the Savings Bank's
Compensation Committee, which is responsible for establishing and
monitoring compensation levels in view of management's
performance and coordinating and instituting special compensation
plans. Trustees DeRita and Pauciello also serve on the
Compensation Committee, which met three times in 1996.
The Savings Bank's investment portfolio is managed by the
Investment Committee. The Investment Committee makes and
monitors investments in accordance with the Savings Bank's
Investment Policy. Trustee Vincent J. Fumo serves as Investment
Committee Chairman, and Trustee DiSandro and officer Gary
Polimeno are members. The committee met three times in 1996.
Trustee Compensation
For the year ended December 31, 1996, trustees were paid
$700 per Board meeting attended. In addition, trustees were paid
$350 per committee meeting attended. Directors of the Savings
Bank's subsidiaries and affiliates, PSA Financial Corp., PSA
Service Corp., PSA Consumer Discount Company, Transnational
Mortgage Corp. and PSB Mutual Holding Company, were paid $250,
$150, $150, $250 and $200, respectively, per board meeting
attended.
Executive Compensation
The following table sets forth, for the years ended
December 31, 1996 and September 30, 1995 and 1994, certain
information as to the total remuneration paid by the Savings Bank
to executive officers who received salary and bonuses in excess
of $100,000 during such fiscal year.
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
Other All
Annual Other
Compen- Compen- Restricted Securities
Fiscal sation sation Stock Underlying
Name and Principal Position Year Salary(1) Bonuses (2)(3) (4) Awards(5) Options
<S> <C> <C> <C> <C> <C> <C> <C>
Vincent J. Fumo 1996 $130,478 $117,500 $40,758 $19,174 10,161 16,593
Chairman and Chief Executive 1995 $142,170 $108,500 $44,171 $25,414
Officer 1994 $133,966 $107,500 $43,938 $25,404
Anthony DiSandro 1996 $145,782 $125,000 $47,250 $18,263 10,160 16,593
President and Chief Operating 1995 $158,935 $113,500 $49,143 $16,788
Officer 1994 $150,042 $112,500 $48,882 $15,600
Gary Polimeno 1996 $ 87,282 $ 45,000 $17,660 $ -- 1,069 2,673
Vice President and Treasurer 1995 $ 95,874 $ 45,000 $27,199 $ --
1994 $ 92,705 $ 45,000 $26,598 $ --
_____________________________
</TABLE>
(1)Includes the portion of salary deferred by the executive
pursuant to the 401(k) Plan.
(2)Includes trustees fees of $12,200 and $17,100 paid to
Mr. Fumo and Mr. DiSandro, respectively, for the year ended
December 31, 1996, and directors fees paid by the Savings
Bank's subsidiaries to Mr. Fumo, Mr. DiSandro and
Mr. Polimeno of $11,200, $11,200 and $8,400, respectively,
for the year ended December 31, 1996.
(3)Includes contributions of $17,358, $18,950 and $9,260 made
by the Savings Bank to the accounts of Mr. Fumo,
Mr. DiSandro and Mr. Polimeno, respectively, pursuant to the
Profit Sharing Plan for the year ended December 31, 1996,
contributions of $25,713, $28,028 and $15,131 to the
accounts of Mr. Fumo, Mr. DiSandro and Mr. Polimeno,
respectively, for fiscal year 1995 and contributions of
$25,014, $27,246 and $14,648 for fiscal year 1994. Also
includes $2,858, $1,315 and $3,668 in contributions to the
accounts of Mr. Fumo, Mr. DiSandro and Mr. Polimeno,
respectively, pursuant to the 401(k) Plan for the year ended
December 31, 1995 and $3,324, $1,836 and $3,550 contributed
to such accounts in fiscal year 1994. During the year ended
December 31, 1996, the Savings Bank made no profit sharing
or matching contributions to the accounts of Mr. Fumo,
Mr. DiSandro, and Mr. Polimeno, respectively; however, the
Savings Bank contributed $17,358, $18,950, and $9,260 to the
accounts of Mr. Fumo, Mr. DiSandro and Mr. Polimeno,
respectively, for that year.
(4)Consists of lease payments paid by the Savings Bank with
respect to vehicle provided by the Savings Bank for the
executive's use.
(5)Mr. Fumo, Mr. DiSandro and Mr. Polimeno each hold 10,161
shares of restricted stock, 10,160 shares of restricted
stock and 1,069 shares of restricted stock, respectively,
which, as of September 29, 1997, had a fair market value of
$243,864, $243,840 and $25,656, respectively. Of such
shares, 5,347, 5,347 and 1,069 shares of each of
Messrs. Fumo, DiSandro and Polimeno were awarded at
April 30, 1996 and vest at a rate of 20% per year over a
five (5) year period and 4,814 and 4,813 shares of each of
Messrs. Fumo and DiSandro were granted on December 31, 1996
and vest at a rate of 20% per year over a five (5) year
period.
Employment Agreements. In connection with the MHC
Reorganization, the Savings Bank entered into employment
agreements (the "Employment Agreements") with Vincent J. Fumo,
Chairman and Chief Executive Officer and Anthony DiSandro,
President and Chief Operating Officer. Under the terms of his
Employment Agreement, Mr. Fumo serves as Chairman and Chief
Executive Officer of the MHC and the Savings Bank at a base
salary of $130,500. Under the terms of his Employment Agreement,
Mr. DiSandro serves as President and Chief Operating Officer of
the MHC and the Savings Bank at a base salary of $145,800. Each
Employment Agreement provides for an initial term of three years,
which will thereafter be automatically renewed for an additional
three years on each anniversary date unless terminated pursuant
to its terms by the respective parties.
Each Employment Agreement provides for the payment of
certain severance benefits in the event of the executive's
resignation for specified reasons or as a result of his
termination by the MHC or the Savings Bank without "Cause" (as
defined in each Employment Agreement). The executive would be
entitled to severance payments if: (1) he terminates employment
during the term of such agreement following any breach of the
Employment Agreement by the Savings Bank or MHC, loss of title,
office or significant authority, reduction in annual compensation
or benefits, or relocation of the executive's principal place of
employment by more than 30 miles, or (2) if the Savings Bank or
the MHC terminates his employment, other than for Cause.
If either executive becomes entitled to receive severance
payments under his Employment Agreement, he would receive, over a
period of 36 months, a cash payment equal to three times his
average annual compensation during the five-year period preceding
termination of employment. Payments would be made in equal
monthly installments. In addition to the severance payments, the
executive would be entitled to continue to receive life, medical,
dental and other insurance coverages (or a dollar amount equal to
the cost of obtaining each such coverage) for a period of up to
36 months from the date of termination. Payments under the
Employment Agreements are limited, however, to the extent
(i) that they will constitute excess parachute payments under
Section 280G of the Internal Revenue Code of 1986, as amended
("Code"), or (ii) not permitted under the Federal Deposit
Insurance Act.
Significant Owners of Savings Bank Common Stock
The following table sets forth, as of September 30, 1997,
certain information as to the beneficial ownership of Savings
Bank Common Stock by persons known by the Savings Bank who
beneficially own more than 5% of the outstanding shares of the
Savings Bank Common Stock (the "Significant Owners"). For
purposes of this table, an individual is considered to
beneficially own shares of Savings Bank Common Stock if he or she
has or shares voting power (which includes the power to vote or
direct the voting of the shares) or investment power (which
includes the power to dispose of or direct the disposition of the
shares). Unless otherwise indicated, all shares are owned
directly by the Significant Owners through a trust, corporation
or association, or by the Significant Owners or their spouses as
custodians or trustee for the shares of minor children. The
Significant Owners effectively exercise sole voting and
investment power over such shares. Shares that are subject to
options that are exercisable within 60 days of August 31, 1997
are deemed to be beneficially owned. For information regarding
proposed purchases of Conversion Shares by the Significant Owners
and their anticipated ownership of Common Stock upon consummation
of the Conversion and Reorganization, see "COMMON STOCK TO BE
PURCHASED OR RECEIVED BY MANAGEMENT."
<TABLE>
<CAPTION>
Amount and Percent of
Nature of Outstanding
Name and Address of Beneficial Shares of
Title of Class Beneficial Ownership Ownership Common Stock
<S> <C> <C> <C>
Common Stock PSB Mutual Holding Company 615,250 51.50%
par value Eleven Penn Center, Suite 2601
$1.00 per 1835 Market Street
share Philadelphia, Pennsylvania 19103
Vincent J. Fumo and 160,514 13.44%
Jane Scaccetti Fumo
1818 South 13th Street
Philadelphia, Pennsylvania 19148(1)
Anthony DiSandro 105,283 8.81%
1071 Welsh Road
Philadelphia, Pennsylvania 19115(2)
____________________
</TABLE>
(1)Vincent Fumo and Jane Scaccetti Fumo are husband and wife.
Amount includes 18,000 shares held through the Savings
Bank's Cash or Deferred Profit Sharing Plan (the
"401(k) Plan"), 7,205 shares held through the Savings Bank's
Profit Sharing Plan (the "Profit Sharing Plan"), 42,045 held
in IRA accounts, 10,161 shares held by the Pennsylvania
Savings Bank Management Recognition Plan (the "MRP") that
have been awarded to Mr. Fumo, 200 shares held by Jane
Scaccetti Fumo, 300 shares held on behalf of the daughter of
Vincent and Jane Scaccetti Fumo and 16,593 shares subject to
immediately exercisable options. Also includes
42,280 shares held by the Pennsylvania Savings Bank Employee
Stock Ownership Plan (the "ESOP") of which Mr. Fumo is a
trustee.
(2)Amount includes 19,636 shares held indirectly through the
401(k) Plan, 10,000 shares held through the Profit Sharing
Plan, 10,160 shares held by the MRP that have been awarded
to Mr. DiSandro, 6,114 shares held by Mr. DiSandro directly
and 16,593 shares subject to immediately exercisable
options. Also includes 42,280 shares held by the ESOP of
which Mr. DiSandro is a trustee.
Compensation of Officers and Directors Through Benefit Plans
Defined Benefit Retirement Plan. The Savings Bank has
maintained a noncontributory defined benefit retirement plan
("Retirement Plan"). Under the terms of the Retirement Plan, all
employees age 21 or older who have worked at the Savings Bank for
a period of one year and have been credited with 1,000 or more
hours of employment with the Savings Bank during the year are
eligible to accrue benefits under the Retirement Plan. The
Savings Bank would annually contribute an amount to the
Retirement Plan necessary to satisfy the actuarially determined
minimum funding requirements in accordance with the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). At
June 30, 1997, the Retirement Plan fully met its funding
requirements under Section 412 of the Code. Employee
contributions are not permitted under the Retirement Plan. The
Retirement Plan was "frozen" as of September 30, 1994 and
benefits no longer accrue thereunder. Since the Retirement Plan
is fully funded, the Savings Bank will generally not be required
to make any additional contributions unless asset depreciation
from investment occurs. Participants will continue to vest in
accordance with the provisions of the Retirement Plan. No new
employees will be eligible for participation. The Plan, however,
remains subject to all other requirements of the Code.
Benefits under the Retirement Plan begin to vest after 3
years in accordance with the following schedule:
Years of Service Percentage Vested
Less than 3 years 0%
After 3 years 20%
After 4 years 40%
After 5 years 60%
After 6 years 80%
After 7 years 100%
The following table indicates the annual retirement benefit
that would be payable under the Retirement Plan upon retirement
at age 65 in calendar year 1997, expressed in the form of a
single life annuity for the final average salary and benefit
service classifications specified below.
<TABLE>
<CAPTION>
Years of Service and Benefits Payable at Retirement
<S> <C> <C> <C> <C> <C> <C>
Final Average
Compensation 15 20 25 30 35 40
$ 50,000 $13,804 $18,405 $23,006 $27,608 $27,608 $27,608
$ 75,000 $21,950 $29,267 $36,583 $43,900 $43,900 $43,900
$100,000 $30,096 $40,128 $50,160 $60,192 $60,192 $60,192
$125,000 $38,242 $50,990 $63,827 $65,827 $65,827 $65,827
$150,000* $46,388 $61,851 $65,827 $65,827 $65,827 $65,827
____________________
</TABLE>
*Represents the limit on plan compensation imposed by the
Code effective January 1, 1994.
As of June 30, 1997, Mr. Fumo, Mr. DiSandro, and
Mr. Polimeno had 18, 17 and 19 years of credited service (i.e.
benefit service), respectively.
Pennsylvania Savings Bank Cash or Deferred Profit Sharing
Plan (401(k)). The Savings Bank also maintains the Pennsylvania
Savings Cash or Deferred Profit Sharing Plan, which is a
qualified, tax-exempt profit sharing plan with a cash-or-deferred
feature under Section 401(k) of the Code (the "401(k) Plan").
All employees who have attained age 21 and have completed two
years of employment during which they worked at least 1,000 hours
are eligible to participate. Assets of the 401(k) Plan are
managed by the 401(k) Plan's trustees. Mr. Fumo and Mr. DiSandro
presently serve as trustees to the 401(k) Plan.
Under the 401(k) Plan, participants are permitted to make
pre-tax salary reduction contributions to the plan equal to a
percentage of up to 15% of compensation. Additional after-tax
contributions of up to 10% of compensation may be made to the
Plan. For these purposes, "compensation" includes total
compensation (including salary reduction contributions made under
the 401(k) Plan sponsored by the Savings Bank), but does not
include compensation in excess of the Code Section 401(a)(17)
limits (presently $160,000). The Savings Bank may also annually
make a discretionary profit sharing contribution to the 401(k)
Plan. A participant must complete 1,000 hours of service during
the plan year and be employed on the last day of the plan year to
receive an allocation of the profit sharing contribution. For
the 1996 plan year, the Savings Bank made a profit sharing
contribution of $18,190.
All employee contributions and profit sharing contributions
to the 401(k) plan and earnings thereon are fully and immediately
vested.
Plan benefits will be paid to each participant as a joint
and survivor or single life annuity. In addition, a participant
may, under certain circumstances, elect a lump sum or period
certain payment upon normal retirement, death or disability, or
after termination of employment.
Pennsylvania Savings Bank Profit Sharing Plan. The Savings
Bank also maintains the Pennsylvania Savings Bank Profit Sharing
Plan, which is a qualified plan pursuant to Section 401(a) of the
Code. Employees who have completed at least two years of service
during which they have worked 1,000 hours or more and who have
attained age 21 are eligible to participate in the Profit Sharing
Plan. Pursuant to the Profit Sharing Plan the Savings Bank, in
its discretion, makes contributions to the accounts of eligible
employees. Employee contributions are neither permitted nor
required. Benefits under the Profit Sharing Plan become 100%
vested upon entry to the Plan.
Employee Stock Ownership Plan. The Savings Bank ESOP
acquired 92,780 shares of the Savings Bank Common Stock with the
proceeds of a $427,800 loan from an unaffiliated financial
institution ("1995 Loan"). Upon consummation of the Conversion
and Reorganization, the Savings Bank Common Stock held by the
ESOP will be converted into Exchange Shares based upon the
Exchange Ratio.
In order to fund the purchase of up to 8% of the Conversion
Shares to be issued in the Conversion and Reorganization, it is
anticipated that the ESOP will borrow funds from the Holding
Company equal to 100% of the aggregate-purchase price of the
Conversion Shares. In addition, the Holding Company will lend
sufficient funds to the ESOP to enable the ESOP to repay the 1995
Loan which had an outstanding principal balance of $331,000 at
June 30, 1997. The loan to the ESOP will be repaid principally
from the Savings Bank's contributions to the ESOP and dividends
payable on Common Stock held by the ESOP over the anticipated 10-
year term of the loan. The interest rate for the ESOP loan is
expected to be the prime rate as published in The Wall Street
Journal on the closing date of the Conversion and Reorganization.
See "PRO FORMA DATA." To the extent that the ESOP is unable to
acquire 8% of the Common Stock issued in the Conversion and
Reorganization, it is anticipated that the additional shares will
be acquired following the Conversion and Reorganization through
open market purchases.
Shares purchased by the ESOP with the proceeds of the loan
(including shares originally acquired by the ESOP with the
proceeds of the 1995 Loan) will be held in a suspense account and
released on a pro rata basis as the loan is repaid.
Discretionary contributions to the ESOP and shares released from
the suspense account will be allocated among participants on the
basis of each participant's proportional share of total
compensation. Forfeitures will be reallocated among the
remaining plan participants.
In any plan year, the Savings Bank may make additional
discretionary contributions to the ESOP for the benefit of plan
participants in either cash or shares of Common Stock, which may
be acquired through the purchase of outstanding shares in the
market or from individual shareholders or which constitute
authorized but unissued shares or shares held in treasury by
Holding Company. The timing, amount, and manner of such
discretionary contributions will be affected by several factors,
including applicable regulatory policies, the requirements of
applicable laws and regulations, and market conditions.
Employees of the Savings Bank who have completed 1,000 hours
of service during 12 consecutive months and who have attained age
21 are eligible to participate in the ESOP.
Benefits under the ESOP generally become 100% vested after
the third year of service or upon normal retirement (as defined
in the ESOP), disability or death of the participant. If a
participant terminates employment for any other reason prior to
fully vesting, his nonvested account balance will be forfeited.
Forfeitures will be reallocated among remaining participating
employees in the same proportion as contribution. Benefits may
be payable upon death, retirement, early retirement, disability
or separation from service. The Savings Bank's contribution to
the ESOP will not be fixed, so benefits payable under the ESOP
cannot be estimated. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Impact of New
Accounting Standards."
A committee consisting of the Savings Bank's Chairman and
Chief Executive Officer, President and Vice President and
Treasurer, will administer the ESOP (the "ESOP Committee"). An
unrelated corporate trustee for the ESOP will be appointed prior
to the completion of the Offering. The ESOP Committee may
instruct the trustee regarding investment of funds contributed to
the ESOP. The ESOP trustee must vote all allocated shares held
in the suspense account in a manner calculated to most accurately
reflect the instructions the ESOP trustee has received from
participants regarding the allocated stock, subject to and in
accordance with the fiduciary duties under ERISA owed by the ESOP
trustee to the ESOP participants.
Pursuant to SOP 93-6, compensation expense for a leveraged
ESOP is recorded at the fair market value of the ESOP shares when
committed to be released to participants' accounts. See "PRO
FORMA DATA" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Comparison of
Operating Results for the Years Ended December 31, 1996 and
1995."
If the ESOP purchases newly issued shares from the Holding
Company, total shareholders' equity would neither increase nor
decrease. However, on a per share basis, shareholders' equity
and per share net earnings would decrease because of the increase
in the number of outstanding shares.
The ESOP is subject to the requirements of Employee
Retirement Income Security Act ("ERISA") and the regulations of
the IRS and the Department of Labor issued thereunder. The
Savings Bank has received a favorable determination letter from
the IRS regarding the tax-qualified status of the ESOP.
1995 Stock Option and Incentive Plan. In connection with
the MHC Reorganization, the Savings Bank adopted the 1995 Stock
Option Plan. The plan was approved by the Public Shareholders at
the Savings Bank's 1996 annual meeting of shareholders. Options
for all shares reserved for issuance under the 1995 Stock Option
Plan have been granted to officers and employees of the Savings
Bank. In connection with the Conversion and Reorganization, the
1995 Stock Option Plan will be assumed by the Holding Company and
appropriate adjustments will be made to the exercise price and
the number of shares underlying each option to reflect the
applicable Exchange Ratio.
The following options were granted to Messrs. Fumo, DiSandro
and Polimeno under the 1995 Stock Option Plan during the fiscal
year ended December 31, 1996.
Number % of
of Shares Total Options
Underlying Granted Exercise Expiration
Name Options to Employees Price Date
Vincent J. 13,368 46.27%(1) $11.88 May 29, 2006
Fumo 3,225 13.25 December 18, 2006
Anthony 13,368 46.27%(1) $11.88 May 29, 2006
DiSandro 3,225 13.25 December 18, 2006
Gary 2,673 7.46% $11.88 April 30, 2006
Polimeno
______________________
(1)Percentage based on aggregate number of options held by each
holder of options.
<PAGE>
There was no exercise of options by any of Messrs. Fumo,
DiSandro and Polimeno under the 1995 Stock Option Plan at and for
the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
Number of
Securities Value of
Shares Underlying Unexercised
Acquired Value Unexercised In-the Money
Name on Exercise Realized Options Options
<S> <C> <C> <C> <C>
Vincent J. Fumo 0 0 16,593 $45,277.78
Anthony DiSandro 0 0 16,593 45,277.78
Gary Polimeno 0 0 2,673 8,005.64
</TABLE>
1995 Management Development and Recognition Plans. In
connection with the MHC Reorganization, the Savings Bank adopted
Management Development and Recognition Plans (collectively, the
"1995 MRPs") for officers, employees and nonemployee directors of
the Savings Bank. The 1995 MRPs were approved by the Public
Shareholders at the Savings Bank's 1996 annual meeting of
shareholders. All shares under the 1995 MRP have been awarded.
For purposes of the Conversion and Reorganization, the shares
awarded under the 1995 MRP participants will be treated in the
same manner as shares held by other minority shareholders.
1997 Stock Option Plan. The Board of Directors of the
Holding Company intends to adopt the 1997 Stock Option Plan and
to submit it to the shareholders for approval at a meeting held
no earlier than six months following consummation of the
Conversion and Reorganization. Under current FDIC regulations,
the approval of a majority vote of the Holding Company's
outstanding shares is required prior to the implementation of the
1997 Stock Option Plan within one year of the consummation of the
Conversion and Reorganization. The Stock Option Plan will comply
with all applicable regulatory requirements. However, the 1997
Stock Option Plan will not be approved or endorsed by the FDIC.
The 1997 Stock Option Plan will be designed to attract and
retain qualified management personnel, to provide such officers,
and key employees with a proprietary interest in the Holding
Company as an incentive to contribute to the success of the
Holding Company and the Savings Bank, and to reward officers and
key employees for outstanding performance. The 1997 Stock Option
Plan will provide for the grant of incentive stock options
("ISOs") intended to comply with the requirements of Section 422
of the Code and for nonqualified stock options ("NQOs"). Upon
receipt of shareholder approval of the 1997 Stock Option Plan,
stock options may be granted to key employees of the Holding
Company and its subsidiaries, including the Savings Bank. Unless
sooner terminated, the 1997 Stock Option Plan will continue in
effect for a period of ten years from the date the 1997 Stock
Option Plan is approved by shareholders.
A number of authorized shares of Common Stock equal to 10%
of the number of Conversion Shares of issued in connection with
the Conversion and Reorganization will be reserved for future
issuance under the 1997 Stock Option Plan (131,100 shares based
on the issuance of 1,311,000 Conversion Shares at the maximum of
the Estimated Valuation Range). Shares acquired upon exercise of
options will be authorized but unissued shares or
treasury shares. In the event of a stock split, reverse stock
split, stock dividend, or similar event, the number of shares of
Common Stock under the 1997 Stock Option Plan, the number
of shares to which any award relates and the exercise price per
share under any option may be adjusted by the Committee (as
defined below) to reflect the increase or decrease in the total
number of shares of Common Stock outstanding.
The 1997 MRP Stock Option Plan will be administered and
interpreted by a committee of the Board of Directors
("Committee"). Subject to applicable FDIC regulations, the
Committee will determine which officers and key employees will be
granted options, whether, in the case of officers and employees,
such options will be ISOs or NQOS, the number of shares subject
to each option, and the exercisability of such options. All
options granted to nonemployee directors will be NQOs. The per
share exercise price of all options will equal at least 100% of
the fair market value of a share of Common Stock on the date the
option is granted.
Under current FDIC regulations, if the 1997 Stock Option
Plan is implemented within one year of the consummation of the
Conversion and Reorganization, (i) no officer or employees could
receive an award of options covering in excess of 25%, (ii) no
nonemployee director could receive in excess of 5% and
(iii) nonemployee directors, as a group, could not receive in
excess of 30% of the number of shares reserved for issuance under
the 1997 Stock Option Plan.
Under current provisions of the Code, the federal tax
treatment of ISOs and NQOs is different. With respect to ISOs,
an optionee who satisfies certain holding period requirements
will not recognize income at the time the option is granted or at
the time the option is exercised. If the holding period
requirements are satisfied, the optionee will generally recognize
capital gain or loss upon a subsequent disposition of the shares
of Common Stock received upon the exercise of a stock option. If
the holding period requirements are not satisfied, the difference
between the fair market value of the Common Stock on the date of
grant and the option exercise price, if any, will be taxable to
the optionee at ordinary income tax rates. A federal income tax
deduction generally will not be available to the Holding Company
as a result of the grant or exercise of an ISO, unless the
optionee fails to satisfy the holding period requirements. With
respect to NQOs, the grant of an NQO generally is not a taxable
event for the optionee and no tax deduction will be available to
the Holding Company. However, upon the exercise of an NQO, the
difference between the fair market value of the Common Stock on
the date of exercise and the option exercise price generally will
be treated as compensation to the optionee upon exercise, and the
Holding Company will be entitled to a compensation expense
deduction in the amount of income realized by the optionee.
Although no specific award determinations have been made at
this time, the Holding Company and the Savings Bank anticipate
that if shareholder approval is obtained it would provide awards
to its officers and employees to the extent and under terms and
conditions permitted by applicable regulations. The size of
individual awards will be determined prior to submitting the 1997
Stock Option Plan for shareholder approval and disclosure of
anticipated awards will be included in the proxy materials for
such meeting.
1997 Management Recognition Plan. Following the Conversion
and Reorganization, the Board of Directors of the Holding Company
intends to adopt the 1997 MRP for officers and employees of the
Holding Company and the Savings Bank, subject to shareholder
approval. The 1997 MRP will enable the Holding Company and the
Savings Bank to provide participants with a proprietary interest
in the Holding Company as an incentive to contribute to the
success of the Holding Company and the Savings Bank. The 1997
MRP will comply with all applicable regulatory requirements.
However, the 1997 MRP will not be approved or endorsed by the
FDIC. Under current FDIC regulations, the approval of a majority
vote of the Holding Company's outstanding shares is required
prior to the implementation of the 1997 MRP within one year of
the consummation of the Conversion and Reorganization.
The 1997 MRP expects to acquire a number of shares of Common
Stock equal to 4% of the Conversion Shares issued in connection
with the Conversion and Reorganization (52,440 shares based on
the issuance of 1,311,000 Conversion Shares at the maximum of the
Estimated Valuation Range). Such shares will be acquired on the
open market, if available, with funds contributed by the Holding
Company or the Savings Bank to a trust which the Holding Company
may establish in conjunction with the 1997 MRP ("1997 MRP Trust")
or from authorized but unissued shares or treasury shares of the
Holding Company.
A committee of the Board of Directors of the Holding Company
will administer the 1997 MRP, the members of which will also
serve as trustees of the 1997 MRP Trust, if formed. The trustees
will be responsible for the investment of all funds contributed
by the Holding Company or the Savings Bank to the 1997 MRP Trust.
The Board of Directors of the Holding Company may terminate the
1997 MRP at any time and, upon termination, all
unallocated shares of Common Stock will revert to the Holding
Company.
Shares of Common Stock granted pursuant to the 1997 MRP will
be in the form of restricted stock payable ratably over a
specified vesting period following the date of grant. During the
period of restriction, all shares will be held in escrow by the
Holding Company or by the 1997 MRP Trust. All unvested 1997 MRP
awards will vest in the event of the recipient's death or
disability. Unvested 1997 MRP awards will also vest following a
change in control (as defined in the 1997 MRP) of the Holding
Company or the Savings Bank to the extent authorized or not
prohibited by applicable law or regulations.
A recipient of a 1997 MRP award in the form of restricted
stock generally will not recognize income upon an award of shares
of Common Stock, and the Holding Company will not be entitled to
a federal income tax deduction, until the termination of the
restrictions. Upon such termination, the recipient will
recognize ordinary income in an amount equal to the fair market
value of the Common Stock at the time and the Holding Company
will be entitled to a deduction in the same amount after
satisfying federal income tax withholding requirements. However,
the recipient may elect to recognize ordinary income in the year
the restricted stock is granted in an amount equal to the fair
market value of the shares at that time, determined without
regard to the restrictions. In that event, the Holding Company
will be entitled to a deduction in such year and in the same
amount. Any gain or loss recognized by the recipient upon
subsequent disposition of the stock will be either a capital gain
or capital loss.
Although no specific award determinations have been made at
this time, the Holding Company and the Savings Bank anticipate
that if shareholder approval is obtained it would provide awards
to its directors, officers and employees to the extent and under
terms and conditions permitted by applicable regulations. Under
current FDIC regulations, if the 1997 MRP is implemented within
one year of the consummation of the Conversion and
Reorganization, (i) no officer or employees could receive an
award covering in excess of 25%, (ii) no nonemployee director
could receive in excess of 5% and (iii) nonemployee directors, as
a group, could not receive in excess of 30% of the number
of shares reserved for issuance under the 1997 MRP. The size of
individual awards will be determined prior to submitting the 1997
MRP for shareholder approval, and disclosure of anticipated
awards will be included in the proxy materials for such meeting.
Transactions with the Savings Bank
Federal regulations require that all loans or extensions of
credit to executive officers and directors must generally be made
on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with other persons (unless the loan or extension of
credit is made under a benefit program generally available to all
other employees and does not give preference to any insider over
any other employee) and must not involve more than the normal
risk of repayment or present other unfavorable features.
Pursuant to the above regulations, the Savings Bank adopted an
Insiders' Loan Policy in December 1996 pursuant to which
trustees/directors, officers and employees of the Savings Bank or
any of its subsidiaries are eligible to receive a 1% reduction of
the interest rate of mortgage loans. Federal regulations also
require that loans made to a director or executive officer in an
amount that, when aggregated with the amount of all other loans
to such person and his related interests, are in excess of the
greater of $25,000 or 5% of the Savings Bank's capital and
surplus (up to a maximum of $500,000) must be approved in advance
by a majority of the disinterested members of the Board of
Directors. See "REGULATION -- Federal Regulation of Savings
Banks -- Transactions with Affiliates." The aggregate amount of
loans by the Savings Bank to its executive officers and directors
was $1.19 million at June 30, 1997, or approximately 4.55% of pro
forma shareholders' equity (based on the issuance of the maximum
of the Estimated Valuation Range).
Certain Relationships and Related Transactions
The Savings Bank's Insiders' Loan Policy applies to the
following loans: (1) a first mortgage on an employee's
residence, (2) a first mortgage on the employee's secondary home
when it is used by the employee as a vacation home and not as an
investment property, and (3) a second mortgage home equity loan
on the employee's personal residence. The interest rate discount
is subject to increase by 1% if the employee does not complete
five (5) years of continuous service with the Savings Bank or its
subsidiaries. In December 1996, mortgage loans were extended to
Mr. Fumo and Mr. DiSandro on the following terms: (1) principal
amount of $750,000 at an interest rate of 6.5% for a term of 360
months to Mr. Fumo; and (2) principal amount of $250,000 at an
interest rate of 6.5% for a term of 360 months to Mr. DiSandro.
As of June 30, 1997, Mr. Fumo's mortgage loan balance was
$748,640 and Mr. DiSandro's mortgage loan balance was $249,318.
<PAGE>
THE CONVERSION AND REORGANIZATION
The PDOB has approved and the FDIC has issued its letter of
nonobjection with respect to, the Plan of Conversion subject to
its approval by the members of the Savings Bank and the
shareholders of the Savings Bank entitled to vote thereon and to
the satisfaction of certain other conditions imposed by the PDOB
and the FDIC. Regulatory approval does not constitute a
recommendation or endorsement of the Plan of Conversion.
General
On July 17, 1997, the Boards of Trustees of the MHC and the
Savings Bank unanimously adopted the Plan of Conversion and
amended Plan of Conversion on September 25, 1997, and on October
___, 1997, the Board of Directors of the Holding Company
unanimously adopted the Plan of Conversion, as amended, pursuant
to which the MHC will convert from a mutual holding company to a
stock holding company and the Savings Bank simultaneously will
reorganize as a wholly-owned subsidiary of the Holding Company, a
newly-formed Pennsylvania corporation. The following discussion
of the Plan of Conversion is qualified in its entirety by
reference to the Plan of Conversion, which is attached as
Exhibit A to both the MHC's Proxy Statement and the Savings
Bank's Proxy Statement, and is available to both members of the
MHC and shareholders of the Savings Bank upon request. The Plan
of Conversion is also filed as an exhibit to the Registration
Statement. See "ADDITIONAL INFORMATION." The FDIC has approved
the Plan of Conversion subject to (i) its approval by the members
of the MHC entitled to vote on the matter at the Special Meeting
of Members called for that purpose to be held on __________,
1997, (ii) its approval by the shareholders of the Savings Bank
entitled to vote on the matter at a special meeting of
shareholders (including the MHC) called for that purpose to be
held on ____________, 1997, (iii) approval by 2/3 of the holders
of Public Savings Bank Shares, and (iv) subject to the
satisfaction of certain other conditions imposed by the PDOB and
the FDIC. Shareholders of the Savings Bank are entitled to
dissent with respect to the Plan of Conversion and to obtain
"fair value" of their Savings Bank Common Stock if the Plan of
Conversion is consummated. See the Savings Bank Proxy Statement
"Dissenters' Rights."
Pursuant to the Plan of Conversion, (i) the MHC will convert
from a state-chartered mutual holding company to a state-
chartered interim stock savings bank ("Interim A") and
simultaneously merge with and into the Savings Bank, pursuant to
which the MHC will cease to exist and the shares of Savings Bank
Common Stock held by the MHC will be canceled, and (ii) an
interim state stock savings bank ("Interim B") will be formed as
a wholly-owned subsidiary of the Holding Company and will then
merge with and into the Savings Bank. As a result of the merger
of Interim B with and into the Savings Bank, the Savings Bank
will become a wholly-owned subsidiary of the Holding Company and
the Public Savings Bank shares will be converted into the
Exchange Shares pursuant to the Exchange Ratio, which will result
in the holders of such shares owning in the aggregate
approximately the same percentage of the Common Stock to be
outstanding upon the completion of the Conversion and
Reorganization (i.e. the Conversion Shares and the
Exchange shares) as the percentage of Savings Bank Common Stock
owned by them in the aggregate immediately prior to consummation
of the Conversion and Reorganization without regard to (a) the
payment of cash in lieu of issuing fractional Exchange Shares and
(b) any shares of Conversion Stock purchased by the Savings
Bank's shareholders in the Conversion Offerings or the ESOP
thereafter.
As part of the Conversion and Reorganization, the Holding
Company is offering Conversion Shares in the Subscription
Offering to holders of Subscription Rights in the following order
of priority: (i) Eligible Account Holders (depositors of the
Savings Bank with $50.00 or more on deposit as of June 30, 1996);
(ii) the ESOP; and (iii) Supplemental Eligible Account Holders
(depositors of the Savings Bank with $50.00 or more on deposit as
of __________, 1997).
Concurrently with the Subscription Offering, any Conversion
Shares not subscribed for in the Subscription Offering may be
offered for sale in the Direct Community Offering to members of
the general public, with priority being given first to Public
Shareholders (who are not Eligible Account Holders or
Supplemental Eligible Account Holders) and then to natural
persons and trusts of natural persons residing in the Local
Community. Conversion Shares not sold in the Subscription and
Direct Community Offerings may be offered in the Syndicated
Community Offering. Regulations require that the Direct
Community and Syndicated Community Offerings be completed within
45 days after completion of the fully extended Subscription
Offering unless extended by the Savings Bank or the Holding
Company with the approval of the regulatory authorities. If the
Syndicated Community Offering is determined not to be feasible,
the Board of Directors of the Savings Bank will consult with the
regulatory authorities to determine an appropriate alternative
method for selling the unsubscribed Conversion Shares. The Plan
of Conversion provides that the Conversion and Reorganization
must be completed within 24 months after the date of the approval
of the Plan of Conversion by the members of the MHC.
No sales of Common Stock may be completed, either in the
Subscription Offering, Direct Community Offering or Syndicated
Community Offerings unless the Plan of Conversion is approved by
the members of the MHC and the shareholders of the Savings Bank.
The completion of the Conversion Offerings, however, is
subject to market conditions and other factors beyond the Savings
Bank's control. No assurance can be given as to the length of
time after approval of the Plan of Conversion at the Special
Members Meeting and the Shareholders Meeting that will be
required to complete the Direct Community or Syndicated Community
Offerings or other sale of the Conversion Shares. If delays are
experienced, significant changes may occur in the estimated pro
forma market value of the MHC and the Savings Bank, as converted,
together with corresponding changes in the net proceeds realized
by the Holding Company from the sale of the Conversion Shares.
If the Conversion and Reorganization is terminated, the Savings
Bank would be required to charge all Conversion and
Reorganization expenses against current income.
Orders for Conversion Shares will not be filled until at
least 969,000 Conversion Shares have been subscribed for or sold
and the PDOB and the FDIC approve the final valuation and the
Conversion and Reorganization closes. If the Conversion and
Reorganization is not completed within 45 days after the last day
of the fully extended Subscription Offering and the PDOB and the
FDIC consents to an extension of time to complete the Conversion
and Reorganization, subscribers will be given the right to
increase, decrease or rescind their subscriptions. Unless an
affirmative indication is received from subscribers that they
wish to continue to subscribe for shares, the funds will be
returned promptly, together with accrued interest at the Savings
Bank's passbook rate from the date payment is received until the
funds are returned to the subscriber. If such period is not
extended, or, in any event, if the Conversion and Reorganization
is not completed, all withdrawal authorizations will be
terminated and all funds held will be promptly returned together
with accrued interest at the Savings Bank's passbook rate from
the date payment is received until the Conversion and
Reorganization is terminated.
Purposes of Conversion and Reorganization
The MHC, as a state-chartered mutual holding company, does
not have shareholders and has no authority to issue capital
stock. As a result of the Conversion and Reorganization, the
Holding Company will be structured in the form used by holding
companies of commercial banks, most business entities and a
growing number of savings institutions. The holding company form
of organization will provide the Holding Company with the ability
to diversify the Holding Company's and the Savings Bank's
business activities through acquisition of, or mergers with, both
stock savings institutions and commercial banks, as well as other
companies. Although there are no current arrangements,
understandings or agreements regarding any such opportunities,
the Holding Company will be in a position after the Conversion
and Reorganization, subject to regulatory limitations and the
Holding Company's financial position, to take advantage of any
such opportunities that may arise.
The Conversion and Reorganization will be important to the
future growth and performance of the holding company organization
by providing a larger capital base to support the operations of
the Savings Bank and Holding Company and by enhancing their
future access to capital markets, their ability to diversify into
other financial services related activities, and their ability to
provide services to the public. Although the Savings Bank
currently has the ability to raise additional capital through the
sale of additional shares of Savings Bank Common Stock, that
ability is limited by the mutual holding company structure which,
among other things, requires that the MHC hold a majority of the
outstanding shares of Savings Bank Common Stock.
The Conversion and Reorganization also will result in an
increase in the number of shares of Common Stock to be
outstanding as compared to the number of outstanding shares of
Public Savings Bank Shares, which will increase the likelihood of
the development of an active and liquid trading market for the
Common Stock. See "MARKET FOR COMMON STOCK." In addition, the
Conversion and Reorganization permit the Holding Company to
engage in stock repurchases without adverse federal income tax
consequences, unlike the Savings Bank. Currently, the Holding
Company has no plans or intentions to engage in any stock
repurchases, other than repurchases to acquire shares for the
ESOP (to the extent the ESOP is unable to purchase shares in the
Conversion and Reorganization) and repurchases to fund the 1997
MRP (assuming it is adopted by shareholders of the Holding
Company).
An additional benefit of the Conversion and Reorganization
will be an increase in the accumulated earnings and profits of
the Savings Bank for federal income tax purposes. When the
Savings Bank (as a mutual institution) transferred substantially
all of its assets and liabilities to its stock savings bank
successor in the MHC Reorganization, its accumulated earnings and
profits tax attribute was not able to be transferred to the
Savings Bank because no tax-free reorganization was involved.
Accordingly, this tax attribute was retained by the Savings Bank
when it converted its charter to that of the MHC, even though the
underlying retained earnings were transferred to the Savings
Bank. The Conversion and Reorganization has been structured to
re-unite the accumulated earnings and profits tax attribute
retained by the MHC in the MHC Reorganization with the retained
earnings of the Savings Bank by merging the MHC with and into the
Savings Bank in a tax-free reorganization. This transaction will
increase the Savings Bank's ability to pay dividends to the
Holding Company in the future. See "DIVIDEND POLICY."
If the Savings Bank had undertaken a standard conversion
involving the formation of a stock holding company in 1995,
applicable Pennsylvania law and FDIC regulations would have
required a greater amount of common stock to be sold than the
amount of net proceeds raised in the MHC Reorganization.
Management believed that it was advisable to profitably invest
only the $5.58 million of net proceeds raised in the MHC
Reorganization rather than the larger amount of capital that
would have been raised in a standard conversion. A standard
conversion in 1995 also would have immediately eliminated all
aspects of the mutual form of organization.
In light of the foregoing, the Boards of Directors of the
Primary Parties believe that the Conversion and Reorganization is
in the best interests of the MHC and the Savings Bank, their
respective members and shareholders, and the communities served
by the Savings Bank.
Effects of Conversion and Reorganization on Depositors and
Borrowers of the Savings Bank
General. Prior to the Conversion and Reorganization, each
depositor in the Savings Bank has both a deposit account in the
institution and a pro rata interest in the net worth of the MHC
based upon the balance in his or her account. This interest may
only be realized in the event of a liquidation of the MHC.
Furthermore, this interest is dependent upon the existence of the
depositor's account and has no tangible market value separate
from such deposit account. A depositor who reduces or closes his
account receives a portion or all of the balance in the account
but nothing for his interest in the net worth of the MHC, which
is lost to the extent that the balance in the account is reduced.
Consequently, the depositors of the Savings Bank have only
an inchoate ownership interest in the MHC, which has realizable
value only in the unlikely event that the MHC is liquidated. In
such event, the depositors of record at that time would share pro
rata in any residual surplus and reserves of the MHC after other
claims are paid.
Upon consummation of the Conversion and Reorganization,
permanent nonwithdrawable capital stock will be created to
represent the ownership of the net worth of the Holding Company.
The Common Stock is separate and apart from deposit accounts and
cannot be and is not insured by the FDIC or any other
governmental agency. Certificates are issued to evidence
ownership of the permanent stock. The share certificates are
transferable, and therefore the stock may be sold or traded if a
purchaser is available with no effect on any deposit and/or loan
account(s) the seller may hold in the Savings Bank.
Continuity. The Conversion and Reorganization will not
interrupt the Savings Bank's normal business of accepting
deposits and making loans. The Savings Bank will continue to be
subject to regulation by the FDIC and the PDOB. After the
Conversion and Reorganization, the Savings Bank will continue to
provide services for depositors and borrowers under current
policies by its present management and staff.
The directors and officers of the Savings Bank at the time
of the Conversion and Reorganization will continue to serve as
directors and officers of the Savings Bank after the Conversion
and Reorganization. The directors and officers of the Holding
Company consist of individuals currently serving as directors and
officers of the MHC and the Savings Bank, and they generally will
retain their positions in the Holding Company after the
Conversion and Reorganization.
Effect on Public Savings Bank shares. Under the Plan of
Conversion, upon consummation of the Conversion and
Reorganization, the Public Savings Bank Shares shall be converted
into Exchange Shares based upon the Exchange Ratio without any
further action on the part of the holder thereof. Upon surrender
of the Public Savings Bank Shares, Common Stock will be issued in
exchange for such shares and the Public Shareholders will become
shareholders of the Holding Company. See "-- Delivery and
Exchange of Stock Certificates."
Voting Rights. Presently, depositors of the Savings Bank
are members of, and have very limited voting rights in, the MHC.
Upon completion of the Conversion and Reorganization, the MHC
will cease to exist and all voting rights in the Savings Bank
will be vested in the Holding Company as the sole shareholder of
the Savings Bank. Exclusive voting rights with respect to the
Holding Company will be vested in the holders of Common Stock.
Depositors of the Savings Bank will not have voting rights in the
Holding Company after the Conversion and Reorganization, except
to the extent that they become shareholders of the Holding
Company.
Savings Accounts and Loans. The Savings Bank's savings
accounts, account balances and existing FDIC insurance coverage
of savings accounts will not be affected by the Conversion and
Reorganization. Furthermore, the Conversion and Reorganization
will not affect the loan accounts, loan balances or obligations
of borrowers under their individual contractual arrangements with
the Savings Bank.
Tax Effects. The Savings Bank has received an opinion from
Stevens & Lee that the Conversion and Reorganization will
constitute a reorganization under Section 368(a)(1)(A) of the
Code. Among other things, the opinion provides that: (i) the
conversion of the MHC from a mutual holding company to a state-
chartered interim stock savings bank (i.e., Interim A) and its
simultaneous merger with and into the Savings Bank, with the
Savings Bank as the surviving entity will qualify as a
reorganization within the meaning of Section 368(a)(1)(A) of the
Code, (ii) no gain or loss will be recognized by the Savings Bank
upon the receipt of the assets of the MHC in such merger,
(iii) the merger of Interim B with and into the Savings Bank,
with the Savings Bank as the surviving entity, will qualify as a
reorganization within the meaning of Section 368(a)(A) of the
Code, (iv) no gain or loss will be recognized by Interim B upon
the transfer of its assets to the Savings Bank, (v) no gain or
loss will be recognized by the Savings Bank upon the receipt of
the assets of Interim B, (vi) no gain or loss will be recognized
by the Holding Company upon the receipt of Savings Bank Common
Stock solely in exchange for Common Stock, (vii) no gain or loss
will be recognized by the Public Shareholders upon the receipt of
Exchange Shares in exchange for their Public Savings Bank Shares,
(viii) the basis of the Exchange Shares to be received by the
Public Shareholders will be the same as the basis of the Public
Savings Bank Shares surrendered in exchange therefor, before
giving effect to any payment of cash in lieu of fractional
Exchange Shares, (ix) the holding period of the Exchange Shares
to be received by the Public Shareholders will include the
holding period of the Public Savings Bank Shares, provided that
the Public Savings Bank Shares were held as a capital asset on
the date of the exchange, (x) no gain or loss will be recognized
by the Holding Company upon the sale of shares of Conversion
Shares in the Conversion Offerings, (xi) the Eligible Account
Holders and Supplemental Eligible Account Holders will recognize
gain, if any, upon the issuance to them of withdrawable savings
accounts in the Savings Bank following the Conversion and
Reorganization, interests in the liquidation account and
nontransferable subscription rights to purchase Conversion Stock,
but only to the extent of the value, if any, of the subscription
rights, and (xii) the tax basis to the holders of Conversion
Shares purchased in the Conversion Offerings will be the amount
paid therefor, and the holding period for the Conversion Shares
will begin on the date of consummation of the Conversion
Offerings, if purchased through the exercise of Subscription
Rights, and on the day after the date of purchase, if purchased
in the Community Offering or the Syndicated Community Offering.
Unlike a private letter ruling issued by the IRS, an opinion of
counsel is not binding on the IRS and the IRS could disagree with
the conclusions reached therein. In the event of such
disagreement, no assurance can be given that the conclusions
reached in an opinion of counsel would be sustained by a court if
contested by the IRS.
Based upon past rulings issued by the IRS, the opinion
provides that the receipt of Subscription Rights by Eligible
Account Holders and Supplemental Eligible Account Holders under
the Plan of Conversion will be taxable to the extent, if any,
that the Subscription Rights are deemed to have a fair market
value. RP Financial, a financial consulting firm retained by the
Savings Bank, whose findings are not binding on the IRS, has
issued a letter indicating that the Subscription Rights do not
have any value, based on the fact that such rights are acquired
by the recipients without cost, are nontransferable and of short
duration and afford the recipients the right only to
purchase shares of the Common Stock at a price equal to its
estimated fair market value, which will be the same price paid by
purchasers in the Direct Community Offering for
unsubscribed shares of Common Stock. If the Subscription Rights
are deemed to have a fair market value, the receipt of such
rights may only be taxable to those Eligible Account Holders and
Supplemental Eligible Account Holders who exercise their
Subscription Rights. The Savings Bank could also recognize a
gain on the distribution of such Subscription Rights. Eligible
Account Holders and Supplemental Eligible Account Holders are
encouraged to consult with their own tax advisors as to the tax
consequences in the event the Subscription Rights are deemed to
have a fair market value.
The Savings Bank has also received an opinion from Stevens &
Lee, that, assuming the Conversion and Reorganization does not
result in any federal income tax liability to the Savings Bank,
its account holders, or the Holding Company, implementation of
the Plan of Conversion will not result in any Pennsylvania tax
liability to such entities or persons.
The opinion of Stevens & Lee and the letter from
RP Financial are filed as exhibits to the Registration Statement.
See "ADDITIONAL INFORMATION."
PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR OWN
TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF THE CONVERSION AND
REORGANIZATION PARTICULAR TO THEM.
Liquidation Account. In the unlikely event of a complete
liquidation of the MHC, each depositor of the Savings Bank would
receive his or her pro rata share of any assets of the MHC
remaining after payment of claims of all creditors. Each
depositor's pro rata share of such remaining assets would be in
the same proportion as the value of his or her deposit account
was to the total value of all deposit accounts in the Savings
Bank at the time of liquidation. After the Conversion and
Reorganization, each depositor, in the event of a complete
liquidation of the Savings Bank, would have a claim as a creditor
of the same general priority as the claim of all other general
creditors of the Savings Bank. However, except as described
below, his or her claim would be solely in the amount of the
balance in his or her deposit account plus accrued interest.
Each shareholder would not have an interest in the value or
assets of the Savings Bank or the Holding Company above that
amount.
The Plan of Conversion provides for the establishment upon
the completion of the Conversion and Reorganization, of a special
"liquidation account" for the benefit of Eligible Account Holders
and Supplemental Eligible Account Holders in an amount equal to
the amount of the greater of (1) the Savings Bank's retained
earnings of $8.74 million at March 31, 1995, the date of the
latest statement of financial condition contained in the final
offering circular utilized in the MHC Reorganization, or
(2) ____% of the Savings Bank's total shareholders' equity as
reflected in its latest statement of financial condition
contained in the final Prospectus utilized in the Conversion
Offerings. As of the date of this Prospectus, the initial
balance of the liquidation account would be $______ million.
Each Eligible Account Holder and Supplemental Eligible Account
Holder, if he or she were to continue to maintain his deposit
account at the Savings Bank, would be entitled, upon a complete
liquidation of the Savings Bank after the Conversion and
Reorganization to an interest in the liquidation account prior to
any payment to the Holding Company as the sole shareholder of the
Savings Bank. Each Eligible Account Holder and Supplemental
Eligible Account Holder would have an initial interest in such
liquidation account for each deposit account, including passbook
accounts, transaction accounts such as checking accounts, money
market deposit accounts and certificates of deposit, held in the
Savings Bank at the close of business on _____________________ or
June 30, 1997, as the case may be. Each Eligible Account Holder
and Supplemental Eligible Account Holder will have a pro rata
interest in the total liquidation account for each of his or her
deposit accounts based on the proportion that the balance of each
such deposit account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, as the case may be, bore to
the balance of all deposit accounts in the Savings Bank on such
date.
If, however, on any December 31 annual closing date of the
Savings Bank, commencing December 31, 1997, the amount in any
deposit account is less than the amount in such deposit account
on ____________________ or _____________, as the case may be, or
any other annual closing date, then the interest in the
liquidation account relating to such deposit account would be
reduced by the proportion of any such reduction, and such
interest will cease to exist if such deposit account is closed.
In addition, no interest in the liquidation account would ever be
increased despite any subsequent increase in the related deposit
account. Any assets remaining after the above liquidation rights
of Eligible Account Holders and Supplemental Eligible Account
Holders are satisfied would be distributed to the Holding Company
as the sole shareholder of the Savings Bank.
The Subscription, Direct Community and Syndicated Community
Offerings
Subscription Offering. In accordance with the Plan of
Conversion, nontransferable Subscription Rights to purchase the
Conversion Shares have been issued to persons and entities
entitled to purchase the Conversion Shares in the Subscription
Offering. The amount of Conversion Shares that these parties may
purchase will be subject to the availability of the Conversion
Shares for purchase under the categories set forth in the Plan of
Conversion. Subscription priorities have been established for
the allocation of stock to the extent that the Conversion Shares
are available. These priorities are as follows:
Category 1: Eligible Account Holders. Each depositor with
$50.00 or more on deposit at the Savings Bank as of June 30, 1996
will receive nontransferable Subscription Rights to subscribe for
up to the greater of 1% of the shares of Conversion Stock issued
in the Conversion and Reorganization, one-tenth of one percent of
the total offering of Common Stock or 15 times the product
(rounded down to the next whole number) obtained by multiplying
the total number of shares of Common Stock to be issued by a
fraction of which the numerator is the amount of qualifying
deposits of the Eligible Account Holder and the denominator is
the total amount of qualifying deposits of all Eligible Account
Holders. If the exercise of Subscription Rights in this category
results in an oversubscription, shares of Common Stock will be
allocated among subscribing Eligible Account Holders so as to
permit each Eligible Account Holder, to the extent possible, to
purchase a number of shares sufficient to make such person's
total allocation equal 100 shares or the number of shares
actually subscribed for, whichever is less. Thereafter,
unallocated shares will be allocated among subscribing Eligible
Account Holders proportionately, based on the amount of their
respective qualifying deposits as compared to total qualifying
deposits of all Eligible Account Holders. Subscription Rights
received by officers and directors in this category based on
their increased deposits in the Savings Bank in the one year
period preceding June 30, 1996 are subordinated to the
Subscription Rights of other Eligible Account Holders.
Category 2: ESOP. The Plan of Conversion provides that the
ESOP shall receive nontransferable Subscription Rights to
purchase up to 10% of the shares of Common Stock issued in the
Conversion and Reorganization. The ESOP intends to purchase 8%
of the shares of Common Stock issued in the Conversion and
Reorganization.
Category 3: Supplemental Eligible Account Holders. Each
depositor with $50.00 or more on deposit as of [_______, 1997]
will receive nontransferable Subscription Rights to subscribe for
up to the greater of 1% of the shares of Conversion Stock issued
in the Conversion and Reorganization, one-tenth of one percent of
the total offering of Common Stock or 15 times the product
(rounded down to the next whole number) obtained by multiplying
the total number of shares of Common Stock to be issued by a
fraction of which the numerator is the amount of qualifying
deposits of the Supplemental Eligible Account Holder and the
denominator is the total amount of qualifying deposits of all
Supplemental Eligible Account Holders. If the exercise of
Subscription Rights in this category results in an
oversubscription, shares of Common Stock will be allocated among
subscribing Supplemental Eligible Account Holders so as to permit
each Supplemental Eligible Account Holder, to the extent
possible, to purchase a number of shares sufficient to make his
total allocation equal 100 shares or the number of shares
actually subscribed for, whichever is less. Thereafter,
unallocated shares will be allocated among subscribing
Supplemental Eligible Account Holders proportionately, based on
the amount of their respective qualifying deposits as compared to
total qualifying deposits of all Supplemental Eligible Account
Holders.
Subscription Rights are nontransferable. Persons selling or
otherwise transferring their rights to subscribe for Common Stock
in the Subscription Offering or subscribing for Common Stock on
behalf of another person will be subject to forfeiture of such
rights and possible further sanctions and penalties imposed by
the FDIC or another agency of the U.S. Government. Each person
exercising Subscription Rights will be required to certify that
he or she is purchasing such shares solely for his or her own
account and that he or she has no agreement or understanding with
any other person for the sale or transfer of such shares. ONCE
TENDERED, SUBSCRIPTION ORDERS CANNOT BE REVOKED WITHOUT THE
CONSENT OF THE SAVINGS BANK AND THE HOLDING COMPANY.
The Holding Company and the Savings Bank will make
reasonable attempts to provide a Prospectus and related offering
materials to holders of Subscription Rights. However, the
Subscription Offering and all Subscription Rights under the Plan
of Conversion will expire at __________, Eastern Time, on the
Expiration Date, whether or not the Savings Bank has been able to
locate each person entitled to such Subscription Rights. Orders
for Common Stock in the Subscription Offering physically received
by the Savings Bank after the Expiration Date will not be
accepted. The Subscription Offering may be extended by the
Holding Company and the Savings Bank up to __________, 1997
without regulatory approval. FDIC regulations require that the
Holding Company complete the sale of Conversion Shares within 45
days after the close of the Subscription Offering. If the Direct
Community Offering and the Syndicated Community Offerings are not
completed by __________, 1997 (or __________, 1997, if the
Subscription Offering is fully extended), all funds received will
be promptly returned with interest at the Savings Bank's passbook
rate and all withdrawal authorizations will be canceled or, if
regulatory approval of an extension of the time period has been
granted, all subscribers and purchasers will be notified of such
extension and its duration and will be given the right to
increase, decrease or rescind their orders. If an affirmative
response to any resolicitation is not received by the Holding
Company from a subscriber, the subscriber's order will be
rescinded and all funds received will be promptly returned with
interest (or withdrawal authorizations will be canceled). No
single extension can exceed 90 days.
Direct Community Offering. Any shares of Common Stock that
remain unsubscribed for in the Subscription Offering will be
offered by the Holding Company to certain members of the general
public in a Direct Community Offering, with preference given
first to Public Shareholders (who are not eligible to subscribe
for Conversion Shares in the Subscription Offering) and then to
natural persons and trusts of natural persons residing in the
Local Community. Purchasers in the Direct Community Offering are
eligible to purchase up to 1% of the shares of Conversion Stock
issued in the Conversion and Reorganization. In the event an
insufficient number of shares are available to fill orders in the
Direct Community Offering, the available shares will be allocated
on a pro rata basis determined by the amount of the respective
orders. The Direct Community Offering is expected to commence
concurrently with the commencement of the Subscription Offering.
The Direct Community Offering may terminate on or at any time
subsequent to the Expiration Date, but no later than 45 days
after the close of the Subscription Offering, unless extended by
the Holding Company and the Savings Bank, with approval of the
PDOB and the FDIC. The right of any person to purchase shares in
the Direct Community Offering is subject to the absolute right of
the Holding Company and the Savings Bank to accept or reject such
purchases in whole or in part. If an order is rejected in part,
the purchaser does not have the right to cancel the remainder of
the order. The Holding Company presently intends to terminate
the Direct Community Offering as soon as it has received orders
for all shares available for purchase in the Conversion and
Reorganization.
If all of the Common Stock offered in the Subscription
Offering is subscribed for, no Common Stock will be available for
purchase in the Direct Community Offering.
Syndicated Community Offering. The Plan of Conversion
provides that, if necessary, all shares of Common Stock not
purchased in the Subscription Offering and Direct Community
Offering, if any, may be offered for sale to certain members of
the general public in a Syndicated Community Offering through a
syndicate of registered broker-dealers to be managed by Webb
acting as agent of the Holding Company. The Holding Company and
the Savings Bank have the right to reject orders, in whole or
part, in their sole discretion in the Syndicated Community
Offering. Neither Webb nor any registered broker-dealer shall
have any obligation to take or purchase any shares of the Common
Stock in the Syndicated Community Offering; however, Webb has
agreed to use its best efforts in the sale of shares in the
Syndicated Community Offering.
Conversion Shares sold in the Syndicated Community Offering
also will be sold at the Purchase Price. See "-- Stock Pricing,
Exchange Ratio and Number of Shares to be Issued." No person
will be permitted to subscribe in the Syndicated Offering for
Conversion Shares that exceeds 1% of the Conversion Shares issued
in the Conversion and Reorganization. See "-- Plan of
Distribution for the Subscription, Direct Community and
Syndicated Community Offerings" for a description of the
commission to be paid to the selected dealers and to Webb.
Webb may enter into agreements with selected dealers to
assist in the sale of shares in the Syndicated Community
Offering. During the Syndicated Community Offering, selected
dealers may only solicit indications of interest from their
customers to place orders with the Holding Company as of a
certain date ("Order Date") for the purchase of shares of
Conversion Stock. When and if Webb and the Holding Company
believe that enough indications of interest and orders have been
received in the Subscription Offering, the Direct Community
Offering and the Syndicated Community Offering to consummate the
Conversion and Reorganization, Webb will request, as of the Order
Date, selected dealers to submit orders to purchase shares for
which they have received indications of interest from their
customers. Selected dealers will send confirmations to such
customers on the next business day after the Order Date.
Selected dealers may debit the accounts of their customers on a
date which will be three business days from the Order Date
("Settlement Date"). Customers who authorize selected dealers to
debit their brokerage accounts are required to have the funds for
payment in their account on but not before the Settlement Date.
On the Settlement Date, selected dealers will remit funds to the
account that the Holding Company established for each selected
dealer. Each customer's funds so forwarded to the Holding
Company, along with all other accounts held in the same title,
will be insured by the FDIC up to the applicable $100,000 legal
limit. After payment has been received by the Holding Company
from selected dealers, funds will earn interest at the Savings
Bank's passbook rate until the completion of the Conversion
Offerings. At the completion of the Conversion and
Reorganization, the funds received in the Conversion Offerings
will be used to purchase the shares of Common Stock ordered.
The shares issued in the Conversion and Reorganization cannot and
will not be insured by the FDIC or any other government agency.
In the event the Conversion and Reorganization is not consummated
as described above, funds with interest will be returned promptly
to the selected dealers, who, in turn will promptly credit their
customers' brokerage accounts.
The Syndicated Community Offering may terminate on or at any
time subsequent to the Expiration Date, but no later than 45 days
after the close of the Subscription Offering, unless extended by
the Holding Company and the Savings Bank, with approval of the
PDOB and the FDIC.
In the event the Savings Bank is unable to find purchasers
from the general public for all unsubscribed shares, other
purchase arrangements will be made by the Board of Directors of
the Savings Bank, if feasible. Such other arrangements will be
subject to the approval of the PDOB and the FDIC. The PDOB and
the FDIC may grant one or more extensions of the offering period,
provided that (i) no single extension exceeds 90 days,
(ii) subscribers are given the right to increase, decrease or
rescind their subscriptions during the extension period, and
(iii) the extensions do not go more than two years beyond the
date on which the members approved the Plan of Conversion. If
the Conversion and Reorganization is not completed within 45 days
after the close of the Subscription Offering, either all funds
received will be returned with interest (and withdrawal
authorizations canceled) or, if the PDOB and the FDIC has granted
an extension of time, all subscribers will be given the right to
increase, decrease or rescind their subscriptions at any time
prior to 20 days before the end of the extension period. If an
extension of time is obtained, all subscribers will be notified
of such extension and of their rights to modify their orders. If
an affirmative response to any resolicitation is not received by
the Holding Company from a subscriber, the subscriber's order
will be rescinded and all funds received will be promptly
returned with interest (or withdrawal authorizations will be
canceled).
Persons in Non-Qualified States. The Holding Company and
the Savings Bank will make reasonable efforts to comply with the
securities laws of all states in the United States in which
persons entitled to subscribe for stock pursuant to the Plan of
Conversion reside. However, the Holding Company and the Savings
Bank are not required to offer stock in the Subscription Offering
to any person who resides in a foreign country or resides in a
state of the United States with respect to which (i) a small
number of persons otherwise eligible to subscribe for shares of
Common Stock reside in such state or (ii) the Holding Company or
the Savings Bank determines that compliance with the securities
laws of such state would be impracticable for reasons of cost or
otherwise, including but not limited to a request or requirement
that the Holding Company and the Savings Bank or their officers,
directors or trustees register as a broker, dealer, salesman or
selling agent, under the securities laws of such state, or a
request or requirement to register or otherwise qualify the
Subscription Rights or Common Stock for sale or submit any filing
with respect thereto in such state. Where the number of persons
eligible to subscribe for shares in one state is small, the
Holding Company and the Savings Bank will base their decision as
to whether or not to offer the Common Stock in such state on a
number of factors, including the size of accounts held by account
holders in the state, the cost of reviewing the registration and
qualification requirements of the state (and of actually
registering or qualifying the shares) or the need to register the
Holding Company, its officers, directors or employees as brokers,
dealers or salesmen.
Plan of Distribution for the Subscription, Direct Community and
Syndicated Community Offerings
The Primary Parties have retained Webb to consult with and
to advise the Savings Bank and the Holding Company, and to assist
the Holding Company on a best efforts basis, in the distribution
of the Conversion Shares in the Subscription Offering and Direct
Community Offering. The services that Webb will provide include,
but are not limited to (i) training the employees of the Savings
Bank who will perform certain ministerial functions in the
Subscription Offering and the Direct Community Offering regarding
the mechanics and regulatory requirements of the stock offering
process, (ii) managing the Stock Information Center by assisting
interested stock subscribers and by keeping records of all stock
orders, (iii) preparing marketing materials, and (iv) assisting
in the solicitation of proxies from the MHC's members and the
shareholders of the Savings Bank for use at the Special Members'
Meeting and the Shareholders' Meeting, respectively. For its
services, Webb will receive a management fee of $25,000 and a
success fee of 1.5% of the aggregate Purchase Price of the
Conversion Shares sold in the Subscription Offering and the
Direct Community Offering, excluding shares purchased by the ESOP
and officers, directors and employees of the Savings Bank, or
members of their immediate families. The management fee shall be
applied to the success fee and the success fee shall not exceed
$100,000. The Primary Parties have agreed to reimburse Webb for
its out-of-pocket expenses up to $7,500 and its legal fees up to
$30,000. The Primary Parties have also agreed to indemnify Webb
against certain claims or liabilities, including certain
liabilities under the Securities Act, and will contribute to
payments Webb may be required to make in connection with any such
claims or liabilities.
Description of Sales Activities
The Common Stock will be offered in the Subscription
Offering and Direct Community Offering principally by the
distribution of this Prospectus and through activities conducted
at the Savings Bank's Stock Information Center at its main office
facility. The Stock Information Center is expected to operate
during normal business hours throughout the Subscription Offering
and Direct Community Offering. It is expected that at any
particular time one or more Webb employees will be working at the
Stock Information Center. Stock Information Center personnel
will be responsible for mailing materials relating to the
Conversion Offerings, responding to questions regarding the
Conversion and Reorganization and the Conversion Offerings and
processing stock orders.
Sales of Common Stock will be made by registered
representatives affiliated with Webb. The management and
employees of the Savings Bank may participate in the Conversion
Offerings in clerical capacities, providing administrative
support in effecting sales transactions or, when permitted by
state securities laws, answering questions of a mechanical nature
relating to the proper execution of the Order Form. Management
of the Savings Bank may answer questions regarding the business
of the Savings Bank when permitted by state securities laws.
Other questions of prospective purchasers, including questions as
to the advisability or nature of the investment, will be directed
to registered representatives. The management and employees of
the Holding Company and the Savings Bank have been instructed not
to solicit offers to purchase Common Stock or provide advice
regarding the purchase of Common Stock.
No officer, director or employee of the Savings Bank or the
Holding Company will be compensated, directly or indirectly, for
any activities in connection with the offer or sale of securities
issued in the Conversion and Reorganization.
None of the Savings Bank's personnel participating in the
Conversion Offerings is registered or licensed as a broker or
dealer or an agent of a broker or dealer. The Savings Bank's
personnel will assist in the above-described sales activities
pursuant to an exemption from registration as a broker or dealer
provided by Rule 3a4-1 ("Rule 3a4-1") promulgated under the
Exchange Act. Rule 3a4-1 generally provides that an "associated
person of an issuer" of securities shall not be deemed a broker
solely by reason of participation in the sale of securities of
such issuer if the associated person meets certain conditions.
Such conditions include, but are not limited to, that the
associated person participating in the sale of an issuer's
securities not be compensated in connection therewith at the time
of participation, that such person not be associated with a
broker or dealer and that such person observe certain limitations
on his participation in the sale of securities. For purposes of
this exemption, "associated person of an issuer" is defined to
include any person who is a director, officer or employee of the
issuer or a company that controls, is controlled by or is under
common control with the issuer.
Procedure for Purchasing shares in the Subscription and Direct
Community Offerings
To ensure that each purchaser receives a prospectus at least
48 hours prior to the Expiration Date in accordance with
Rule 15c2-8 under the Exchange Act, no Prospectus will be mailed
any later than five days prior to such date or hand delivered any
later than two days prior to such date. Execution of the Order
Form will confirm receipt or delivery in accordance with
Rule 15c2-8. Order Forms will only be distributed with a
Prospectus. The Savings Bank will accept for processing only
orders submitted on original Order Forms. The Savings Bank is
not obligated to accept orders submitted on photocopied or
telecopied Order Forms. Orders cannot and will not be accepted
without the execution of the Certification appearing on the
reverse side of the Order Form.
To purchase shares in the Subscription Offering, an executed
Order Form with the required full payment for each share
subscribed for, or with appropriate authorization for withdrawal
of full payment from the subscriber's deposit account with the
Savings Bank (which may be given by completing the appropriate
blanks in the Order Form), must be received by the Savings Bank
by __________, Eastern Time, on the Expiration Date. Order Forms
that are not received by such time or are executed defectively or
are received without full payment (or without appropriate
withdrawal instructions) are not required to be accepted. The
Holding Company and the Savings Bank have the right to waive or
permit the correction of incomplete or improperly executed Order
Forms, but do not represent that they will do so. Pursuant to
the Plan of Conversion, the interpretation by the Holding Company
and the Savings Bank of the terms and conditions of the Plan of
Conversion and of the Order Form will be final. In order to
purchase shares in the Direct Community Offering, the Order Form,
accompanied by the required payment for each share subscribed
for, must be received by the Savings Bank prior to the time the
Direct Community Offering terminates, which may be on or at any
time subsequent to the Expiration Date. Once received, an
executed Order Form may not be modified, amended or rescinded
without the consent of the Savings Bank unless the Conversion and
Reorganization has not been completed within 45 days after the
end of the Subscription Offering, unless such period has been
extended.
In order to ensure that Eligible Account Holders, and
Supplemental Eligible Account Holders are properly identified as
to their stock purchase priorities, depositors as of the
Eligibility Record Date (June 30, 1996) and/or the Supplemental
Eligibility Record Date (_____________________, 1997) must list
all accounts on the Order Form giving all names in each account,
the account number and the approximate account balance as of such
date.
Full payment for subscriptions may be made (i) in cash if
delivered in person at the Stock Information Center, (ii) by
check, bank draft, or money order, or (iii) by authorization of
withdrawal from deposit accounts maintained with the Savings
Bank. Appropriate means by which such withdrawals may be
authorized are provided on the Order Form. No wire transfers
will be accepted. Interest will be paid on payments made by
cash, check, bank draft or money order at the Savings Bank's
passbook rate from the date payment is received until the
completion or termination of the Conversion and Reorganization.
If payment is made by authorization of withdrawal from deposit
accounts, the funds authorized to be withdrawn from a deposit
account will continue to accrue interest at the contractual rates
until completion or termination of the Conversion and
Reorganization (unless the certificate matures after the date of
receipt of the Order Form but prior to closing, in which case
funds will earn interest at the passbook rate from the date of
maturity until consummation of the Conversion and
Reorganization), but a hold will be placed on such funds, thereby
making them unavailable to the depositor until completion or
termination of the Conversion and Reorganization. At the
completion of the Conversion and Reorganization, the funds
received in the Conversion Offerings will be used to purchase
the shares of Common Stock ordered. The shares of Common Stock
issued in the Conversion and Reorganization cannot and will not
be insured by the FDIC or any other government agency. If the
Conversion and Reorganization is not consummated for any reason,
all funds submitted will be promptly refunded with interest as
described above.
If a subscriber authorizes the Savings Bank to withdraw the
amount of the aggregate Purchase Price from his or her deposit
account, the Savings Bank will do so as of the effective date of
Conversion and Reorganization, though the account must contain
the full amount necessary for payment at the time the
subscription order is received. The Savings Bank will waive any
applicable penalties for early withdrawal from certificate
accounts. If the remaining balance in a certificate account is
reduced below the applicable minimum balance requirement at the
time that the funds actually are transferred under the
authorization the certificate will be canceled at the time of the
withdrawal, without penalty, and the remaining balance will earn
interest at the Savings Bank's passbook rate.
The ESOP will not be required to pay for the shares
subscribed for at the time it subscribes, but rather may pay for
such shares of Common Stock subscribed for at the Purchase Price
upon consummation of the Conversion and Reorganization, provided
that there is in force from the time of its subscription until
such time, a loan commitment from an unrelated financial
institution or the Holding Company to lend to the ESOP, at such
time, the aggregate Purchase Price of the shares for which it
subscribed.
IRAs maintained in the Savings Bank do not permit investment
in the Common Stock. A depositor interested in using his or her
IRA funds to purchase Common Stock must do so through a self-
directed IRA. Since the Savings Bank does not offer such
accounts, it will allow such a depositor to make a trustee-to-
trustee transfer of the IRA funds to a trustee offering a self-
directed IRA program with the agreement that such funds will be
used to purchase the Common Stock in the Conversion Offerings.
There will be no early withdrawal or IRS interest penalties for
such transfers. The new trustee would hold the Common Stock in a
self-directed account in the same manner as the Savings Bank now
holds the depositor's IRA funds. An annual administrative fee
may be payable to the new trustee. Depositors interested in
using funds in a Savings Bank IRA to purchase Common Stock should
contact the Stock Information Center so that the necessary forms
may be forwarded for execution and returned prior to the
Expiration Date. In addition, the provisions of ERISA and IRS
regulations require that officers, directors and 10% shareholders
who use self-directed IRA funds to purchase shares of Common
Stock in the Subscription Offering, make such purchases for the
exclusive benefit of IRAs.
Stock Pricing, Exchange Ratio and Number of Shares to be Issued
The Plan of Conversion requires that the purchase price of
the Conversion Shares must be based on the appraised pro forma
market value of the Conversion Shares, as determined on the basis
of an independent valuation. The Primary Parties have retained
RP Financial to make such valuation. For its services in making
the Appraisal and any expenses incurred in connection therewith,
RP Financial will receive a maximum fee of $20,000 plus out of
pocket expenses, together with a fee of no greater that $7,500
plus out of pocket expenses for the preparation of a business
plan and other services performed in connection with the Holding
Company's application to the FDIC. The Primary Parties have
agreed to indemnify RP Financial and its employees and affiliates
against certain losses (including any losses in connection with
claims under the federal securities laws) arising out of its
services as appraiser, except where RP Financial's liability
results from its negligence or bad faith.
The Appraisal has been prepared by RP Financial in reliance
upon the information contained in this Prospectus, including the
Consolidated Financial Statements. RP Financial also considered
the following factors, among others: the present and projected
operating results and financial condition of the Primary Parties
and the economic and demographic conditions in the Savings Bank's
existing market area; certain historical, financial and other
information relating to the Savings Bank; a comparative
evaluation of the operating and financial statistics of the
Savings Bank with those of other similarly situated publicly-
traded companies located in Pennsylvania and other regions of the
United States; the aggregate size of the offering of the
Conversion Shares; the impact of the Conversion and
Reorganization on the Savings Bank's capital and earnings
potential; the proposed dividend policy of the Holding Company
and the Savings Bank; and the trading market for the Savings Bank
Common Stock and securities of comparable companies and general
conditions in the market for such securities.
On the basis of the foregoing, RP Financial has advised the
Primary Parties in its opinion that the estimated pro forma
market value of the MHC and the Savings Bank, as converted, was
$22.14 million as of September 19, 1997. Because the holders of
the Public Savings Bank Shares will continue to hold the same
aggregate percentage ownership interest in the Holding Company as
they currently hold in the Savings Bank (before giving effect to
the payment of cash in lieu of issuing fractional Exchange Shares
and any Conversion Shares purchased by the Public Shareholders in
the Conversion Offerings), the Appraisal was multiplied by 51.5%,
the MHC's percentage interest in the Savings Bank. The resulting
amount represents the midpoint of the valuation ($11.40 million),
and the minimum and maximum of the valuation were set at 15%
below and above the midpoint, respectively, resulting in a range
of $9.69 million to $13.11 million. The Boards of Directors of
the Primary Parties determined that the Conversion Shares would
be sold at $10.00 per share, resulting in a range of 969,000 to
1,311,000 Conversion Shares being offered. Upon consummation of
the Conversion and Reorganization, the Conversion Shares and the
Exchange Shares will represent approximately 52.04% and 47.96%,
respectively, of the Holding Company's total outstanding shares.
The Boards of Directors of the Primary Parties reviewed
RP Financial's appraisal report, including the methodology and
the assumptions used by RP Financial, and determined that the
Estimated Valuation Range was reasonable and adequate. The
Boards of Directors of the Primary Parties also established the
formula for determining the Exchange Ratio. Based upon such
formula and the Estimated Valuation Range, the Exchange Ratio
ranged from a minimum of 1.5413 to a maximum of 2.0853
Exchange Shares for each Public Savings Bank Share, with a
midpoint of 1.8133. Based upon these Exchange Ratios, the
Holding Company expects to issue between 893,014 and 1,208,202
shares of Exchange Shares to the holders of Public Savings
Bank Shares outstanding immediately prior to the consummation of
the Conversion and Reorganization. The Estimated Valuation Range
and the Exchange Ratio may be amended with the approval of the
PDOB and the FDIC, if required, or if necessitated by subsequent
developments in the financial condition of any of the Primary
Parties or market conditions generally. If the appraisal is
updated to below $9.69 million or above $15.07 million (the
maximum of the Estimated Valuation Range, as adjusted by 15%),
such Appraisal will be filed with the SEC by post-effective
amendment.
Based upon current market and financial conditions and
recent practices and policies of the PDOB and the FDIC, in the
event the Holding Company receives orders for Conversion Shares
in excess of $13.11 million (the maximum of the Estimated
Valuation Range) and up to $15.07 million (the maximum of the
Estimated Valuation Range, as adjusted by 15%), the Holding
Company may be required by the PDOB and the FDIC to accept all
such orders. No assurances, however, can be made that the
Holding Company will receive orders for Conversion Shares in
excess of the maximum of the Estimated Valuation Range or that,
if such orders are received, that all such orders will be
accepted because the Holding Company's first valuation and number
of shares to be issued are subject to the receipt of an updated
appraisal from RP Financial that reflects such an increase in the
valuation and the approval of such increase by the PDOB and the
FDIC. There is no obligation or understanding on the part of
management to take and/or pay for any shares of Conversion Shares
to complete the Conversion Offerings.
RP Financial's valuation is not intended, and must not be
construed, as a recommendation of any kind as to the advisability
of purchasing Conversion Shares. RP Financial did not
independently verify the Savings Bank's Consolidated Financial
Statements and other information provided by the Savings Bank and
the MHC, nor did RP Financial value independently the assets or
liabilities of the Savings Bank. The valuation considers the
Savings Bank and the MHC as going concerns and should not be
considered as an indication of the liquidation value of the
Savings Bank and the MHC. Moreover, because such valuation is
necessarily based upon estimates and projections of a number of
matters, all of which are subject to change from time to time, no
assurance can be given that persons purchasing Conversion Shares
or receiving Exchange Shares in the Conversion and Reorganization
will thereafter be able to sell such shares at prices at or above
the Purchase Price or in the range of the foregoing valuation of
the pro forma market value thereof.
No sale of Conversion Shares or issuance of Exchange Shares
may be consummated unless prior to such consummation RP Financial
confirms that nothing of a material nature has occurred that,
taking into account all relevant factors, would cause it to
conclude that the Purchase Price is materially incompatible with
the estimate of the pro forma market value of a share of Common
Stock upon consummation of the Conversion and Reorganization. If
such is not the case, a new Estimated Valuation Range may be set,
a new Exchange Ratio may be determined based upon the new
Estimated Valuation Range, a new Subscription, Direct Community
Offering and/or Syndicated Community Offering may be held or such
other action may be taken as the Primary Parties shall determine
and the PDOB and the FDIC may permit or require.
Depending upon market or financial conditions following the
commencement of the Subscription Offering, the total number of
Conversion Shares to be issued in the Conversion Offerings may be
increased or decreased without a resolicitation of subscribers,
provided that the product of the total number of shares times the
Purchase Price is not below the minimum or more than 15% above
the maximum of the Estimated Valuation Range. In the event
market or financial conditions change so as to cause the
aggregate Purchase Price of the shares to be below the minimum of
the Estimated Valuation Range or more than 15% above the maximum
of the Estimated Valuation Range, purchasers will be resolicited
(i.e. permitted to continue their orders, in which case they will
need to affirmatively reconfirm their subscriptions prior to the
expiration of the resolicitation offering or their subscription
funds will be promptly refunded with interest at the Savings
Bank's passbook rate of interest, or be permitted to modify or
rescind their subscriptions). Any increase or decrease in the
number of Conversion Shares will result in a corresponding change
in the number of Exchange Shares, so that upon consummation of
the Conversion and Reorganization, the Conversion Shares and the
Exchange Shares will represent approximately 52.04% and 47.96%,
respectively, of the Holding Company's total outstanding shares
of Common Stock (exclusive of the effects of the exercise of
outstanding stock options).
An increase in the number of Conversion Shares as a result
of an increase in the appraisal of the estimated pro forma market
value would decrease both a subscriber's ownership interest and
the Holding Company's pro forma net earnings and shareholders'
equity on a per share basis while increasing pro forma net
earnings and shareholders' equity on an aggregate basis. A
decrease in the number of Conversion Shares would increase both a
subscriber's ownership interest and the Holding Company's pro
forma net earnings and shareholders' equity on a per share basis
while decreasing pro forma net earnings and shareholders' equity
on an aggregate basis. See "RISK FACTORS -- Possible Dilutive
Effect of Benefit Plans" and "PRO FORMA DATA."
The Appraisal of RP Financial has been filed as an exhibit
to this Registration Statement and Application for Conversion of
which this Prospectus is a part and is available for inspection
in the manner set forth under "ADDITIONAL INFORMATION."
Limitations on Purchases of Conversion Shares
The Plan of Conversion provides for certain limitations to
be placed upon the purchase of Conversion Shares by eligible
subscribers and others in the Conversion and Reorganization.
Each subscriber must subscribe for a minimum of 25 Conversion
Shares. Except for the ESOP, which is expected to subscribe for
8% of the Conversion Shares issued in the Conversion and
Reorganization, the Plan of Conversion provides for the following
purchase limitations: (i) the maximum number of shares of
Conversion Shares that may be subscribed for or purchased in all
categories in the Conversion and Reorganization by any person,
when combined with any Exchange Shares received, shall not exceed
1% of the Conversion Shares issued in the Conversion and
Reorganization, and (ii) the maximum number of shares of
Conversion Shares that may be subscribed for or purchased in all
categories in the Conversion and Reorganization by any person,
together with all associates or any group of persons acting in
concert when combined with any Exchange Shares received, shall
not exceed 2% of the Conversion Shares issued in the Conversion
and Reorganization. For purposes of the Plan of Conversion, the
directors are not deemed to be acting in concert solely by reason
of their Board membership. Pro rata reductions within each
Subscription Rights category will be made in allocating shares to
the extent that the maximum purchase limitations are exceeded.
The Boards of Directors of the Primary Parties may, in their
sole discretion, increase the maximum purchase limitation set
forth above up to 5% of the Conversion Shares sold in the
Conversion and Reorganization, provided that orders for shares
exceed 5% of the Conversion Shares sold in the Conversion and
Reorganization may not exceed, in the aggregate, 10% of
the shares sold in the Conversion and Reorganization. The
Savings Bank and the Holding Company do not intend to increase
the maximum purchase limitation unless market conditions are such
that an increase in the maximum purchase limitation is necessary
to sell a number of shares in excess of the minimum of the
Estimated Valuation Range. If the Boards of Directors of the
Primary Parties decide to increase the purchase limitation,
persons who subscribed for the maximum number of Conversion
Shares will be, and other large subscribers in the discretion of
the Holding Company and the Savings Bank may be, given the
opportunity to increase their subscriptions accordingly, subject
to the rights and preferences of any person who has priority
Subscription Rights.
The term "acting in concert" is defined in the Plan of
Conversion to mean (i) knowing participation in a joint activity
or interdependent conscious parallel action towards a common goal
whether or not pursuant to an express agreement; or (ii) a
combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any
contract understanding, relationship, agreement or other
arrangement, whether written or otherwise. In general, a person
who acts in concert with another party also shall be deemed to be
acting in concert with any person who also is acting in concert
with that other party.
The term "associate" of a person is defined in the Plan of
Conversion to mean (i) any corporation or organization (other
than the Savings Bank or a majority-owned subsidiary of the
Savings Bank) of which such person is an officer or partner or
is, directly or indirectly, the beneficial owner of 10% or more
of any class of equity securities; (ii) any trust or other estate
in which such person has a substantial beneficial interest or as
to which such person serves as trustee or in a similar fiduciary
capacity (excluding tax-qualified employee plans); and (iii) any
relative or spouse of such person, or any relative of such
spouse, who either has the same home as such person or who is a
director or officer of the Savings Bank or any of its parents or
subsidiaries. For example, a corporation of which a person
serves as an officer would be an associate of such person and,
therefore, all shares purchased by such corporation would be
included with the number of shares that such person could
purchase individually under the above limitations.
The term "officer" is defined in the Plan of Conversion to
mean an executive officer of the Savings Bank, including its
Chairman of the Board, President, Executive Vice Presidents,
Senior Vice Presidents, Vice Presidents in charge of principal
business functions, Secretary and Treasurer.
Common stock purchased or exchanged pursuant to the
Conversion and Reorganization will be freely transferable, except
for shares purchased by directors and officers of the Savings
Bank and the Holding Company and by NASD members. See
"-- Restrictions on Transferability by Directors and Officers and
NASD Members."
Delivery and Exchange of Stock Certificates
Conversion Stock. Certificates representing Conversion
Shares will be mailed by the Holding Company's transfer agent to
the persons entitled thereto at the addresses of such persons
appearing on the Stock Order Form as soon as practicable
following the consummation of the Conversion and Reorganization.
Any undeliverable certificates will be held by the Holding
Company until claimed by persons legally entitled thereto or
otherwise disposed according to applicable law. Purchasers of
Conversion Shares may be unable to sell such shares until
certificates are available and delivered to them.
Exchange Shares. After the consummation of the Conversion
and Reorganization, each holder of a certificate(s) theretofore
evidencing issued and outstanding shares of Savings Bank Common
Stock (other than the MHC), upon surrender of the same to an
agent, duly appointed by the Holding Company, which is
anticipated to be the transfer agent for the Common Stock
("Exchange Agent"), shall be entitled to receive in exchange
therefor certificates representing the number of full
Exchange Shares based on the Exchange Ratio. The Exchange Agent
shall mail a form of letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to
such certificate shall pass, only upon delivery of such
certificate to the Exchange Agent) advising such holder of the
terms of the Exchange Offering and the procedure for surrendering
to the Exchange Agent such certificates in exchange for a
certificate(s) evidencing Common Stock. The Savings Bank
Shareholders should not forward Savings Bank Common Stock
certificates to the Savings Bank or the Exchange Agent until they
have received the letter of transmittal.
No holder of a certificate theretofore representing shares
of Savings Bank Common Stock shall be entitled to receive any
dividends on the Common Stock until the certificate representing
such shares is surrendered in exchange for certificates
representing shares of Common Stock. In the event that dividends
are declared and paid by the Holding Company in respect of Common
Stock after the consummation of the Conversion and
Reorganization, but before surrender of certificates
representing shares of Savings Bank Common Stock, dividends
payable in respect of shares of Common Stock not then issued
shall accrue (without interest). Any such dividends shall be
paid (without interest) upon surrender of the certificates
representing such shares of Savings Bank Common Stock. After the
consummation of the Conversion and Reorganization, the Holding
Company shall be entitled to treat certificates
representing shares of Savings Bank Common Stock as evidencing
ownership of the number of full shares of Common Stock into which
the shares of Savings Bank Common Stock represented by such
certificates shall have been converted, notwithstanding the
failure on the part of the holder thereof to surrender such
certificates.
The Holding Company shall not be obligated to deliver a
certificate(s) representing shares of Common Stock to which a
holder of Savings Bank Common Stock would otherwise be entitled
as a result of the Conversion and Reorganization until such
holder surrenders the certificate(s) representing the shares of
Savings Bank Common Stock for exchange as provided above, or, in
default thereof, an appropriate affidavit of loss and indemnity
agreement and/or a bond as may be required in each case by the
Holding Company. If any certificate evidencing shares of Common
Stock is to be issued in a name other than that in which the
certificate evidencing Savings Bank Common Stock surrendered in
exchange therefor is registered, it shall be a condition of the
issuance thereof that the certificate so surrendered shall be
properly endorsed and otherwise in proper form for transfer and
that the person requesting such exchange pay to the Exchange
Agent any transfer or other tax required by reason of the
issuance of a certificate for shares of Common Stock in any name
other than that of the registered holder of the certificate
surrendered or otherwise establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.
Restrictions on Repurchase of Stock
Pursuant to FDIC regulations, FDIC-regulated savings banks
(and their holding companies) may not for a period of three years
from the date of an institution's mutual-to-stock conversion
repurchase any of its common stock from any person, except in the
event of (i) an offer made to all of its shareholders to
repurchase the common stock on a pro rata basis, approved by the
FDIC; or (ii) the repurchase of qualifying shares of a director,
or (iii) a purchase in the open market by a tax-qualified or non-
tax-qualified employee stock benefit plan in an amount reasonable
and appropriate to fund the plan. Furthermore, repurchases of
any common stock are prohibited if the effect thereof would cause
the savings bank's regulatory capital to be reduced below (a) the
amount required for the liquidation account or (b) the regulatory
capital requirements imposed by the FDIC. Repurchases are
generally prohibited during the first year following conversion.
Upon ten days' written notice to the FDIC, and if the FDIC does
not object, an institution may make open market repurchases of
its outstanding common stock during years two and the following
the conversion, provided that certain regulatory conditions are
met and that the repurchase would not adversely affect the
financial condition of the savings bank. Any repurchases of
common stock by the Holding Company would be subject to these
regulatory restrictions unless the FDIC would provide otherwise.
Restrictions on Transferability by Directors and Officers and
NASD Members
Shares of Common Stock purchased in the Conversion Offerings
by directors and officers of the Holding Company may not be sold
for a period of one year following consummation of the Conversion
and Reorganization, except in the event of the death of the
shareholder or in any exchange of the Common Stock in connection
with a merger or acquisition of the Holding Company. Shares of
Common Stock received by directors or officers through the ESOP
or the MRP or upon exercise of options issued pursuant to the
Stock Option Plan or purchased subsequent to the Conversion and
Reorganization are not subject to this restriction.
Accordingly, shares of Common Stock issued by the Holding Company
to directors and officers shall bear a legend giving appropriate
notice of the restriction and, in addition, the Holding Company
will give appropriate instructions to the transfer agent for the
Holding Company's Common Stock with respect to the restriction on
transfers. Any shares issued to directors and officers as a
stock dividend, stock split or otherwise with respect to
restricted Common Stock shall be subject to the same
restrictions.
Purchases of outstanding shares of Common Stock by
directors, executive officers (or any person who was an executive
officer or trustee of the Savings Bank after adoption of the Plan
of Conversion and Reorganization) and their associates during the
three-year period following Conversion and Reorganization may be
made only through a broker or dealer registered with the SEC,
except with the prior written approval of the FDIC. This
restriction does not apply, however, to negotiated transactions
involving more than 1% of the outstanding Common Stock or to the
purchase of Common Stock pursuant to either the 1995 or 1997
Stock Option Plan.
The Holding Company has filed with the SEC a registration
statement under the Securities Act for the registration of the
Common Stock to be issued pursuant to the Conversion and
Reorganization. The registration under the Securities Act
of shares of the Common Stock to be issued in the Conversion and
Reorganization does not cover the resale of such shares. Shares
of Common Stock purchased by persons who are not affiliates of
the Holding Company may be resold without registration. Shares
purchased by an affiliate of the Holding Company will be subject
to the resale restrictions of Rule 144 under the Securities Act.
If the Holding Company meets the current public information
requirements of Rule 144 under the Securities Act, each affiliate
of the Holding Company who complies with the other conditions of
Rule 144 (including those that require the affiliate's sale to be
aggregated with those of certain other persons) would be able to
sell in the public market, without registration, a number
of shares not to exceed, in any three-month period, the greater
of (i) 1% of the outstanding shares of Common Stock or (ii) the
average weekly volume of trading in such shares during the
preceding four calendar weeks. Provision may be made in the
future by the Holding Company to permit affiliates to have
their shares registered for sale under the Securities Act under
certain circumstances.
Under guidelines of the NASD, members of the NASD and their
associates are subject to certain restrictions on the transfer of
securities purchased in accordance with Subscription Rights and
to certain reporting requirements upon purchase of such
securities.
CERTAIN RESTRICTIONS ON ACQUISITION
OF THE HOLDING COMPANY
Pennsylvania Law
The Pennsylvania BCL contains certain provisions applicable
to the Company that may have the effect of impeding a change in
control of the Company. These provisions, among other things,
(a) require that, following any acquisition by any person or
group of 20% of a public corporation's voting power, the
remaining shareholders have the right to receive payment for
their shares, in cash, from such person or group in an amount
equal to the "fair value" of their shares, including an increment
representing a proportion of any value payable for acquisition of
control of the corporation; and (b) prohibit, for five years
after an interested shareholder's acquisition date, a "business
combination" (which includes a merger or consolidation of the
corporation or a sale, lease or exchange of assets having a
minimum specified aggregate value or representing a minimum
specified percentage earning power or net income of the
corporation) with a shareholder or group of shareholders
beneficially owning 20% or more of a public corporation's voting
power.
In 1990, the Pennsylvania legislature further amended the
Pennsylvania BCL to expand the antitakeover protections afforded
by Pennsylvania law by redefining the fiduciary duty of directors
and adopting disgorgement and control-share acquisition statutes.
To the extent applicable to the Holding Company at the present
time, this legislation generally (a) expands the factors and
groups (including shareholders) that the Board of Directors can
consider in determining whether a certain action is in the best
interests of the corporation; (b) provides that the Board of
Directors need not consider the interests of any particular group
as dominant or controlling; (c) provides that directors, in order
to satisfy the presumption that they have acted in the best
interests of the corporation, need not satisfy any greater
obligation or higher burden of proof with respect to actions
relating to an acquisition or potential acquisition of control;
(d) provides that actions relating to acquisitions of control
that are approved by a majority of "disinterested directors" are
presumed to satisfy the directors' standard unless it is proven
by clear and convincing evidence that the directors did not
assent to such action in good faith after reasonable
investigation; and (e) provides that the fiduciary duty of
directors is solely to the corporation and may be enforced by the
corporation or by a shareholder in a derivative action, but not
by a shareholder directly. The 1990 amendments to the BCL
explicitly provide that the fiduciary duty of directors shall not
be deemed to require directors (a) to redeem any rights under, or
to modify or render inapplicable, any shareholder rights plan;
(b) to render inapplicable, or make determinations under,
provisions of the BCL relating to control transactions, business
combinations, control-share acquisitions or disgorgement by
certain controlling shareholders following attempts to acquire
control; or (c) to act as the board of directors, a committee of
the board or an individual director solely because of the effect
such action might have on an acquisition or potential or proposed
acquisition of control of the corporation or the consideration
that might be offered or paid to shareholders in such an
acquisition. One of the effects of these fiduciary duty
provisions may be to make it more difficult for a shareholder to
successfully challenge the actions of the Holding Company's Board
of Directors in a potential change in control context.
Pennsylvania case law appears to provide that the fiduciary duty
standard under the 1990 amendment to the BCL grants directors the
statutory authority to reject or refuse to consider any potential
or proposed acquisition of the corporation.
Under the Pennsylvania control-share acquisition statute, a
person or group is entitled to voting rights with respect to
"control shares" only after shareholders (both disinterested
shareholders and all shareholders) have approved the granting of
such voting rights at a meeting of shareholders.
"Control shares" are shares acquired since January 1, 1988, that
upon acquisition of voting power by an "acquiring person," would
result in a "control-share acquisition." ("Control shares" also
include voting shares where beneficial ownership was acquired by
the "acquiring person" within 180 days of the control-share
acquisition or with the intention of making a control-share
acquisition.) An "acquiring person" is a person or group who
makes or proposes to make a "control-share acquisition." A
"control-share acquisition" is an acquisition, directly or
indirectly, of voting power over voting shares that would, when
added to all voting power of the person over other voting shares,
entitle the person to cast or direct the casting of such
percentage of votes for the first time with respect to any of the
following ranges that all shareholders would be entitled to cast
in an election of directors: (a) at least 20% but less than
33-1/3%; (b) at least 33-1/3 but less than 50%; or (c) 50% or
more. The effect of these provisions is to require a new
shareholder vote when each threshold is exceeded. In the event
shareholders do not approve the granting of voting rights, voting
rights are lost only with respect to "control shares."
A special meeting of shareholders is required to be called
to establish voting rights of control shares if an acquiring
person (a) files with the corporation an information statement
containing specified information, (b) makes a written request for
a special meeting at the time of delivery of the information
statement, (c) makes a control-share acquisition or a bona fide
written offer to make a control-share acquisition, and
(d) provides a written undertaking at the time of delivery of the
information statement to pay or reimburse the corporation for
meeting expenses. If the information statement is filed and a
control-share acquisition is made or proposed to be made, but no
request for a special meeting is made or no written undertaking
to pay expenses is provided, the issue of voting rights will be
submitted to shareholders at the next annual or special meeting
of shareholders of the corporation.
A corporation may redeem all "control shares" at the average
of the high and low sales price, as reported on a national
securities exchange or national quotation system or similar
quotation system, on the date the corporation provides notice of
redemption (a) at any time within 24 months after the date on
which the control-share acquisition occurs if the acquiring
person does not, within 30 days after the completion of the
control-share acquisition, properly request that shareholders
consider the issue of voting rights to be accorded to
control shares and (b) at any time within 24 months after the
issue of voting rights is submitted to shareholders and such
voting rights either are not accorded or are accorded and
subsequently lapse. Voting rights accorded to control shares by
a vote of shareholders lapse and are lost if any proposed
control-share acquisition is not consummated within 90 days after
shareholder approval is obtained.
A person will not be considered an "acquiring person" if the
person holds voting power within any of the ranges specified in
the definition of "control-share acquisition" as a result of a
solicitation of revocable proxies if such proxies (a) are given
without consideration in response to a proxy or consent
solicitation made in accordance with the Exchange Act and (b) do
not empower the holder to vote the shares except on the specific
matters described in the proxy and in accordance with the
instructions of the giver of the proxy.
The statute does not apply to certain control-share
acquisitions effected pursuant to a gift or laws of inheritance,
in connection with certain family trusts or pursuant to a merger,
consolidation or plan of share exchange if the corporation is a
party to the agreement.
The effect of this statutory provision is to deter the
accumulation of a substantial block of Common Stock, including
accumulation with a view to effecting a non-negotiated tender or
exchange offer for Common Stock.
Under the disgorgement provisions of the Pennsylvania BCL,
any profit realized by any person or group who is or was a
"controlling person or group" from the disposition of any equity
security of a corporation shall belong to and be recoverable by
the corporation where the profit is realized (i) within 18 months
after the person becomes a "controlling person or group" and
(ii) the equity security had been acquired by the "controlling
person or group" within 24 months prior to or 18 months after
obtaining the status of a "controlling person or group."
A "controlling person or group" is a person or group who
(a) has acquired, offered to acquire or, directly or indirectly,
publicly disclosed the intention of acquiring 20% voting power of
the corporation or (b) publicly disclosed that it may seek to
acquire control of the corporation.
A person will not be deemed a "controlling person or group"
if the person holds voting power as a result of a solicitation of
revocable proxies if, among other things, such proxies (a) are
given without consideration in response to a proxy or consent
solicitation made in accordance with the Exchange Act and (b) do
not empower the holder to vote the shares except on the specific
matters described in the proxy and in accordance with the
instructions of the giver of the proxy. This exception does not
apply to proxy contests in connection with or as a means toward
acquiring control of the Holding Company.
The effect of this statutory provision is to deter the
accumulation of a substantial block of Common Stock with a view
to putting the Holding Company "in play" and then selling shares
at a profit (whether to the Holding Company, in the market or in
connection with an acquisition of the Holding Company).
Certain Anti-Takeover Provisions in the Articles of Incorporation
and Bylaws of the Holding Company
While the Board of Directors of the Holding Company is not
aware of any effort that might be made to obtain control of the
Holding Company after Conversion, the Board believes that it is
appropriate to include certain provisions as part of the Holding
Company's Articles of Incorporation to protect the interests of
the Holding Company and its shareholders from hostile takeovers
that the Board might conclude are not in the best interests of
the Holding Company or the Holding Company's shareholders. These
provisions may have the effect of discouraging a future takeover
attempt that is not approved by the Holding Company's Board of
Directors but which individual shareholders may deem to be in
their best interests or in which shareholders may receive a
substantial premium for their shares over the then current market
price. As a result, shareholders who might desire to participate
in such a transaction may not have an opportunity to do so. Such
provisions will also render the removal of the Holding Company's
current Board of Directors or management more difficult.
The following discussion is a general summary of certain
provisions of the Articles of Incorporation and Bylaws of the
Holding Company that may be deemed to have such an "anti-
takeover" effect. The description of these provisions is
necessarily general and reference should be made in each case to
the Articles of Incorporation and Bylaws of the Holding Company.
For information regarding how to obtain a copy of these documents
without charge, see "Additional Information."
Classified Board of Directors and Related Provisions
The Holding Company's Articles of Incorporation provide that
the Holding Company's Board of Directors is to be divided into
three classes that shall be as nearly equal in number as
possible. The directors in each class will hold office following
their initial appointment to office for terms of one year, two
years and three years, respectively, and, upon reelection, will
serve for terms of three years thereafter. Each director will
serve until his or her successor is elected and qualified. The
Holding Company's Articles of Incorporation provide that a
director may be removed by shareholders only upon the affirmative
vote of at least a majority of the votes that all shareholders
would be entitled to cast. The Holding Company's Articles of
Incorporation further provide that any vacancy occurring in the
Holding Company's Board of Directors, including a vacancy created
by an increase in the number of directors, shall be filled for
the remainder of the unexpired term by a majority vote of the
directors then in office.
The classified board of directors of the Holding Company
could make it more difficult for shareholders, including those
holding a majority of the outstanding, shares, to force an
immediate change in the composition of a majority of the Holding
Company's Board of Directors. Because the terms of only one-
third of the incumbent directors expire each year, it requires at
least two annual elections for the shareholders to chance a
majority, whereas a majority of a non-classified board may be
changed in one year. In the absence of the provisions of the
Holding Company's Articles of Incorporation classifying the
Holding Company's Board, all of the Holding Company's directors
would be elected each year.
Management of the Holding Company believes that the
staggered election of directors tends to promote continuity of
management because only one-third of the Holding Company's Board
of Directors is subject to election each year. Staggered terms
guarantee that in the ordinary course approximately two-thirds of
the directors, or more, at any one time have had at least one
year's experience as directors of the Holding Company, and
moderate the pace of change in the composition of the Holding
Company's Board of Directors by extending the minimum time
required to elect a majority of directors from one to two years.
Other Antitakeover Provisions
The Holding Company's Articles of Incorporation and Bylaws
contain certain other provisions that may also have the effect of
deterring or discouraging, among other things, a non-negotiated
tender or exchange offer for the Common Stock, a proxy contest
for control of the Holding Company, the assumption of control of
the Holding Company by a holder of a large block of the Common
Stock and the removal of the Holding Company's management. These
provisions: (1) empower the Holding Company's Board of
Directors, without shareholder approval, to issue preferred
stock, the terms of which, including voting power, are set by the
Holding Company's Board; (2) restrict the ability of shareholders
to remove directors; (3) require that shares with at least 80% of
total voting power approve mergers and other similar transactions
with a person or entity holding Common Stock with more than 5% of
the Holding Company's voting power, if the transaction is not
approved, in advance, by the Holding Company's Board of
Directors; (4) prohibit shareholders' actions without a meeting;
(5) require that shares with at least 80%, or in certain
instances a majority, of total voting power approve the repeal or
amendment of the Holding Company's Articles of Incorporation;
(6) require any person who acquires stock of the Holding Company
with voting power of 25% or more to offer to purchase for cash
all remaining shares of the Holding Company's voting stock at the
highest price paid by such person for shares of the Holding
Company's voting stock during the preceding year; (7) eliminate
cumulative voting in elections of directors; and (8) require
that shares with at least 66-2/3% of total voting power approve,
repeal or amend the Bylaws of the Holding Company.
DESCRIPTION OF CAPITAL STOCK
General
The Holding Company is authorized to issue 15,000,000 shares
of Common Stock, no par value, and 5,000,000 shares of preferred
stock, having such par value as the Board of Directors of the
Holding Company shall fix and determine. The Holding Company
currently expects to issue between 969,000 and 1,311,000 shares
(or, as permitted by the Plan, up to 1,507,650 shares), subject
to adjustment, of the Common Stock and no shares of preferred
stock in the Conversion and Reorganization. The Holding Company
has reserved for future issuance under the 1997 Stock Option Plan
and the 1997 MRP an amount of authorized but unissued shares of
Common Stock equal to 10% and 4%, respectively, of the shares to
be issued in the Conversion Offerings.
Common Stock
Voting Rights
Each share of Common Stock will have the same relative
rights and will be identical in all respects with every other
share of the Common Stock. The holders of Common Stock will
possess exclusive voting rights in the Holding Company, except to
the extent that shares of preferred stock issued in the future
may have voting rights, if any. Each holder of shares of the
Common Stock will be entitled to one vote for each share held of
record on all matters submitted to a vote of holders of shares of
the Common Stock. Holders of Common Stock will not be entitled
to cumulate their votes for election of directors.
Dividends
The Holding Company may, from time to time, declare
dividends to the holders of Common Stock, who will be entitled to
share equally in any such dividends. For additional information
as to cash dividends, see "DIVIDEND POLICY."
Liquidation
In the event of any liquidation, dissolution or winding up
of the Savings Bank, the Holding Company, as holder of all of the
capital stock of the Savings Bank, would be entitled to receive
all assets of the Savings Bank after payment of all debts and
liabilities of the Savings Bank. In the event of a liquidation,
dissolution or winding up of the Holding Company, each holder
of shares of Common Stock would be entitled to receive, after
payment of all debts and liabilities of the Holding Company, a
pro rata portion of all assets of the Holding Company available
for distribution to holders of Common Stock. If any preferred
stock is issued, the holders thereof may have a priority in
liquidation or dissolution over the holders of Common Stock.
Other Characteristics
Holders of Common Stock will not have preemptive rights with
respect to any additional shares of Common Stock that may be
issued. The Common Stock is not subject to call for redemption,
and the outstanding shares of Common Stock, when issued and upon
receipt by the Holding Company of the full purchase price
therefor, will be fully paid and nonassessable.
Preferred Stock
None of the 5,000,000 authorized shares of preferred stock
of the Holding Company will be issued in the Conversion and
Reorganization. After the Conversion and Reorganization is
completed, the Board of Directors of the Holding Company will be
authorized, without shareholder approval, to issue preferred
stock and to fix and state voting powers, designations,
preferences or other special rights of such shares and the
qualifications, limitations and restrictions thereof. The
preferred stock may rank prior to the Common Stock as to dividend
rights or liquidation preferences, or both, and may have full or
limited voting rights. The Holding Company's Board of Directors
has no present intention to issue any preferred stock. Should
the Board of Directors of the Holding Company subsequently issue
preferred stock, no holder of any such stock shall have any
preemptive right to subscribe for or purchase any stock or any
other securities of the Holding Company other than such, if any,
as the Holding Company's Board of Directors, in its sole
discretion, may determine and at such price or prices and upon
such other terms as the Holding Company's Board of Directors, in
its sole discretion, may fix.
Restrictions on Acquisition
Acquisitions of the Holding Company are restricted by
provisions in its Articles of Incorporation and Bylaws and by the
rules and regulations of various regulatory agencies. See
"REGULATION" and "RESTRICTIONS ON ACQUISITION OF THE HOLDING
COMPANY."
REGISTRATION REQUIREMENTS
The Holding Company will register the Common Stock with the
SEC pursuant to Section 12(g) of the Exchange Act upon the
completion of the Conversion and Reorganization and will not
deregister its Common Stock for a period of at least three years
following the completion of the Conversion and Reorganization.
Upon such registration, the proxy and tender offer rules, insider
trading reporting and restrictions, annual and periodic reporting
and other requirements of the Exchange Act will be applicable.
LEGAL AND TAX OPINIONS
The legality of the Common Stock has been passed upon for
the Holding Company by Stevens & Lee, Wayne, Pennsylvania. The
federal and Pennsylvania tax consequences of the Conversion and
Reorganization have been opined upon by Stevens & Lee. Stevens &
Lee has consented to the references herein to their opinions.
Certain legal matters will be passed upon for Webb by Breyer &
Aguggia, Washington, D.C.
EXPERTS
The consolidated financial statements of the Savings Bank
for the years ended December 31, 1996 and September 30, 1995
included in this Prospectus have been audited by Stockton Bates &
Co., P.C., Philadelphia, Pennsylvania, independent auditors, as
stated in their report appearing herein, and have been so
included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
RP Financial has consented to the publication herein of the
summary of its report to the Savings Bank setting forth its
opinion as to the estimated pro forma market value of the MHC and
the Savings Bank, as converted, and its letter with respect to
subscription rights and to the use of its name and statements
with respect to it appearing herein.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a Registration
Statement on Form SB-2 (File No. 333-____________) under the
Securities Act with respect to the Common Stock offered in the
Conversion and Reorganization. This Prospectus does not contain
all the information set forth in the Registration Statement
certain parts of which are omitted in accordance with the rules
and regulations of the SEC. Such information may be inspected at
the public reference facilities maintained by the SEC at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at
its regional offices at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and 7 World Trade Center, Suite 1300,
New York, New York 10048. Copies may be obtained at prescribed
rates from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549. The Registration Statement
also is available through the SEC's World Wide Web site on the
Internet (http://www.sec.gov).
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-2
Financial Statements:
Consolidated Statement of Financial Condition,
June 30, 1997 and 1996 (Unaudited)
and December 31, 1996 F3 - 6
Consolidated Statement of Operations
for the Six Months Ended June 30, 1997 and
1996 (Unaudited) and for the Years Ended
December 31, 1996 and September 30, 1995 F7 - 10
Consolidated Statement of Stockholders' Equity
for the Six Months Ended June 30, 1997 and
1996 (Unaudited) and for the Years Ended
December 31, 1996 and September 30, 1995 F11 - 14
Consolidated Statement of Cash Flows
for the Six Months Ended June 30, 1997
and 1996 (Unaudited) and for the Years
Ended December 31, 1996 and
September 30, 1995 F15 - 20
Notes to Consolidated Financial Statements F21 - 58
* * *
All schedules are omitted as the required information either
is not applicable or is included in the Consolidated Financial
Statements or related Notes.
Separate financial statements for the MHC have not been
included herein because the MHC has no material assets other than
its shares of Savings Bank Common Stock (which will be canceled
as part of the Conversion and Reorganization) and no significant
liabilities (contingent or otherwise), revenues or expenses, and
has not engaged in any significant activities to date.
Separate financial statements for the Holding Company have
not been included herein because the Holding Company, which has
engaged in only organizational activities to date, has no
significant assets, liabilities (contingent or otherwise),
revenues or expenses.<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees
Pennsylvania Savings Bank
Philadelphia, Pennsylvania
We have audited the accompanying consolidated statement of
financial condition of Pennsylvania Savings Bank and Subsidiaries
as of December 31, 1996 and the related consolidated statements
of operations, stockholders' equity and cash flows for each of
the two years ended December 31, 1996 and September 30, 1995.
These consolidated financial statements are the responsibility of
the Bank's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial condition of Pennsylvania Savings Bank and Subsidiaries
at December 31, 1996, the results of their operations and their
cash flows for each of the two years ended December 31, 1996 and
September 30, 1995 in conformity with generally accepted
accounting principles.
/s/ Stockton Bates & Company, P.C.
Certified Public Accountants
Philadelphia, Pennsylvania
February 14, 1997
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
JUNE 30, 1997 AND 1996
(Unaudited)
AND
DECEMBER 31, 1996<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 1996
<S> <C> <C> <C>
(Unaudited)
CASH AND CASH EQUIVALENTS:
Cash and due from banks $ 1,419,595 $ 1,358,158 $ 1,390,220
Interest bearing deposits in other financial
institutions 27,604,959 33,393,627 30,232,245
INVESTMENTS:
Investment securities available-for-sale,
at fair value 5,328,337 6,261,862 6,316,282
Mortgage-backed securities available-for-sale
at fair value 3,143,574 3,306,663 3,193,840
Investment securities held-to-maturity (fair value
of $17,181,651, $12,095,760 and $12,628,003) 17,214,961 12,156,049 12,656,815
Mortgage-backed securities held-to-maturity (fair
value of $2,675,888, $3,054,006 and $2,851,532) 2,574,150 2,977,270 2,748,444
LOANS RECEIVABLE, net 62,140,532 56,267,605 57,183,249
REAL ESTATE:
Acquired in settlement of loans 466,996 385,494 464,651
Held for investment 63,190
OFFICE PROPERTIES AND EQUIPMENT, net of accumulated
depreciation 1,263,412 1,053,621 1,273,448
FEDERAL HOME LOAN BANK STOCK, at cost 559,900 533,600 533,600
(Restricted investment required by law)
ACCRUED INTEREST RECEIVABLE 1,326,574 1,193,402 1,216,957
INVESTMENT IN DATA CENTER, common stock, at cost 15,000 15,000 15,000
PREPAID CORPORATE TAXES 216,343 640,282 390,971
EXCESS OF ACQUISITION COST OVER FAIR VALUE OF ASSETS
ACQUIRED, net of accumulated amortization 7,750 8,750 8,250
NET DEFERRED TAXES 44,956 132,700 25,296
PREPAID EXPENSES AND OTHER ASSETS 970,794 956,043 785,244
TOTAL ASSETS $124,297,833 $120,703,316 $118,434,512
============ ============ ============
</TABLE>
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
JUNE 30, 1997 AND 1996
(Unaudited)
AND
DECEMBER 31, 1996<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 1996
<S> <C> <C> <C>
(Unaudited)
LIABILITIES:
Deposits $104,436,612 $102,427,499 $100,574,376
Securities purchased under agreements to resell 2,953,034 1,532,085 1,536,188
Advances from borrowers for taxes 688,419 658,880 930,670
Income taxes payable 166,000 610,000 142,000
Accrued pension cost 149,144 143,376 149,144
Accrued interest payable on savings accounts 202,598 134,455 183,801
Employee Stock Ownership Plan debt 331,013 387,048 356,483
Accrued expenses and other liabilities 844,851 659,067 393,308
Total liabilities 109,771,671 106,552,410 104,265,970
STOCKHOLDERS' EQUITY:
Common Stock, $1 par value, 10,000,000 shares
authorized; 1,194,640 shares issued and outstanding
for June 30, 1997 and December 31, 1996 and
1,173,250 shares issued and outstanding for
June 30, 1996 1,194,640 1,173,250 1,194,640
Additional paid-in capital 13,563,087 13,330,472 13,563,087
Employee Stock Ownership Plan ( 331,013) ( 387,048) ( 356,483)
Retained earnings (accumulated deficit) 198,905 176,109 ( 162,734)
Unrealized loss, investments available-for-sale ( 99,457) ( 141,877) ( 69,968)
Total stockholders' equity 14,526,162 14,150,906 14,168,542
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $124,297,833 $120,703,316 $118,434,512
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED
JUNE 30, 1997 AND 1996
(Unaudited)
AND
YEARS ENDED
DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
June 30, December 31, September 30,
1997 1996 1996 1995
<S> <C> <C> <C> <C>
(Unaudited)
INTEREST INCOME:
Interest on loans $2,628,601 $2,486,469 $5,118,181 $4,745,476
Mortgage-backed securities 196,738 223,176 430,798 493,305
Investment securities 742,693 490,494 1,182,810 1,134,513
Interest-earning deposits 654,973 667,235 1,207,302 817,234
Total interest income 4,223,005 3,867,374 7,939,091 7,190,528
INTEREST EXPENSE:
Interest on deposits 2,183,607 2,026,882 4,082,377 3,437,143
Interest - other 6,146
Total interest expense 2,183,607 2,026,882 4,082,377 3,443,289
Net interest income 2,039,398 1,840,492 3,856,714 3,747,239
Provision for loan losses 132,633 26,937
Net interest income after provision
for loan losses 2,039,398 1,840,492 3,724,081 3,720,302
NONINTEREST INCOME:
Loan fees 351,149 216,530 462,777 474,610
Service charges 174,199 212,255 371,210 71,679
Rental income 20,802 19,159 44,286 28,248
Other income 22,917 60,684 136,712 381,688
Total noninterest income 569,067 508,628 1,014,985 956,225
NONINTEREST EXPENSES:
Compensation and employee benefits 1,102,964 856,366 1,975,078 2,244,878
Premises and occupancy costs 352,139 179,673 455,652 327,683
Federal insurance premiums 31,773 113,442 735,530 201,366
Data Processing 62,165 55,181 120,782 102,914
Advertising 33,963 31,584 62,121 75,970
Directors' Fees 116,450 85,050 237,200
Stationary, printing and postage 52,103 35,175
Expenses of real estate owned 3,038 10,022 143,177 35,739
Loss on sale of real estate held for investment 2,465
Other 326,231 273,027 666,839 595,659
Total noninterest expenses 2,080,826 1,639,520 4,398,844 3,584,209
</TABLE>
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED
JUNE 30, 1997 AND 1996
(Unaudited)
AND
YEARS ENDED
DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
(Continued)
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31, September 30,
1997 1996 1996 1995
(Unaudited)
<S> <C> <C> <C> <C>
INCOME BEFORE PROVISION FOR INCOME TAXES $ 527,639 $709,600 $ 340,222 $1,092,318
Provision for federal and state
income taxes:
Current 142,000 399,528
Deferred 166,000 232,000 59,465 33,131
Total income tax provision 166,000 232,000 201,465 432,659
NET INCOME $ 361,639 $ 477,600 $ 138,757 $ 659,659
========== ========== ========== ==========
EARNINGS PER SHARE $ .30 $ .41 $ .12 $ N/A
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED
JUNE 30, 1997 AND 1996
(Unaudited)
AND
YEARS ENDED
DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Unrealized gain (loss)
on Investment and
Employee Mortgaged-backed
Additional Stock Retained Securities
Common Paid-In Ownership Earnings Available-for-Sale
Stock Capital Plan (Deficit) Net of Taxes Total
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 $1,173,250 $13,330,472 ($417,612) ($257,494) ($ 13,715) $13,814,901
Net income for the six months ended
June 30, 1996 477,600 477,600
Dividends paid ( 43,997) (
43,977)
Principal payments made by Employee
Stock Ownership Plan 30,564 30,564
Change in unrealized loss on investment
and mortgage-backed securities
available-for-sale, net of taxes (128,162) (
128,162)
BALANCE, JUNE 30, 1996 (UNAUDITED) $1,173,250 $13,330,472 ($387,048) $ 176,109 ($141,877) $14,150,906
========== =========== ======== ======== ======== ===========
BALANCE, DECEMBER 31, 1996 $1,194,640 $13,563,087 ($356,483) ($162,734) ($ 69,968) $14,168,542
Net income for the six months ended
June 30, 1997 361,639 361,639
Principal payments made by Employee
Stock Ownership Plan 25,470 25,470
Change in unrealized loss on investment
and mortgage-backed securities
available-for-sale, net of taxes ( 29,489) ( 29,489)
BALANCE, JUNE 30, 1997 (UNAUDITED) $1,194,640 $13,563,087 ($331,013) $198,905 ($ 99,457) $14,526,162
========== =========== ======== ======== ======== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED
JUNE 30, 1997 AND 1996
(Unaudited)
AND
YEARS ENDED
DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
(Continued)
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Unrealized gain (loss)
on Investment and
Employee Mortgaged-backed
Additional Stock Retained Securities
Common Paid-In Ownership Earnings Available-for-sale
Stock Capital Plan (Deficit) Net of Taxes Total
<S> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1994 $ - $ - $ -0- $8,945,553 ($606,513) $ 8,339,040
Net income for the year ended
September 30, 1995 659,659 659,659
Change in unrealized gain on
investment and mortgage-backed
securities available-for-sale,
net of taxes 492,070 492,070
BALANCE, SEPTEMBER 30, 1995 $ - $ - $ -0- $9,605,212 $ 114,443 $ 9,490,769
========== =========== ========= ========== ========= ===========
BALANCE, DECEMBER 31, 1995 $1,173,250 $13,330,472 ($417,612) ($ 257,494) ($ 13,715) $13,814,901
Net income for the year ended 138,757 138,757
December 31, 1996
Issuance of common stock to
Management Recognition Plan 21,390 232,615 245,005
Dividends paid ( 43,997) (43,997)
Principal payments made by Employee
Stock Ownership Plan 61,129 61,129
Change in unrealized loss on
investment and mortgage-backed
securities available-for-sale,
net of taxes ( 56,253) (
56,253)
BALANCE, DECEMBER 31, 1996 $1,194,640 $13,563,087 ($356,483) ($162,734) ($ 69,968) $14,168,542
========== =========== ======== ======== ======== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30, 1997 AND 1996
(Unaudited)
AND
YEARS ENDED
DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31, September 30,
1997 1996 1996 1995
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 361,639 $ 477,600 $ 138,757 $ 659,659
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of premium/discount on
mortgage-backed securities ( 1,498) ( 2,874) ( 4,824) ( 5,747)
Depreciation and amortization 62,081 41,991 90,943 88,475
Gain on sale of equipment ( 977)
(Gain) loss on sale of real estate ( 2,345) ( 1,924) 2,465 14,000
Provision for losses on loans 132,633 26,937
Change in assets and liabilities:
Increase in accrued interest receivable ( 109,617) ( 113,659) ( 137,214) ( 90,236)
Increase in prepaid expenses ( 185,550) ( 661,981) ( 491,183) ( 331,460)
Decrease in deferred taxes 59,467 33,131
(Increase) decrease in prepaid corporate
taxes 174,628 ( 183,817) 65,494 ( 26,884)
Increase (decrease) in corporate
taxes payable 24,000 232,000 ( 236,000) ( 20,897)
Increase (decrease) in deferred income 17,424 ( 163,247)
Increase in accrued pension cost 5,768 143,376
Increase (decrease) in accrued interest
payable 18,797 ( 23,878) 25,468 85,839
Increase in accrued expenses 451,543 488,720 210,608 30,259
Total adjustments 432,039 ( 207,998) ( 277,352) ( 216,454)
Net cash provided by (used in)
operating activities 793,678 269,602 ( 138,595) 443,205
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities, available-for-sale ( 49,333) ( 3,000,000) ( 5,000,000) ( 2,500,000)
Purchase of investment securities, held-to-maturity ( 8,715,000) ( 6,999,687) (10,999,687) ( 2,000,000)
Proceeds from sales of investment securities,
available-for-sale 700,000
Mortgage-backed security maturities and
principal repayments 215,304 456,524 864,783 639,539
Maturities of investment securities,
available-for-sale 1,000,000 1,000,000 3,000,000
Maturities of investment securities,
held-to-maturity 4,155,737 5,342,857 8,842,857
Proceeds from sale of real estate owned 81,620
Acquisition costs of, and proceeds from
the sale of, Federal Home Loan Bank stock ( 26,300) ( 32,600) ( 32,600) 34,400
</TABLE>
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30, 1997 AND 1996
(Unaudited)
AND
YEARS ENDED
DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
(Continued)
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31, September 30,
1997 1996 1996 1995
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES: (Continued)
Decrease in total loans receivable, net ($ 4,957,283) ($1,979,009) ($ 3,076,664) ($ 1,749,986)
Purchase and improvement of real estate for investment ( 500) ( 63,190)
Proceeds from sale of real estate held for investment 61,225
Proceeds from sale of real estate owned net of
improvements 79,696
Increase in advances for stock offering 6,261,000
Proceeds from sale of equipment 5,300
Capital expenditures ( 51,545) ( 340,758) ( 613,361) ( 13,314)
Net cash used in investing activities ( 8,428,420) ( 5,471,053) ( 6,868,951) 1,308,449
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits, net $ 3,862,236 $5,951,005 $ 4,097,882 6,623,403
Change in securities purchased under agreements
to resell 1,416,846 65,348 69,451
Proceeds from issuance of stock to Management
Recognition Plan 254,005
Dividends Paid ( 43,997) ( 43,997)
Change in advances for borrowers' taxes and
insurance ( 242,251) ( 487,384) ( 215,594) 30,944
Net cash provided by
financing activities 5,036,831 5,484,972 4,161,747 6,654,347
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ( 2,597,911) 283,521 ( 2,845,799) 8,406,001
Cash and cash equivalents, beginning of period 31,622,465 34,468,264 34,468,264 21,371,339
CASH AND CASH EQUIVALENTS, END OF PERIOD $29,024,554 $34,751,785 $31,622,465 $ 29,777,340
=========== =========== =========== ============
</TABLE>
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30, 1997 AND 1996
(Unaudited)
AND
YEARS ENDED
DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
(Continued)
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31, September 30,
1997 1996 1996 1995
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposits and borrowings $ 2,164,810 $ 2,050,760 $ 4,056,909 $ 3,357,447
=========== =========== =========== ===========
Income taxes $ 80,000 $ 165,192 $ 267,788 $ 238,015
=========== =========== =========== ===========
Noncash activities:
Loans transferred to real estate owned $ 79,156 $ 103,120
=========== ===========
Increase in unrealized loss on
investment mortgage-backed securities
available-for-sale, net of taxes ($ 56,253) $ -0-
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
1.DESCRIPTION OF ORGANIZATION:
Pennsylvania Savings Bank, through its six branch offices,
makes residential and consumer loans to customers and provides
community banking services principally within, but not limited
to, the County of Philadelphia, Pennsylvania. Transnational
Mortgage Corporation, a wholly owned subsidiary, originates
residential loans. PSA Financial Corporation, a wholly owned
subsidiary, originates residential and consumer loans. PSA
Consumer Discount, a wholly owned subsidiary of PSA Financial,
originates consumer loans. All loan originations are to
customers principally within, but not limited to, the County of
Philadelphia, Pennsylvania. PSA Service Corporation, a wholly
owned subsidiary, processes all loans for Pennsylvania Savings
Bank and the other subsidiaries.
Effective October 20, 1995, Pennsylvania Savings Bank, a
mutual savings bank (the "Mutual Bank"), effected a mutual
savings bank holding company reorganization. This reorganization
entailed the following: (1) the Mutual Bank reorganized into a
Pennsylvania chartered mutual savings bank holding company named
PSB Mutual Holding Company, (2) a new Pennsylvania chartered
stock savings bank (the "Stock Bank") was formed, (3)
substantially all of the Mutual Bank's assets (except $250,000 in
cash retained by PSB Mutual Holding Company) and liabilities were
transferred to the Stock Bank, (4) 615,250 shares of common
stock, par value $1.00 per share of the Stock Bank, were issued
to PSB Mutual Holding Company and 558,000 shares of such common
stock at a price of $10.00 per share were sold to minority
stockholders in a subscription offering, (5) the Stock Bank
received proceeds from the minority stock offering of $5,580,000
net of commissions and other related expenses totalling $576,880,
and (6) the Stock Bank (named Pennsylvania Savings Bank)
registered its common stock pursuant to the Securities Exchange
Act of 1934 ("Exchange Act").
As an Exchange Act registrant, the Bank became subject to
the Exchange Act proxy rules and the periodic reporting and other
requirements of the Exchange Act. The Stock Bank's compliance
with the Exchange Act will result in additional noninterest
expense in future periods.
Under Pennsylvania law, so long as the PSB Mutual Holding
Company remains in mutual holding company form, it must own at
least 50.01% of the Stock Bank's common stock at all times.
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The consolidated financial statements include the accounts
of the Bank and its wholly-owned subsidiaries, PSA Service
Corporation, Transnational Mortgage Corporation and PSA Financial
Corporation. Significant intercompany balances and transactions
have been eliminated.
Cash and Cash Equivalents:
Cash and cash equivalents include unrestricted cash on hand,
demand deposits maintained in depository institutions and other
readily convertible investments with original contractual terms
to maturity of three months or less.
Investment in Debt and Marketable Equity Securities and
Accounting Change:
The Bank elected to adopt the provisions of Financial
Accounting Standards No. 115, Accounting for Certain Investments
in Debt and Equity Securities, as of September 30, 1994.
SFAS No. 115 requires the Bank to classify its investments,
including marketable securities and mortgage-backed securities in
one of three categories: held-to-maturity, trading or available-
for-sale. Debt securities that the Bank has the positive intent
and ability to hold to maturity will be classified as held-to-
maturity and are reported at amortized cost. The Bank does not
engage in security trading and, therefore, the balance of its
debt securities and any equity securities will be classified as
available-for-sale. Net unrealized gains and losses for such
securities will be required to be recognized as a separate
component of retained earnings net of taxes and excluded from the
determination of net income.
Prior to the adoption of Statement No. 115, the Bank
recorded investment and mortgage-backed securities at amortized
cost. Marketable equity securities were carried at the lower of
cost or estimated market value in the aggregate.
Premiums paid and discounts received at the time of purchase
were deferred and amortized over the remaining life of the
securities using a method which approximates a level yield.
Realized gains and losses on the sale of securities were
recognized using the specific identification method.
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
Investment and Mortgage-Backed Securities Available-for-
Sale:
Securities classified as available-for-sale are carried at
fair value. Net unrealized gains and losses are reflected as a
separate component of stockholders' equity, net of tax effects.
Securities classified as available-for-sale are those that
management intends to sell or that would be sold for liquidity,
investment management or similar reasons, even if there is not a
present intention of such a sale. Equity securities that have a
readily determinable fair value are also classified as available-
for-sale.
Investment and Mortgage-Backed Securities Held-to-Maturity:
Securities are classified as held-to-maturity securities
when purchased, because the Bank has the ability and the intent
to hold the securities to maturity. Decisions to acquire
investments of a particular type are based upon interest rate
risk, liquidity and capital adequacy considerations. Investment
securities are stated at cost, adjusted for premium amortization
and accretion of discounts. Premiums paid and discounts received
at the time of purchase are deferred and amortized over the
remaining life of the securities using a method which
approximates a level yield. Mortgage-backed security
amortization rates are periodically adjusted to reflect changes
in the prepayment speeds of the underlying mortgages.
Gains and losses realized on sales of investment securities
represent differences between net proceeds and carrying values
determined by the specific identification method.
Loans Receivable:
Loans receivable are stated at unpaid principal balances,
less the allowance for loan losses and net of deferred loan
origination fees and discounts. Loan origination fees and
discounts on mortgage loans are amortized to income using the
interest method over the remaining period to contractual
maturity, adjusted for actual prepayments.
Management's periodic evaluation of the adequacy of the loan
loss allowance is based on the Bank's past loss experience, known
and inherent risks in the portfolio, adverse situations that may
affect the borrower's ability to repay, the estimated value of
any underlying collateral and current economic conditions. The
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries).
Interest is discontinued on loans that are contractually
past due. No adjustment is made for interest previously accrued.
Income is subsequently recognized only to the extent that cash
payments are received, or until in management's judgment, the
borrower's ability to make periodic interest and principal
payments is back to normal, in which case the loan is returned to
accrual status.
In May 1994, the Financial Accounting Standards Board (FASB)
issued SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan." SFAS No. 114 requires an adjustment to the carrying value
of a loan through the provision for loan losses when it is
probable" that a creditor will be unable to collect all amounts
due according to the contractual terms of the loan. SFAS No. 114
was subsequently amended by SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan-Income Recognition and
Disclosure" to allow a creditor to use existing methods for
recognizing interest income on an impaired loan. SFAS Nos. 114
and 118 are effective for financial statements issued for years
beginning after December 31, 1995. The adoption of SFAS Nos. 114
and 118 did not have a material impact on the Bank's financial
condition or results of operations for the year ended December
31, 1996 based on the Bank's current loan portfolio.
Loan Origination and Commitment Fees:
Loan fees and certain direct loan origination costs are
deferred and the net fee or cost is recognized as an adjustment
of the loan yield over the contractual life of the loan using the
interest method. When a loan is sold, unamortized fees are
recognized as income. Other loan fees and charges representing
service costs for the prepayment of loans, for delinquent
payments or for miscellaneous loan services are recognized when
collected. Commitment fees and costs relating to commitments
whose likelihood of exercise is remote are recognized over the
commitment period on a straight-line basis. If the commitment is
subsequently exercised during the commitment period, the
remaining unamortized commitment fee at the time of exercise is
recognized over the life of the loan as an adjustment of yield.
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
Real Estate Owned:
Real estate owned consists of properties acquired by or in
lieu of foreclosure and properties that qualify for in-substance
foreclosure. Real estate owned is stated at the lower of cost
or estimated fair value minus estimated costs to sell. Write-
downs of real estate owned which occur after the initial transfer
from the loan portfolio are recorded as expenses of real
estate owned. Costs of holding foreclosed property are charged
to expense in the current period, except for significant property
improvements which are capitalized to the extent that carrying
value does not exceed estimated fair value. Real estate held for
investment are carried at the lower of cost, including cost of
improvements and amenities incurred subsequent to acquisition, or
net realizable value
Income Taxes:
The Bank records deferred tax assets and liabilities for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment
date.
Office Properties and Equipment:
Land is carried at cost. Office properties and equipment
are recorded at cost less accumulated depreciation. Depreciation
is computed based on cost using the straight-line method over
estimated useful lives of 25-50 years for buildings, 10-25 years
for land improvements and 3-25 years for office equipment.
Maintenance and repair of property and equipment are charged to
operations. Major improvements are capitalized.
Excess of Acquisition Cost Over Fair Value of Assets
Acquired:
Excess of acquisition cost over fair value of assets
acquired is recognized at cost, net of amortization. The asset
is being amortized over 19 years using the straight-line method.
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
Financial Statement Presentation:
Certain items in prior year financial statements have been
reclassified to conform to the 1996 presentation.
Advertising:
Advertising costs are charged to operations when incurred.
Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Per Share Information:
Earnings per share have been calculated based on the average
common shares outstanding for the respective periods. The number
of shares used in the computation of earnings per share for the
six months ended June 30, 1997 and 1996 were 1,194,640 and
1,173,250, respectively and for the year ended December 31, 1996
was 1,187,510.
Dividends:
On June 30, 1996, the Bank paid a cash dividend of $.0375
per share to stockholders on record as of June 15, 1996. This
dividend was paid from accumulated net earnings as of June 30,
1996. Subsequently, in September 1996, the Savings Association
Insurance Fund (SAIF) assessed and collected from the Bank a one
time special assessment of $567,000. This assessment eliminated
the Bank's prior earnings and resulted in the bank reporting both
significantly lower net income for the year ended December 31,
1996 and an accumulated deficit as of December 31, 1996.
Long-Lived Assets:
In March 1995, the FASB issued SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of, which requires impairment losses to be recorded
on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets carrying
amount. SFAS No. 121 also addresses the accounting for long-
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
lived assets that are expected be disposed of. Pennsylvania
Savings Bank adopted SFAS No. 121 in the first quarter of 1996.
The adoption of SFAS No. 121 did not have a material effect on
Pennsylvania Saving Bank's operations.
Cash deposited in Financial Institutions:
The Bank maintains cash balances at other financial
institutions in the Philadelphia regional area. Accounts at
these financial institutions are insured by the Federal Deposit
Insurance Corporation up to $100,000. In the normal course of
business, the Bank may have deposits that exceed the insured
balance.
3.INVESTMENTS AND MORTGAGE-BACKED SECURITIES:
The following is a summary of the Bank's investment in
available-for-sale and held-to-maturity securities and mortgage-
backed securities:
<TABLE>
<CAPTION>
Available-for-Sale
June 30, 1997
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Investment Securities:
Equity:
Investment in mutual
funds $ 2,354,210 $ 6,496 $ - $ 2,360,706
Debt:
SLMA 1,000,000 ( 22,263) 977,737
FHLB Notes 2,000,000 ( 10,106) 1,989,894
3,000,000 ( 32,369) 2,967,631
5,354,210 6,496 ( 32,369) 5,328,337
Mortgage-backed Securities:
FNMA 2,498,785 ( 128,384) 2,370,401
FHLMC 784,678 ( 11,505) 773,173
3,283,463 ( 139,889) 3,143,574
Total Available-for-
Sale Securities 8,637,673 6,496 ( 172,258) 8,471,911
</TABLE>
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
3.INVESTMENTS AND MORTGAGE-BACKED SECURITIES: (Continued)
<TABLE>
<CAPTION>
Held-to-Maturity
June 30, 1997
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Investment Securities:
Debt:
Federal Farm Credit $ - $ - $ - $ -
FNMA 2,999,820 2,691 3,002,511
FHLMC 1,000,000 55 1,000,055
FHLB Notes 13,215,141 ( 36,056) 13,179,085
17,214,961 2,746 ( 36,056) 17,181,651
Mortgage-backed Securities:
Collateralized mortgage
obligations 177,431 ( 1,583) 175,848
GNMA 2,271,949 91,237 2,363,186
FHLMC 124,770 12,084 136,854
2,574,150 103,321 ( 1,583) 2,675,888
Total Held-to-Maturity
Securities 19,789,111 106,067 ( 37,639) 19,857,539
TOTAL INVESTMENTS
AND MORTGAGE-
BACKED
SECURITIES $28,426,784 $112,563 ($209,897) $28,329,450
=========== ======== ======== ===========
</TABLE>
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
3.INVESTMENTS AND MORTGAGE-BACKED SECURITIES: (Continued)
<TABLE>
<CAPTION>
Available-for-Sale
June 30, 1996
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Investment Securities:
Equity:
Investment in mutual
funds $ 2,304,878 $ 26,204 $ - $ 2,331,082
Debt:
SLMA 1,000,000 ( 36,250) 963,750
FHLB Notes 3,000,000 ( 32,970) 2,967,030
4,000,000 ( 69,220) 3,930,780
6,304,878 26,204 ( 69,220) 6,261,862
Mortgage-backed securities:
FNMA 2,703,880 ( 157,336) 2,546,544
FHLMC 796,228 ( 36,109) 760,119
3,500,108 ( 193,445) 3,306,663
Total available-for-
sale securities 9,804,986 26,204 ( 262,665) 9,568,525
</TABLE>
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
3.INVESTMENTS AND MORTGAGE-BACKED SECURITIES: (Continued)
<TABLE>
<CAPTION>
Held-to-Maturity
June 30, 1996
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Investment Securities:
Debt:
Federal Farm Credit $ 655,424 $ - ($ 728) $ 654,696
FNMA Note 1,999,688 ( 15,153) 1,984,535
FHLMC 1,000,000 ( 4,394) 995,606
FHLB Notes 8,500,937 ( 40,014) 8,460,923
12,156,049 ( 60,289) 12,095,760
Mortgage-backed Securities:
Collateralized mortgage
obligations 264,849 ( 10,040) 254,809
FNLMA 2,545,356 73,486 2,618,842
FHLMC 167,065 13,290 180,355
2,977,270 86,776 ( 10,040) 3,054,006
Total Held-to-Maturity
Securities 15,133,319 86,776 ( 70,329) 15,149,766
TOTAL INVESTMENTS
AND MORTGAGE-
BACKED
SECURITIES $24,938,305 $112,980 ($332,994) $24,718,291
=========== ======== ======== ===========
</TABLE>
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
3.INVESTMENTS AND MORTGAGE-BACKED SECURITIES: (Continued)
The following is a summary of the Bank's investment in
available-for-sale and held-to-maturity securities and mortgage-
backed securities:
<TABLE>
<CAPTION>
Available-for-Sale
December 31, 1996
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Investment Securities:
Equity:
Investment in mutual
funds $ 2,304,878 $ 47,318 $ - $ 2,352,196
Debt:
SLMA 1,000,000 ( 20,466) 979,534
FNMA Notes 3,000,000 ( 15,448) 2,984,552
4,000,000 ( 35,914) 3,964,086
6,304,878 47,318 ( 35,914) 6,316,282
Mortgage-backed Securities:
FNMA 2,529,793 ( 110,404) 2,419,389
FHLMC 792,065 ( 17,614) 774,451
3,321,858 ( 128,018) 3,193,840
Total Available-for-
Sale Securities 9,626,736 47,318 ( 163,932) 9,510,122
</TABLE>
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
3.INVESTMENTS AND MORTGAGE-BACKED SECURITIES: (Continued)
<TABLE>
<CAPTION>
Held-to-Maturity
December 31, 1996
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Investment Securities:
Debt:
Federal Farm Credit $ 657,046 $ - ($ 6) $ 657,040
FNMA 2,999,456 3,510 3,002,966
FHLMC 1,000,000 155 1,000,155
FHLB Notes 8,000,313 ( 32,471) 7,967,842
12,656,815 3,665 ( 32,477) 12,628,003
Mortgage-backed Securities:
Collateralized mortgage
obligations 227,494 ( 2,849) 224,645
GNMA 2,355,143 89,774 2,444,917
FHLMC 165,807 16,163 181,970
2,748,444 105,937 ( 2,849) 2,851,532
Total Held-to-Maturity
Securities 15,405,259 109,602 ( 35,326) 15,479,535
TOTAL INVESTMENTS
AND MORTGAGE-
BACKED
SECURITIES $25,031,995 $156,920 ($199,258) $24,989,657
=========== ======== ======== ===========
</TABLE>
Assets, principally securities, carried at approximately
$2,953,034, $1,532,085 and $1,536,188 at June 30, 1997 and 1996
and at December 31, 1996, respectively were pledged to secure
deposits as required or permitted by law.
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
3. INVESTMENTS AND MORTGAGE-BACKED SECURITIES: (Continued)
The amortized cost and estimated market values of securities
at June 30, 1997 and 1996 and December 31, 1996 by contractual
maturities, are as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
<S> <C> <C>
June 30, 1997:
Due less than one year $19,214,961 $19,153,969
Due after one year through five years 1,000,000 995,313
20,214,961 20,149,282
Mutual Funds 2,354,210 2,360,706
Mortgage-backed securities 5,857,613 5,819,462
$28,426,784 $28,329,450
=========== ===========
June 30, 1996:
Due less than one year $14,655,424 $14,534,050
Due after one year through five years 1,500,625 1,492,490
16,156,049 16,026,540
Mutual Funds 2,304,878 2,331,082
Mortgage-backed securities 6,477,378 6,360,669
$24,938,305 $24,718,291
=========== ===========
December 31, 1996:
Due less than one year $14,156,815 $14,077,913
Due after one year through five years 2,500,000 2,514,176
16,656,815 16,592,089
Mutual Funds 2,304,878 2,352,196
Mortgage-backed securities 6,070,302 6,045,372
$25,031,995 $24,989,657
=========== ===========
</TABLE>
Proceeds from sale of investment securities during the six
months ended June 30, 1997 and 1996 totaled $1,000,000 and
$1,000,000, respectively. No gains were realized on those sales.
Proceeds from sale of investment securities for the year ended
December 31, 1996 totaled $3,000,000. No gains were realized on
those sales.
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
4.LOANS RECEIVABLE:
Loans receivable consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 1996
<S> <C> <C> <C>
Real Estate Loans:
One-to-four family $47,931,659 $48,073,866 $49,615,442
Five or more family residence 710,589 664,817 654,292
Construction loans 2,128,474 1,084,715 660,898
Nonresidential 9,687,824 5,609,184 5,575,209
60,458,546 55,432,582 56,505,841
Consumer loans 1,219,138 964,902 1,016,277
Commercial loans 1,190,149 593,717 368,413
Less: 62,867,833 56,991,201 57,890,531
Unearned fees and discounts ( 456,285) ( 502,663) ( 495,686)
Undisbursed loan proceeds ( 64,131) ( 13,344) ( 4,712)
Allowance for loan losses ( 206,885) ( 207,589) ( 206,884)
$62,140,532 $56,267,605 $57,183,249
=========== =========== ===========
</TABLE>
Loans receivable at June 30, 1997 and 1996, include
$56,594,055 and $51,835,340 of fixed rate loans and $6,273,778
and $5,155,861 of adjustable rate loans, respectively and at
December 31, 1996 includes $53,298,487 of fixed rate loans and
$4,592,044 of adjustable rate loans.
A summary of loan maturities at June 30, 1997 is as follows:
<TABLE>
<CAPTION>
Multi-Family
and Consumer
Commercial and
One to Four Real Construc- Commercial Total
Family Estate tion Business Loans
<S> <C> <C> <C> <C> <C>
Amounts due:
Non-performing $ 1,110,989 $ 312,536 $ - $ - $ 1,423,525
Within one year 8,014,412 940,283 2,128,474 1,593,885 12,677,054
After one year:
1 to 3 years 479,875 1,746,495 541,992 2,768,362
3 to 5 years 1,563,319 5,005,259 188,369 6,756,947
5 to 10 years 3,793,380 841,320 85,04 14,719,741
Over 10 years 32,969,684 1,552,520 34,522,204
Total due after
one year 38,806,258 9,145,594 815,402 48,767,254
TOTAL AMOUNTS DUE $47,931,659 $10,398,413 $2,128,474 $2,409,287 $62,867,833
=========== =========== ========== ========== ===========
</TABLE>
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
4.LOANS RECEIVABLE: (Continued)
A summary of changes in the allowance for possible loan
losses is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 1996
<S> <C> <C> <C>
BALANCE, BEGINNING OF PERIOD $206,884 $207,589 $207,589
Provision charged to operation 132,633
Charged off ( 133,338)
BALANCE, END OF PERIOD $206,884 $207,589 $206,884
======== ======== ========
</TABLE>
Loans on which the accrual of interest has been discontinued
amounted to $1,423,525 and $666,940 at June 30, 1997 and 1996,
respectively and $769,995 at December 31, 1996. If interest on
those loans had been accrued, accrued interest would have
increased by $219,590 and $174,648 at June 30, 1997 and 1996,
respectively and $175,423 at December 31, 1996 and income would
have increased by $79,647 and $37,722 for the six months ended
June 30, 1997 and 1996, respectively and $60,724 for the year
ended December 31, 1996.
In the ordinary course of business, the Bank has granted
loans to certain executive officers, trustees and their related
interests. Related party loans are made on substantially the
same terms as those prevailing at the time for comparable
transactions with unrelated persons and do not involve more than
the normal risk of collectibility.
Loans to officers and directors amounted to $1,186,468 and
$326,264 at June 30, 1997 and 1996 respectively and $324,178 at
December 31, 1996.
During the six months ended June 30, 1997 and 1996 loans of
$1,045,000 and $-0-, respectively, were disbursed to executive
officers and trustees, while principal repayments of $4,168 and
$4,974 were received in those months, respectively. During the
year ended December 31, 1996 $-0- loans were disbursed to
executive officers and trustees, while principal repayments of
$8,391 were received in that year.
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
5.ACCRUED INTEREST RECEIVABLE:
A summary of accrued interest receivable is as follows:
June 30, December 31,
1997 1996 1996
Loans $ 820,712 $ 755,404 $ 754,462
FHLB Overnight 118,070 133,900 118,804
Mortgage-backed securities 32,236 35,981 35,049
Investment securities 355,556 268,117 308,642
$1,326,574 $1,193,402 $1,216,957
6.OFFICE PROPERTIES AND EQUIPMENT:
Office properties and equipment are summarized by major
classification as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 1996
<S> <C> <C> <C>
Land, buildings and improvements $1,834,620 $1,672,590 $1,793,292
Furniture, fixtures and equipment 1,226,076 1,073,562 1,215,859
3,060,696 2,746,152 3,009,151
Less accumulated depreciation ( 1,797,284) ( 1,692,531) ( 1,735,703)
$1,263,412 $1,053,621 $1,273,448
</TABLE>
7. REAL ESTATE OWNED - ACQUIRED THROUGH SETTLEMENT OF LOANS:
Real estate owned consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 1996
<S> <C> <C> <C>
Real estate acquired through
settlement of loans $ 466,996 $ 385,494 $ 464,651
Real estate held for investment 63,190
Less allowance for estimated losses -0- -0- -0-
TOTAL $ 466,996 $ 448,684 $ 464,651
</TABLE>
8. FEDERAL HOME LOAN BANK STOCK:
The Bank is a member of the Federal Home Loan Bank System.
As a member, the Bank maintains an investment in the capital
stock of the Federal Home Loan Bank of Pittsburgh in an amount
not less than 1% of its outstanding home loans or 1/20 of its
outstanding notes payable, if any, to the Federal Home Loan Bank
of Pittsburgh, whichever is greater, as calculated December 31 of
each year.
9.DEPOSITS:
Deposits at June 30, 1997 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
Weighted Average 1997 1996
Interest Rate Amount % Amount %
<S> <C> <C> <C> <C> <C>
Types of Deposits:
Noninterest bearing
accounts:
1997 $ 5,276,083 5.05%
1996 $ 11,118,088 10.86%
Passbook accounts:
1997 3.00% 25,983,230 24.88
1996 3.00 27,467,468 26.82
Statement savings
accounts:
1997 2.49 40,374 .04
1996
Club accounts:
1997 2.00 629,720 .60
1996 2.00 621,400 .61
Now accounts:
1997 1.12 5,363,611 5.14
1996 .66 4,069,694 3.97
Money Market:
1997 3.57 7,710,227 7.38
1996 3.57 5,739,773 5.60
45,003,245 43.09 49,016,423 47.86
Certificate of deposit:
Less than 4.00%
1997 3.00 321,378 .31
1996 3.06 965,802 .94
4.00 - 5.00%
1997 4.38 1,161,106 1.11
1996 4.51 6,698,900 6.54
5.01 - 6.00%
1997 5.51 56,778,747 54.37
1996 5.47 44,159,412 43.11
6.01 - 7.00%
1997 6.70 1,101,227 1.05
1996 6.72 607,911 .59
7.01 - 8.00%
1997 7.64 70,909 .07
1996 7.63 979,051 .96
Total of certificates
of deposit 59,433,367 56.91 53,411,076 52.14
TOTAL DEPOSITS $104,436,612 100.00% $102,427,499 100.00%
============ ====== ============ ======
</TABLE>
Deposits at December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
Weighted Average 1996
Interest Rate Amount %
<S> <C> <C> <C>
Types of Deposits:
Noninterest bearing
accounts: $ 1,958,303 1.95%
Passbook accounts: 3.00% 26,803,311 26.65
Statement savings
accounts: 2.49 28,198 .03
Club accounts: 2.00 202,855 .20
NOW accounts: 1.09 9,104,871 9.05
Money Market: 3.63 6,265,482 6.23
44,363,020 44.11
Certificate of deposit:
Less than 4.00% 3.00 319,688 .32
4.00 - 5.00% 4.68 8,154,337 8.11
5.01 - 6.00% 5.46 46,025,469 45.76
6.01 - 7.00% 6.64 624,417 .62
7.01 - 8.00% 7.60 1,087,445 1.08
Total of certificates
of deposit 56,211,356 55.89
TOTAL DEPOSITS $100,574,376 100.00%
</TABLE>
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
9.DEPOSITS: (Continued)
Certificates of deposit have scheduled maturities as
follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 1996
<S> <C> <C> <C>
Within one year $48,640,884 $39,711,530 $40,728,765
One year through two years 6,480,777 8,947,555 10,838,411
Two years through three years 2,177,889 1,503,413 1,947,108
Three years through five years 1,604,452 2,326,180 1,593,958
Five years through ten years 520,295 922,398 1,094,302
Over ten years 9,070 8,812
$59,433,367 $53,411,076 $56,211,356
</TABLE>
Interest expense on deposits is comprised of the following:
<TABLE>
<CAPTION>
June 30, December 31, September 30,
1997 1996 1996 1995
<S> <C> <C> <C> <C>
NOW Accounts $ 51,858 $ 44,002 $ 93,641 $ 87,158
Savings Accounts 394,317 417,635 829,578 973,300
Money Market Accounts 125,048 90,161 199,467 144,885
Certificates of Deposit 1,629,538 1,482,840 2,977,210 2,260,582
2,200,761 2,034,638 4,099,896 3,465,925
Early Withdrawal Penalties ( 17,154) ( 7,756) ( 17,519) ( 28,782)
$2,183,607 $2,026,882 $4,082,377 $3,437,143
========== ========== ========== ==========
</TABLE>
The aggregate amount of certificates of deposit accounts
with a minimum denomination of $100,000 was approximately
$9,794,239, $6,705,423 and $6,240,394 at June 30, 1997 and 1996
and December 31, 1996 respectively.
The aggregate amount of demand deposits that have been re-
classified as loan balances at June 30, 1997 and 1996 and
December 31, 1996 was $94,309, $51,892 and $104,164,
respectively.
10.INCOME TAX MATTERS:
The Bank and its wholly owned subsidiary file a consolidated
federal income tax return and separate state and local income tax
returns on a calendar year end basis.
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
10.INCOME TAX MATTERS: (Continued)
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31, September 30,
1997 1996 1996 1995
<S> <C> <C> <C> <C>
Currently payable:
Federal $144,000 $164,500 $122,000 $324,551
State 22,000 67,500 20,000 74,977
166,000 232,000 142,000 399,528
Deferred 59,465 33,131
TOTAL $166,000 $232,000 $201,465 $432,659
</TABLE>
The reconciliation between the actual provision for federal
and state income taxes and the amount of income taxes which would
have been provided at statutory rates is as follows:
Six Months Ended
June 30,
1997 1996
Expected Income Tax Expense
at Federal tax rate $179,397 $241,264
Travel and Entertainment 12,581 7,000
State Tax net of Federal benefit 14,520 44,550
Other differences, net ( 40,498) ( 60,814)
$166,000 $232,000
Year Ended
December 31, September 30,
1996 1995
Expected Income Tax Expense
at Federal tax rate $115,675 $371,388
Travel and Entertainment 25,162 13,987
State Tax net of Federal benefit 13,200 49,485
Other differences, net 47,428 ( 2,201)
$201,465 $432,659
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
10.INCOME TAX MATTERS: (Continued)
Deferred taxes are included in the accompanying statements
of financial condition as of June 30, 1997 and 1996 and December
31, 1996 for the estimated future tax effects of differences
between the financial statement and federal income tax basis of
assets and liabilities given the provisions of currently enacted
tax laws.
The net deferred tax assets (liability) consist of the
following components:
June 30,
1997 1996
Deferred Tax Assets:
Unrealized loss on available-for-
sale securities $ 66,306 $ 94,583
Allowance for loan losses 82,754 83,036
Property and equipment 11,557 20,014
Deferred income 119,847 139,822
280,464 337,455
Deferred Tax Liability:
Bad debt expense ( 235,508) ( 204,755)
NET DEFERRED TAX $ 44,956 $132,700
December 31,
1996
Deferred Tax Assets:
Unrealized loss on available-for-
sale securities $ 46,646
Allowance for loan losses 82,754
Property and equipment 11,557
Deferred income 119,847
260,804
Deferred Tax Liability:
Bad debt expense ( 235,508)
NET DEFERRED TAX $ 25,296
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
10.INCOME TAX MATTERS: (Continued)
Prior to January 1, 1996, the Bank was allowed a special bad
debt deduction for tax purposes based on a percentage of taxable
income (8%) or on specified experience formulas, subject to
certain limitations based upon aggregate loan balances at the end
of the year. If the above amounts deducted were used for
purposes other than for loan losses, such as in a distribution in
liquidation, or if the Bank would cease to be a qualified thrift
lender under the tax law, or otherwise, the amounts deducted
would be subject to federal income tax at the then current
corporate tax rate.
The special bad debt method of accounting for bad debts for
tax purposes utilized by qualified thrift institutions was
repealed effective for tax years beginning January 1, 1996.
Thrift institutions must now use the experience method of
accounting for bad debts and must treat this change as a change
in accounting method. Any adjustment that is required to be
taken into account because of the change will be determined
solely with respect to the applicable excess reserves of the
thrift which will be taken into income over a six-year period for
tax purposes. Pennsylvania Savings Bank qualifies as a small
bank. The Banks applicable excess reserves will be the excess of
the balance of its reserves as of the close of its last tax year
beginning before January 1, 1996 over the greater of (a) its pre-
1988 reserves, or (b) what the thrift's reserves would have been
at the close of its last tax year beginning before January 1,
1996, had the thrift used the experience method. If a Bank meets
the residential loan requirement, the income to be recognized may
be deferred. A Bank meets the residential loan requirement if,
for the tax year, the principal amount of residential loans made
by the Bank during the year is not less than its base amount.
The "base amount" generally is the average of the principal
amounts of the residential loans made by the Bank during the six
most recent tax years beginning before January 1, 1996. For the
year ended December 31, 1996, the Bank meets the residential loan
requirement and has elected to deferred recognition of the
income.
Prior to January 1, 1988, the Bank was not required and did
not record deferred income taxes on the difference between the
allowance for loan losses reported for financial reporting
purposes and the special bad debt deduction for income tax
purposes.
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
10.INCOME TAX MATTERS: (Continued)
Retained earnings at December 31, 1995 includes $2,450,099
for which no deferred federal income tax liability has been
recognized.
Subsequent to December 31, 1987, the base year, and prior to
January 1, 1996, the Bank was required to record a deferred tax
asset related to the allowance for loan losses reported for
financial reporting purposes and a deferred tax liability for
special bad debt deduction. However, if it is more likely than
not that some portion or all of the deferred tax asset will not
be realized, the deferred tax asset should be reduced by a
valuation allowance. The valuation allowance should be
sufficient to reduce the deferred tax asset to the amount that is
more likely than not to be realized.
As required by SFAS No. 109 "Accounting for Income Taxes,"
the Bank determined that no valuation reserve was necessary for
the net deferred tax asset since it is more likely than not that
the deferred tax asset will be realized through carryforwards to
taxable income in future years and future reversals of existing
temporary differences. The Bank will continue to review the
criteria related to the recognition of deferred tax assets on a
quarterly basis.
The Bank has made additions to the special bad debt
deduction allowance since December 31, 1987 and, therefore,
deferred tax liability for the special bad debt deduction has
been recorded in the amount of $235,508 and $204,755 at December
31, 1996 and 1995, respectively.
Deferred tax expense results from timing differences in the
recognition of revenue and expense for tax and financial
statement purposes. The sources of these differences are as
follows:
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
10.INCOME TAX MATTERS: (Continued)
Six Months Ended
June 30,
1997 1996
Bad debts $ - $ -
Depreciation
Deferred loan fees
DEFERRED TAX EXPENSE $ - $ -
Year Ended
December 31, September 30,
1996 1995
Bad debts $31,035 $ 51,574
Depreciation 8,455 ( 11,452)
Deferred loan fees 19,975 ( 6,991)
DEFERRED TAX EXPENSE $59,465 $ 33,131
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
11. FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF
1991 (FDICIA):
FDICIA was signed into law on December 19, 1991 and includes
significant changes to the legal and regulatory environment for
insured depository institutions, including reductions in
insurance coverage for certain kinds of deposits, increased
supervision by the federal regulatory agencies, increased
reporting requirements for insured institutions, and new
regulations concerning internal controls, accounting and
operations.
The regulations require institutions to have a minimum 4%
leverage capital ratio, a minimum 4% tier 1 risk-based capital
ratio and a minimum 8% total risk-based capital ratio to be
considered "adequately capitalized". An institution is deemed to
be "critically undercapitalized" if it has a tangible equity
ratio of 2% or less.
The following table sets out the Bank's various regulatory
capital categories:
<TABLE>
<CAPTION>
June 30,
1997
Required Actual
(Dollars in thousands) % Amount % Amount Excess
<S> <C> <C> <C> <C> <C>
Tangible equity ratio >2.0% $2,093 13.97% $14,617 $12,524
Leverage capital ratio 6.0 6,280 13.97 14,617 8,337
Total risk-based
capital ratio 8.0 4,492 26.40 14,824 10,332
Tier 1 risk-based
capital ratio 4.0 2,246 26.03 14,617 12,371
<CAPTION>
June 30,
1996
Required Actual
(Dollars in thousands) % Amount % Amount Excess
<S> <C> <C> <C> <C> <C>
Tangible equity ratio >2.0% $2,046 13.96% $14,284 $12,238
Leverage capital ratio 4.0 4,092 13.96 14,284 10,172
Total risk-based
capital ratio 8.0 3,961 29.27 14,491 10,530
Tier 1 risk-based
capital ratio 4.0 1,981 28.85 14,284 12,303
</TABLE>
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
11.FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF
1991 (FDICIA): (Continued)
<TABLE>
<CAPTION>
December 31,
1996
Required Actual
% Amount % Amount Excess
<S> <C> <C> <C> <C> <C>
Tangible equity ratio >2.0% $2,324 12.24% $14,230 $11,906
Leverage capital ratio 4.0 4,648 12.24 14,230 9,582
Total risk-based
capital ratio 8.0 4,003 28.85 14,437 10,434
Tier 1 risk-based
capital ratio 4.0 2,002 28.44 14,230 12,228
</TABLE>
12.DIFFERENCES BETWEEN FEDERAL DEPOSITORY INSURANCE CORPORATION
CALL REPORT AND CONSOLIDATED FINANCIAL STATEMENTS:
An adjustment has been made to the accounts which is
reflected in the consolidated financial statements but is not
reflected in the Bank's June and December Federal Depository
Insurance Corporation Call Reports. The adjustment and its
effect on retained earnings are as follows:
June 30,
1997 1996
Retained earnings per the Bank's
June Federal Depository Insurance
Corporation Call Report $342,065 $289,371
Increase in federal and
state income tax provision ( 120,932) ( 96,801)
Adjustments made to financial
statement, subsequently
recorded by Bank ( 22,228) ( 16,461)
RETAINED EARNINGS PER ACCOMPANYING
FINANCIAL STATEMENTS $198,905 $176,109
<PAGE>
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
12.DIFFERENCES BETWEEN FEDERAL DEPOSITORY INSURANCE CORPORATION
CALL REPORT AND CONSOLIDATED FINANCIAL STATEMENTS: (Continued)
December 31,
1996
Retained earnings per the Bank's
December Federal Depository Insurance
Corporation Call Report $9,728,000
Retained earnings which remained
in PSB Mutual Holding Company
following conversion ( 9,750,602)
Increase in federal and
state income tax provision ( 121,175)
Adjustments made to financial
statement, subsequently
recorded by Bank ( 18,957)
ACCUMULATED DEFICIT PER ACCOMPANYING
CONSOLIDATED FINANCIAL STATEMENTS ($ 162,734)
13.LEASE COMMITMENTS:
On October 12, 1995, the Bank signed a lease agreement for
office and branch space in center city Philadelphia. The lease
commenced on July 1, 1996 and extends for 11 years. Lease
expense for this lease for the six month ended June 30, 1997 and
1996 was $163,153 and $-0-, respectively. Lease expense for this
lease for the year ended December 31, 1996 was $79,908.
The Bank was obligated under various other leases. Lease
expense for these leases for the six month ended June 30, 1997
and 1996 was $18,601 and $17,713, respectively. Lease expense
for these leases for the year ended December 31, 1996 and
September 30, 1995 was $37,437 and $42,202, respectively.
Minimum annual rentals are as follows:
1997 $ 178,417
1998 380,465
1999 352,157
2000 348,651
2001 363,907
Thereafter 2,136,096
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
14.RETIREMENT PLANS:
The Bank sponsors the following retirement plans:
A. Defined Benefit Pension Plan:
Covers employees who were at least 21 years of age, with 12
months of service with the Bank and have accumulated 1,000 hours
of service during the Plan year. The Plan calls for benefits to
be paid to eligible employees at retirement based upon years of
service with the Bank and compensation rates near retirement.
Contributions to the Plan reflect benefits attributed to
employees' service. Plan assets consist of common stock,
investment grade corporate bonds and U.S. Government obligations.
The Retirement Plan was "frozen" as of September 30, 1994 and
benefits no longer accrue thereunder. No new employees will be
eligible for participation.
The Plan's funded status and related actuarial information
are not available as of June 30, 1997 and 1996. Management
believes Plan conditions did not materially change during the
interim period.
The following table sets forth the Pension Plan's funded
status in the Bank's balance sheet as of December 31, 1996:
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
14. RETIREMENT PLANS: (Continued)
December 31,
1996
Actuarial present value of benefit
obligations:
Vested obligation ($720,684)
Nonvested ( 3,252)
Accumulated benefit obligation ( 723,936)
Projected benefit obligation for
service rendered to date ( 723,936)
Plan assets at fair value 703,874
Excess of projected benefit obligation
over plan assets ( 20,062)
Unrecognized net gain from past
experience different from that assumed
and effects of changes in assumptions ( 191,732)
Unrecognized prior service cost ( 48,471)
Unrecognized obligation at December 31,
being recognized over 24 years 111,121
ACCRUED PENSION COST ($149,144)
Net pension cost included the following
components:
1996
Interest cost on projected benefit
obligation $ 53,315
Actuarial return on plan assets ( 94,606)
Net amortization and deferral 47,059
NET PERIODIC PENSION COST FOR THE YEARS
ENDED DECEMBER 31, 1996 $ 5,768
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
14. RETIREMENT PLANS: (Continued)
As of December 31, 1996 the fair value of the Plan's assets
was $703,874 and the plan's distributable benefits to its members
was $723,936. Pension contributions were $-0- for the year ended
December 31, 1996.
The following three employee benefit plans cover all
eligible employees, those with two years of service, (a year of
service defined as having at least 1,000 hours of service) and
being at least 21 years of age on the first day of the plan year.
B. Cash or Deferred Profit-Sharing Plan:
Contributions to this Plan are determined by the
participant's written election to reduce their compensation by no
more than 15% of eligible compensation and also not to exceed
code section 401(k) and other limitations as set by the plan
documents.
The Bank may also make discretionary contributions made out
of net income.
Bank contributions to the Plan for the six months ended June
30, 1997 and 1996 and for the year ended December 31, 1996 and
for the three months ended December 31, 1995 were $-0-, $-0-, $-
0-, and $-0-, respectively.
C. Profit-sharing Plan:
Contributions to the Plan are determined annually by the
Board of Trustees based upon net income. Allocation of the
contributions to participants is based upon annual compensation.
Contributions to the Plan for the six months ended June 30,
1997 and 1996 and for the year ended December 31, 1996 and for
the three months ended December 31, 1995 were $54,060, $54,060,
$74,894 and $118,660, respectively.
D. Employee Stock Ownership Plan ("ESOP"):
Effective October 23, 1995, the Bank has established an ESOP
for eligible employees. The ESOP is a tax-qualified plan subject
to the requirements of ERISA and the Code. Employees with a 12-
month period of employment with the Bank during which they worked
at least 1,000 hours and who have attained age 21 are eligible to
participate. The ESOP borrowed funds from an unrelated third
party lender and used the funds to purchase 42,780 shares of
Common Stock.
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
14. RETIREMENT PLANS: (Continued)
The Common Stock purchased by the ESOP serves as collateral
for the ESOP loan. The loan will be repaid principally from the
Bank's contributions to the ESOP over a period of up to seven
years. Shares purchased by the ESOP will be held in a suspense
account for allocation among participants as the loan is repaid.
Shares released from the suspense account in an amount
proportional to the repayment of the ESOP loan will be allocated
among participants on the basis of compensation in the year of
allocation, up to an annual adjusted maximum level of
compensation (currently $150,000).
Benefits under the ESOP generally become 100% vested after
the third year of service or upon normal retirement (as defined
in the ESOP), disability or death of the participant. If a
participant terminates employment for any other reason prior to
fully vesting, his nonvested account balance will be forfeited.
Forfeitures will be reallocated among remaining participating
employees in the same proportion as contributions. Benefits may
be payable upon death, retirement, early retirement disability or
separation from service. The Bank's contributions to the ESOP
will not be fixed, so benefits payable under the ESOP cannot be
estimated.
E. Management Recognition Plan:
The Bank's Board of Trustees has also adopted a Management
Recognition Plan (the "MRP") effective October 20, 1995, as a
method of providing certain senior executive officers of the Bank
with a propriety interest in the Bank, to such officers for their
service and to encourage such persons to remain in the service of
the Bank. Benefits may be granted at the sole discretion of the
Compensation Committee of the Bank's Board of Trustees. The MRP
is managed by trustees who are directors of the Bank and who have
responsibility to invest all funds contributed by the Bank to the
trust created for the MRP. The Bank contributed $254,005 to the
MRP trust which enabled the MRP to purchase 21,390 shares of
Common Stock. Unless the Compensation Committee of the Board
specifies otherwise, shares granted to MRP participants will be
in the form of restricted stock payable over a five-year period
at the rate of 20% of such shares per year. Compensation expense
in the amount of the fair market value of the common stock at the
date of the grant to the employee will be recognized pro rata
over the five years during which the shares are payable. As of
December 31, 1996, 21,390 shares have been allocated to
individual employees. For the six months ended June 30, 1997 and
for the year ended December 31, 1996, the Bank recorded
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
14. RETIREMENT PLANS: (Continued)
compensation expense of $25,401 and $18,624, respectively for the
Management Recognition Plan.
F. Stock Option Plan:
The Bank's Board of Trustees adopted the Pennsylvania
Savings Bank Stock Option Plan (the "Option Plan") and was
approved by a majority of stockholders on April 30, 1996. The
Option Plan provides for the grant of (I) options to purchase
Common Stock intended to qualify as incentive stock options
("Incentive Stock Option") under Section 422 of the Code, and
(ii) options that do not so qualify ("Nonqualified Stock
Options"). Pursuant to the Option Plan, up to 53,475 shares of
Common Stock (subject to adjustment) will be reserved for
issuance by the Bank upon exercise of stock options to be granted
to certain officers and employees of the Bank from time to time
under the Option Plan. The purpose of the Option Plan is to give
certain officers and employees an opportunity to acquire Common
Stock and thereby help the Bank attract, retain and motivate key
employees and officers. At June 30, 1997, 6,450 shares of Common
Stock were granted to but not exercised to certain individual
employees.
15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK:
The Bank is a party to financial instruments with off-
balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments
include commitments to extend credit generally consisting of
residential purchase money mortgage commitments, or the unfunded
portion of construction loans in process and standby letter of
credit.
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the loan agreement. These commitments are
comprised of the undisbursed portion of construction loans and
residential loan originations. The Bank's exposure to credit
loss from nonperformance by the other party to the financial
instruments for commitments to extend credit is represented by
the contractual amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
Generally, collateral, usually in the form of real estate, is
required to support financial instruments with credit risk.
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
16. SIGNIFICANT CONCENTRATIONS OF CREDIT RISK:
The Bank grants mortgage, consumer and construction loans
primarily to customers in Southeastern Pennsylvania and Southern
New Jersey. Although the Bank has a diversified loan portfolio,
a substantial portion of its customers' ability to honor their
contracts is dependent upon the local economy. The Bank's net
investment in loans is subject to a significant concentration of
credit risk given that the investment is primarily within a
specific geographic area.
As of June 30, 1997 and 1996 and December 31, 1996, the Bank
had a net investment of $62,140,532, $56,770,268 and $57,183,249,
respectively, in loans receivable. These loans possess an
inherent credit risk given the uncertainty regarding the
borrower's compliance with the terms of the loan agreement. To
reduce credit risk, the loans are secured by varying forms of
collateral, including first mortgages on real estate, liens on
personal property, savings accounts, etc. It is generally Bank
policy to file liens on titled property taken as collateral on
loans. In the event of default, the Bank's policy is to
foreclose or repossess collateral on which it has filed liens.
In the event that any borrower completely failed to comply
with the terms of the loan agreement and the related collateral
proved worthless, the Bank would incur a loss equal to the loan
balance.
17.COMMITMENTS:
In the normal course of business the Bank makes various
commitments and incurs certain contingent liabilities which are
not reflected in the accompanying financial statements. These
commitments and contingent liabilities include open-end credit
available. At June 30, 1997 and 1996 and December 31, 1996 the
Bank's customers had unused lines of credit available of
$945,158, $300,463, and $830,247, respectively.
Outstanding commitments to originate loans are as follows:
June 30, December 31,
1997 1996 1996
First mortgage loans:
Fixed rates $168,700 $110,000 $121,590
Variable rates 305,600 260,000 -
$474,300 $370,000 $121,590
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
17. COMMITMENTS: (Continued)
Commitments under standby letters of credit totaled
approximately $722,595, $36,000, and $565,948 at June 30, 1997
and 1996 and at December 31, 1996, respectively.
18.FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments," requires
the disclosure of the fair value of financial instruments, both
assets and liabilities recognized and not recognized in the
statement of financial position, for which it is practicable to
estimate fair value.
A financial instrument is defined as cash, evidence of an
ownership interest in equity, or a contract that both imposed on
one entity a contractual obligation to deliver cash or another
financial instrument to a second entity or to exchange other
financial instruments on potentially unfavorable terms with the
second entity, conveys to that second entity a contractual right
to receive cash or another financial instrument from the first
entity or the exchange of other financial instruments on
potentially favorable terms with the first entity. The fair
value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between
willing parties, other than in a forced sale or liquidation.
Quoted market prices should be used when available, if not
available management's best estimate of fair value may be based
on quoted market price of financial instruments with similar
characteristics or on valuation techniques, such as using the
present value of estimated future cash flows using a discount
rate commensurate with the corresponding risk associated with
those cash flows. These techniques are significantly affected by
the assumptions used, including the discount rate and estimates
of future cash flows and future economic conditions. In that
regard, the fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not
be realized in immediate settlement of the instrument. In
addition, these estimates are only indicative of individual
financial instruments' values and should not be considered an
indication of the fair value of the Bank taken as a whole.
Statement No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements.
The following tables represents the carrying value and fair
market value of financial instruments as of June 30, 1997:
PENNSYLVANIA SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1995
18. FAIR VALUE OF FINANCIAL INSTRUMENTS: (Continued)
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
<S> <C> <C>
Assets:
Cash and cash equivalents $29,024,554 $29,024,554
Investments securities available-for-sale 5,354,210 5,328,337
Mortgage-backed securities available-for-sale 3,283,563 3,143,574
Investment securities held-to-maturity 17,214,961 17,181,651
Mortgage-backed securities held-to-maturity 2,574,150 2,675,888
Loans receivable - net 62,140,532 62,140,532
Federal Home Loan Bank stock 559,900 559,900
Liabilities:
NOW, MMDA and Passbook accounts 45,003,245 45,003,245
Certificate of Deposits 59,433,367 59,433,367
</TABLE>
The following tables represents the carrying value and fair
market value of financial instruments as of December 31, 1996:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
<S> <C> <C>
Assets:
Cash and cash equivalents $31,622,465 $31,622,465
Investments securities available-for-sale 6,304,878 6,316,282
Mortgage-backed securities available-for-sale 3,321,858 3,193,840
Investment securities held-to-maturity 12,656,815 12,628,003
Mortgage-backed securities held-to-maturity 2,748,444 2,851,532
Loans receivable - net 57,890,531 57,890,531
Federal Home Loan Bank stock 533,600 533,600
Liabilities:
NOW, MMDA and Passbook accounts 44,363,020 44,363,020
Certificate of Deposits 56,211,356 56,211,356
</TABLE>
The following methods and assumptions, where practical to
implement as noted, were used by the Bank in estimating its fair
value for those assets.
Cash and Cash Equivalents:
The carrying amounts reported in the statement of financial
condition for cash and cash equivalents approximate the fair
value for those assets.
Investments Securities:
The fair value for investments are based on quoted market
prices.
Mortgage-backed Securities:
The fair value of mortgage-backed securities issued by
quasi-governmental agencies is based on quoted market prices.
Loans Receivable:
The Bank estimates that the fair value of its real estate,
consumer and commercial loans approximates the carrying amount.
The carrying amount is adjusted for the estimated future possible
loan losses through a valuation allowance. The Bank's real
estate loan portfolio was $50,770,722 and $56,505,841 at June 30,
1997 and at December 31, 1996, respectively with rates ranging
from 6.00% to 18.00% and maturities through 30 years. The Bank's
consumer loan portfolio was $1,219,138 and $1,016,277 at June 30,
1997 and at December 31, 1996, respectively with rates ranging
from 5.00% to 22.53% with maturities through 18 years. The
Bank's commercial loan portfolio was $10,877,973 and $368,413 at
June 30, 1997 and at December 31, 1996, respectively with rates
ranging from 8.25% to 10.25% with maturities through one year and
monthly repayment terms.
Deposits:
The fair value of deposits with no stated maturity, such as
non-interest bearing demand deposits, NOW accounts, savings
accounts and money market accounts, is equal to the amount
payable on demand as of December 31, 1996. The Bank has not
determined the fair values of its time deposits (e.g.
certificates of deposit) due to it not being practical to make
such estimates based on varying interest rates and maturities
involved and the excessive cost that would be incurred. Time
deposits were $59,433,367 and $56,211,356 at June 30, 1997 and at
December 31, 1996, respectively with rates ranging from 3.00% to
8.00%.
Commitments to Extend Credit and Letters to Credit:
The majority of the Bank's commitments to extend credit and
letters of credit carry current market interest rates if
converted to loans. Because commitments to extend credit and
letters of credit are generally unassignable by either the Bank
or the borrower, they only have value to the Bank and the
borrower. The Bank is unable to estimate the fair value of the
recorded deferred fee amounts.
19.JUNE 30, 1997 AND 1996 FINANCIAL INFORMATION:
The consolidated financial statements as of June 30, 1997
and 1996 and for the six months ended June 30, 1997 and 1996 are
unaudited. In the opinion of management all adjustments
necessary for a fair presentation of financial position and
results of operations have been included. The results of
operations for the six months ended June 30, 1997 and 1996 are
not necessarily indicative of the results that may be attained
for an entire fiscal year.<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Sections 1741 and 1742 of the Pennsylvania Business
Corporation Law of 1988 provide that the Holding Company may
indemnify any officer or director acting in his capacity as a
representative of the Holding Company who was, is, or is
threatened to be made a party to any action or proceeding against
expenses, judgments, penalties, fines and amounts paid in
settlement in connection with such action or proceeding whether
the action was instituted by a third party or arose by or in the
right of the Holding Company (a derivative action). Generally,
the only limitation on the ability of the Holding Company to
indemnify its officers and directors is if the act violates a
criminal statute (unless the person had no reasonable cause to
believe his conduct was unlawful) or if the officer or director
did not act in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the
corporation. Indemnification is not permitted in a derivative
action if the officer or director in question has been adjudged
liable to the Corporation, unless such indemnification is
approved by the court.
The Holding Company's Bylaws provide a right to
indemnification to the full extent permitted by law, for expenses
(including attorney's fees), damages, punitive damages,
judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by any director or officer
whether or not the indemnified liability arises or arose from any
threatened, pending or completed proceeding by or in the right of
the Holding Company (a derivative action) by reason of the fact
that such director or officer is or was serving as a director,
officer, employee or agent of the Holding Company or, at the
request of the Holding Company, as a director, officer, partner,
fiduciary or trustee of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise. The
Holding Company's Bylaws provide for the advancement of expenses
to an indemnified party upon receipt of an undertaking by the
party to repay those amounts if it is finally determined that the
indemnified party is not entitled to indemnification.
The Holding Company's Bylaws authorize the Holding Company
to take steps to ensure that all persons entitled to the
indemnification are properly indemnified, including, if the Board
of Directors so determines, purchasing and maintaining insurance.
As of the date of this Prospectus, no such insurance has been
purchased.
Item 25. Other Expenses of Issuance and Distribution
The estimated expenses payable by the Holding Company in
connection with the issuance and distribution of the securities
being registered (other than underwriting discounts and
commissions and the Underwriter's non-accountable expense
allowance) are as follows:
Securities and Exchange Commission
registration fee ........................... $ 16,000.57
Edgar, printing, copying, postage, mailing ... 60,000.00
Appraisal/business plan fees and expenses .... 30,000.00
Securities marketing fees .................... 100,000.00
Securities marketing firm legal fees ......... 30,000.00
Data processing fees and expenses ............ 7,000.00
Legal fees and expenses ...................... 150,000.00
Accounting fees and expenses ................. 75,000.00
Blue Sky fees and expenses (including
legal fees) ................................ 7,000.00
Total ................................... $475,000.00
Item 26. Recent Sales of Unregistered Securities
Within the past three years no securities of the Holding
Company have been sold without registration under the Securities
and Exchange Act of 1933 (the "Act"), as amended.
<PAGE>
Item 27. Exhibits
(a) Exhibits:
Exhibit Page
Number Description Number
1.1* Form of Agency Agreement.
2 PSB Mutual Holding Company and
Pennsylvania Savings Bank Plan of
Conversion From Mutual Holding Company
to Stock Holding Company and Agreement
and Plan of Reorganization.
3.1 Articles of Incorporation of PSB
Bancorp, Inc.
3.2 Bylaws of PSB Bancorp, Inc.
4.1* Specimen Stock Certificate representing
the Common Stock of PSB Bancorp, Inc.
5.1* Opinion of Stevens & Lee regarding
legality of securities being registered.
5.2 Subscription Rights Letter of RP
Financial, L.C.
8.1* Opinion of Stevens & Lee regarding
certain tax matters.
10.1* Pennsylvania Savings Bank Retirement
Plan.
10.2* Pennsylvania Savings Cash or Deferred
Profit Sharing Plan.
10.3* Pennsylvania Savings Bank Profit Sharing
Plan.
10.4* Employment Agreement with Vincent J.
Fumo.
10.5* Employment Agreement with Anthony
DiSandro.
10.6* Pennsylvania Savings Bank Employee Stock
Ownership Plan.
10.7* Lease Agreement between Eleven Colonial
Penn Plaza Associates and Pennsylvania
Savings Bank, dated as of October 10,
1995.
10.8* Lease Agreement between Eleven Colonial
Penn Plaza Associates and Pennsylvania
Savings Bank, dated as of October 12,
1995.
21.1 Schedule of Subsidiaries.
23.1* Consent of Stevens & Lee (included in
its opinion filed as Exhibit 5.1).
23.2 Consent of Stockton Bates & Co., P.C.
23.3 Consent of RP financial, LC.
24.1 Power of Attorney (included on signature
page).
27.1 Financial Data Schedule.
99.1 Financial Statements.
99.2* Appraisal Agreement with RP Financial,
LC.
99.3* Appraisal Report of RP Financial, LC.
99.4* Order and Acknowledgment Form (contained
in the marketing materials included
herein as Exhibit 99.5).
99.5* Solicitation and Marketing Materials.
99.6* Proxy Statement for Special Meeting of
Members of PSB Mutual Holding Company.
99.7* Proxy Statement for Special Meeting of
Pennsylvania Savings Bank.
_____________
* To be filed by amendment.
<PAGE>
Item 28. Undertakings.
The Undersigned registrant hereby undertakes to:
(1) file, during any period in which it offers or
sells securities, a post-effective amendment to this registration
statement to:
(i) include any prospectus required by section
10(a)(3) of the Securities Act.
(ii) reflect in the prospectus any facts or
events which, individually or together, represent a fundamental
change in the information set forth in the Registration
Statement, and
(iii) include any additional or changed material
information on the plan of distribution;
(2) for determining liability under the Act, treat
each such post-effective amendment as a new registration of the
securities offered and the offering of such securities at that
time to be the initial bona fide offering; and
(3) file a post-effective amendment to remove from
registration any of the securities that remain unsold at the
termination of this offering.
Insofar as indemnification for liabilities arising under the
Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes: (12) to
provide to the underwriters at the closing specified in the
underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to
permit prompt delivery to each purchaser; (2) that for the
purpose of determining any liability under the Act, treat the
information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A, and
contained in a prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(b) under the Act as a part of this
Registration Statement as of the time the Securities and Exchange
Commission declares it effective and (3) that for the purpose of
determining any liability under the Act, each post-effective
amendment that contains a form of prospectus shall be deemed to
be a new registration statement for the securities offered in the
Registration Statement therein and that the offering of the
securities at that time is the initial bona fide offering of
those securities.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on
Form SB-2 and has authorized this Registration Statement to be
signed on its behalf by the undersigned, in the City of
Philadelphia, Commonwealth of Pennsylvania on September 25, 1997.
PSB BANCORP, NC.
By /s/ Anthony DiSandro
Anthony DiSandro
Chairman and Chief Operating
Officer
Each person whose signature appears below on this
Registration Statement hereby constitutes and appoints Neil
Swartz as his/her true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution for him/her
and in his/her name, place and stead, in any and all capacities
(until revoked in writing) to sign any and all amendments
(including post-effective amendments and amendments thereto) to
this Registration Statement on Form SB-2 of PSB Bancorp, Inc. and
to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact full power and
authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming all that said attorney-
in-fact and agent, acting alone or his substitute, may lawfully
do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of
1933, this registration statement has been signed by the
following persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Vincent J. Fumo Chairman, Chief September 25, 1997
Vincent J. Fumo Executive Officer
and Director
/s/ Anthony DiSandro President and September 25, 1997
Anthony DiSandro Chief Operating
Officer
/s/ Gary Polimeno Vice President September 25, 1997
Gary Polimeno and Treasurer
(Principal Account-
ing and Financial
Officer)
/s/ Jane Scaccetti Fumo Director September 25, 1997
Jane Scaccetti Fumo
/s/ Roseanne Pauciello Director September 25, 1997
Roseanne Pauciello
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Description Number
1.1* Form of Agency Agreement.
2 PSB Mutual Holding Company and
Pennsylvania Savings Bank Plan of
Conversion From Mutual Holding Company
to Stock Holding Company and Agreement
and Plan of Reorganization.
3.1 Articles of Incorporation of PSB
Bancorp, Inc.
3.2 Bylaws of PSB Bancorp, Inc.
4.1* Specimen Stock Certificate representing
the Common Stock of PSB Bancorp, Inc.
5.1* Opinion of Stevens & Lee regarding
legality of securities being registered.
5.2 Subscription Rights Letter of RP
Financial, LC.
8.1* Opinion of Stevens & Lee regarding
certain tax matters.
10.1* Pennsylvania Savings Bank Retirement
Plan.
10.2* Pennsylvania Savings Bank Cash or
Deferred Profit Sharing Plan.
10.3* Pennsylvania Savings Bank Profit Sharing
Plan.
10.4* Employment Agreement with Vincent J.
Fumo.
10.5* Employment Agreement with Anthony
DiSandro.
10.6* Pennsylvania Savings Bank Employee Stock
Ownership Plan.
10.7* Lease Agreement between Eleven Colonial
Penn Plaza Associates and Pennsylvania
Savings Bank, dated as of October 10,
1995.
10.8* Lease Agreement between Eleven Colonial
Penn Plaza Associates and Pennsylvania
Savings Bank, dated as of October 12,
1995.
21.1 Schedule of Subsidiaries.
23.1* Consent of Stevens & Lee (included in
its opinion filed as Exhibit 5.1).
23.2 Consent of Stockton Bates & Co., P.C.
23.3 Consent of RP Financial, LC.
24.1 Power of Attorney (included on signature
page).
27.1 Financial Data Schedule.
99.1 Financial Statements.
99.2* Appraisal Agreement with RP Financial,
LC.
99.3* Appraisal Report of RP Financial, LC.
99.4* Order and Acknowledgment Form (contained
in the marketing materials included
herein as Exhibit 99.5).
99.5* Solicitation and Marketing Materials.
99.6* Proxy Statement for Special Meeting of
Members of PSB Mutual Holding Company.
99.7* Proxy Statement for Special Meeting of
Pennsylvania Savings Bank.
_____________
* To be filed by amendment.
<PAGE>
Exhibit 1.1
(To be filed by Amendment)
<PAGE>
Exhibit 2
<PAGE>
PSB MUTUAL HOLDING COMPANY
PENNSYLVANIA SAVINGS BANK
Philadelphia, Pennsylvania
PLAN OF CONVERSION FROM MUTUAL HOLDING COMPANY TO STOCK
HOLDING COMPANY AND AGREEMENT AND PLAN OF REORGANIZATION
I.General
For purposes of this section, all capitalized terms
have the meanings ascribed to them in Section II unless otherwise
defined herein.
PSB Mutual Holding Company, Philadelphia, Pennsylvania
("MHC") was formed on October 20, 1995 to act as the
Pennsylvania-chartered mutual holding company for Pennsylvania
Savings Bank, Philadelphia, Pennsylvania ("Savings Bank"), a
Pennsylvania-chartered capital stock savings bank. As of the
date hereof, the MHC beneficially and of record owns 615,250
shares of common stock, par value $1.00 per share, of the Savings
Bank ("Savings Bank Common Stock"), representing approximately
51.5 % of the outstanding voting stock of the Savings Bank and
the remaining 579,390 shares of Savings Bank Common Stock, or
48.5%, are owned by persons other than the MHC ("Public
Shareholders").
This Plan of Conversion from Mutual Holding Company to
Stock Holding Company and Agreement and Plan of Reorganization
(the "Plan") provides for the conversion of the MHC to the stock
form of organization and the reorganization of the Savings Bank
as a wholly owned subsidiary of a newly formed stock holding
company (collectively, the "Conversion and Reorganization"). The
Boards of Directors of the MHC and the Savings Bank believe that
the Conversion and Reorganization is in the best interests of the
MHC, the members of the MHC, the Savings Bank and its
shareholders. As a result of the Conversion and Reorganization,
the Savings Bank will be wholly owned by a stock holding company,
which is a more common structure and form of ownership than a
mutual holding company. The Board of Directors determined that
the Plan equitably provides for the interests of Depositors
through the granting of subscription rights and the establishment
of a liquidation account and that consummation of the Conversion
and Reorganization would not adversely impact the shareholders'
equity of the Savings Bank.
The Conversion and Reorganization will provide the
Savings Bank with a larger capital base that will enhance its
ability to pursue lending and investment opportunities, as well
as its opportunities for growth and expansion. The Conversion
and Reorganization also will provide a more flexible operating
structure, which will enable the Savings Bank to compete more
effectively with other financial institutions. Finally, the
Conversion and Reorganization has been structured to reunite the
accumulated earnings and profits retained by the MHC with the
retained earnings of the Savings Bank through a tax-free
reorganization.
Pursuant to the Plan, the Savings Bank will form a new
first-tier subsidiary that will be incorporated under state law
as a stock corporation ("Holding Company"). The Holding Company
will then form an interim state stock savings bank ("B") as a
wholly-owned subsidiary. As described in greater detail herein,
simultaneously with the conversion of the MHC to an interim state
stock savings bank ("A"), the Savings Bank, MHC and Holding
Company will undergo a reorganization in which A will merge with
and into the Savings Bank, Interim B will merge with and into the
Savings Bank, the Holding Company will become the parent company
of the Savings Bank, and the Holding Company will issue and sell
its Conversion Stock pursuant to this Plan.
On July 17, 1997, after careful study and
consideration, the Boards of Directors of the MHC and the Savings
Bank adopted this Plan. The Plan must be approved (i) by the
affirmative vote of a majority of the total number of votes
eligible to be cast by Depositors at a special meeting to be
called for that purpose, (ii) by the holders of at least 2/3 of
the shares of Savings Bank Common Stock cast at an annual meeting
of the Savings Bank Shareholders, or at a special meeting of the
Savings Bank Shareholders called for the purpose of submitting
the Plan for approval and (iii) by the holders of a majority of
the Public Shareholders. Prior to the submission of the Plan to
the Depositors and the Public Shareholders for consideration, the
Plan must be approved by the Pennsylvania Department of Banking
and the Federal Deposit Insurance Corporation shall have issued a
letter of nonobjection to the Plan.
II.Definitions
For the purposes of this plan, the following terms have the
following meanings:
A. Acting in Concert: (i) Knowing participation in a
joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express
agreement; or (ii) a combination or pooling of voting or other
interests in the securities of an issuer for a common purpose
pursuant to any contract, understanding, relationship, agreement
or other arrangement, whether written or otherwise. A Person (as
defined herein) who acts in concert with another Person ("other
party") shall also be deemed to be acting in concert with any
Person who is also acting in concert with that other party,
except that any Tax-Qualified Employee Stock Benefit Plan will
not be deemed to be acting in concert with its trustee or a
Person who serves in a similar capacity solely for the purpose of
determining whether stock held by the trustee and stock held by
the Tax-Qualified Employee Benefit Plan will be aggregated.
B. Associate: When used to indicate a relationship
with any Person, means (i) any corporation or organization (other
than the Primary Parties or a majority-owned subsidiary of either
thereof) of which such Person is an officer or partner or is,
directly or indirectly, the beneficial owner of ten percent or
more of any class of equity securities, (ii) any trust or other
estate in which such Person has a substantial beneficial interest
or as to which such Person serves as trustee or in a
fiduciary capacity, except that it does not include a
Tax-Qualified Employee Stock Benefit Plan and (iii) any relative
or spouse of such Person, or any relative of such spouse, who has
the same home as such Person or who is a director or officer of
either of the Primary Parties or any of their subsidiaries.
C. Capital Stock: Any and all authorized capital
stock of the Savings Bank.
D. Conversion and Reorganization: Collectively,
(i) the conversion of the MHC into an interim state stock savings
bank ("Interim A") and the simultaneous merger of Interim A with
and into the Savings Bank, with the Savings Bank being the
surviving institution; (ii) the merger of an interim state stock
savings bank subsidiary of the Holding Company ("Interim B") with
and into the Savings Bank, with the Savings Bank being the
surviving institution and becoming a wholly owned subsidiary of
the Holding Company; (iii) the exchange of shares of Savings Bank
Common Stock (other that those held by the MHC which shall be
canceled) for shares of Holding Company Common Stock; and
(iv) the issuance of Conversion Stock by the Holding Company as
provided for in this Plan.
E. Conversion Application: The application submitted
by the MHC to the Department and the FDIC for approval of the
Conversion and Reorganization.
F. Conversion Stock: Holding Company Common Stock
offered and sold by the Holding Company for cash pursuant to this
Plan.
G. Direct Community Offering: The offering for sale
of Conversion Stock to the public.
H. Dissenting Shares: Shares of Savings Bank Common
Stock with respect to which the holder exercises the appraisal
rights provided under 7 Pa. C.S.A. Section 1609.
I. Department: The Pennsylvania Department of
Banking.
J. Depositor: Any Person qualified as a member of
the MHC pursuant to its charter and bylaws.
K. Eligibility Record Date: June 30, 1996.
L. Eligible Account Holder: Holder of a Qualifying
Deposit on the Eligibility Record Date.
M. Exchange Ratio: The ratio at which shares of
Holding Company Common Stock will be exchanged for shares of
Savings Bank Common Stock held by the Public Shareholders upon
consummation of the Conversion and Reorganization. The exact
rate shall be determined by the MHC and the Savings Bank at the
time the Purchase Price (as defined in Section XI.B.) is
determined and shall equal the rate that will result in the
Public Shareholders owning in the aggregate approximately the
same percentage of Holding Company Common Stock to be outstanding
upon completion of the Conversion as the percentage of Savings
Bank Common Stock owned by them in the aggregate immediately
prior to consummation of the Conversion, before giving effect to
(i) the payment of cash in lieu of issuing fractional shares of
Holding Company Common Stock, and (ii) any shares of Conversion
Stock purchased by Public Shareholders or any Tax-Qualified
Employee Stock Benefit Plans.
N. Exchange Stock: Holding Company Common Stock
issued to the Public Shareholders in exchange for Savings Bank
Common Stock.
O. FDIC: Federal Deposit insurance Corporation.
P. FRB: The Board of Governors of the Federal
Reserve System.
Q. FRB Application: The application submitted to the
FRB on FRB Form FR Y-1, for approval of the Holding Company
acquisition of all of the Capital Stock.
R. Holding Company: The corporation to be formed by
the Savings Bank under state law initially as a first tier,
wholly owned subsidiary of the Savings Bank. Upon completion of
the Conversion, the Holding Company shall hold all of the
outstanding Capital Stock.
S. Holding Company Common Stock: The common stock,
no par value per share, of the Holding Company.
T. Interim A: "PSB Interim "A" Savings Bank," which
will be the interim state stock savings bank resulting from the
conversion of the MHC to stock form immediately prior to its
merger into the Savings Bank.
U. Interim B: "PSB Interim "B" Savings Bank," which
will be formed as a wholly-owned interim state stock savings bank
subsidiary of the Holding Company, which will merge with and into
the Savings Bank immediately after the merger of Interim A into
the Savings Bank.
V. Local Community: Philadelphia and Montgomery
Counties of the Commonwealth of Pennsylvania.
W. Market Maker: A dealer (i.e., any Person who
engages directly or indirectly as agent, broker, or principal in
the business of offering, buying, selling, or otherwise dealing
or trading in securities issued by another Person) who, with
respect to a particular security, (i) regularly publishes bona
fide, competitive bid and offer quotations on a recognized
inter-dealer quotation system or furnishes bona fide competitive
bid and offer quotations on request and (ii) is ready, willing
and able to effect transactions in reasonable quantities at its
quoted prices with other brokers or dealers.
X. Meeting of Shareholders: The meeting of the
shareholders of the Savings Bank, and any adjournments thereof,
to be called and held for the purpose of submitting the Plan for
their approval. Such meeting may either be an annual or special
meeting.
Y. MHC: PSB Mutual Holding Company.
Z. Offerings: Collectively, the Subscription
Offering, Direct Community Offering and Syndicated Community
Offering.
AA. Officer: An executive officer of any or all of
the Primary Parties, which includes the Chairman, the President,
Executive Vice President, Senior Vice Presidents, Vice Presidents
in charge of principal business functions, Secretary, Controller,
and any Person performing functions similar to those performed by
the foregoing persons.
AA. Order Form(s): Form(s) to be used to purchase
Conversion Stock sent to Eligible Account Holders and other
parties eligible to purchase Conversion Stock in the Subscription
Offering.
BB. PDS: The Pennsylvania Department of State.
CC. Person: An individual, a corporation, a
partnership, an association, a joint-stock company, a trust
(including Individual Retirement Accounts and Keogh Accounts),
any unincorporated organization, a government or political
subdivision thereof or any other entity.
DD. Plan: This Plan of Conversion From Mutual Holding
Company to Stock Holding Company and Agreement and Plan of
Reorganization, as originally adopted by the Boards of Directors
of the MHC and the Savings Bank, or as amended in accordance with
its terms.
EE. Primary Parties: Collectively, the MHC, the
Savings Bank and the Holding Company.
FF. Public Shareholder: Any Person who owns Savings
Bank Common Stock, other than the MHC, as of the Voting Record
Date.
GG. Qualifying Deposit: The deposit balance in any
Savings Account as of the close of business on the Eligibility
Record Date or the Supplemental Eligibility Record Date, as
applicable; provided, however, that no Savings Account with a
deposit balance of less than $50.00 shall constitute a Qualifying
Deposit.
HH. Registration Statement: The registration
statement on SEC Form S-1 or Form SB-2 filed by the Holding
Company with the SEC for the purpose of registering the sale of
the Conversion Stock under the Securities Act of 1933, as
amended.
II. Savings Account(s): Withdrawable deposit(s) in
the Savings Bank, including certificates of deposit.
JJ. Savings Bank: Pennsylvania Savings Bank.
KK. Savings Bank Common Stock: The common stock of
the Savings Bank, par value $1.00 per share.
LL. SEC: Securities and Exchange Commission.
MM. Special Meeting of Depositors: The special
meeting of the Depositors, and any adjournments thereof, held to
consider and vote upon the Plan.
NN. Subscription Offering: The offering of Conversion
Stock to Eligible Account Holders, Tax-Qualified Employee Stock
Benefit Plans and Supplemental Eligible Account Holders under the
Plan.
OO. Subscription Rights: Nontransferable,
non-negotiable, personal rights of Eligible Account Holders,
Tax-Qualified Employee Stock Benefit Plans and Supplemental
Eligible Account Holders to purchase Conversion Stock.
PP. Supplemental Eligibility Record Date: The last
day of the calendar quarter preceding the approval of the Plan by
the Department.
QQ. Supplemental Eligible Account Holder: Holder of a
Qualifying Deposit in the Savings Bank (other than an Officer or
director of the Savings Bank or their Associates) on the
Supplemental Eligibility Record Date.
RR. Syndicated Community Offering: The offering for
sale by a syndicate of broker-dealers to the general public of
shares of Conversion Stock not purchased in the Subscription
Offering and the Direct Community Offering.
SS. Tax-Qualified Employee Stock Benefit Plan: Any
defined benefit plan or defined contribution plan of the Savings
Bank or Holding Company, such as an employee stock ownership
plan, bonus plan, profit-sharing plan or other plan, which, with
its related trust, meets the requirements to be "qualified" under
section 401 of the Internal Revenue Code. A "non-tax-qualified
employee stock benefit plan" is any defined benefit plan or
defined contribution plan that is not so qualified.
TT. Voting Record Date(s): The date(s) fixed by the
Boards of Directors of the MHC and the Savings Bank according to
Pennsylvania law for determining eligibility to vote at the
Meeting of Shareholders.
III.General Procedure for Conversion and Reorganization
A. Conversion of MHC to a State Stock Savings Bank
and Merger of Such Into the Savings Bank. The MHC will convert
into an interim stock state savings bank (i.e. "Interim A") and
Interim A will simultaneously merge with and into the Savings
Bank, with the Savings Bank as the surviving entity ("MHC
Merger"). As a result of the MHC Merger, the Savings Bank Common
Stock held by the MHC will be canceled and Eligible Account
Holders and Supplemental Eligible Account Holders will be granted
ratable interests in a liquidation account, to be established in
accordance with the procedures set forth in Section XIV hereof
B. Merger of a PSB Interim "B" Stock Savings Bank
into Savings Bank and Exchange of Shares. Immediately after the
MHC Merger, Interim B will merge with and into the Savings Bank,
and the separate existence of Interim B will cease ("Savings Bank
Merger"). The shares of Holding Company Common Stock held by the
Savings Bank will be canceled. The shares of common stock of
Interim B held by the Holding Company will be converted on a
one-to-one basis, into shares of Savings Bank Common Stock, which
will result in the Savings Bank becoming a wholly-owned
subsidiary of the Holding Company. The Public Shareholders will
exchange their shares of Savings Bank Common Stock for shares of
Holding Company Common Stock based upon the Exchange Ratio. In
addition, all options to purchase shares of Savings Bank Common
Stock that are outstanding immediately prior to consummation of
the Conversion and Reorganization shall be converted to options
to purchase shares of Holding Company Common Stock, with the
number of shares subject to the option and the exercise price per
share to be adjusted based upon the Exchange Ratio so that the
aggregate exercise price remains unchanged, and with the duration
of the option remaining unchanged. Upon consummation of the
Conversion and Reorganization, all of the Savings Bank Common
Stock will be owned by the Holding Company and the Public
Shareholders will own the same percentage of the Holding Company
Common Stock as the percentage of the Savings Bank Common Stock
owned by them prior to the Conversion and Reorganization, before
giving effect to cash paid in lieu of any fractional interests of
Savings Bank Common Stock, any shares of Conversion Stock
purchased by the Public Shareholders in the Offering or
Tax-Qualified Employee Stock Benefit Plans of the Holding Company
or Savings Bank thereafter, and any Dissenting Shares. The
Holding Company will then sell the Conversion Stock in the
Offerings in accordance with this Plan.
Following consummation of the Conversion and
Reorganization, voting rights with respect to the Savings Bank
shall be held and exercised exclusively by the Holding Company as
holder of the outstanding Savings Bank Common Stock. Voting
rights with respect to the Holding Company shall be held and
exercised exclusively by holders of the Holding Company Common
Stock. As a result of the MHC Merger, the separate existence of
the MHC will cease.
IV.Steps Prior to Submission of the Plan to the Savings Bank
Shareholders for Approval
Prior to submission of the Plan to the shareholders of
the Savings Bank for approval, the Plan must be approved by the
Department and the FDIC must issue a letter of nonobjection with
respect to the Plan. Prior to such regulatory approvals:
A. The Boards of Directors of the MHC and the Savings
Bank each shall adopt the Plan by a vote of not less than
two-thirds of their entire membership at consecutive meetings
with the second meeting held upon at least ten days written
notice.
B. The MHC shall publish legal notice of the adoption
of the Plan in a newspaper having a general circulation in each
community in which the MHC and the Savings Bank maintains an
office.
C. A press release relating to the proposed
Conversion and Reorganization may be submitted to the local
media.
D. Copies of the Plan as adopted by the Boards of
Directors of the MHC and the Savings Bank shall be made available
for inspection at each office of the MHC and the Savings Bank.
E. The Savings Bank shall cause the Holding Company
to be incorporated under Pennsylvania law and the Board of
Directors of the Holding Company shall concur in the Plan by at
least a two-thirds vote.
F. As soon as practicable following the adoption of
this Plan, the MHC shall file the Conversion Application, and the
Holding Company shall file the Registration Statement and the FRB
Application. In addition, an application to merge the MHC
(following its conversion into an interim stock savings bank) and
the Savings Bank and an application to merge Interim B and the
Savings Bank shall both be filed with the Department and the
FDIC. Upon filing the Conversion Application, the MHC shall
publish legal notice thereof in a newspaper having a general
circulation in each community in which the MHC and the Savings
Bank maintains an office and/or by mailing a letter to each
Depositor, and also shall publish such other notices of the
Conversion and Reorganization as may be required in connection
with the FRB Application and by the regulations and policies of
the Department and the FDIC.
G. The MHC and the Savings Bank shall obtain an
opinion of their tax advisors or a favorable ruling from the U.S.
Internal Revenue Service that shall state that the Conversion and
Reorganization shall not result in any gain or loss for federal
income tax purposes to the Primary Parties or to Eligible Account
Holders and Supplemental Eligible Account Holders. Receipt of a
favorable opinion or ruling is a condition precedent to
completion of the Conversion and Reorganization.
V.Special Meeting of Depositors
Subsequent to the later of approval of the Plan by the
Department and receipt of a letter of nonobjection from the FDIC,
the Special Meeting shall be scheduled. Promptly after receipt
of approval and at least 20 days but not more than 45 days prior
to the Special Meeting, the MHC shall distribute proxy
solicitation materials to all Depositors and beneficial owners of
accounts held in fiduciary capacities where the beneficial owners
possess voting rights, as of the Voting Record Date. The proxy
solicitation materials shall include a copy of the proxy
statement to be used in connection with such solicitation and
other documents authorized for use by the regulatory authorities
and may also include a copy of the Plan and/or a prospectus
("Prospectus") as provided in Section VII below. The MHC shall
also advise each Eligible Account Holder and Supplemental
Eligible Account Holder not entitled to vote at the Special
Meeting of the proposed Conversion and Reorganization and the
scheduled Special Meeting, and provide a postage prepaid card on
which to indicate whether he or she wishes to receive a
Prospectus, if the Subscription Offering is not held concurrently
with the proxy solicitation.
An affirmative vote of not less than a majority of the
total outstanding votes of the Depositors is required for
approval of the Plan. Voting may be in person or by proxy at the
Special Meeting of Depositors. The Department shall be notified
promptly of the actions of the Depositors at the Special Meeting
of Depositors.
VI.Meeting of Shareholders
Subsequent to the later of approval of the Plan by the
Department and receipt of a letter of nonobjection from the FDIC,
the Meeting of Shareholders shall be scheduled in accordance with
the Savings Bank's Bylaws at which the Plan will be considered
for approval. Promptly after receipt of approval and at least
20 days but not more than 45 days prior to such meeting, the
Savings Bank shall distribute proxy solicitation materials to
Savings Bank shareholders and beneficial owners of Savings Bank
Common Stock held in fiduciary capacities where the beneficial
owners possess voting rights, as of the Voting Record Date. The
proxy solicitation materials shall include a copy of the proxy
statement to be used in connection with such solicitation and
other documents authorized for use by the regulatory authorities
and may also include a copy of the Plan and/or a Prospectus as
provided in Paragraph VII below. The Savings Bank shall also
advise each holder of Savings Bank Common Stock entitled to vote
at the meeting of the proposed Conversion and Reorganization and
the scheduled meeting, and provide a postage prepaid card on
which to indicate whether he or she wishes to receive the
Prospectus, if the Subscription Offering is not held concurrently
with the proxy solicitation.
An affirmative vote of not less than 2/3 of the total
votes cast by the shareholders of the Savings Bank at the Meeting
of Shareholders is required for approval of the Plan.
Additionally, the affirmative vote of a majority of the Public
Shareholders as of the Voting Record Date is required for
approval of the Plan. Voting may be in person or by proxy at the
Meeting of Shareholders. The Department shall be notified
promptly of the actions of the shareholders of the Savings Bank
at the Meeting of Shareholders.
VII.Summary Proxy Statements
The Proxy Statements furnished to Depositors and to
shareholders of the Savings Bank may be in summary form; provided
that a statement is made in bold-face type that a more detailed
description of the proposed transaction may be obtained by
returning an enclosed postage prepaid card or other written
communication requesting supplemental information. Without prior
approval of the Department, the Special Meeting of Depositors and
the Meeting of Shareholders shall not be held less than 20 days
after the last day on which the supplemental information
statement is mailed to requesting Depositors or requesting
shareholders of the Savings Bank. The supplemental information
statement may be combined with the Prospectus if the Subscription
Offering is commenced concurrently with or during the proxy
solicitation of Depositors for the Special Meeting of Depositors
or the Meeting of Shareholders.
VIII. Offering Documents
The Holding Company may commence the Subscription
Offering and, provided that the Subscription Offering has
commenced, may commence the Direct Community Offering
concurrently with or during the proxy solicitation relating to
the Special Meeting of Depositors and the Meeting of
Shareholders. The Holding Company may close the Subscription
Offering before such meetings, provided that the offer and sale
of the Conversion Stock shall be conditioned upon approval of the
Plan at the Special Meeting of Depositors and at the Meeting of
Shareholders. The MHC's and the Savings Bank's proxy
solicitation materials may require Eligible Account Holders,
Supplemental Eligible Account Holders and the Savings Bank
Shareholders to return to the Savings Bank by a reasonable date
certain a postage prepaid card or other written communication
requesting receipt of a Prospectus with respect to the
Subscription Offering, provided that if the Prospectus is not
mailed concurrently with the proxy solicitation materials, the
Subscription Offering shall not be closed until the expiration of
30 days after the mailing of the proxy solicitation materials.
If the Subscription Offering is not commenced within 45 days
after the Special Meeting, the Savings Bank may transmit, not
more that 30 days prior to the commencement of the Subscription
Offering, to each Eligible Account Holder, Supplemental Eligible
Account Holder and other eligible subscribers who had been
furnished with proxy solicitation materials a notice that shall
state that the Savings Bank is not required to furnish a
Prospectus to them unless they return by a reasonable date
certain a postage prepaid card or other written communication
requesting the receipt of the Prospectus.
Prior to commencement of the Subscription Offering, the
Direct Community Offering and the Syndicated Community Offering,
the Holding Company shall file the Registration Statement. The
Holding Company shall not distribute the final Prospectus until
the Registration Statement containing same has been declared
effective by the SEC.
IX.Combined Subscription and Direct Community Offering
Instead of a separate Subscription Offering, all
Subscription Rights may be exercised by delivery of properly
completed and executed Order Forms to the Savings Bank or selling
group utilized in connection with the Direct Community Offering
and the Syndicated Community Offering. If a separate
Subscription Offering is not held, orders for Conversion Stock in
the Direct Community Offering shall first be filled pursuant to
the priorities and limitations stated in Paragraph XI.C. below.
X.Consummation of the Conversion and Reorganization
The effective date of the Conversion and Reorganization
shall be the date upon which the last of the following actions
occurs: (i) the filing of Articles of Merger with the PDS with
respect to the MHC Merger, (ii) the filing of Articles of Merger
with the PDS with respect to the Savings Bank Merger and
(iii) the closing of the issuance of the shares of Conversion
Stock in the Offerings. The filing of Articles of Merger
relating to the MHC Merger and the Savings Bank Merger and the
closing of the issuance of shares of Conversion Stock in the
Offerings shall not occur until all requisite regulatory,
Depositor approval and approval of the shareholders of the
Savings Bank have been obtained, all applicable waiting periods
have expired and sufficient subscriptions and orders for the
Conversion Stock have been received. It is intended that the
closing of the MHC Merger, the Savings Bank Merger and the sale
of shares of Conversion Stock in the Offerings shall occur
consecutively and substantially simultaneously.
After the Conversion and Reorganization, the Savings
Bank will succeed to all the rights, interests, duties and
obligations of the Savings Bank before the Conversion and
Reorganization, including but not limited to all rights and
interests of the Savings Bank in and to its assets and
properties, whether real, personal or mixed. The Savings Bank
will continue to be a member of the Federal Home Loan Bank System
and all its insured savings deposits will continue to be insured
by the FDIC to the extent provided by applicable law.
XI.Conversion Stock Offering
A. Number of Shares
The number of shares of Conversion Stock to be offered
pursuant to the Plan shall be determined initially by the Boards
of Directors of the Primary Parties in conjunction with the
determination of the Purchase Price (as defined in Section XI.B.
below). The number of shares to be offered may be subsequently
adjusted by the Boards of Directors of the Primary Parties prior
to completion of the Offerings.
B. Independent Evaluation and Purchase Price of Conversion
Stock
All shares of Conversion Stock sold in the Conversion
and Reorganization, including shares sold in any Direct Community
Offering, shall be sold at a uniform price per share, referred to
herein as the "Purchase Price." The Purchase Price shall be
determined by the Boards of Directors of the Primary Parties
immediately prior to the simultaneous completion of all such
sales contemplated by this Plan on the basis of the estimated pro
forma market value of the MHC, as converted, and the Savings Bank
at such time. Such estimated pro forma market value shall be
determined for such purpose by an independent appraiser on the
basis of such appropriate factors as deemed relevant by the
appraiser and that are not inconsistent with Pennsylvania law and
the regulations of the FDIC. Immediately prior to the
Subscription Offering, an aggregate subscription price range
shall be established which shall vary from 15% above to 15% below
the average of the minimum and maximum of the estimated price
range. The subscription price (i.e., the per share amount to be
remitted when subscribing for shares of Conversion Stock) shall
then be determined by the Boards of Directors of the Primary
Parties. The subscription price and the number of shares to be
offered may be revised after the completion of the Subscription
Offering with Department and FDIC approval without a
resolicitation of proxies or Order Forms or both.
C. Method of Offering Shares
Subscription Rights shall be issued at no cost to
Eligible Account Holders, Tax-Qualified Employee Stock Benefit
Plans and Supplemental Eligible Account Holders pursuant to
priorities established by this Plan. In order to effect the
Conversion and Reorganization, all shares of Conversion Stock
proposed to be issued in connection with the Conversion and
Reorganization must be sold and, to the extent that shares are
available, no subscriber shall be allowed to purchase less than
25 shares; provided, however, that if the Purchase Price is
greater that $20.00 per share, the minimum number of shares that
must be subscribed for shall be adjusted so that the aggregate
actual purchase price required to be paid for such minimum number
of shares does not exceed $500.00. The priorities established
for the purchase of shares are as follows:
1. Category 1: Eligible Account Holders
a. Each Eligible Account Holder shall receive,
without payment, Subscription Rights entitling such Eligible
Account Holder to purchase that number of shares of
Conversion Stock that is equal to the greater of the maximum
purchase limitation established for the Direct Community
Offering, one-tenth of one percent of the total offering or
15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of
Conversion Stock to be issued by a fraction of which the
numerator is the amount of the Qualifying Deposit of the
Eligible Account Holder and the denominator is the total
amount of Qualifying Deposits of all Eligible Account
Holders.
b. If the allocation made in paragraph a.
results in an oversubscription, shares of Conversion Stock
shall be allocated among subscribing Eligible Account
Holders so as to permit each such account holder, to the
extent possible, to purchase a number of shares of
Conversion Stock sufficient to make his total allocation
equal to 100 shares of Conversion Stock or the total amount
of his subscription, whichever is less. Any shares of
Conversion Stock not so allocated shall be allocated among
the subscribing Eligible Account Holders on an equitable
basis related to the amounts of their respective Qualifying
Deposits as compared to the total Qualifying Deposits of all
Eligible Account Holders.
c. Subscription Rights received by Officers and
directors of the Primary Parties and their Associates, as
Eligible Account Holders, based on their increased deposits
in the Savings Bank in the one-year period preceding the
Eligibility Record Date shall be subordinated to all other
subscriptions involving the exercise of Subscription Rights
pursuant to this Category.
2. Category 2: Tax-Qualified Employee Stock Benefit
Plans
a. Tax-Qualified Employee Stock Benefit Plans
shall receive, without payment, nontransferable Subscription
Rights to purchase in the aggregate up to 8% of the
Conversion Stock, including shares of Conversion Stock to be
issued in the Conversion and Reorganization as result of an
increase in the estimated price range after commencement of
the Subscription Offering and prior to the completion of the
Conversion and Reorganization. The Subscription Rights
granted to Tax-Qualified Employee Stock Benefit Plans shall
be subject to the availability of shares of Conversion Stock
after taking into account the shares of Conversion Stock
purchased by Eligible Account Holders; provided, however,
that in the event the number of shares offered in the
Conversion and Reorganization is increased to an amount
greater that the maximum of the estimated price range as set
forth in the Prospectus ("Maximum Shares"), the
Tax-Qualified Employee Stock Benefit Plans shall have a
priority right to purchase any such shares exceeding the
Maximum Shares up to an aggregate of 8% of the Conversion
Stock. Tax-Qualified Employee Stock Benefit Plans may use
funds contributed by or borrowed from the Holding Company or
the Savings Bank and/or borrowed from an independent
financial institution to exercise such Subscription Rights,
and the Holding Company and the Savings Bank may make
scheduled discretionary contributions thereto, provided that
such contributions do not cause the Holding Company or the
Savings Bank to fail to meet any applicable capital
requirements.
3. Category 3: Supplemental Eligible Account Holders
a. In the event that the Eligibility Record Date
is more that 15 months prior to the date of the latest
amendment to the Conversion Application filed prior to the
later of Department approval or receipt of a letter of
nonobjection from the FDIC then, and only in that event,
each Supplemental Eligible Account Holder shall receive,
without payment, Subscription Rights entitling such
Supplemental Eligible Account Holder to purchase that number
of shares of Conversion Stock that is equal to the greater
of the maximum purchase limitation established for the
Direct Community Offering, one-tenth of one percent of the
total offering or 15 times the product (rounded down to the
next whole number) obtained by multiplying the total number
of shares of Conversion Stock to be issued by a fraction of
which the numerator is the amount of the Qualifying Deposit
of the Supplemental Eligible Account Holder and the
denominator is the total amount of the Qualifying Deposits
of all Supplemental Eligible Account Holders.
b. Subscription Rights received pursuant to this
category shall be subordinated to Subscription Rights
granted to Eligible Account Holders and Tax-Qualified
Employee Stock Benefit Plans.
c. Any Subscription Rights to purchase shares of
Conversion Stock received by an Eligible Account Holder in
accordance with Category 1 shall reduce to the extent
thereof the Subscription Rights to be distributed pursuant
to this Category.
d. In the event of an oversubscription for shares
of Conversion Stock pursuant to this Category, shares of
Conversion Stock shall be allocated among the subscribing
Supplemental Eligible Account Holders so as to permit each
such Supplemental Eligible Account Holder, to the extent
possible, to purchase a number of shares of Conversion Stock
sufficient to make his total allocation (including the
number of shares of Conversion Stock, if any, allocated in
accordance with Category Number 1) equal to 100 shares of
Conversion Stock or the total amount of his or her
subscription, whichever is less. Any shares of Conversion
Stock not so allocated shall be allocated among the
subscribing Supplemental Eligible Account Holders on an
equitable basis, related to the amounts of their respective
Qualifying Deposits as compared to the total Qualifying
Deposits of all subscribing Supplemental Eligible Account
Holders.
D. Direct Community Offering and Syndicated Community
Offering
1. Any shares of Conversion Stock not purchased
through the exercise of Subscription Rights set forth in Category
Nos. 1 through 3 above may be sold by the Holding Company to
Persons under such terms and conditions as may be established by
the Holding Boards of Directors of the Primary Parties with the
concurrence of the Department and the FDIC. The Direct Community
Offering may commence concurrently with or as soon as possible
after the completion of the Subscription Offering and must be
completed within 45 days after completion of the Subscription
Offering, unless extended with the approval of the Department and
the FDIC. No Person may purchase in the Direct Community
Offering more that 1% of the shares of Conversion Stock issued in
the Conversion and Reorganization. No Person, together with
Associates of or Persons Acting in Concert with such Person, may
purchase in the Direct Community Offering more than 2% of the
shares of Conversion Stock issued in the Conversion and
Reorganization. The right to purchase shares of Conversion Stock
under this Category is subject to the right of the Savings Bank
or the Holding Company to accept or reject such subscriptions in
whole or in part. In the event of an oversubscription for shares
in this Category, the shares available shall be allocated among
prospective purchasers pro rata on the basis of the amounts of
their respective orders. The offering price for which such
shares are sold to the general public in the Direct Community
Offering shall be the Purchase Price.
2. Orders received in the Direct Community Offering
first shall be filled up to a maximum of 2% of the Conversion
Stock and thereafter remaining shares shall be allocated on an
equal number of shares basis per order until all orders have been
filled.
3. The Conversion Stock offered in the Direct
Community Offering shall be offered and sold in a manner that
will achieve the widest distribution thereof. Preference shall
be given in the Direct Community Offering first to the Public
Shareholders (who are not Eligible Account Holders or
Supplemental Eligible Account Holders) and then to natural
Persons and trusts of natural Persons residing in the Local
Community.
4. Subject to such terms, conditions and procedures as
may be determined by the Savings Bank and the Holding Company,
all shares of Conversion Stock not subscribed for in the
Subscription Offering or ordered in the Direct Community Offering
may be sold by a syndicate of broker-dealers to the general
public in a Syndicated Community Offering. No Person may
purchase in the Syndicated Community Offering more than 1% of the
shares of Conversion Stock issued in the Conversion and
Reorganization. No Person, together with Associates of or
Persons Acting in Concert with such Person, may purchase in the
Syndicated Community Offering more that 2% of the shares of
Conversion Stock issued in the Conversion and Reorganization.
Each order for Conversion Stock in the Syndicated Community
Offering shall be subject to the absolute right of the Savings
Bank and the Holding Company to accept or reject any such order
in whole or in part either at the time of receipt of an order or
as soon as practicable after completion of the Syndicated
Community Offering. The Savings Bank and the Holding Company may
commence the Syndicated Community Offering concurrently with, at
any time during, or as soon as practicable after the end of the
Subscription Offering and/or Direct Community Offering, provided
that the Syndicated Community Offering must be completed within
45 days after the completion of the Subscription Offering, unless
extended by the Savings Bank and the Holding Company with the
approval of the Department and the FDIC.
5. If for any reason a Syndicated Community Offering
of shares of Conversion Stock not sold in the Subscription
Offering and the Direct Community Offering cannot be effected or
in the event that any insignificant residue of shares of
Conversion Stock is not sold in the Subscription Offering, Direct
Community Offering or Syndicated Community Offering, the Savings
Bank and the Holding Company shall use their best efforts to
obtain other purchasers for such shares in such manner and upon
such conditions as may be satisfactory to the Department and the
FDIC.
6. In the event a Direct Community Offering or
Syndicated Community Offering do not appear feasible, the Savings
Bank and the Holding Company will immediately consult with the
Department and the FDIC to determine the most viable alternative
available to effect the completion of the Conversion. Should no
viable alternative exist, the Savings Bank may terminate the
Conversion with the concurrence of the Department and the FDIC.
E. Limitations Upon Purchases
The following additional limitations and exceptions
shall be imposed upon purchases of shares of Conversion Stock:
1. The maximum number of shares of Conversion
Stock that may be subscribed for or purchased in all
categories in the Conversion and Reorganization by any
Person, when combined with any Exchange Stock received,
shall not exceed 1% of the Conversion Stock issued, except
for the Tax-Qualified Employee Stock Benefit Plans that may
subscribe for up to 8% of the Conversion Stock issued in
addition to any Exchange Stock to which it may be entitled.
2. The maximum number of shares of Conversion
Stock that may be subscribed for or purchased in all
categories in the Conversion and Reorganization by any
Person together with any Associate or any group of Persons
Acting in Concert, when combined with any Exchange Stock
received, shall not exceed 2% of the Conversion Stock
issued, except for the Tax-Qualified Employee Stock Benefit
Plans that may subscribe for up to 8% of the Conversion
Stock issued in addition to any Exchange Stock to which it
may be entitled.
3. Officers and directors of the Primary Parties
and Associates thereof may not purchase in the aggregate
more than 33% of the shares issued in the Conversion and
Reorganization, including any Exchange Stock received.
4. The Boards of Directors of the Primary Parties
will not be deemed to be Associates or a group of Persons
Acting in Concert with other directors or trustees solely as
a result of membership on the Board of Directors.
5. The Boards of Directors of the Primary
Parties, with the approval of the Department and the FDIC
and without further approval of Depositors or shareholders
of the Savings Bank, may, as a result of market conditions
and other factors, increase or decrease the purchase
limitation in Section XI.D. or the number of shares of
Conversion Stock to be sold in the Conversion and
Reorganization. If the Primary Parties increases the
maximum purchase limitations or the number of shares of
Conversion Stock to be sold in the Conversion and
Reorganization, the Primary Parties are only required to
resolicit Persons who subscribed for the maximum purchase
amount and may, in the sole discretion of the Primary
Parties, resolicit certain other large subscribers. If the
Primary Parties decrease the maximum purchase limitations or
the number of shares of Conversion Stock to be sold in the
Conversion and Reorganization, the orders of any Person who
subscribed for the maximum purchase amount shall be
decreased by the minimum amount necessary so that such
Person shall be in compliance with the then maximum number
of shares permitted to be subscribed for by such Person.
Notwithstanding anything to the contrary contained in
this Plan, Public Shareholders will not be required to sell or
divest any Holding Company Common Stock or be limited in
receiving Exchange Stock even if their percentage ownership of
the Savings Bank Common Stock when converted into Exchange Stock
would exceed an applicable purchase limitation.
Each Person purchasing Conversion Stock in the
Conversion and Reorganization shall be deemed to confirm that
such purchase does not conflict with the purchase limitations
under the Plan or otherwise imposed by law, rule or regulation.
In the event that such purchase limitations are violated by any
Person (including any Associate or group of Persons affiliated or
otherwise Acting in Concert with such Person), the Holding
Company shall have the right to purchase from such Person at the
actual Purchase Price per share all shares acquired by such
Person in excess of such purchase limitations or, if such excess
shares have been sold by such Person, to receive from such Person
the difference between the actual Purchase Price per share paid
for such excess shares and the price at which such excess shares
were sold by such Person. This right of the Holding Company to
purchase such excess shares shall be assignable by the Holding
Company.
F. Restrictions On and Other Characteristics of the
Conversion Stock
1. Transferability. Conversion Stock purchased by
Officers and directors of the Primary Parties shall not be sold
or otherwise disposed of for value for a period of one year from
the effective date of Conversion and Reorganization, except for
any disposition (i) following the death of the original purchaser
or (ii) resulting from an exchange of securities in a merger or
acquisition approved by the regulatory authorities having
jurisdiction.
The Conversion Stock issued by the Holding Company to
such Officers and directors shall bear a legend giving
appropriate notice of the one-year holding period restriction.
Said legend shall state as follows:
"The shares evidenced by this certificate are
restricted as to transfer for a period of one
year from the date of this certificate.
These shares may not be transferred prior
thereto without a legal opinion of counsel
that said transfer is permissible under the
provisions of applicable laws and
regulations."
In addition, the Holding Company shall give appropriate
instructions to the transfer agent of the Holding Company Common
Stock with respect to the foregoing restrictions. Any shares of
Holding Company Common Stock subsequently issued as a stock
dividend, stock split or otherwise, with respect to any such
restricted stock, shall be subject to the same holding period
restrictions for such Persons as may be then applicable to such
restricted stock.
2. Subsequent Purchases by Officers and Directors.
Without prior approval of the Department, if applicable, Officers
and directors of the Savings Bank and officers and directors of
the Holding Company, and their Associates, shall be prohibited
for a period of three years following completion of the
Conversion and Reorganization from purchasing outstanding shares
of Holding Company Common Stock, except from a broker or dealer
registered with the SEC. Notwithstanding this restriction,
purchases involving more that 1% of the total outstanding shares
of Holding Company Stock and purchases made and shares held by a
Tax-Qualified or non-Tax-Qualified Employee Stock Benefit Plan
that may be attributable to such directors and Officers may be
made in negotiated transactions without Department permission or
the use of a broker or dealer.
3. Repurchase and Dividend Rights. For a period of
three years following the consummation of the Conversion and
Reorganization, any repurchases of Holding Company Stock by the
Holding Company from any Person shall be subject to the then
applicable rules and regulations and policies of the Department
and the FDIC. The Savings Bank may not declare or pay a cash
dividend on or repurchase any of its Capital Stock if the result
thereof would be to reduce the regulatory capital of the Savings
Bank below the amount required for the liquidation account
described in Paragraph XIV. Further, any dividend declared or
paid on the Capital Stock shall comply with the then applicable
rules and regulations of the Department and the FDIC.
4. Voting Rights. After the Conversion and
Reorganization, holders of Savings Accounts in the Savings Bank
will not have voting rights in the Savings Bank. Exclusive
voting rights with respect to the Holding Company shall be vested
in the holders of Holding Company Common Stock; holders of
Savings Accounts in the Savings Bank will not have any voting
rights in the Holding Company except and to the extent that such
Persons become shareholders of the Holding Company, and the
Holding Company will have exclusive voting rights with respect to
the Capital Stock.
G. Mailing of Offering Materials and Collation of
Subscriptions
The sale of all shares of Conversion Stock offered
pursuant to the Plan must be completed within 24 months after
approval of the Plan at the Special Meeting of Depositors. After
approval of the Plan by the Department and receipt of a letter of
nonobjection from the FDIC and the declaration of the
effectiveness of the Registration Statement by the SEC, the
Holding Company shall distribute Prospectuses and Order Forms for
the purchase of shares of Conversion Stock in accordance with the
terms of the Plan.
The recipient of an Order Form shall be provided not
less than 20 days nor more that 45 days from the date of mailing,
unless extended, to complete, execute and return the Order Form
to the Holding Company or the Savings Bank. Self-addressed,
postage prepaid, return envelopes shall accompany all Order Forms
when they are mailed. Failure of any eligible subscriber to
return a properly completed and executed Order Form within the
prescribed time limits shall be deemed a waiver and a release by
such eligible subscriber of any rights to purchase shares of
Conversion Stock under the Plan.
The sale of all shares of Conversion Stock proposed to
be issued in connection with the Conversion and Reorganization
must be completed within 45 days after the last day of the
Subscription Offering, unless extended by the Holding Company
with the approval of the Department.
H. Method of Payment
Payment for all shares of Conversion Stock may be made
in cash, by check or by money order, or if a subscriber has a
Savings Account(s), such subscriber may authorize the Savings
Bank to charge the subscriber's Savings Account(s). The Savings
Bank shall pay interest at not less than the passbook rate on all
amounts paid in cash or by check or money order to purchase
shares of Conversion Stock in the Subscription Offering from the
date payment is received until the Conversion and Reorganization
is completed or terminated. The Savings Bank is not permitted
knowingly to loan funds or otherwise extend any credit to any
Person for the purpose of purchasing Conversion Stock.
If a subscriber authorizes the Savings Bank to charge
the subscriber's Savings Account(s), the funds shall remain in
the subscriber's Savings Account(s) and shall continue to earn
interest, but may not be used by such subscriber until the
Conversion and Reorganization is completed or terminated,
whichever is earlier. The withdrawal shall be given effect only
concurrently with the sale of all shares of Conversion Stock
proposed to be sold in the Conversion and Reorganization and only
to the extent necessary to satisfy the subscription. The Savings
Bank shall allow subscribers to purchase shares of Conversion
Stock by withdrawing funds from certificate accounts held with
the Savings Bank without the assessment of early withdrawal
penalties, subject to the approval, if necessary, of the
applicable regulatory authorities. In the case of early
withdrawal of only a portion of such account, the certificate
evidencing such account shall be canceled if the remaining
balance of the account is less than the applicable minimum
balance requirement. In that event, the remaining balance shall
earn interest at the passbook rate. This waiver of the early
withdrawal penalty is applicable only to withdrawals made in
connection with the purchase of Conversion Stock under the Plan.
Tax-Qualified Employee Stock Benefit Plans may
subscribe for shares by submitting an Order Form, along with
evidence of a loan commitment from a financial institution or the
Holding Company for the purchase of shares, if applicable, during
the Subscription Offering and by making payment for the shares on
the date of the closing of the Conversion and Reorganization.
I. Undelivered, Defective or Late Order Forms;
Insufficient Payment
If an Order Form (i) is not delivered and is returned
to the Holding Company or the Savings Bank by the United States
Postal Service (or the Holding Company or Savings Bank is unable
to locate the addressee); (ii) is not returned to the Holding
Company or Savings Bank, or is returned to the Holding Company or
Savings Bank after expiration of the date specified thereon;
(iii) is defectively completed or executed or (iv) is not
accompanied by the total required payment for the shares of
Conversion Stock subscribed for (including cases in which the
subscribers' Savings Accounts are insufficient to cover the
authorized withdrawal for the required payment), the Subscription
Rights of the Person to whom such rights have been granted shall
not be honored and shall be treated as though such Person failed
to return the completed Order Form within the time period
specified therein. Alternatively, the Holding Company or Savings
Bank may, but shall not be required to, waive any irregularity
relating to any Order Form or require the submission of a
corrected Order Form or the remittance of full payment for the
shares of Conversion Stock subscribed for by such date as the
Holding Company or Savings Bank may specify. Subscription
orders, once tendered, shall not be revocable. The Holding
Company's and Savings Bank's interpretation of the terms and
conditions of the Plan and of the Order Forms shall be final.
J. Depositors in Non-Qualified States or in Foreign
Countries
The Parties will make reasonable efforts to comply with
the securities laws of all states in the United States in which
persons entitled to subscribe for stock pursuant to the Plan
reside. However, the Parties are not required to offer stock in
the Subscription Offering to any person who resides in a foreign
country or resides in a state of the United States with respect
to which (i) a small number of persons otherwise eligible to
subscribe for shares of Common Stock reside in such state; or
(ii) the Primary Parties determine that compliance with the
securities laws of such state would be impracticable for reasons
of cost or otherwise, including but not limited to a request or
requirement that the Primary Parties or their officers or
directors register as a broker, dealer, salesman or selling
agent, under the securities laws of such state, or a request or
requirement to register or otherwise qualified the Subscription
Rights or Common Stock for sale or submit any filing with respect
thereto in such state. Where the number of persons eligible to
subscribe for shares in one state is small relative to other
states, the Primary Parties will base their decision as to
whether or not to offer the Conversion Stock in such state on a
number of factors, including the size of accounts held by account
holders in the state, the cost of reviewing the registration and
qualification requirements of the state (and of actually
registering or qualifying the shares) or the need to register the
Holding Company, its officers, directors or employees as brokers,
dealers or salesmen.
XII. Post Conversion and Reorganization Filing and Market Making
In connection with the Conversion and Reorganization,
the Holding Company shall register the Conversion Stock with the
SEC pursuant to the Securities Exchange Act of 1934, as amended,
and shall undertake not to deregister such Conversion Stock for a
period of three years there.
The Holding Company shall use its best efforts to
encourage and assist Market Makers to establish and maintain a
market for the shares of Holding Company Common Stock. The
Holding Company shall also use its best efforts to list its stock
on The Nasdaq Stock Market or on a national or regional
securities exchange.
XIII. Status of Savings Accounts and Loans Subsequent to
Conversion and Reorganization
All Savings Accounts shall retain the same status after
Conversion and Reorganization as these accounts had prior to
Conversion and Reorganization. Each Savings Account holder shall
retain, without payment, a withdrawable savings Account(s) after
the Conversion and Reorganization, equal in amount to the
withdrawable value of such holder's Savings Account(s) prior to
Conversion and Reorganization. All Savings Accounts will
continue to be insured by the FDIC up to the applicable limits of
insurance coverage. All loans granted by the Savings Bank shall
retain the same status after the Conversion and Reorganization as
they had prior to the Conversion and Reorganization.
XIV. Liquidation Account
After the Conversion and Reorganization, holders of
Savings Accounts shall not be entitled to share in any residual
assets in the event of liquidation of the Savings Bank. However,
the Savings Bank shall, at the time of the Conversion and
Reorganization, establish a liquidation account in an amount
equal to the amount of dividends with respect to the Savings Bank
Common Stock waived by the MHC, if any, plus the greater of
(i) the Savings Bank's total retained earnings as of the date of
the latest statement of financial condition contained in the
offering circular used in connection with the Savings Bank's
reorganization as a majority owned subsidiary of the MHC, or
(ii) 51.5% of the Savings Bank's total shareholders' equity as of
the date of the latest statement of financial condition contained
in the final Prospectus used in connection with the Conversion
and Reorganization. The function of the liquidation account
shall be to establish a priority on liquidation and, except as
provided in Section XI.F.3. above, the existence of the
liquidation account shall not operate to restrict the use or
application of any of the net worth accounts of the Savings Bank.
The liquidation account shall be maintained by the
Savings Bank subsequent to the Conversion and Reorganization for
the benefit of Eligible Account Holders and Supplemental Eligible
Account Holders who retain their Savings Accounts in the Savings
Bank. Each Eligible Account Holder and Supplemental Eligible
Account Holder shall, with respect to each Savings Account held,
have a related inchoate interest in a portion of the liquidation
account balance ("subaccount").
The initial subaccount balance for a Savings Account
held by an Eligible Account Holder and/or a Supplemental Eligible
Account Holder shall be determined by multiplying the opening
balance in the liquidation account by a fraction of which the
numerator is the amount of such holder's Qualifying Deposit in
the Savings Account and the denominator is the total amount of
the Qualifying Deposits of all Eligible Account Holders and
Supplemental Eligible Account Holders. Such initial subaccount
balance shall not be increased, and it shall be subject to
downward adjustment as provided below.
If the deposit balance in any Savings Account of an
Eligible Account Holder or Supplemental Eligible Account Holder
at the close of business on any annual closing date subsequent to
the Eligibility Record Date is less than the lesser of (i) the
deposit balance in such Savings Account at the close of business
on any other annual closing date subsequent to the Eligibility
Record Date or the Supplemental Eligibility Record Date or
(ii) the amount of the Qualifying Deposit in such Savings Account
on the Eligibility Record Date or the Supplemental Eligibility
Record Date, then the subaccount balance for such Savings Account
shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance.
In the event of a downward adjustment such subaccount balance
shall not be subsequently increased, notwithstanding any increase
in the deposit balance of the related Savings Account If any such
Savings Account is closed, the related subaccount balance shall
be reduced to zero.
In the event of a complete liquidation of the Savings
Bank, each Eligible Account Holder and Supplemental Eligible
Account Holder shall be entitled to receive a liquidation
distribution from the liquidation account in the amount of the
then current adjusted subaccount balance(s) for Savings
Account(s) then held by such holder before any liquidation
distribution may be made to shareholders. No merger,
consolidation, bulk purchase of assets with assumptions of
Savings Accounts and other liabilities or similar transactions
with another Federally-insured institution in which the Savings
Bank is not the surviving institution shall be considered to be a
complete liquidation. In any such transaction, the liquidation
account shall be assumed by the surviving institution.
XV. Directors and Officers of the Savings Bank
The Conversion and Reorganization is not intended to
result in any change in the directors or Officers of the Savings
Bank. Each Person serving as a director of the Savings Bank at
the time of Conversion and Reorganization shall continue to serve
as a member of the Savings Bank's Board of Directors, subject to
the Savings Bank's Articles of Incorporation and Bylaws. The
Persons serving as Officers immediately prior to the Conversion
and Reorganization will continue to serve at the discretion of
the Board of Directors in their respective capacities as Officers
of the Savings Bank. In connection with the Conversion and
Reorganization, the Savings Bank and the Holding Company may
enter into employment agreements on such terms and with such
officers as shall be determined by the Boards of Directors of the
Savings Bank and the Holding Company.
XVI. Executive Compensation
The Savings Bank and the Holding Company may adopt,
subject to any required approvals, executive compensation or
other benefit programs, including but not limited to compensation
plans involving stock options, stock appreciation rights,
restricted stock grants, employee recognition programs and the
like.
XVII. Amendment or Termination of Plan
If necessary or desirable, the Plan may be amended by a
two-thirds vote of the Savings Bank's Board of Directors or the
MHC's Board of Directors, at any time prior to the Special
Meeting of Depositors and the Meeting of Shareholders. At any
time thereafter, the Plan may be amended by a two-thirds vote of
the respective Boards of Directors only with the concurrence of
the Department and the FDIC. The Plan may be terminated by a
two-thirds vote of the Board of Directors at any time prior to
the Special Meeting of Depositors or the Meeting of Shareholders,
and at any time following such meetings with the concurrence of
the Department and the FDIC. In its discretion, the Boards of
Directors of the MHC and the Savings Bank may modify or terminate
the Plan upon the order of the regulatory authorities without a
resolicitation of proxies or another Special Meeting of
Depositors or Meeting of Shareholders.
In the event that mandatory new regulations pertaining
to conversions are adopted by the Department or the FDIC prior to
the completion of the Conversion and Reorganization, the Plan
shall be amended to conform to the new mandatory regulations
without a resolicitation of proxies or another Special Meeting of
Depositors or another Meeting of Shareholders. In the event that
new conversion regulations adopted by the Department or the FDIC
prior to completion of the Conversion and Reorganization contain
optional provisions, the Plan may be amended to utilize such
optional provisions at the discretion of the Board of Directors
without a resolicitation of proxies or another Special Meeting of
Depositors or another Meeting of Shareholders.
By adoption of the Plan, the Depositors and the Savings
Bank shareholders authorize the Boards of Directors of the MHC
and the Savings Bank to amend and/or terminate the Plan under the
circumstances set forth above.
XVIII. Expenses of the Conversion and Reorganization
The Primary Parties shall use their best efforts to
assure that expenses incurred in connection with the Conversion
and Reorganization shall be reasonable.
* * *
<PAGE>
ANNEX A
ARTICLES AND PLAN OF MERGER
This Plan of Merger, dated as of ________________,
1997, is made by and between PSB Mutual Holding Company ("MHC"),
a Pennsylvania state-chartered mutual holding company, having its
principal place of business at 1835 Market Street, Philadelphia,
Pennsylvania 19103, and Pennsylvania Savings Bank ("Savings Bank"
or "Surviving Corporation"), a Pennsylvania state-chartered
savings bank, having its principal place of business at
1835 Market Street, Philadelphia, Pennsylvania 19103
(collectively, the "Constituent Corporations").
WITNESSETH:
WHEREAS, the MHC and the Savings Bank have adopted a
Plan of Conversion from Mutual Holding Company to Stock Holding
Company and Agreement and Plan of Reorganization ("Plan of
Conversion") pursuant to which (i) the MHC will convert to a
Pennsylvania interim stock savings bank and simultaneously merge
with and into the Savings Bank, with the Savings Bank as the
surviving entity ("MHC Merger"), (ii) the Savings Bank and a
newly-formed Pennsylvania interim savings bank will merge,
pursuant to which the Savings Bank will become a wholly-owned
subsidiary of a newly formed stock corporation ("Holding
Company") ("Savings Bank Merger"), and (iii) the Holding Company
will offer shares of its common stock in the manner set forth in
the Plan of Conversion (collectively, the "Conversion and
Reorganization"); and
WHEREAS, the MHC and the Savings Bank desire to provide
for the terms and conditions of the MHC Merger,
NOW, THEREFORE, the MHC and the Savings Bank hereby
agree as follows:
1. EFFECTIVE DATE. The MHC Merger shall become
effective on the date specified in the Articles of Merger
relating to the MHC Merger filed with the Secretary of State of
the Commonwealth of Pennsylvania pursuant to 15 Pa. C.S.A.
Section 1928, or any successor thereto ("Effective Date").
2. THE MHC MERGER AND EFFECT THEREOF. Subject to the
terms and conditions set forth herein and the receipt of all
regulatory approvals of the Conversion and Reorganization, as
defined in the Plan of Conversion, and the expiration of all
applicable waiting periods, the MHC shall convert from the mutual
form to a Pennsylvania interim stock savings bank and
simultaneously merge with and into the Savings Bank, which shall
be the Surviving Corporation. Upon consummation of the MHC
Merger, the Surviving Corporation shall be considered the same
business and corporate entity as each of the Constituent
Corporations and the Surviving Corporation shall be subject to
and be deemed to have assumed all of the property, rights,
privileges, powers, franchises, debts, liabilities, obligations,
duties and relationships of each of the Constituent Corporations
and shall have succeeded to all of each of their relationships,
fiduciary or otherwise, as fully and to the same extent as if
such property, rights, privileges, powers, franchises, debts,
obligations, duties and relationships had been originally
acquired, incurred or entered into by the Surviving Corporation.
In addition, any reference to either of the Constituent
Corporations in any contract or document, whether executed or
taking effect before or after the Effective Date, shall be
considered a reference to the Surviving Corporation if not
inconsistent with the other provisions of the contract or
document; and any pending action or other judicial proceeding to
which either of the Constituent Corporations is a party shall not
be deemed to have abated or to have been discontinued by reason
of the MHC Merger, but may be prosecuted to final judgment, order
or decree in the same manner as if the MHC Merger had not
occurred or the Surviving Corporation may be substituted as a
party to such action or proceeding, and any judgment, order or
decree may be rendered for or against it that might have been
rendered for or against either of the Constituent Corporations if
the MHC Merger had not occurred.
3. CANCELLATION OF SAVINGS BANK COMMON STOCK HELD BY
THE MUTUAL HOLDING COMPANY AND MEMBER INTERESTS; LIQUIDATION
ACCOUNT.
(a) On the Effective Date: (i) each share of
common stock, $1.00 par value per share, of the Savings Bank
("Savings Bank Common Stock") issued and outstanding immediately
prior to the Effective Date and held by the MHC shall by virtue
of the MHC Merger and without any action on the part of the
holder thereof, be canceled, (ii) interests in the MHC of any
person, firm or entity who or which qualified as a member of the
MHC in accordance with its mutual charter and bylaws prior to the
MHC's conversion from mutual to stock form ("Members") shall, by
virtue of the MHC Merger and without any action on the part of
any Member, be canceled, and (iii) the Savings Bank shall
establish a liquidation account on behalf of each member of the
MHC as provided for in the Plan of Conversion.
(b) At or after the Effective Date and prior to
the Savings Bank Merger, each certificate or certificates
theretofore, evidencing issued and outstanding shares of Savings
Bank Common Stock, other that any such certificate or
certificates held by the MHC, which shall be canceled, shall
continue to represent issued and outstanding shares of Savings
Bank Common Stock.
4. RIGHTS OF DISSENT AND APPRAISAL. Holders of the
Savings Bank Common Stock shall have dissenter or appraisal
rights in connection with the MHC Merger pursuant to 7 Pa. C.S.A.
Section 1609.
5. NAME OF SURVIVING CORPORATION. The name of the
Surviving Corporation shall be "Pennsylvania Savings Bank."
6. DIRECTORS OF THE SURVIVING CORPORATION. Upon and
after the Effective Date, in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation and
applicable law, the name of the Surviving Corporation shall be
Pennsylvania Savings Bank. The names of those persons who, upon
and after the Effective Date, shall be directors of the Surviving
Corporation are set forth below. Each such director shall serve
which expires at the annual meeting of shareholders of the
Surviving Corporation in the year set forth after name, and until
a successor is elected and qualified.
Name Term Expires
James F. Kenney 1998
Roseanne Pauciello 1998
Thomas J. Finley, Jr. 1998
S. Michael Palermo 1998
Jane Scarcetti Fumo 1999
Alfonso Tumini 1999
Leonard A. Green 1999
Anthony DiSandro 1999
Sylvia M. DiBona 2000
James W. Eastwood 2000
P. Charles DeRita 2000
Vincent J. Fumo 2000
The address of each such director is 1835 Market
Street, Philadelphia, Pennsylvania 19103.
7. OFFICERS OF THE SURVIVING CORPORATION. Upon and
after the Effective Date, until changed in accordance with the
Articles of Incorporation and Bylaws of the Surviving Corporation
and applicable law, the officers of the Savings Bank immediately
prior to the Effective Date shall be the officers of the
Surviving Corporation.
8. OFFICES. Upon the Effective Date, all offices of
the Savings Bank shall be offices of the Surviving Corporation.
As of the Effective Date, the home office of the Surviving
Corporation shall remain at 1835 Market Street, Philadelphia,
Pennsylvania 19103.
9. ARTICLES OF INCORPORATION AND BYLAWS. On and
after the Effective Date, the Articles of Incorporation of the
Savings Bank as in effect immediately prior to the Effective Date
shall be the Articles of Incorporation of the Surviving
Corporation until amended in accordance with the terms thereof
and applicable law, except that the Articles of Incorporation
shall be amended to provide for the establishment of a
liquidation account in accordance with the Plan of Conversion.
On and after the Effective Date, the Bylaws of the
Savings Bank as in effect immediately prior to the Effective Date
shall be the Bylaws of the Surviving Corporation until amended in
accordance with the terms thereof and applicable law.
10. SHAREHOLDER AND MHC APPROVALS.
(a) At a meeting of members of the MHC held on
__________, there were ____ votes entitled to be cast, ____ votes
cast and ____ votes cast in favor of the Plan and the MHC Merger.
(b) At a meeting of shareholders of the Savings
Bank held on __________, there were ____ votes entitled to be
cast, ____ votes cast and ____ votes cast in favor of the Plan
and the MHC Merger.
11. ABANDONMENT OF PLAN. This Plan of Merger may be
abandoned by either the MHC or the Savings Bank at any time
before the Effective Date in the manner set forth in the Plan of
Conversion.
12. AMENDMENTS. This Plan of Merger may be amended in
the manner set forth in the Plan of Conversion by a subsequent
writing signed by the parties hereto upon the approval of the
Boards of Directors of the Constituent Corporations.
13. SUCCESSORS. This Agreement shall be binding on
the successors of the Constituent Corporations.
14. GOVERNING LAW. This Agreement shall be governed
by and construed in accordance with the laws of the Commonwealth
of Pennsylvania.
IN WITNESS WHEREOF, the MHC and the Savings Bank have
caused this Plan of Merger to be executed by their duly
authorized officers as of the day and year first above written.
PSB MUTUAL HOLDING COMPANY
Attest:
_________________________ By:________________________________
Roseanne Pauciello Anthony DiSandro
Secretary President and Chief Executive
Officer
PENNSYLVANIA SAVINGS BANK
Attest:
_________________________ By:________________________________
Roseanne Pauciello Anthony DiSandro
Secretary President and Chief Executive
Officer
<PAGE>
ANNEX B
ARTICLES AND PLAN OF REORGANIZATION
This Plan of Reorganization, dated as of
_________________, 1997, is made by and among Pennsylvania
Savings Bank ("Savings Bank" or the "Surviving Corporation"), a
Pennsylvania chartered savings bank and majority owned subsidiary
of PSB Mutual Holding Company ("MHC"), a Pennsylvania chartered
mutual holding company; PSB Bancorp, Inc., a Pennsylvania
corporation ("Holding Company"), organized by the Savings Bank,
having its principal place of business at 1835 Market Street,
Philadelphia, Pennsylvania 19103; and Pennsylvania Interim "B"
Savings Bank ("Interim B"); a to-be-formed interim Pennsylvania
stock savings bank.
WITNESSETH
WHEREAS, the Savings Bank has organized the Holding
Company as a first-tier, wholly owned subsidiary for the purpose
of becoming the stock holding company of the Savings Bank upon
completion of the Conversion and Reorganization as defined in the
Plan of Conversion from Mutual Holding Company to Stock Holding
Company and Agreement and Plan of Reorganization ("Plan of
Conversion") adopted by the Boards of Directors of the MHC and
the Savings Bank; and
WHEREAS, the MHC owns as of the date hereof 51.5% of
the outstanding common stock of the saving Savings Bank, par
value $1.00 per share ("Savings Bank Common Stock), will convert
to a state-chartered interim stock savings bank and
simultaneously merge with and into the Savings Bank pursuant to
the Plan of Conversion and the Plan of Merger included as Annex A
thereto (the "MHC Merger"), pursuant to which all shares of
Savings Bank Common Stock held by the MHC will be canceled; and
WHEREAS, the formation of a stock holding company by
the Savings Bank will be facilitated by causing the Holding
Company to become the sole stockholder of a newly-formed interim
stock savings bank ("Interim B") and then merge Interim B with
and into the Savings Bank, pursuant to which the Savings Bank
will reorganize as a wholly-owned subsidiary of the Holding
Company ("Reorganization") and, in connection therewith, all
outstanding shares of Savings Bank Common Stock will be converted
automatically into and become shares of common stock of the
Holding Company, no par value per share ("Holding Company Common
Stock"); and
WHEREAS, Interim B is being organized by the officers
of the Savings Bank as an interim Pennsylvania stock savings bank
with the Holding Company as its sole stockholder in order to
effect the Reorganization; and
WHEREAS, the Savings Bank and Interim B ("Constituent
Corporations") and the Holding Company desire to provide for the
terms and conditions of the Reorganization.
NOW, THEREFORE, the Savings Bank, Interim B and the
Holding Company hereby agree as follows:
1. EFFECTIVE DATE. The Reorganization shall become
effective on the date specified in the articles of merger
relating to the Reorganization filed in Office of the Secretary
of State of the Commonwealth of Pennsylvania pursuant to 7 Pa.
C.S.A. Section 1609 and 15 Pa. C.S.A. Section 1928, or any
successors thereto ("Effective Date").
2. THE MERGER AND EFFECT THEREOF. Subject to the
terms and conditions set forth herein and the prior receipt of
all required regulatory approvals of the Conversion and the
Reorganization, as defined in the Plan of Conversion, and the
expiration of all applicable waiting periods, Interim B shall
merge with and into the Savings Bank, with the Savings Bank as
the Surviving Corporation. Upon consummation of the
Reorganization, the Surviving Corporation shall be considered the
same business and corporate entity as each of the Constituent
Corporations and thereupon and thereafter all the property,
rights, powers and franchises of each of the Constituent
Corporations shall vest in the Surviving Corporation and the
Surviving Corporation shall be subject to and be deemed to have
assumed all of the property, rights, privileges, powers,
franchises, debts, liabilities, obligations and duties of each of
the Constituent Corporations and shall have succeeded to all of
each of their relationships, fiduciary or otherwise, fully and to
the same extent as if such property, rights, privileges, powers,
franchises, debts, obligations, duties and relationships had been
originally acquired, incurred or entered into by the Surviving
Corporation. In addition any reference to either of the
Constituent Corporations in any contract or document, whether
executed or taking effect before or after the Effective Date,
shall be considered a reference to the Savings Bank if not
inconsistent with the other provisions of the contract or
document; and any pending action or other judicial proceeding of
which either of the Constituent Corporations is a party shall not
be deemed to have abated or to have been discontinued by reason
of the Reorganization, but may be prosecuted to final judgment
order or decree in the same manner as if the Reorganization had
not occurred or the Surviving Corporation may be substituted as a
party to such action or proceeding, and any judgment, order or
decree may be rendered for or against it that might have been
rendered for or against either of the Constituent Corporations if
the Reorganization had not occurred.
3. CONVERSION OF STOCK.
(a) On the Effective Date, (i) each share of
Savings Bank Common Stock issued and outstanding immediately
prior to the Effective Date shall, by virtue of the
Reorganization and without any action on the part of the holder
thereof, be converted into the right to receive Holding Company
Common Stock based on the Exchange Ratio, as defined in the Plan
of Conversion, plus the right to receive cash in lieu of any
fractional share interest, as determined in accordance with
Section 3(c) hereof, (ii) each share of common stock, par value
$1.00 per share, of Interim B ("Interim B Common Stock") issued
and outstanding immediately prior to the Effective Date shall, by
virtue of the Reorganization and without any action on the part
of the holder thereof, be converted into one share of Savings
Bank Common Stock, and (ii) each share of Holding Company Common
Stock issued and outstanding immediately prior to the Effective
Date shall, by virtue of the Reorganization and without any
action on the part of the holder thereof, be canceled. By voting
in favor of this Plan of Reorganization, the Holding Company, as
the sole shareholder of Interim B, shall have agreed (i) to issue
shares of Holding Company Common Stock in accordance with the
terms hereof and (ii) to cancel all previously issued and
outstanding shares of Holding Company Common Stock upon the
effectiveness of the Reorganization.
(b) On and after the Effective Date, there shall
be no registrations of transfers on the stock transfer books of
Interim B or the Savings Bank of shares of Interim B Common Stock
or Savings Bank Common Stock which were outstanding immediately
prior to the Effective Date.
(c) Notwithstanding any other provision hereof,
no fractional shares of Holding Company Common Stock shall be
issued to holders of Savings Bank Common Stock. In lieu thereof,
the holder of shares of Savings Bank Common Stock entitled to a
fraction of a share of Holding Company Common Stock shall, at the
time of surrender of the certificate or certificates representing
such holder's shares, receive an amount of cash equal to the
product arrived at by multiplying such fraction of a share of
Holding Company Common Stock by the Purchase Price, as defined in
the Plan of Conversion. No such holder shall be entitled to
dividends, voting rights or any other rights in respect of any
fractional share.
4. EXCHANGE OF SHARES.
(a) At or after the Effective Date, each holder
of a certificate or certificates theretofore evidencing issued
and outstanding shares of Savings Bank Common Stock, upon
surrender of the same to an agent, duly appointed by the Holding
Company ("Exchange Agent"), shall be entitled to receive in
exchange therefor certificates representing the number full
shares of Holding Company Common Stock for which the shares of
Savings Bank Common Stock theretofore represented by the
certificate or certificates so surrendered shall have been
converted as provided in Section 3(a) hereof. The Exchange Agent
shall mail to each holder of record of an outstanding certificate
which immediately prior to the Effective Date evidenced shares of
Savings Bank Common Stock, and which is to be exchanged for
Holding Company Common Stock as provided in Section 3(a) hereof,
a form of letter of transmittal advising such holder of the terms
of the exchange effected by the Reorganization and of the
procedure for surrendering to the Exchange Agent such certificate
in exchange for certificate or certificates evidencing Holding
Company Common Stock.
(b) No holder of a certificate theretofore
representing shares of Savings Bank Common Stock shall be
entitled to receive any dividends in respect of the Holding
Company Common Stock into which such shares shall have been
converted by virtue of the Reorganization until the certificate
representing such shares of Savings Bank Common Stock is
surrendered in exchange for certificates representing shares of
Holding Company Common Stock. In the event that dividends are
declared and paid by the Holding Company in respect of Holding
Company Common Stock after the Effective Date but prior to
surrender of certificates representing shares of Savings Bank
Common Stock, dividends payable in respect of shares of Holding
Company Common Stock not then issued shall accrue (without
interest). Any such dividends shall be paid (without interest)
upon surrender of the certificates representing such shares of
Savings Bank Common Stock. The Holding Company shall be
entitled, after the Effective Date, to treat certificates
representing shares of Savings Bank Common Stock as evidencing
ownership of the number of full shares of Holding Company Common
Stock into which the shares of Savings Bank Common Stock
represented by such certificates shall have been converted
notwithstanding the failure on the part of the holder thereof to
surrender such certificates.
(c) The Holding Company shall not be obligated to
deliver a certificate or certificates representing shares of
Holding Company Common Stock to which a holder of Savings Bank
Common Stock would otherwise be entitled as a result of the
Reorganization until such holder surrenders the certificate or
certificates representing the shares of Savings Bank Common Stock
for exchange as provided in this Section 4, or, in default
thereof, an appropriate Affidavit of Loss and Indemnification
Agreement and/or an indemnity bond as may be required in each
case by the Holding Company. If any certificate evidencing
shares of Holding Company Common Stock is to be issued in a name
other than that in which the Certificate evidencing Savings Bank
Common Stock surrendered in exchanged therefor is registered, it
shall be a condition of the issuance thereof that the certificate
so surrendered shall be properly endorsed and otherwise in proper
form for transfer and that the person requesting such exchange
pay to the Exchange Agent any transfer or other tax required by
reason of the issuance of a certificate for shares of Holding
Company Common Stock in any name other than that of the
registered holder of the certificate surrendered or otherwise
establish to the satisfaction of the Exchange Agent that such tax
has been paid or is not payable.
(d) If, between the date hereof and the Effective
Date, the shares of Savings Bank Common Stock shall be changed
into a different number or class of shares by reason of any
reclassification, recapitalization, split-up, combination,
exchange of shares or readjustment or a stock dividend thereon
shall be declared with a record date within said period, the
Exchange Ratio specified in Section 3(a) hereof shall be adjusted
accordingly.
5. RIGHTS OF DISSENT AND APPRAISAL ABSENT. The
holders of shares of Savings Bank Common Stock shall have
dissenter and appraisal rights in connection with the
Reorganization.
6. NAME OF SURVIVING CORPORATION. The name of the
Surviving Corporation shall be "Pennsylvania Savings Bank."
7. DIRECTORS OF THE SURVIVING CORPORATION. Upon and
after the Effective Date, until changed in accordance with the
Articles of Incorporation and Bylaws of the Surviving Corporation
and applicable law, the number of directors of the Surviving
Corporation shall be 12. The names of those persons who, upon
and after the Effective Date, shall be directors of the Surviving
Corporation are set forth below. Each such director shall serve
for the term which expires at the annual meeting of shareholders
of the Surviving Corporation in the year set forth after his
respective name, and until a successor is elected and qualified.
Name Term Expires
James F. Kenney 1998
Roseanne Pauciello 1998
Thomas J. Finley, Jr. 1998
S. Michael Palermo 1998
Jane Scarcetti Fumo 1999
Alfonso Tumini 1999
Leonard A.Green 1999
Anthony DiSandro 1999
Sylvia M. DiBona 2000
James W. Eastwood 2000
P. Charles DeRita 2000
Vincent J. Fumo 2000
The address of each such director is 1835 Market
Street, Philadelphia, Pennsylvania 19103.
8. OFFICERS OF THE SURVIVING CORPORATION. Upon and
after the Effective Date, until changed in accordance with the
Articles of Incorporation and Bylaws of the Surviving Corporation
and applicable law, the officers of the Savings Bank immediately
prior to the Effective Date shall be the officers of the
Surviving Corporation.
9. OFFICES. Upon the Effective Date, all offices of
the Savings Bank shall be offices of the Surviving Corporation.
As of the Effective Date, the home office of the Surviving
Corporation shall remain at 1835 Market Street, Philadelphia,
Pennsylvania 19103.
10. ARTICLES OF INCORPORATION AND BYLAWS. On and
after the Effective Date, the Articles of Incorporation and
Bylaws of the Savings Bank as in effect immediately prior to the
Effective Date shall be the Articles of Incorporation and Bylaws
of the Surviving Corporation until amended in accordance with the
terms thereof and applicable law.
11. SAVINGS ACCOUNTS. Upon the Effective Date, any
savings accounts of Interim, without reissue, shall be and become
savings accounts of the Surviving Corporation without change in
their respective terms, including, without limitation, maturity
minimum required balances or withdrawal value.
12. STOCK COMPENSATION PLANS. By voting in favor of
this Agreement, the Holding Company shall have approved adoption
of the existing Savings Bank's 1995 Stock Option Plan and the
Savings Bank's 1995 Management Recognition Plan (collectively the
"Plans") as plans of the Holding Company and shall have agreed to
issue Holding Company Common Stock in lieu of Savings Bank Common
Stock pursuant to the terms of such Plan. As of the Effective
Date, rights outstanding under the Plans shall be assumed by the
Holding Company and thereafter shall be rights only for shares of
Holding Company Common Stock, with each such right being for a
number of shares of Holding Company Common Stock equal to the
number of shares of Savings Bank Common Stock that were available
thereunder immediately prior to the Effective Date multiplied by
the Exchange Ratio and the price of each such right shall be
divided by the Exchange Ratio so that the aggregate purchase
price of the Holding Company Common Stock evidenced by the right
is unaffected but with no change in any other term or condition
right. The Holding Company shall make appropriate amendments to
the Plans to reflect the adoption of the Holding Company without
adverse effect upon the rights outstanding thereunder.
13. SHAREHOLDER APPROVAL.
(a) At a meeting of shareholders of the Savings
Bank held on __________, there were ____ votes entitled to be
cast, ____ votes cast and ____ votes cast in favor of the Plan
and this Plan of Reorganization.
(b) The Holding Company, as the sole holder of
the Interim B Common Stock, at a duly convened meeting of its
Board of Directors, unanimously approved the Plan and this Plan
of Reorganization on behalf of Interim B.
14. ABANDONMENT OF PLAN. This Plan of Reorganization
may be abandoned by either the Savings Bank or Interim B at any
time before the Effective Date in the manner set forth in the
Plan of Conversion.
15. AMENDMENTS. This Plan of Reorganization may be
amended m the manner set forth in the Plan of Conversion by a
subsequent writing signed by the parties hereto upon the approval
of the Board of Directors of each of the parties hereto.
16. SUCCESSORS. This Plan of Reorganization shall be
binding on the successors of the parties hereto.
17. GOVERNING LAW. This Agreement shall be governed
by and construed in accordance with the laws of the Commonwealth
of Pennsylvania.
IN WITNESS WHEREOF, the Parties hereto have cause this
Plan of Reorganization to be duly executed on its behalf by its
officers thereunto duly authorized, all as of the date first
above written.
PSB MUTUAL HOLDING COMPANY
Attest:
_________________________ By:________________________________
Roseanne Pauciello Anthony DiSandro
Secretary President and Chief Executive
Officer
PSB BANCORP, INC.
Attest:
_________________________ By:________________________________
Roseanne Pauciello Anthony DiSandro
Secretary President and Chief Executive
Officer
INTERIM "B" SAVINGS BANK
Attest:
_________________________ By:________________________________
Roseanne Pauciello Anthony DiSandro
Corporate Secretary President and Chief Executive
Officer
Exhibit 3.1
<PAGE>
ARTICLES OF INCORPORATION
OF
PSB BANCORP, INC.
FIRST. The name of the Corporation is PSB Bancorp, Inc.
SECOND. The location and post office address of the
Corporation's registered office in this Commonwealth is 11 Penn
Center, Suite 2601, 1835 Market Street, Philadelphia,
Pennsylvania 19103.
THIRD. The purpose of the Corporation is and it shall have
unlimited power to engage in and to do any lawful act concerning
any or all lawful business for which corporations may be
incorporated under provisions of the Business Corporation Law of
1988, the Act approved December, 1988, P.L. 1444, as amended (the
"Pennsylvania Business Corporation Law").
FOURTH. The term of the Corporation's existence is
perpetual.
FIFTH. The aggregate number of shares of capital stock
which the Corporation shall have authority to issue is 20,000,000
shares, divided into two classes consisting of 15,000,000 shares
of common stock without par value ("Common Stock") and 5,000,000
shares of preferred stock, having such par value as the board of
directors shall fix and determine, as provided in Article SIXTH
below ("Preferred Stock").
SIXTH. The Preferred Stock may be issued from time to time
as a class without series or, if so determined by the board of
directors of the Corporation, either in whole or in part, in one
or more series. There is hereby expressly granted to and vested
in the board of directors of the Corporation authority to fix and
determine (except as fixed and determined herein), by resolution,
the par value, voting powers, full or limited, or no voting
powers, and such designations, preferences and relative,
participating, optional or other special rights, if any, and the
qualifications, limitations or restrictions thereof, if any,
including specifically, but not limited to, the dividend rights,
conversion rights, redemption rights and liquidation preferences,
if any, of any wholly unissued series of Preferred Stock (or the
entire class of Preferred Stock if none of such shares have been
issued), the number of shares constituting any such series and
the terms and conditions of the issue thereof. Prior to the
issuance of any shares of Preferred Stock, a statement setting
forth a copy of each such resolution or resolutions and the
number of shares of Preferred Stock of each such class or series
shall be executed and filed in accordance with the Pennsylvania
Business Corporation Law. Unless otherwise provided in any such
resolution or resolutions, the number of shares of capital stock
of any such class or series so set forth in such resolution or
resolutions may thereafter be increased or decreased (but not
below the number of shares then outstanding), by a statement
likewise executed and filed setting forth a statement that a
specified increase or decrease therein had been authorized and
directed by a resolution or resolutions likewise adopted by the
board of directors of the Corporation. In case the number of
such shares shall be decreased, the number of shares so specified
in the statement shall resume the status they had prior to the
adoption of the first resolution or resolutions.
SEVENTH. Each holder of record of Common Stock shall have
the right to one vote for each share of Common Stock standing in
such holder's name on the books of the Corporation. No
shareholder shall be entitled to cumulate any votes for the
election of directors.
EIGHTH. The management, control and government of the
Corporation shall be vested in a board of directors consisting of
not less than four (4) nor more than twenty-five (25) members in
number, as fixed by the board of directors of the Corporation
from time to time. The directors of the Corporation shall be
divided into three classes: Class I, Class II and Class III.
Each Class shall be as nearly equal in number as possible. If
the number of Class I, Class II or Class III directors is fixed
for any term of office, it shall not be increased during that
term, except by a majority vote of the board of directors. The
term of office of the initial Class I directors shall expire at
the annual election of directors by the shareholders of the
Corporation in 1999; the term of office of the initial Class II
directors shall expire at the annual election of directors by the
shareholders of the Corporation in 2000; and the term of office
of the initial Class III directors shall expire at the annual
election of directors by the shareholders of the Corporation in
2001. After the initial term of each Class, the term of office
of each Class shall be three (3) years, so that the term of
office of one class of directors shall expire each year when
their respective successors have been duly elected by the
shareholders and qualified. At each annual election by the
shareholders of the Corporation, the directors chosen to succeed
those whose terms then expire shall be identified as being of the
same class as the directors they succeed. Unless waived by the
board of directors of the Corporation, in order to qualify for
election as a director of the Corporation, a person must have
been a shareholder of record of the Corporation for a period of
time equal to the lesser of (i) three (3) years, or (ii) the time
elapsed since the acquisition of all of the common stock of
Pennsylvania Savings Bank by the Corporation. Shareholders of
another corporation that merges with the Corporation, is acquired
by, or acquires the Corporation, or enters into any similar
transaction with the Corporation shall qualify for election as a
director of the Corporation if such shareholder was a shareholder
of record of the other corporation for a period of time equal to
the lesser of (i) the term of its existence, (ii) three (3)
years, or (iii) the time elapsed since the acquisition of all the
common stock of Pennsylvania Savings Bank by the Corporation.
If, for any reason, a vacancy occurs on the board of directors of
the Corporation, a majority of the remaining directors shall have
the exclusive power to fill the vacancy by electing a director to
hold office for the unexpired term in respect of which the
vacancy occurred. No director of the Corporation shall be
removed from office, as a director, by the vote of shareholders,
unless the votes of shareholders cast in favor of the resolution
for the removal of such director constitute at least a majority
of the votes that all shareholders would be entitled to cast at
an annual election of directors.
NINTH. No holder of any class of capital stock of the
Corporation shall have preemptive rights, and the Corporation
shall have the right to issue and to sell to any person or
persons any shares of its capital stock or any option, warrant or
right to acquire capital stock, or any securities having
conversion or option rights without first offering such shares,
rights or securities to any holder of any class of capital stock
of the Corporation.
TENTH. Except as set forth below, the affirmative vote of
shareholders entitled to cast at least 80 percent (80%) of the
votes that all shareholders of the Corporation are entitled to
cast, and if any class of shares is entitled to vote as a
separate class, the affirmative vote of shareholders entitled to
cast at least a majority of the votes entitled to be cast by the
outstanding shares of such class (or such greater amount as
required by the provisions of these Articles of Incorporation
establishing such class) shall be required to approve any of the
following:
(a) any merger or consolidation of the Corporation
with or into any other corporation;
(b) any share exchange in which a corporation, person
or entity acquires the issued or outstanding shares of
capital stock of the Corporation pursuant to a vote of
shareholders;
(c) any sale, lease, exchange or other transfer of
all, or substantially all, of the assets of the Corporation
to any other corporation, person or entity; or
(d) any transaction similar to, or having similar
effect as, any of the foregoing transactions,
if, in any case, as of the record date for the determination of
shareholders entitled to notice thereof and to vote thereon, such
other corporation, person or entity is the beneficial owner,
directly or indirectly, of shares of capital stock of the
Corporation issued, outstanding and entitled to cast five percent
(5%) or more of the votes which all shareholders of the
Corporation are then entitled to cast.
If any of the transactions identified above in this Article
TENTH is with a corporation, person or entity that is not the
beneficial owner, directly or indirectly, of shares of capital
stock of the Corporation issued, outstanding and entitled to cast
five percent (5%) or more of the votes which all shareholders of
the Corporation are then entitled to cast, then the affirmative
vote of shareholders entitled to cast at least a majority of the
votes which all shareholders are entitled to cast shall be
required to approve any such transaction. An affirmative vote as
provided in the foregoing provisions shall, to the extent
permitted by law, be in lieu of the vote of the shareholders
otherwise required by law.
The board of directors of the Corporation shall have the
power and duty to determine, for purposes of this Article TENTH,
on the basis of information known to the board, if and when such
other corporation, person or entity is the beneficial owner,
directly or indirectly, of shares of capital stock of the
Corporation issued, outstanding and entitled to cast five percent
(5%) or more of the votes which all shareholders of the
Corporation are then entitled to cast, and/or if any transaction
is similar to, or has an effect similar to, any of the
transactions identified above in this Article TENTH. Any such
determination shall be conclusive and binding for all purposes of
this Article TENTH. The Corporation may voluntarily completely
liquidate and/or dissolve only in accordance with all applicable
laws and only if the proposed liquidation and/or dissolution is
approved by the affirmative vote of shareholders entitled to cast
at least 80 percent (80%) of the votes which all shareholders are
entitled to cast. The provisions of this Article TENTH shall not
apply to any transaction which is approved in advance by 66-2/3
percent (66-2/3%) of the members of the board of directors of the
Corporation, at a meeting duly called and held.
ELEVENTH. No action required to be taken or which may be
taken at any annual or special meeting of shareholders of the
Corporation may be taken without a meeting, and the power of the
shareholders of the Corporation to consent in writing to action
without a meeting is specifically denied. The presence, in
person or by proxy, of shareholders entitled to cast at least a
majority of the votes that all shareholders are entitled to cast
shall constitute a quorum of shareholders at any annual or
special meeting of shareholders of the Corporation.
TWELFTH. The authority to make, amend, alter, change or
repeal the By-Laws of the Corporation is hereby expressly and
solely granted to and vested in the board of directors of the
Corporation, subject always to the power of the shareholders to
change such action by the affirmative vote of shareholders of the
Corporation entitled to cast at least 66-2/3 percent (66-2/3%) of
the votes that all shareholders are entitled to cast, except that
provisions of the By-Laws of the Corporation relating to
limitations on directors' liabilities and indemnification of
directors, officers and others may not be amended to increase the
exposure to liability for directors or to decrease the
indemnification of directors, officers and others except by the
affirmative vote of 66-2/3 percent (66-2/3%) of the entire board
of directors or by the affirmative vote of shareholders of the
Corporation entitled to cast at least 80 percent (80%) of the
votes that all shareholders are entitled to cast.
THIRTEENTH. The board of directors of the Corporation, when
evaluating any offer of another party to (a) make a tender or
exchange offer for any equity security of the Corporation,
(b) merge or consolidate the Corporation with another
corporation, (c) purchase or otherwise acquire all or
substantially all of the properties and assets of the
Corporation, or (d) engage in any transaction similar to, or
having similar effects as, any of the foregoing transactions,
shall, in connection with the exercise of its judgment in
determining what is in the best interests of the Corporation and
its shareholders, give due consideration to all relevant factors,
including without limitation the social and economic effects of
the proposed transaction on the employees, suppliers, customers
and other constituents of the Corporation and its subsidiaries
and on the communities in which the Corporation and its
subsidiaries operate or are located, the business reputation of
the other party, and the board of directors' evaluation of the
then value of the Corporation in a freely negotiated sale and of
the future prospects of the Corporation as an independent entity.
FOURTEENTH. If any corporation, person, entity, or group
becomes the beneficial owner, directly or indirectly, of shares
of capital stock of the Corporation having the right to cast in
the aggregate 25 percent (25%) or more of all votes entitled to
be cast by all issued and outstanding shares of capital stock of
the Corporation entitled to vote, such corporation, person,
entity or group shall within thirty (30) days thereafter offer to
purchase all shares of capital stock of the Corporation issued,
outstanding and entitled to vote. Such offer to purchase shall
be at a price per share equal to the highest price paid for
shares of the respective class or series of capital stock of the
Corporation purchased by such corporation, person, entity or
group within the preceding twelve months. If such corporation,
person, entity or group did not purchase any shares of a
particular class or series of capital stock of the Corporation
within the preceding twelve months, such offer to purchase shall
be at a price per share equal to the fair market value of such
class or series of capital stock on the date on which such
corporation, person, entity or group becomes the beneficial
owner, directly or indirectly, of shares of capital stock of the
Corporation having the right to cast in the aggregate 25 percent
(25%) or more of all votes entitled to be cast by all issued and
outstanding capital stock of the Corporation. Such offer shall
provide that the purchase price for such shares shall be payable
in cash. The provisions of this Article FOURTEENTH shall not
apply if 80 percent (80%) or more of the members of the board of
directors of the Corporation approve in advance the acquisition
of beneficial ownership by such corporation, person, entity or
group, of shares of capital stock of the Corporation having the
right to cast in the aggregate 25 percent (25%) or more of all
votes entitled to be cast by all issued and outstanding shares of
capital stock of the Corporation. The provisions of this Article
FOURTEENTH shall be in addition to and not in lieu of any rights
granted under Subchapter E of Chapter 25 of the Pennsylvania
Business Corporation Law and any amendment or restatement of such
section ("Subchapter E"); provided, however, that if the
provisions of this Article FOURTEENTH and Subchapter E are both
applicable in any given instance, the price per share to be paid
for shares of capital stock of the Corporation issued,
outstanding and entitled to vote shall be the higher of the price
per share determined in accordance with this Article FOURTEENTH
or the price per share determined in accordance with the
provisions of Subchapter E.
FIFTEENTH. The Corporation reserves the right to amend,
alter, change or repeal any provision contained in its Articles
of Incorporation in the manner now or hereafter prescribed by
statute and all rights conferred upon shareholders and directors
herein are hereby granted subject to this reservation; provided,
however, that the provisions set forth in Articles SEVENTH,
EIGHTH and TENTH through THIRTEENTH, inclusive, of these Articles
of Incorporation may not be repealed, altered or amended, in any
respect whatsoever, unless such repeal, alteration or amendment
is approved by either (a) the affirmative vote of shareholders of
the Corporation entitled to cast at least 80 percent (80%) of the
votes that all shareholders of the Corporation are then entitled
to cast or (b) the affirmative vote of 80 percent (80%) of the
members of the board of directors of the Corporation and the
affirmative vote of shareholders of the Corporation entitled to
cast at least a majority of the votes that all shareholders of
the Corporation are then entitled to cast.
SIXTEENTH. The name and post office address of the
incorporator is:
Name Address
Kathleen S. Wetzel STEVENS & LEE
111 North Sixth Street
P.O. Box 679
Reading, PA 19603-0679
IN TESTIMONY WHEREOF, the Incorporator has signed these
Articles of Incorporation this 3rd day of October, 1997.
/s/ Kathleen S. Wetzel
Kathleen S. Wetzel,
Incorporator
Exhibit 3.2
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
PSB BANCORP, INC.
ARTICLE I
SHAREHOLDERS
Section 1.01 - Annual Meeting -
(a) General. The annual meeting of shareholders shall be
held on such day each year as may be fixed from time to
time by the board of directors, or, if no day be so
fixed, on the fourth Tuesday of April of each year;
provided, however, that if such day falls upon a legal
holiday, then on the next business day thereafter. If
the annual meeting shall not have been called and held
within six (6) months after the designated time, any
shareholder may call the meeting at any time
thereafter. At each annual meeting of shareholders,
directors shall be elected, reports of the affairs of
the corporation shall be considered, and such other
business as may properly come before the meeting may be
transacted.
(b) Conduct of Meetings. At every meeting of the
shareholders, the Chairman of the Board or, in his
absence, the officer designated by the Chairman of the
Board, or, in the absence of such designation, a
chairman (who shall be one of the officers, if any is
present) chosen by a majority of the members of the
board of directors shall act as chairman of the
meeting. The chairman of the meeting shall have any
and all powers and authority necessary in the
chairman's sole discretion to conduct an orderly
meeting and preserve order and to determine any and all
procedural matters, including imposing reasonable
limits on the amount of time at the meeting taken up in
remarks by any one shareholder or group of
shareholders. In addition, until the business to be
completed at a meeting of the shareholders is
completed, the chairman of a meeting of the
shareholders is expressly authorized to temporarily
adjourn and postpone the meeting from time to time.
The Secretary of the corporation or in his absence, an
assistant secretary, shall act as Secretary of all
meetings of the shareholders. In the absence at such
meeting of the Secretary or assistant secretary, the
chairman of the meeting may appoint another person to
act as Secretary of the meeting.
Section 1.02 - Special Meetings - Special meetings of the
shareholders may be called only in accordance with the articles
of incorporation of the corporation. Upon written request to the
Chief Executive Officer or the Secretary, sent by registered mail
or delivered to such officer in person, of any person or persons
entitled to call a special meeting of the shareholders, it shall
be the duty of the Secretary to fix the time of the meeting,
which shall be held not more than sixty (60) days after the
receipt of the request. If the Secretary neglects or refuses to
fix the time of the meeting, the person or persons duly calling
the meeting may do so.
Section 1.03 - Place of Meeting - All meetings of the
shareholders shall be held at such place, within or outside the
Commonwealth of Pennsylvania, as may be designated by the board
of directors in the notice of meeting. In the absence of such
designation, shareholders' meetings shall be held at the
registered office of the corporation.
Section 1.04 - Notice of Meetings of Shareholders - Except as
provided otherwise in these bylaws or required by law, written
notice of every meeting of the shareholders shall be given by, or
at the direction of, the Secretary or other authorized person, to
each shareholder of record entitled to vote at the meeting at
least ten (10) days prior to the day named for the meeting.
Section 1.05 - Contents - The notice of the meeting shall specify
the place, day and hour of the meeting and, in the case of a
special meeting, the general nature of the business to be
transacted. If the purpose, or one of the purposes, of the
meeting is to consider the adoption, amendment or repeal of the
bylaws, there shall be included in, enclosed with, or accompanied
by, the notice a copy of the proposed amendment or a summary of
the changes to be made by the amendment.
Section 1.06 - Quorum - An annual or special meeting of the
shareholders duly called shall not be organized for the
transaction of business unless a quorum is present. The
presence, in person or by proxy, of shareholders entitled to cast
at least a majority of the votes that all shareholders are
entitled to cast shall constitute a quorum at any annual or
special meeting of shareholders. The shareholders present at a
duly organized annual or special meeting can continue to do
business until adjournment notwithstanding the withdrawal of
enough shareholders to leave less than a quorum.
Section 1.07 - Adjournments - If a meeting of the shareholders
duly called cannot be organized because a quorum has not
attended, the chairman of the meeting or a majority of
shareholders present in person or by proxy and entitled to vote
may adjourn the meeting to such time and place as they may
determine.
At any meeting at which directors are to be elected and which has
previously been adjourned for lack of a quorum, the shareholders
present and entitled to vote, although less than a quorum as
fixed herein, shall nevertheless constitute a quorum for the
purpose of electing directors. In other cases, those
shareholders entitled to vote who attend a meeting of the
shareholders that has been previously adjourned for one or more
periods aggregating at least fifteen (15) days because of an
absence of quorum, although less than a quorum as fixed herein,
shall nonetheless constitute a quorum for the purpose of acting
upon any matter stated in the notice of the meeting, provided the
notice of meeting states that shareholders who attend such
adjourned meeting shall nonetheless constitute a quorum for the
purpose of acting upon the matter.
When a meeting of the shareholders is adjourned, it shall not be
necessary to give any notice of the adjourned meeting or of the
business to be transacted at the adjourned meeting other than by
announcement at the meeting at which the adjournment is taken,
unless the board of directors fixes a new record date for the
adjourned meeting or unless notice of the business to be
transacted was required by the Pennsylvania Business Corporation
Law of 1988, as it may be amended, to be stated in the original
notice of the meeting and such notice had not been previously
provided.
Section 1.08 - Action by Shareholders - Whenever any corporate
action is to be taken by vote of the shareholders, it shall be
authorized upon receiving the affirmative vote of a majority of
the votes cast by all shareholders entitled to vote thereon and,
if any shareholders are entitled to vote thereon as a class, upon
receiving the affirmative vote of the majority of the votes cast
by the shareholders entitled to vote as a class on the matter,
except when a different vote is required by law, or the articles
of incorporation, or these bylaws.
Section 1.09 - Voting Rights of Shareholders - Unless otherwise
provided in the articles of incorporation, every shareholder of
the corporation shall be entitled to one vote for every share
outstanding in the name of the shareholder on the books of the
corporation.
Section 1.10 - Voting and Other Action by Proxy -
(a) General. Every shareholder entitled to vote at a
meeting of shareholders or to express consent or
dissent to corporate action in writing without a
meeting may authorize another person or persons to act
for that shareholder by proxy. The presence of, or
vote or other action at a meeting of shareholders, or
the expression of consent or dissent to corporate
action in writing, by a proxy of a shareholder shall
constitute the presence of, or vote or action by, or
written consent or dissent of the shareholder.
Where two or more proxies of a shareholder are present,
the corporation shall, unless otherwise expressly
provided in the proxy, accept as the vote of all shares
represented thereby the vote cast by a majority of them
and, if a majority of the proxies cannot agree whether
the shares represented shall be voted, or upon the
manner of voting the shares, the voting of the shares
shall be divided equally among those persons.
(b) Minimum Requirements. Every proxy shall be executed in
writing by the shareholder or by the duly authorized
attorney-in-fact of the shareholder and filed with the
Secretary of the corporation. A telegram, telex,
cablegram, datagram or similar transmission from a
shareholder or attorney-in-fact, or a photographic,
facsimile or similar reproduction of a writing executed
by a shareholder or attorney-in-fact:
(1) may be treated as properly executed; and
(2) shall be so treated if it sets forth a
confidential and unique identification number or
other mark furnished by the corporation to the
shareholder for the purposes of a particular
meeting or transaction.
(c) Revocation. A proxy, unless coupled with an interest,
shall be revocable at will, notwithstanding any other
agreement or any provision in the proxy to the
contrary, but the revocation of a proxy shall not be
effective until written notice thereof has been given
to the Secretary of the corporation. An unrevoked
proxy shall not be valid after three years from the
date of its execution unless a longer time is expressly
provided therein. A proxy shall not be revoked by the
death or incapacity of the maker unless, before the
vote is counted or the authority is exercised, written
notice of the death or incapacity is given to the
Secretary of the corporation.
Section 1.11 - Voting by Fiduciaries and Pledgees - Shares of the
corporation standing in the name of a trustee or other fiduciary
and shares held by an assignee for the benefit of creditors or by
a receiver may be voted by the trustee, fiduciary, assignee or
receiver. A shareholder whose shares are pledged shall be
entitled to vote the shares until the shares have been
transferred into the name of the pledgee, or a nominee of the
pledgee, but nothing in this section shall affect the validity of
a proxy given to a pledgee or nominee.
Section 1.12 - Voting of Joint Holders of Shares -
(a) General. Where shares of the corporation are held
jointly or as tenants in common by two or more persons,
as fiduciaries or otherwise:
(1) if only one or more of such persons is present in
person or by proxy, all of the shares standing in
the name of such persons shall be deemed to be
represented for the purpose of determining a
quorum and the corporation shall accept as the
vote of all the shares the vote cast by a joint
owner or a majority of them; and
(2) if the persons are equally divided upon whether
the shares held by them shall be voted or upon the
manner of voting the shares, the voting of the
shares shall be divided equally among the persons
without prejudice to the rights of the joint
owners or the beneficial owners thereof among
themselves.
(b) Exception. If there has been filed with the Secretary
of the corporation a copy, certified by an attorney at
law to be correct, of the relevant portions of the
agreement under which the shares are held or the
instrument by which the trust or estate was created or
the order of court appointing them or of an order of
court directing the voting of the shares, the persons
specified as having such voting power in the document
latest in date of operative effect so filed, and only
those persons, shall be entitled to vote the shares but
only in accordance therewith.
Section 1.13 - Voting by Corporations - Any corporation that is a
shareholder of this corporation may vote by any of its officers
or agents, or by proxy appointed by any officer or agent, unless
some other person, by resolution of the board of directors of the
other corporation or a provision of its articles or bylaws, a
copy of which resolution or provision certified to be correct by
one of its officers has been filed with the Secretary of this
corporation, is appointed its general or special proxy in which
case that person shall be entitled to vote the shares.
Section 1.14 - Determination of Record Date - The board of
directors may fix a time prior to the date of any meeting of
shareholders as a record date for the determination of the
shareholders entitled to notice of, or to vote at, the meeting,
which time, except in the case of an adjourned meeting, shall be
not more than 90 days prior to the date of the meeting of
shareholders. Only shareholders of record on the date fixed
shall be so entitled notwithstanding any transfer of shares on
the books of the corporation after any record date fixed as
provided in this section. The board of directors may similarly
fix a record date for the determination of shareholders of record
for any other purpose. When a determination of shareholders of
record has been made as provided in this section for purposes of
a meeting, the determination shall apply to any adjournment
thereof unless the board fixes a new record date for the
adjourned meeting.
Section 1.15 - Voting List - The officer or agent having charge
of the transfer books for shares of the corporation shall make a
complete list of the shareholders entitled to vote at any meeting
of shareholders, arranged in alphabetical order, with the address
of and the number of shares held by each. The list shall be
produced and kept open at the time and place of the meeting and
shall be subject to the inspection of any shareholder during the
whole time of the meeting for the purposes thereof.
Failure to comply with the requirements of this section shall not
affect the validity of any action taken at a meeting prior to a
demand at the meeting by any shareholder entitled to vote thereat
to examine the list. The original share register or transfer
book, or a duplicate thereof kept in Pennsylvania, shall be prima
facie evidence as to who are the shareholders entitled to examine
the list or share register or transfer book or to vote at any
meeting of shareholders.
Section 1.16 - Judges of Election - In advance of any meeting of
shareholders of the corporation, the board of directors may
appoint judges of election, who need not be shareholders, to act
at the meeting or any adjournment thereof. If judges of election
are not so appointed, the presiding officer of the meeting may,
and on the request of any shareholder shall, appoint judges of
election at the meeting. The number of judges shall be one or
three. No person who is a candidate for office to be filled at
the meeting shall act as a judge of election.
In the event any person appointed as a judge fails to appear or
fails or refuses to act, the vacancy may be filled by appointment
made by the board of directors in advance of the convening of the
meeting or at the meeting by the presiding officer thereof.
The judges of election shall determine the number of shares
outstanding and the voting power of each, the shares represented
at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, receive votes or ballots, hear
and determine all challenges and questions in any way arising in
connection with the right to vote, count and tabulate all votes,
determine the result and do such acts as may be proper to conduct
the election or vote with fairness to all shareholders. The
judge or judges of election shall perform their duties
impartially, in good faith, to the best of their ability and as
expeditiously as is practical. If there are three judges of
election, the decision, act or certificate of a majority shall be
effective in all respects as the decision, act or certificate of
all.
On request of the presiding officer of the meeting, or of any
shareholder, the judge or judges shall make a report in writing
of any challenge or question or matter determined by them, and
execute a certificate of any fact found by them. Any report or
certificate made by them shall be prima facie evidence of the
facts stated therein.
Section 1.17 - No Consent of Shareholders in Lieu of Meeting - No
action required to be taken or which may be taken at any annual
or special meeting of shareholders of the corporation may be
taken without a meeting, and the power of the shareholders to
consent in writing to action without a meeting is specifically
denied.
ARTICLE II
BOARD OF DIRECTORS
Section 2.01 - General - Unless otherwise provided by statute,
all powers vested by law in the corporation shall be exercised by
or under the authority of, and the business and affairs of the
corporation shall be managed under the direction of, the board of
directors of the corporation.
Section 2.02 - Number, Qualifications, Selection and Term of
Office - The board of directors of the corporation shall consist
of at least five (5) and not more than twenty-five (25)
directors, the exact number to be set from time to time by
resolution of the board of directors. Each director shall be a
natural person of full age and not less than one-third of the
directors shall be persons who are not officers or employees of
the corporation or of any entity controlling, controlled by or
under common control with the corporation and who are not
beneficial owners of a controlling interest in the voting stock
of the corporation or of any such entity. No person shall be
eligible for election as a member of the board of directors
following such person's attainment of the age of seventy (70)
years; provided, however, that this provision shall not be
applicable to the initial term as a director of any person
serving on the board of directors on October 1, 1997. Any person
elected to the board of directors prior to attainment of the age
of seventy (70) years shall be permitted to serve as a member of
the board for the full term for which such director was elected.
Each director shall hold office until the expiration of the term
for which he or she was selected and until a successor has been
selected and qualified or until his or her earlier death,
resignation or removal. A decrease in the number of directors
shall not have the effect of shortening the term of any incumbent
director.
Section 2.03 - Nominations for Directors - Nominations for the
election of directors may be made by the board of directors or by
any shareholder entitled to vote for the election of directors.
Nominations made by a shareholder entitled to vote for the
election of directors shall be made by notice in writing,
delivered or mailed by first class United States mail, postage
prepaid, to the Secretary of the corporation not less than ninety
(90) days prior to any meeting of the shareholders called for the
election of directors; provided, however, that if less than
twenty-one (21) days' notice of the meeting is given to
shareholders, such written notice shall be delivered or mailed,
as prescribed, to the Secretary of the corporation not later than
the close of the seventh day following the day on which notice of
the meeting was mailed to shareholders. Notice of nominations
which are proposed by the board of directors shall be given by
the Chairman of the Board or any other appropriate officer. Each
notice of nominations made by a shareholder shall set forth
(i) the name, age, business address and, if known, residence
address of each nominee proposed in such notice, (ii) the
principal occupation or employment of each such nominee, and
(iii) the number of shares of capital stock of the corporation
which are beneficially owned by each such nominee. Upon
receiving a notice of nomination made by a shareholder, the board
of directors shall be entitled to request any other information
relating to such nominee deemed relevant by the board. The
Chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so
determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
Section 2.04 - Election - Except as otherwise provided in these
bylaws, directors of the corporation shall be elected by the
shareholders. In elections for directors, voting need not be by
ballot unless required by vote of the shareholders before the
voting for election of directors begins. The candidates
receiving the highest number of votes, up to the number of
directors to be elected, shall be elected.
Section 2.05 - Vacancies -
(a) Vacancies. Vacancies in the board of directors shall
exist in the case of the happening of any of the
following events: (i) the death or resignation of any
director; (ii) if at any annual or special meeting the
shareholders at which directors are to be elected, the
shareholders fail to elect the full authorized number
of directors to be voted for at that meeting; (iii) an
increase in the number of directors by resolution of
the board of directors; (iv) the removal of a director
by the affirmative vote of shareholders of the
corporation in accordance with the articles of
incorporation of the corporation; or (v) the removal of
a director by the board of directors or a court of
competent jurisdiction in accordance with these bylaws
or otherwise in accordance with law.
(b) Filling Vacancies. Vacancies in the board of
directors, including vacancies resulting from an
increase in the number of directors, may be filled by a
majority vote of the remaining members of the board
though less than a quorum, or by a sole remaining
director, and each person so selected shall be a
director to serve for the balance of the unexpired term
and until his or her successor has been selected and
qualified or until his or her earlier death,
resignation or removal.
Section 2.06 - Removal and Resignation -
(a) Removal by Shareholders. A director may be removed by
shareholders only in accordance with the articles of
incorporation of the corporation.
(b) Removal by Action of the Directors. The board of
directors may declare vacant the office of a director
if that director: (i) has been judicially declared of
unsound mind; (ii) has been convicted of an offense
punishable by imprisonment for a term of more than one
year; (iii) if within sixty (60) days after notice of
his or her election, the director does not accept such
office either in writing or by attending a meeting of
the board of directors and fulfilling such other
requirements of qualification as these bylaws or the
articles of incorporation may provide; or (iv) is
ineligible for any reason to serve as a director of the
Corporation's principal insurance subsidiaries.
(c) Resignation. Any director may resign at any time from
his or her position as a director upon written notice
to the corporation. The resignation shall be effective
upon its receipt by the corporation or at such later
time as may be specified in the notice of resignation.
Section 2.07 - Regular Meetings - The board of directors of the
corporation shall hold an annual meeting for the election of
officers and the consideration of other proper business either as
soon as practical after, and at the same place as, the annual
meeting of shareholders of the corporation, or at such other day,
hour and place as may be fixed by the board. The board of
directors may designate by resolution the day, hour and place,
within or outside the Commonwealth of Pennsylvania, of other
regular meetings.
Section 2.08 - Special Meetings - Special meetings of the board
of directors may be called by the Chairman of the Board, the
Chief Executive Officer, or the President of the corporation or a
majority of the directors then in office. The person or persons
calling the special meeting may fix the day, hour and place,
within or outside the Commonwealth of Pennsylvania, of the
meeting.
Section 2.09 - Notice of Meetings -
(a) General. No notice of any annual or regular meeting of
the board of directors of the corporation need be
given. Written notice of each special meeting of the
board of directors, specifying the place, day and hour
of the meeting, shall be given to each director at
least 24 hours before the time set for the meeting.
Neither the business to be transacted at, nor the
purpose of, any annual, regular or special meeting of
the board need be specified in the notice of the
meeting.
(b) Validation of Meeting Defectively Called or Noticed.
The transactions of any meeting of the board of
directors, however called and noticed or wherever held,
are as valid as though taken at a meeting duly held
after regular call and notice, if a quorum is present
and if, either before or after the meeting, each of the
directors not present signs a waiver of notice. All
such waivers shall be filed with the corporate records
or made a part of the minutes of the meeting.
Attendance of a director at any meeting shall
constitute a waiver of notice of such meeting except
where a director attends a meeting for the express
purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened.
Section 2.10 - Quorum and Action by Directors - A majority of the
directors in office shall be necessary to constitute a quorum for
the transaction of business; provided, however, that at least one
director who is not an officer or employee of the corporation or
of any entity controlling, controlled by or under common control
with the corporation and who is not a beneficial owner of a
controlling interest in the voting stock of the corporation or of
any such entity must be present in order to constitute a quorum.
The acts of a majority of directors present and voting at a
meeting at which a quorum is present shall be the acts of the
board of directors, except where a different vote is required by
law, the articles of incorporation or these bylaws. Every
director shall be entitled to one vote.
Any action required or permitted to be taken at a meeting of the
board of directors may be taken without a meeting if, prior or
subsequent to the action, a consent or consents thereto by all of
the directors in office is filed with the Secretary of the
corporation.
Section 2.11 - Presumption of Assent - A director of the
corporation who is present at a meeting of the board of
directors, or of a committee of the board, at which action on any
corporate matter is taken on which the director is generally
competent to act, shall be presumed to have assented to the
action taken unless his or her dissent is entered in the minutes
of the meeting or unless that director files his or her written
dissent to the action with the Secretary of the meeting before
its adjournment or submits the dissent in writing to the
Secretary of the corporation immediately after the adjournment of
the meeting. Such right to dissent shall not apply to a director
who voted in favor of the action. Nothing in this section shall
bar a director from asserting that the minutes of a meeting
incorrectly omitted that director's dissent if, promptly upon
receipt of a copy of those minutes, the director notified the
Secretary, in writing, of the asserted omission or inaccuracy.
Section 2.12 - Presiding Officer - All meetings of the board of
directors of the corporation shall be called to order and
presided over by the Chairman of the Board of Directors, or in
the Chairman's absence, by the Chief Executive Officer of the
corporation or, in the absence of the Chairman and the Chief
Executive Officer, by a chairman of the meeting elected at such
meeting by the board of directors. The Secretary of the
corporation shall act as Secretary of the board of directors
unless otherwise specified by the board of directors. In case
the Secretary shall be absent from any meeting, the chairman of
the meeting may appoint any person to act as secretary of the
meeting.
Section 2.13 - Committees - The board of directors may, by
resolution adopted by a majority of the directors in office,
establish one or more committees. Each committee is to consist
of at least two (2) directors of the corporation and not less
than two-thirds of the members of each committee shall be persons
who are not officers or employees of the corporation or of any
entity controlling, controlled by or under common control with
the corporation and who are not beneficial owners of a
controlling interest in the voting stock of the corporation or of
any such entity. The Chief Executive Officer shall be an
ex-officio member of each committee of the board of directors,
except the Audit Committee. The board may designate one or more
directors as alternate members of any committee who may replace
any absent or disqualified member at any meeting of the committee
or for purposes of any written action of the committee.
A committee, to the extent provided in the resolution of the
board of directors creating it, shall have and may exercise all
of the powers and authority of the board of directors except that
a committee shall not have any power or authority regarding:
(i) the submission to shareholders of any action requiring the
approval of shareholders under the Pennsylvania Business
Corporation Law of 1988, as it may be amended, (ii) the creation
or filling of vacancies in the board of directors, (iii) the
adoption, amendment or repeal of these bylaws, (iv) the
amendment, adoption or repeal of any resolution of the board of
directors that by its terms is amendable or repealable only by
the board of directors, or (v) any action on matters committed by
the bylaws or resolution of the board of directors to another
committee of the board. Each committee of the board shall serve
at the pleasure of the board.
Section 2.14 - Audit Committee - There shall be a standing
committee of the board of directors to be known as the Audit
Committee. The members of the Audit Committee shall consist
exclusively of directors who are not officers or employees of the
corporation or of any entity controlling, controlled by or under
common control with the corporation and who are not beneficial
owners of a controlling interest in the voting stock of the
corporation or of any such entity. The Audit Committee shall:
(i) make recommendations to the board of directors as to the
independent accountants to be appointed by the board, (ii) review
with the independent accountants the scope of their examination,
(iii) receive the reports of the independent accountants and meet
with the representatives of such accountants for the purpose of
reviewing and considering questions relating to their examination
and such reports, (iv) review the internal accounting and
auditing procedures of the corporation, and (v) perform such
other duties as may be assigned to it from time to time by the
board of directors.
Section 2.15 - Personal Liability of Directors - To the fullest
extent permitted by Pennsylvania law, a director of the
corporation shall not be personally liable for monetary damages
for any action taken, or any failure to take any action, unless
the director has breached or failed to perform the duties of his
or her office under Subchapter B of Chapter 17 of the
Pennsylvania Business Corporation Law of 1988, as it may be
amended, and such breach or failure to perform constitutes self-
dealing, willful misconduct or recklessness; provided, however,
that the foregoing provision shall not eliminate or limit (i) the
responsibility or liability of that director under any criminal
statute, or (ii) the liability of a director for the payment of
taxes according to local, state or federal law. Any repeal,
modification or adoption of any provision inconsistent with this
section shall be prospective only, and neither the repeal or
modification of this bylaw nor the adoption of any provision
inconsistent with this bylaw shall adversely affect any
limitation on the personal liability of a director of the
corporation existing at the time of such repeal or modification
or the adoption of such inconsistent provision.
ARTICLE III
OFFICERS
Section 3.01 - Officers and Qualifications - The corporation
shall have a Chairman of the Board, a Chief Executive Officer, a
President, a Secretary, and a Treasurer, each of whom shall be
elected or appointed by the board of directors. The board may
also elect one or more vice presidents, and such other officers
and assistant officers as the board deems necessary or advisable.
All officers shall be natural persons of full age. Any two or
more offices may be held by the same person. It shall not be
necessary for officers to be directors of the corporation.
Officers of the corporation shall have such authority and perform
such duties in the management of the corporation as is provided
by or under these bylaws or in the absence of controlling
provisions in these bylaws as is determined by or under
resolutions or orders of the board of directors.
Section 3.02 - Election- Term and Vacancies - The officers and
assistant officers of the corporation shall be elected by the
board of directors at the annual meeting of the board or from
time to time as the board shall determine, and each officer shall
hold office for one (1) year and until his or her successor has
been duly elected and qualified or until that officer's earlier
death, resignation or removal. A vacancy in any office occurring
in any manner may be filled by the board of directors and, if the
office is one for which these bylaws prescribe a term, shall be
filled for the unexpired portion of the term.
Section 3.03 - Subordinate Officers, Committees and Agents - The
board of directors may from time to time elect such other
officers and appoint such committees, employees or other agents
as the business of the corporation may require, including one or
more assistant secretaries, and one or more assistant treasurers,
each of whom shall hold office for such period, have such
authority, and perform such duties as are provided in these
bylaws or as the board of directors may from time to time
determine. The board of directors may delegate to any officer or
committee the power to elect subordinate officers and to retain
or appoint employees or other agents, or committees thereof and
to prescribe the authority and duties of such subordinate
officers, committees, employees or other agents.
Section 3.04 - Removal; Resignation and Bonding -
(a) Removal. Any officer or agent of the corporation may
be removed by the board of directors with or without
cause, but such removal shall be without prejudice to
the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall
not of itself create contract rights.
(b) Resignation. Any officer may resign at any time upon
written notice to the corporation. The resignation
shall be effective upon its receipt by the corporation
or at such later time as may be specified in the notice
of resignation.
(c) Bonding. The corporation may secure the fidelity of
any or all of its officers by bond or otherwise.
Section 3.05 - Chairman of the Board - The Chairman of the Board
of Directors of the corporation, if one is elected, shall preside
at all meetings of the shareholders and of the directors at which
he or she is present, and shall have such authority and perform
such other duties as the board of directors may from time to time
designate.
Section 3.06 - Chief Executive Officer - The Chief Executive
Officer shall, in the absence of the Chairman of the Board,
preside at all meetings of the shareholders and of the board of
directors at which he or she is present. Subject to the control
of the board of directors of the corporation and, within the
scope of their authority, any committees thereof, the Chief
Executive Officer shall (a) have general and active management of
all the business, property and affairs of the corporation,
(b) see that all orders and resolutions of the board of directors
and its committees are carried into effect, (c) appoint and
remove subordinate officers and agents, other than those
appointed or elected by the board of directors, as the business
of the corporation may require, (d) have custody of the corporate
seal, or entrust the same to the Secretary, (e) act as the duly
authorized representative of the board in all matters, except
where the board has formally designated some other person or
group to act, (f) sign, execute and acknowledge, in the name of
the corporation, deeds, mortgages, bonds, contracts or other
instruments authorized by the board of directors, except in cases
where signing and execution thereof shall be expressly delegated
by the board of directors, or by these bylaws, to some other
officer or agent of the corporation, and (g) in general perform
all the usual duties incident to the office of Chief Executive
Officer and such other duties as may be assigned to such person
by the board of directors.
Section 3.07 - President - The President shall perform the duties
of Chief Executive Officer either when he has been chosen as
Chief Executive Officer or when the Chief Executive Officer is
absent or unable to perform the duties of his office. The
President shall have such other powers and perform such other
duties as from time to time as may be prescribed by him by the
board of directors or prescribed by the bylaws.
Section 3.08 - Vice Presidents - Each vice president, if any,
shall perform such duties as may be assigned to him or her by the
board of directors or the Chief Executive Officer. One vice
president shall be designated by the board of directors to
perform the duties of the Chief Executive Officer, in the event
of the absence or disability of the Chief Executive Officer.
Section 3.09 - Secretary - The Secretary shall (a) keep or cause
to be kept the minutes of all meetings of the shareholders, the
board of directors, and any committees of the board of directors
in one or more books kept for that purpose, (b) have custody of
the corporate records, stock books and stock ledgers of the
corporation, (c) keep or cause to be kept a register of the
address of each shareholder, which address has been furnished to
the Secretary by the shareholder, (d) see that all notices are
duly given in accordance with law, the articles of incorporation,
and these bylaws, and (e) in general perform all the usual duties
as may be assigned to him or her by the board of directors or the
Chief Executive Officer.
Section 3.10 - Assistant Secretary - The Assistant Secretary, if
any, or Assistant Secretaries if more than one, shall perform the
duties of the Secretary in his or her absence and shall perform
other duties as the board of directors, the Chief Executive
Officer or the Secretary may from time to time designate.
Section 3.11 - Treasurer - The Treasurer shall have general
supervision of the fiscal affairs of the corporation and shall be
the Chief Financial Officer of the corporation. The Treasurer
shall, with the assistance of the Chief Executive Officer and
managerial staff of the corporation: (a) see that a full and
accurate accounting of all financial transactions is made;
(b) invest and reinvest the capital funds of the corporation in
such manner as may be directed by the board of directors, unless
that function shall have been delegated to a nominee or agent;
(c) deposit or cause to be deposited in the name and to the
credit of the corporation, in such depositories as the board of
directors shall designate, all monies and other valuable effects
of the corporation not otherwise employed; (d) prepare any
financial reports that may be requested from time to time by the
board of directors; (e) cooperate in the conduct of any annual
audit of the corporation's financial records by certified public
accountants duly appointed by the board of directors; and (f) in
general perform all the usual duties incident to the office of
treasurer and such other duties as may be assigned to him or her
by the board of directors or the Chief Executive Officer.
Section 3.12 - Officer Salaries - Unless otherwise provided by
the board of directors of the corporation, the salaries of each
of the officers elected by the board of directors shall be fixed
from time to time by the board of directors and the salaries of
all other officers of the corporation shall be fixed from time to
time by the Chief Executive Officer or such other person as may
be designated from time to time by the Chief Executive Officer or
the board of directors.
No officer shall be prevented from receiving such salary or other
compensation by reason of the fact that the officer is also a
director of the corporation.
ARTICLE IV
SHARE CERTIFICATES AND TRANSFERS
Section 4.01 - Share Certificates - Share certificates shall be
in such form as shall be approved by the board of directors and
shall state: (i) that the corporation is incorporated under the
laws of the Commonwealth of Pennsylvania, (ii) the name of the
person to whom issued, and (iii) the number and class of shares
and the designation of the series, if any, that the share
certificate represents.
The share register or transfer books and blank share certificates
shall be kept by the Secretary or by any transfer agent or
registrar designated by the board of directors for that purpose.
Section 4.02 - Issuance - The share certificates of the
corporation shall be numbered and registered in the share
register or transfer books of the corporation as they are issued.
They shall be signed on behalf of the corporation by the
President or a vice president and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer;
but where a certificate is signed by a transfer agent or a
registrar, the signature of any corporate officer upon the
certificate may be a facsimile, engraved or printed. In case any
officer who has signed, or whose facsimile signature has been
placed upon, any share certificate shall have ceased to be such
officer because of death, resignation or otherwise, before the
certificate is issued, it may be issued with the same effect as
if the officer had not ceased to be such at the date of its
issue. The provisions of this section shall be subject to any
inconsistent or contrary agreement at the time between the
corporation and any transfer agent or registrar.
Section 4.03 - Transfer of Shares - Transfer of shares shall be
made on the books of the corporation upon surrender of the
certificates therefor, endorsed by the person named in the
certificate or by his attorney, lawfully constituted in writing.
No transfer shall be made which is inconsistent with law.
Section 4.04 - Lost, Destroyed, Mutilated or Stolen
Certificates - If the registered owner of a share certificate
claims that the security has been lost, destroyed, mutilated or
wrongfully taken, another may be issued in lieu thereof in a
manner and upon such terms as the board of directors may
authorize and shall be issued in place of the original security,
in accordance with law, if the owner: (a) so requests before the
corporation has notice that the security has been acquired by a
bona fide purchaser; (b) files with the corporation, if requested
by the corporation, a sufficient indemnity bond; and
(c) satisfies any other reasonable requirements imposed by the
corporation.
ARTICLE V
NOTICE, WAIVERS, AND MEETINGS
Section 5.01 - Manner of Giving Notice - Whenever written notice
is required to be given to any person under the provisions of the
Pennsylvania Business Corporation Law of 1988, as it may
hereafter be amended, or by the articles of incorporation or
these bylaws, it may be given to the person either personally or
by sending a copy of it by first class or express mail, postage
prepaid; or by telegram (with messenger service specified), telex
or TWX (with answerback received) or courier service, charges
prepaid; or by facsimile transmission, to the shareholder's
address (or to shareholder's telex, TWX, or facsimile number)
appearing on the books of the corporation; or, in the case of
directors, supplied by the director to the corporation for the
purpose of notice. Notice sent by mail, by telegraph or by
courier service shall be deemed to have been given to the person
entitled thereto when deposited in the United States mail or with
a telegraph office or courier service for delivery to that
person, or in the case of telex or TWX, when dispatched or in the
case of fax, when received except that, in the case of directors,
notice sent by regular mail shall be deemed to have been given 48
hours after being deposited in the United States mail or, in the
case of telex, TWX, or facsimile, when dispatched.
A notice of meeting shall specify the place, day and hour of the
meeting and any other information required by any other provision
of the Business Corporation Law of 1988, the articles of
incorporation or these bylaws.
Section 5.02 - Waiver of Notice - Whenever any written notice is
required to be given by statute or the articles of incorporation
or these bylaws, a waiver of the notice in writing, signed by the
person or persons entitled to the notice, whether before or after
the time stated in it, shall be deemed equivalent to the giving
of the notice. Neither the business to be transacted at, nor the
purpose of, a meeting need be specified in the waiver of notice
of such meeting. Attendance of a person, either in person or by
proxy, at any meeting shall constitute a waiver of notice of the
meeting, except where the person attends the meeting for the
express purpose of objecting, at the beginning of the meeting, to
the transaction of any business because the meeting was not
lawfully called or convened.
Section 5.03 - Modification of Proposal - Whenever the language
of a proposed resolution is included in a written notice of a
meeting required to be given under the provisions of the Business
Corporation Law of 1988, as it may be amended, or the articles
of incorporation or these bylaws, the meeting considering the
resolution may without further notice adopt it with such
clarifying or other amendments as do not enlarge its original
purpose.
Section 5.04 - Use of Conference Telephone and Similar
Equipment - One of more persons may participate in a meeting of
the directors, or of any committee of directors, by means of
conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each
other. Such participation shall constitute presence in person at
the meeting.
ARTICLE VI
INDEMNIFICATION AND INSURANCE
Section 6.01 - Indemnification -
(a) Indemnification of Directors and Officers. The
Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any
threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or
investigative (including, without limitation, actions
by or in the right of the Corporation), by reason of
the fact that such person is or was a director or
officer of the Corporation, or is or was serving at the
request of the Corporation as a director, officer,
employee, or agent of another corporation, partnership,
joint venture, trust or other enterprise, against
expenses (including attorneys' fees), amounts paid in
settlement, judgments, and fines actually and
reasonably incurred by such person in connection with
such action, suit, or proceeding; provided, however,
that no indemnification shall be made in any case where
the act or failure to act giving rise to the claim for
indemnification is determined by a court to have
constituted willful misconduct or recklessness.
(b) Indemnification of Others. The corporation may, at its
discretion, indemnify any person who was or is a party
or is threatened to be made a party to any threatened,
pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or
investigative (including, without limitation, actions
by or in the right of the corporation), by reason of
the fact that such person is or was an employee or
agent of the Corporation who is not entitled to rights
under Section 6.01(a) hereof, or such person is or was
serving at the request of the Corporation as an
employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against
expenses (including attorneys' fees), amounts paid in
settlement, judgments, and fines actually and
reasonably incurred by such person in connection with
such action, suit, or proceeding; provided, however,
that no indemnification shall be made in any case where
the act or failure to act giving rise to the claim for
indemnification is determined by a court to have
constituted willful misconduct or recklessness.
(c) Advancing Expenses. Expenses (including attorneys'
fees) incurred in defending a civil or criminal action,
suit, or proceeding shall be paid by the corporation in
advance of the final disposition of such action, suit,
or proceeding upon receipt of an undertaking by or on
behalf of the director, officer, employee, or agent to
repay such amount if it shall be ultimately determined
that he is not entitled to be indemnified by the
corporation as authorized in this Article Six.
(d) Rights Not Exclusive. The indemnification and
advancement of expenses provided by this Article Six
shall not be deemed exclusive of any other right to
which persons seeking indemnification and advancement
of expenses may be entitled under any agreement, vote
of shareholders or disinterested directors, or
otherwise, both as to actions in such persons' official
capacity and as to their actions in another capacity
while holding office, and shall continue as to a person
who has ceased to be a director, officer, employee, or
agent and shall inure to the benefit of the heirs,
executors, and administrators of such person.
(e) Insurance; Other Security. The corporation may
purchase and maintain insurance on behalf of any
person, may enter into contracts of indemnification
with any person, may create a fund of any nature (which
may, but need not be, under the control of a trustee)
for the benefit of any person, and may otherwise secure
in any manner its obligations with respect to
indemnification and advancement of expenses, whether
arising under this Article Six or otherwise, to or for
the benefit of any person, whether or not the
corporation would have the power to indemnify such
person against such liability under the provisions of
this Article Six.
Section 6.02 - Contract Rights; Amendment or Repeal - All rights
under this Article Six shall be deemed a contract between the
corporation and the indemnified representative pursuant to which
the corporation and each indemnified representative intend to be
legally bound. Any repeal, amendment or modification hereof
shall be prospective only and shall not affect any rights or
obligations then existing.
Section 6.03 - Reliance on Provisions - Each person who shall act
as an indemnified representative of the corporation shall be
deemed to be doing so in reliance upon the rights provided by
this Article Six.
Section 6.04 - Interpretation - The provisions of this Article
are intended to constitute bylaws authorized by 15 Pa. C.S.
Section 1746.
ARTICLE VII
MISCELLANEOUS
Section 7.01 - Registered Office - The registered office of the
corporation, required by law to be maintained in the Commonwealth
of Pennsylvania, may be, but need not be, the principal place of
business of the corporation. The address of the registered
office may be changed from time to time by the board of directors
of the corporation.
Section 7.02 - Other Offices - The corporation may have
additional offices and business in such places, within or outside
the Commonwealth of Pennsylvania, as the board of directors of
the corporation may designate or as the business of the
corporation may require.
Section 7.03 - Corporate Seal - The corporation may have a
corporate seal, which shall have inscribed on it the name of the
corporation, the year of organization, and the words "Corporate
Seal--Pennsylvania" or such inscription as the board of directors
of the corporation may determine. The seal may be used by
causing it or a facsimile of it to be impressed or affixed, or in
any manner reproduced.
Section 7.04 - Fiscal Year - The fiscal year of the corporation
shall be the calendar year.
Section 7.05 - Checks - All checks, notes, bills of exchange or
other orders in writing shall be signed by such person or persons
as the board of directors or, any person authorized by resolution
of the board of directors may from time to time designate.
Section 7.06 - Contracts - Except as otherwise provided in the
Business Corporation Law of 1988, as it may be amended, in the
case of transactions that require action by the shareholders, the
board of directors may authorize any officer or agent to enter
into any contract or to execute or deliver any instrument on
behalf of the corporation, and such authority may be general or
confined to specific instances.
Any note, mortgage, evidence of indebtedness, contract or other
document, or any assignment or endorsement thereof, executed or
entered into between the corporation and any other person, when
signed by one or more officers or agents having actual or
apparent authority to sign it, or by the Chief Executive Officer,
the President or a vice president and the Secretary or Assistant
Secretary or Treasurer or Assistant Treasurer of the corporation,
shall be held to have been properly executed for and on behalf of
the corporation, without prejudice to the rights of the
corporation against any person who shall have executed the
instrument in excess of his or her actual authority.
Section 7.07 - Amendment of Bylaws - These bylaws may be amended,
altered, changed or repealed as provided in the articles of
incorporation or the Pennsylvania Business Corporation Law of
1988. Any change in the bylaws shall take effect when adopted
unless otherwise provided in the resolution effecting the change.
Section 7.08 - Severability - If any provision of these bylaws or
the application thereof to any person or circumstance shall be
invalid or unenforceable to any extent, the remainder of these
bylaws and the application of such provisions to other persons or
circumstances shall not be affected thereby and shall be deemed
to be applicable to the greatest extent permitted by law.
Exhibit 5.2
<PAGE>
RP FINANCIAL, L.C.
FINANCIAL INDUSTRY CONSULTANTS
October 6, 1997
Board of Directors
FSB Mutual Holding Company
Pennsylvania Savings Bank
1835 Market Street
Philadelphia, Pennsylvania 19103
Gentlemen:
We hereby consent to the use of our firm's name in the
Application for Conversion of PSB Mutual Holding Company, the
mutual holding company for Pennsylvania Savings Bank,
Philadelphia, Pennsylvania and any amendments thereto, in the
Form 18(c) and any amendments thereto, in the Form SB-2
Registration Statement and any amendments thereto and in the Form
FRY-1 for PSB Bancorp, Inc. We also hereby consent to the
inclusion of, summary of and references to our Appraisal Report
in such filings including the Prospectus of PSB Bancorp, Inc.
Sincerely,
RP FINANCIAL, L.C.
/s/ William E. Pommerening
William E. Pommerening,
Chief Executive Officer
Washington Headquarters
Rosslyn Center
1700 North Moore Street
Suite 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax No.: (703) 528-1788
Exhibit 21.1
<PAGE>
SUBSIDIARIES
Pennsylvania Savings Bank
TransNational Mortgage Corporation
PSA Service Corp.
PSA Financial Corp.
PSA Consumer Discount Company
Exhibit 23.2
<PAGE>
Stockton Bates
&
Company, P.C.
Certified Public Accountants
Consent of Independent Auditors
We hereby consent to the inclusion of our Independent
Auditor's Reports dated February 14, 1997 and October 27, 1995
pertaining to the financial statements of Pennsylvania Saving's
Bank and PSB Mutual Holding Company for the years ended December
31, 1996 and September 30, 1995, respectively, in the Notice to
Effect a Mutual Holding Company Conversion to Stock Holding
Company and Agreement and Plan of Reorganization to be filed by
Pennsylvania Savings Bank of PSB Mutual Holding Company with the
Pennsylvania Department of Banking and the Federal Deposit
Insurance Corporation and for use in the Registration Statement
on Form SB-2 to be filed with the Securities and Exchange
Commission by PSB Bancorp, Inc.
We also consent to the reference to our Firm under the
caption "Expert".
/s/ Stockton Bates & Company, P.C.
Certified Public Accountants
Phildelphia, Pennsylvania
October 7, 1997
42 South 15th Street, Suite 600; Philadelphia, Pennsylvania
19102;
215.241.7500 Fax 215.567.3813
Offices in Lancaster and Hershey, Pennsylvania. Member of the
American Group of CPA Firms with Worldwide Affiliations
Exhibit 23.3
<PAGE>
RP FINANCIAL, L.C.
Financial Services Industry Consultants
October 6, 1997
Board of Directors
PSB Mutual Holding Company
Pennsylvania Savings Bank
1835 Market Street
Philadelphia, Pennsylvania 19103
RE:Plan of Conversion; Subscription Rights
Gentlemen:
All capitalized terms not otherwise defined in this letter
have the meanings given such terms in the Plan of Conversion (the
"Plan") adopted by the Boards of Directors of Pennsylvania
Savings Bank (the "Bank") and PSB Mutual Holding Company (the
"Mutual Holding Company"). Pursuant to the Plan, PSB Bancorp,
Inc. (the "Holding Company") will offer and sell the Conversion
Shares.
We understand that "Subscription Rights" to purchase the
Conversion Shares are to be issued to: (i) Eligible Account
Holders; (ii) the ESOP; and, (iii) Supplemental Eligible Account
Holders, collectively referred to as the "Recipients." Based
solely upon our observation that the Subscription Rights will be
available to such Recipients without cost, will be legally non-
transferable and of short duration, and will afford the
Recipients the right only to purchase shares of Conversion Shares
at the same price as will be paid by members of the general
public in the Community Offering, but without undertaking any
independent investigation of state or federal law or the position
of the Internal Revenue Service with respect to this issue, we
are of the belief that, pursuant to our valuation of the
Subscription Rights:
(1) the Subscription Rights will have no ascertainable
market value; and,
(2) the price at which the Subscription Rights are
exercisable will not be more or less than the pro forma
market value of the shares upon issuance.
Changes in the local and national economy, the legislative
and regulatory environment, the stock market, interest rates, and
other external forces (such as natural disasters or significant
world events) may occur from time to time, often with great
unpredictability and may materially impact the value of thrift
stocks as a whole or the Holding Company's value alone.
Accordingly, no assurance can be given that persons who subscribe
to shares of Conversion Shares in the conversion will thereafter
be able to buy or sell such shares at the same price paid in the
Subscription Offering.
Sincerely,
/s/ William E. Pommerening
William E. Pommerening
Chief Executive Officer
Washington Headquarters
Rosslyn Center
1700 North Moore Street
Suite 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax: (703) 528-1788
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